[LOGO OF ARCHSTONE]
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Filed Pursuant to Rule to 424(b)(3)
Registration No. 333-63734 [Logo of Charles E. Smith]
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(1) Archstone Communities Trust, which we refer to as
Archstone, will reorganize into an umbrella partnership real estate investment trust, or UPREIT, structure through one of two methods of reorganization, as described more fully in this joint proxy
statement/prospectus;
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(2) Charles E. Smith Residential Realty, Inc., which we refer to
as Smith Residential, will merge with and into Archstone-Smith Trust, which we refer to as Archstone-Smith, a recently organized Maryland REIT created to facilitate the merger which will become the parent company of Archstone
as part of the reorganization of Archstone into an UPREIT structure, with Archstone-Smith as the surviving entity; and
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(3) Charles E. Smith Residential Realty L.P., which we refer to as
Smith Partnership, through which Smith Residential holds substantially all of its assets and conducts all of its business, will merge with and into Archstone, with Archstone as the surviving entity which will continue under the new name
Archstone-Smith Operating Trust.
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For Archstone:
October 29, 2001 at 9:00 a.m., local time
Hyatt Regency Tech Center
7800 East Tufts Avenue
Denver, Colorado 80237
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For Smith Residential:
October 29, 2001 at 9:30 a.m., local time
Potomac Ballroom
Crystal City Marriott Hotel
1999 Jefferson Davis Highway
Arlington, Virginia 22202
EACH VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the merger or passed
upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated September 20, 2001 and it is first being mailed on or about September 25, 2001.
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1. To consider and vote on the approval of an
amendment to the amended and restated declaration of trust of Archstone Communities Trust to clarify the meaning of two terms used in the declaration of trust as described in the accompanying joint proxy statement/prospectus.
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2. To consider and vote on the approval of the
reorganization of Archstone into an umbrella partnership real estate investment trust, or UPREIT, structure through one of two methods of reorganization, the primary structure or the alternative structure, as described more fully in the
accompanying joint proxy statement/prospectus, including the mergers contemplated thereby.
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3. To consider and vote on the approval of the amended
and restated agreement and plan of merger, dated as of May 3, 2001, by and among Archstone Communities Trust, Archstone-Smith Trust, a Maryland real estate investment trust, Charles E. Smith Residential Realty, Inc., a Maryland corporation, and
Charles E. Smith Residential Realty L.P., a Delaware limited partnership, a copy of which is attached as Annex A to the accompanying joint proxy statement/prospectus, and the agreements and transactions contemplated thereby, including the
merger of Smith Residential with and into Archstone-Smith and the merger of Smith Partnership with and into Archstone under the merger agreement.
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4. To transact any other business as may properly come
before the special meeting or any adjournments or postponements thereof.
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MARK, SIGN, DATE AND PROMPTLY RETURN your enclosed proxy card in the postage-paid envelope;
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USE THE TOLL-FREE TELEPHONE NUMBER shown on your proxy card (this call is free in the U.S. and Canada); or
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VISIT THE WEBSITE address shown on your proxy card to give proxy instructions through the Internet.
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By order of the board of trustees
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CAROLINE
BROWER
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Senior Vice President, General Counsel
and Secretary |
The Archstone board of trustees has unanimously approved the merger agreement, which includes the merger of Smith
Residential with and into Archstone-Smith and the merger of Smith Partnership with and into Archstone, the amendment to the declaration of trust and the reorganization of Archstone into an UPREIT and recommends that you vote to approve the merger
agreement and the merger, the amendment to the declaration of trust and the reorganization of Archstone into an UPREIT.
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1. To consider and vote on the approval of the amended
and restated agreement and plan of merger, dated as of May 3, 2001, by and among Archstone Communities Trust, a Maryland real estate investment trust, Archstone-Smith Trust, a Maryland real estate investment trust, Charles E. Smith Residential
Realty, Inc. and Charles E. Smith Residential Realty L.P., a Delaware limited partnership, a copy of which is attached as Annex A to the accompanying joint proxy statement/prospectus, and the agreements and transactions contemplated thereby,
including the merger of Smith Residential with and into Archstone-Smith and the merger of Smith Partnership with and into Archstone under the merger agreement.
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2. To transact any other business as may properly come
before the special meeting or any adjournments or postponements thereof.
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MARK, SIGN, DATE AND PROMPTLY RETURN your enclosed proxy card in the postage-paid envelope; or
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USE THE TOLL-FREE TELEPHONE NUMBER shown on your proxy card (this call is free in the U.S. and Canada).
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By order of the board of directors,
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W.D. MINAMI
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President
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The Smith Residential board of directors has unanimously approved the merger agreement and the merger of Smith Residential
with and into Archstone-Smith and the merger of Smith Partnership with and into Archstone and recommends that you vote to approve the merger agreement and the merger.
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QUESTIONS & ANSWERS ABOUT THE MERGER | i | |
SUMMARY | 1 | |
The Companies | 1 | |
The Combined Company | 2 | |
The Archstone Special Meeting; Vote Required | 2 | |
The Smith Residential Special Meeting; Vote Required | 3 | |
Recommendation of Archstone Board | 3 | |
Recommendation of Smith Residential Board | 3 | |
Fairness Opinions | 4 | |
Risks Associated with the Merger | 4 | |
Amendment to Archstones Declaration of Trust | 5 | |
Reorganization of Archstone into an UPREIT | 6 | |
The Merger Agreement | 6 | |
Regulatory Approvals | 14 | |
Accounting Treatment | 14 | |
Interests of Smith Residential Directors and Executive Officers in the Merger and the
Partnership
Merger |
14 | |
Interests of Archstone Trustees and Executive Officers in the Merger and the Partnership Merger | 18 | |
Trustees and Executive Officers of Archstone-Smith After the Merger | 19 | |
Archstone-Smith Trust 2001 Long-Term Incentive Plan | 19 | |
Comparison of Shareholder Rights | 19 | |
Summary Historical Financial Data of Archstone | 20 | |
Summary Historical Financial Data of Smith Residential | 22 | |
Equivalent Per Share Data | 24 | |
Market Prices of Archstone Common Shares and Smith Residential Common Stock | 24 | |
Archstone-Smith Trust Pro Forma Summary Financial Data | 25 | |
RISK FACTORS | 26 | |
Smith Residential common stockholders may receive Archstone-Smith common shares in the
merger that have a market value lower than expected |
26 | |
Archstone historically has not owned or operated high-rise apartment buildings and the
market price
of the Archstone-Smith common shares you receive in the merger may decline if Archstone- Smith fails to successfully operate the high-rise apartment buildings acquired in the merger |
26 | |
Archstone-Smith will be restricted in its ability to sell the properties located in
the Crystal City area
of Arlington, Virginia without the consent of Messrs. Smith and Kogod, which could result in the inability of Archstone-Smith to sell these properties at an opportune time and increased costs to Archstone-Smith |
27 | |
The operations of Archstone and Smith Residential may not be integrated successfully
and the
intended benefits of the merger may not be realized, which could have a negative impact on the market price of Archstone-Smith common shares after the merger |
27 | |
The directors and executive officers of Smith Residential may have interests in the
completion of
the merger and the partnership merger that may conflict with the interests of Smith Residential stockholders |
27 | |
The trustees and executive officers of Archstone may have interests in the completion
of the merger
and the partnership merger that may conflict with the interests of Archstone shareholders |
29 | |
Archstone and Smith Residential may incur substantial expenses and payments if the
merger does
not occur |
30 | |
The termination fee of up to $95 million payable by Smith Residential and Smith
Partnership may
discourage some third party proposals to acquire Smith Residential that Smith Residential stockholders may otherwise find desirable |
30 |
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The merger agreement does not require that the financial advisors fairness
opinions be updated as a
condition to the closing of the merger |
30 | |
The merger may result in dilution in Archstones expected funds from operations
and net
earnings |
30 | |
Our outstanding debt obligations could adversely affect our future financial performance | 31 | |
Archstone-Smith shareholders who exercise control over Archstone-Smith may have
personal
liability in some jurisdictions if Archstone-Smith were treated as a common law trust |
31 | |
A WARNING ABOUT FORWARD-LOOKING STATEMENTS | 32 | |
THE ARCHSTONE SPECIAL MEETING | 33 | |
Date, Time, Place and Purpose of the Archstone Special Meeting | 33 | |
Who Can Vote | 33 | |
Voting by Proxy Holders | 33 | |
Vote by Telephone | 33 | |
Vote by Internet | 33 | |
Vote by Mail | 34 | |
Required Vote | 34 | |
Voting Agreements | 34 | |
Voting on Other Matters | 34 | |
How You May Revoke Your Proxy Instructions | 34 | |
How Votes Are Counted | 34 | |
Cost of this Proxy Solicitation | 35 | |
Attending the Archstone Special Meeting | 35 | |
THE SMITH RESIDENTIAL SPECIAL MEETING | 36 | |
Date, Time, Place and Purpose of the Smith Residential Special Meeting | 36 | |
Who Can Vote | 36 | |
Voting by Proxy Holders | 36 | |
Vote by Telephone | 36 | |
Vote by Mail | 36 | |
Required Vote | 36 | |
Voting Agreements | 37 | |
Voting on Other Matters | 37 | |
How You May Revoke Your Proxy Instructions | 37 | |
How Votes Are Counted | 37 | |
Cost of this Proxy Solicitation | 38 | |
Attending the Smith Residential Special Meeting | 38 | |
APPROVAL OF AMENDMENT TO ARCHSTONES DECLARATION OF TRUST | 39 | |
APPROVAL OF REORGANIZATION OF ARCHSTONE INTO AN UPREIT | 40 | |
THE MERGER | 42 | |
Structure of the Mergers | 42 | |
Background of the Merger | 44 | |
Archstones Reasons for the Merger; Recommendation of the Archstone Board | 52 | |
Opinion of Morgan Stanley | 54 | |
Smith Residentials Reasons for the Merger; Recommendation of the Smith Residential Board | 62 | |
Opinion of Goldman Sachs | 65 | |
Trustees and Executive Officers of Archstone-Smith After the Merger | 72 | |
Interests of Smith Residential Directors and Executive Officers in the Merger and the
Partnership
Merger |
72 | |
Interests of Archstone Trustees and Executive Officers in the Merger and the Partnership Merger | 76 |
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The Partnership Merger | 78 | |
Regulatory Approvals | 79 | |
Accounting Treatment | 79 | |
Restrictions on Resales by Affiliates | 79 | |
No Dissenters Rights | 80 | |
Archstone-Smith Trust 2001 Long-Term Incentive Plan | 80 | |
THE MERGER AGREEMENT | 85 | |
Closing; Effective Time of the Merger | 85 | |
Archstone Reorganization | 85 | |
Merger Consideration | 87 | |
Surrender of Stock or Share Certificates | 88 | |
Treatment of Smith Residential Stock Options | 89 | |
Representations and Warranties of Archstone and Smith Residential | 89 | |
Conduct of Business Pending the Merger | 90 | |
Pre-Merger Dividends and Distributions | 93 | |
Conditions to the Merger and the Partnership Merger | 94 | |
No Solicitation by Smith Residential | 97 | |
Termination of the Merger Agreement | 100 | |
Waiver and Amendment of the Merger Agreement | 104 | |
Indemnification; Directors and Officers Insurance | 105 | |
Assumption of Smith Residentials Obligations Under Registration Rights Agreements | 106 | |
Voting Agreements | 106 | |
Acquisition of Non-Controlled Subsidiaries | 107 | |
Shareholders Agreement | 108 | |
Tax Related Undertakings of Archstone | 111 | |
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE REORGANIZATION OF
ARCHSTONE INTO AN UPREIT |
116 | |
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER | 120 | |
FEDERAL INCOME TAX CONSIDERATIONS WITH RESPECT TO ARCHSTONE-SMITH AS
A REIT |
125 | |
Taxation of Archstone-Smith | 126 | |
Taxation of Its Shareholders | 134 | |
Other Tax Considerations | 136 | |
DESCRIPTION OF ARCHSTONE-SMITH SHARES OF BENEFICIAL INTEREST | 138 | |
General | 138 | |
Common Shares | 139 | |
Shareholder Purchase Rights | 140 | |
Preferred Shares | 140 | |
New Series H, I, J, K and L Preferred Shares | 146 | |
REIT Ownership Limitations and Transfer Restrictions Applicable to Archstone-Smith
Common
Shares and Series A, C, D, E, F and G Preferred Shares |
152 | |
REIT Ownership Limitations and Transfer Restrictions Applicable to Archstone-Smith
Series H, I,
J, K and L Preferred Shares |
154 | |
Transfer Agent and Registrar | 155 | |
Anti-Takeover Considerations | 155 | |
COMPARISON OF SHAREHOLDER RIGHTS | 157 | |
Authorized Shares | 157 | |
Voting Rights | 159 |
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Classification of the Board; Removal of Directors/Trustees | 159 | |
Number of Directors/Trustees; Vacancies | 160 | |
Limitation of Trustee/Director and Officer Liability | 161 | |
Indemnification | 161 | |
Duties of Trustees and Directors | 163 | |
Call of Special Meetings of Shareholders | 164 | |
Advance Notice Provisions for Shareholder Nominations and Shareholder New Business
Proposals |
164 | |
Amendment of the Smith Residential Charter and the Archstone and Archstone-Smith
Declarations
of Trust |
165 | |
Amendment of the Bylaws | 165 | |
Mergers, Consolidations and Sales of Assets | 165 | |
Dissolution of Smith Residential, Archstone or Archstone-Smith; Termination of REIT Status | 166 | |
Business Combinations with Interested Shareholders | 166 | |
Control Share Acquisitions | 167 | |
Distributions | 167 | |
Board Committees | 168 | |
Shareholder Rights Plans | 168 | |
REIT Ownership Limitations | 171 | |
LEGAL MATTERS | 175 | |
EXPERTS | 175 | |
SHAREHOLDER PROPOSALS | 176 | |
OTHER MATTERS | 176 | |
WHERE YOU CAN FIND MORE INFORMATION | 177 | |
WHAT INFORMATION YOU SHOULD RELY ON | 178 | |
ARCHSTONE-SMITH TRUST INDEX TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS |
F-1 | |
Annex AAmended and Restated Agreement and Plan of Merger | A-1 | |
Annex BOpinion of Morgan Stanley & Co. Incorporated, dated May 3, 2001 | B-1 | |
Annex COpinion of Goldman, Sachs & Co., dated as of May 31, 2001 | C-1 | |
Annex DAmendment to Archstone Declaration of Trust | D-1 | |
Annex EArchstone-Smith Trust 2001 Long-Term Incentive Plan | E-1 |
Q:
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Why are Archstone and Smith Residential proposing the merger?
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A:
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The boards of both Archstone and Smith Residential believe that the merger represents a strategic combination of two premier
real estate organizations that will be in the best interests of all of their respective shareholders. The combination brings together two of the most respected brands in the apartment industry. The combined company will own approximately 82,500
apartment units, including approximately 4,500 apartment units in the development pipeline, concentrated in protected markets which have high barriers to entry. The combined company will be the second largest publicly traded REIT in the apartment
industry and the fourth largest publicly traded REIT overall in the United States based on total equity market capitalization.
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Archstone-Smith, a recently organized Maryland REIT created to facilitate the transaction, and Smith Residential are merging
and Archstone and Smith Partnership are merging in a two-step transaction. As a result of the reorganization of Archstone into an UPREIT structure occurring immediately before the merger, Archstone-Smith will be the sole shareholder of Archstone.
The first step of the transaction involves the merger of Smith Residential with and into Archstone-Smith, which we refer to as the merger, following which Archstone-Smith will be the sole general partner of Smith Partnership and the sole
shareholder of Archstone. Smith Residential is currently the sole general partner, and, as of August 31, 2001, holds approximately 70% of the outstanding common and preferred units, of Smith Partnership. The second step of the transaction involves
the merger of Smith Partnership with and into Archstone, which we refer to as the partnership merger. The partnership merger will be completed at least one hour after the completion of the merger.
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Q:
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What will I receive in the merger?
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A:
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Smith Residential Stockholders. In the merger, Smith Residential common stockholders will
receive 1.975 Archstone-Smith common shares for each outstanding share of Smith Residential common stock. Cash will be paid instead of issuing fractional shares. Holders of outstanding Smith Residential preferred stock will receive one newly created
Archstone-Smith Series H, I, J, K or L preferred share for each outstanding share of Smith Residential Series A, C, E, F or G preferred stock, respectively. The Archstone-Smith Series H, I, J, K and L preferred shares issued in the merger will have
preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption identical to those of the shares of the corresponding series of Smith Residential preferred
stock adjusted as necessary to reflect the exchange ratio, except for changes that do not materially and adversely affect the holders of Smith Residential preferred stock.
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Archstone Shareholders. Each Archstone common share or preferred share held by Archstone
shareholders will be automatically converted into an equivalent share of Archstone-Smith as part of the reorganization of Archstone into an UPREIT structure. Cash will be paid instead of issuing fractional shares in exchange for existing Archstone
fractional shares.
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We estimate that immediately following completion of the merger former holders of Smith Residential common stock and Smith
Partnership common units will have a 40% interest in Archstone-Smith and former holders of Archstone common shares will have a 60% interest in Archstone-Smith, in each case considered on a fully diluted and as-converted basis.
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Q:
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What happens if the price of Archstone common shares and/or Smith Residential common stock changes before the
closing of the merger?
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A:
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The exchange ratio is fixed and no change will be made to the exchange ratio applicable to the merger. Because the market
value of Archstone common shares will fluctuate before the closing of the merger and the market value of Archstone-Smith common shares will
fluctuate after the closing of the merger, the value of the consideration that Smith Residential common stockholders will receive in the merger will fluctuate as well. On September 19, 2001, Archstone common shares closed at $26.10 per share. You
should obtain current market prices for Archstone common shares and shares of Smith Residential common stock before determining whether to vote in favor of the merger and the merger agreement.
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Q:
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Why is Archstone proposing to reorganize into an UPREIT?
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A:
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Over the past several years, Archstone management has been examining the feasibility of converting into an UPREIT structure.
In its review, Archstone management has determined that it would be advantageous for Archstone to reorganize into an UPREIT, but that due to the costs involved, the best time to effect the reorganization would be at the same time as Archstone was
otherwise consummating a business combination transaction. Archstone believes that its current structure has restricted its ability to acquire properties or engage in business combination transactions due to a perception on the part of property
owners that an UPREIT structure is a more effective and attractive structure to allow a seller to defer the recognition of gain for tax purposes. An UPREIT structure will give Archstone a greater ability to acquire assets using a tax deferred
acquisition currency, which will allow it to compete more effectively with other purchasers with regard to the acquisition of properties.
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Q:
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What am I being asked to vote upon?
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A:
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Smith Residential Common Stockholders. You are being asked to approve the merger agreement and
the merger of Smith Residential with and into Archstone-Smith. Approval of the merger agreement and the merger requires the affirmative vote of holders of at least two-thirds of the outstanding shares of Smith Residential common stock. The vote of
Smith Residential preferred stockholders is not required for approval of the merger agreement and the merger and the preferred stockholders are not entitled to vote thereon. Smith Residential preferred stockholders are being sent copies of this
joint proxy statement/prospectus for notification purposes.
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All of the Smith Residential directors, who in the aggregate beneficially owned, excluding stock options held by them,
242,664 shares of Smith Residential common stock, or approximately 1% of the outstanding shares of Smith Residential common stock as of the record date, and 2,141,832 common units of Smith Partnership, or approximately 5.5% of the outstanding common
units of Smith Partnership as of August 31, 2001 have entered into voting agreements agreeing to vote these shares in favor of the merger agreement and the merger at the Smith Residential special meeting and to consent to the partnership merger and
the amendment to the partnership agreement of Smith Partnership.
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The Smith Residential board has unanimously adopted and approved the merger agreement and the merger of Smith Residential
with and into Archstone-Smith and the merger of Smith Partnership with and into Archstone and recommends that Smith Residential common stockholders vote FOR approval of the merger agreement and the merger.
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Archstone Common Shareholders. You are being asked to approve three different proposals. The
first is an amendment to the Archstone declaration of trust to clarify the meaning of two terms used in the declaration of trust to facilitate the reorganization of Archstone into an UPREIT. The second is the reorganization of Archstone into an
UPREIT whether or not the merger with Smith Residential is completed. The third is the merger agreement, which includes the merger of Smith Residential with and into Archstone-Smith and the merger of Smith Partnership with and into Archstone. If
Archstone shareholders approve the proposal to reorganize Archstone into an UPREIT but the merger with Smith Residential is not completed, Archstone may decide not to reorganize into an UPREIT at all.
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Approval of each proposal requires the affirmative vote of holders of at least a majority of the outstanding Archstone
common shares. The vote of Archstone preferred shareholders is not required for approval of any of the proposals and the preferred shareholders are not entitled to vote thereon.
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All of the Archstone trustees, who beneficially owned in the aggregate 572,230 Archstone common shares, excluding share
options held by them, or less than 1% of the outstanding Archstone common shares as of the record date, have entered into voting agreements agreeing to vote these shares in favor of the merger agreement, the merger and the transactions contemplated
thereby at the Archstone special meeting.
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The Archstone board has unanimously adopted and approved the amendment to the Archstone declaration of trust, the
reorganization of Archstone into an UPREIT, including the mergers contemplated thereby, and the merger agreement, which includes the merger of Smith Residential with and into Archstone-Smith and the merger of Smith Partnership with and into
Archstone and recommends that Archstone common shareholders vote FOR approval of each proposal.
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Q:
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Do Smith Residential common or preferred stockholders or Archstone common or preferred shareholders have
dissenters rights?
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A:
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No. Smith Residential and Archstone are organized under Maryland law. Under Maryland law, because Smith Residentials
common stock and Archstones common and preferred shares are listed on a national securities exchange, Smith Residential common stockholders and Archstone common and preferred shareholders have no rights to dissent and receive the appraised
value of their shares in the merger. Smith Residential holders of preferred stock are not entitled to vote on the merger transaction and therefore have no dissenters rights.
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Q:
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How soon after the special meetings will the merger occur?
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A:
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If the merger agreement and the merger are approved at both the Archstone and the Smith Residential special meetings, and the
unitholders of Smith Partnership consent to the partnership merger and an amendment to Smith Partnerships partnership agreement, we anticipate that the merger and the partnership merger will occur as soon as practicable after the special
meetings, the receipt of the written consent of Smith Partnership unitholders and satisfaction or waiver of the conditions set forth in the merger agreement. We currently expect that it will take at least three days to close all of the transactions
involved in the reorganization of Archstone into an UPREIT, the merger of Smith Residential with and into Archstone-Smith and the merger of Smith Partnership with and into Archstone.
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Q:
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Will I recognize taxable gain or loss as a result of the merger?
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A:
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We expect the following tax consequences generally to apply:
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Smith Residential Stockholders. For U.S. federal income tax purposes, a Smith Residential
common or preferred stockholder will not recognize either gain or loss as a result of the exchange of his, her or its Smith Residential shares of common or preferred stock for Archstone-Smith common or preferred shares, respectively, pursuant to the
terms of the merger and the other transactions contemplated by the merger agreement, except to the extent of any cash received instead of a fractional share. A Smith Residential common or preferred stockholder will have a tax basis in the
Archstone-Smith common or preferred shares received in the merger equal to the stockholders basis in his, her or its Smith Residential common or preferred stock exchanged for the Archstone-Smith common or preferred shares. For a description of
the tax treatment of cash received instead of a fractional share of Archstone-Smith and the other material tax consequences of the merger, please read Federal Income Tax Consequences Relating to the Merger beginning on page
120.
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Archstone Shareholders. For U.S. federal income tax purposes, Archstone common and preferred
shareholders will not recognize either gain or loss as a result of the merger. For a
description of the material tax consequences of the merger, please read Federal Income Tax Consequences Relating to the Merger beginning on page 120.
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If you hold shares of Smith Residential common or preferred stock or Archstone common or preferred shares, the tax
consequences to you will depend on your personal situation, including your basis in your shares. You should consult your tax advisor for a full understanding of the tax consequences of the merger to you.
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Q:
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Will I recognize taxable gain or loss as a result of the reorganization of Archstone into an
UPREIT?
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A:
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For U.S. federal income tax purposes, an Archstone common or preferred shareholder will not recognize either gain or loss as
a result of the exchange of his, her or its Archstone common or preferred shares for Archstone-Smith common or preferred shares, respectively, pursuant to the reorganization into an UPREIT, except to the extent of any cash received instead of a
fractional share. An Archstone common or preferred shareholder will have a tax basis in the Archstone-Smith common or preferred shares received in the reorganization equal to the shareholders basis in his, her or its Archstone common or
preferred shares exchanged for the Archstone-Smith common or preferred shares. For a description of the tax treatment of cash received instead of a fractional share of Archstone-Smith and other material tax consequences of the reorganization of
Archstone into an UPREIT, please read Federal Income Tax Consequences Relating to the Reorganization of Archstone into an UPREIT beginning on page 116.
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If you hold Archstone common or preferred shares, the tax consequences to you will depend on your personal situation,
including your basis in your shares. You should consult your tax advisor for a full understanding of the tax consequences of the reorganization to you.
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Q:
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What will my dividends be before and after the merger?
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A:
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Until the merger is completed, Smith Residential common and preferred stockholders will continue to receive regular dividends
when, as and if authorized by the Smith Residential board, and Archstone common and preferred shareholders will continue to receive regular distributions when, as and if authorized by the Archstone board, each in accordance with past practice. In
addition, Smith Residential will pay, if necessary, a final dividend in an amount equal to the minimum amount necessary to maintain Smith Residentials REIT status under the Internal Revenue Code and to avoid the payment of any corporate level
tax with respect to undistributed income or gain, as required by the merger agreement. If Smith Residential is required to make a final dividend, Archstone is permitted under the merger agreement to declare a corresponding distribution for its
shareholders. After the completion of the merger, former holders of Smith Residential common stock and Archstone common shares will receive the distributions payable to all holders of Archstone-Smith common shares with a record date after the
closing, and former Smith Residential preferred stockholders and Archstone preferred shareholders will be entitled to receive cumulative distributions on their Archstone-Smith preferred shares calculated using the same method as was used for their
Smith Residential preferred stock or Archstone preferred shares, as applicable. Archstones current quarterly distributions are $0.41 per common share per quarter and Smith Residentials current quarterly dividends are $0.585 per share of
common stock per quarter. Upon completion of the merger, you will cease receiving any distributions or dividends on all shares of Smith Residential common and preferred stock and on all Archstone common and preferred shares you held before the
merger, other than any dividends or distributions declared before completion of the merger but not yet paid.
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Q:
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What should I do now?
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A:
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If you are an Archstone common shareholder or a Smith Residential common stockholder, just indicate on your proxy card how
you want to vote, and sign and mail it in the enclosed
postage-paid envelope as soon as possible so that your shares will be represented at your special meeting, or instruct the proxy holders how to vote your shares by telephone by following the instructions on your proxy card. If you are an Archstone
common shareholder, you can instruct the proxy holders how to vote your shares through the Internet by following the instructions on your proxy card.
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If you sign and send in your proxy and do not indicate how you want to vote, your proxy will be voted in favor of the
proposal to approve the merger agreement and the merger and, if you are an Archstone common shareholder, in favor of the reorganization of Archstone into an UPREIT and in favor of the amendment to the Archstone declaration of trust. If you do not
sign and send in your proxy, give your proxy instructions by telephone, at your special meeting, or, for Archstone shareholders, through the Internet, or if you abstain, it will have the effect of a vote against approval of each of the proposals as
to which you are entitled to vote.
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You can choose to attend your special meeting and vote your shares in person instead of completing and returning a proxy
card. If you do complete and return a proxy card, you may change your vote at any time up to and including the time of the vote on the day of your special meeting by following the directions beginning on page 33 for Archstone shareholders and
beginning on page 36 for Smith Residential stockholders.
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Q:
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If my shares are held in street name by my broker, will my broker vote my shares for
me?
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A:
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Your broker will vote your Archstone common shares or shares of Smith Residential common stock only if you instruct your
broker how to vote by following the directions your broker provides. If you do not instruct your broker how to vote, your shares will not be voted and this will have the effect of voting against approval of each of the proposals as to which you are
entitled to vote.
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Q:
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Should I send in my stock certificates now?
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A:
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No. After the merger, Archstone-Smiths exchange agent will send to former Smith Residential common and preferred
stockholders a letter of transmittal explaining what you must do to exchange your Smith Residential common or preferred stock certificates for the merger consideration payable to you.
|
If you are an Archstone common or preferred shareholder, you are not required to take any action regarding your Archstone
share certificates. Your share certificates will be deemed to be share certificates of Archstone-Smith. However, if you would like to receive Archstone-Smith share certificates in exchange for your Archstone share certificates, our exchange agent
will provide instructions on how to exchange your share certificates at the same time as instructions are provided to the Smith Residential stockholders.
|
Q:
|
Who can answer my questions?
|
A:
|
Smith Residential Stockholders. Smith Residential stockholders who have questions about the
merger agreement or the merger, or desire additional copies of this joint proxy statement/prospectus or additional proxy cards should contact:
|
Charles E. Smith Residential Realty, Inc.
|
2345 Crystal Drive
|
Arlington, Virginia 22202
|
Attention: Greg Samay
|
Telephone: (703) 769-1029
|
Archstone Shareholders. Archstone shareholders who have questions about the merger, the
reorganization of Archstone into an UPREIT or the amendment to the Archstone declaration of trust, or desire additional copies of this joint proxy statement/prospectus or additional proxy cards should contact:
|
Archstone Communities Trust
|
7670 South Chester Street
|
Suite 100
|
Englewood, Colorado 80112
|
Attention: Julie Brubaker
|
Telephone: (800) 982-9293
|
Archstone Communities Trust
|
7670 South Chester Street
|
Suite 100
|
Englewood, Colorado 80112
|
(303) 708-5959
|
|
Owning apartment communities in protected markets with strong economic growth;
|
|
Generating long-term sustainable growth in cash flow from operations;
|
|
Managing its invested capital, through the disposition of assets that no longer meet its investment objectives, in an effort
to maximize long-term value creation; and
|
|
Strengthening its brand position and reputation for quality through superior customer service to its residents.
|
Charles E. Smith Residential Realty, Inc.
|
2345 Crystal Drive
|
Arlington, Virginia 22202
|
(703) 920-8500
|
Archstone-Smith Trust
|
7670 South Chester Street
|
Suite 100
|
Englewood, Colorado 80112
|
(303) 708-5959
|
|
none of the common unitholders of Smith Partnership redeem their units for cash or Smith Residential common stock,
and
|
|
each holder of convertible securities, other than options, of Archstone, Smith Residential or Smith Partnership, or any of
their respective subsidiaries, converts or exercises those securities for Archstone common shares, shares of Smith Residential common stock or common units of Smith Partnership.
|
Archstone (see page 54)
|
Smith Residential (see page 65)
|
|
that as a result of various market conditions and the merger agreements fixed exchange ratio for determining the
number of Archstone-Smith shares that Smith Residential common stockholders will receive as consideration in the merger, the value of the merger consideration to be received by Smith Residential common stockholders may fluctuate;
|
|
the fact that Archstone historically has not owned or operated high-rise apartment buildings and that the market price of the
Archstone-Smith common shares may decline if Archstone-Smith fails to operate successfully the high-rise apartment buildings acquired in the merger;
|
|
Archstone-Smith will be restricted in its ability to sell the properties located in the Crystal City area of Arlington,
Virginia without the consent of Messrs. Smith and Kogod, which could result in the inability of Archstone-Smith to sell these properties at an opportune time and increased costs to Archstone-Smith;
|
|
the potential inability of Archstone to merge and integrate successfully the operations of Smith Residential and to realize
the cost savings expected from the merger, including economies of scale, which could have a negative impact on the market price of Archstone-Smith common shares after the merger;
|
|
the fact that the directors and executive officers of Smith Residential may have interests in, and will continue to receive
benefits from, the merger that are different from, or in addition to, and, therefore, may conflict with, the interests of Smith Residential stockholders in the merger;
|
|
the fact that the trustees and executive officers of Archstone may have interests in, and will continue to receive benefits
from, the merger that are different from, or in addition to, and, therefore, may conflict with, the interests of Archstone shareholders in the merger;
|
|
the fact that Archstone and Smith Residential have already incurred substantial expenses in connection with the merger, and
may incur additional expenses in the event that the merger is not completed;
|
|
the fact that Smith Residential and Smith Partnership may be required to pay a termination fee of up to $95 million under
specified circumstances and that the threat of such payment may discourage some third-party proposals to acquire Smith Residential that Smith Residential stockholders may otherwise find desirable;
|
|
the fact that the merger agreement does not require that the financial advisors fairness opinions be updated as a
condition to the closing of the merger;
|
|
the fact that the merger is anticipated to result in dilution to Archstones expected 2002 funds from operations of
approximately $.03 per share and dilution to net earnings per share of $0.20 on a pro forma basis for the six months ended June 30, 2001; and
|
|
the fact that Archstone-Smiths outstanding debt obligations could adversely affect our future financial
performance.
|
|
Archstone-Smith shareholders who exercise control over Archstone-Smith may have personal liability in some jurisdictions if
Archstone-Smith were treated as a common law trust.
|
|
the reorganization of Archstone into an UPREIT
|
|
Archstone will be reorganized into an UPREIT in a transaction pursuant to which Archstone, or, in the alternative structure,
a newly created Maryland real estate investment trust that will be the successor to Archstones assets and liabilities which we also refer to as Archstone, will become a subsidiary of Archstone-Smith, followed by
|
|
the election by Archstone to be treated for federal income tax purposes as either a domestic eligible entity with a single
owner disregarded as a separate entity or as a partnership, followed by
|
|
the merger of Smith Residential with Archstone-Smith
|
|
the merger, in which Smith Residential will merge with and into Archstone-Smith and Smith Residential will cease to exist,
followed by
|
|
the merger of Smith Partnership with Archstone
|
|
the partnership merger, in which Smith Partnership will merge with and into Archstone and Smith Partnership will cease to
exist, with Archstone thereafter being treated as a partnership for federal income tax purposes.
|
Smith Partnership Unitholders Consent (see page 78)
|
Structure Diagrams
|
|
none of the common unitholders of Smith Partnership redeem their units for cash or Smith Residential common stock,
and
|
|
each holder of convertible securities, other than options, of Archstone, Smith Residential or Smith Partnership, or any of
their respective subsidiaries, converts or exercises those securities for Archstone common shares, shares of Smith Residential common stock or common units of Smith Partnership.
|
[GRAPH] Current Structure Smith Shareholders Archstone Shareholders Charles E. Smith Archstone Residential Realty Inc. Communities Trust 66% GP Charles E. Smith Residential Realty, L.P. Step 1 Step 2 Archstone Archstone Shareholders Shareholders Archstone Archstone Communities Trust Communities Trust Archstone Archstone forms merges with Archstone-Smith Merger Sub Archstone-Smith Archstone Smith Archstone-Smith forms Merger Sub Merger Sub Merger Sub
[GRAPH] Step 3 Smith Stockholders Archstone Shareholders Merger into Archstone-Smith Charles E. Smith Residential Realty, Archstone-Smith Inc. 66% GP Merger into Archstone Charles E. Smith Archstone Residential Communities Trust Realty, L.P. Result Former Smith Former Archstone Stockholders Shareholders 28.4% 71.6% Archstone-Smith 87.3% Owner Archstone-Smith Operating Trust
Conditions to the Merger and the Partnership Merger (see page 94)
|
|
the approval of the merger agreement and the merger, which includes the reorganization of Archstone into an UPREIT, by
Archstone common shareholders;
|
|
the approval of the merger agreement and the merger by the Smith Residential common stockholders;
|
|
the approval of the partnership merger by the unitholders of Smith Partnership, including Smith Residential, which is
assured, and the approval of an amendment to the partnership agreement of Smith Partnership by Smith Partnership unitholders, excluding Smith Residential;
|
|
the absence of a court order or law preventing the completion of the Archstone reorganization, the merger or the partnership
merger; and
|
|
other customary closing conditions.
|
|
the requirement that Archstone common shareholders and Smith Residential common stockholders approve the merger agreement and
the merger;
|
|
the requirement that unitholders of Smith Partnership approve the partnership merger and the amendment to the partnership
agreement of Smith Partnership; or
|
|
any court order or law preventing the closing of the merger or the partnership merger.
|
|
who is a U.S. person;
|
|
who does not exercise its redemption right with respect to Archstone Class A-1 common units under the Archstone declaration
of trust on a date sooner than the date two years after the partnership merger;
|
|
who does not receive a cash distribution in connection with the partnership merger, or a deemed cash distribution resulting
from relief or a deemed relief from liabilities, including as a result of the prepayment of indebtedness of Smith Partnership in connection with or following the
partnership merger, in excess of such holders adjusted basis in its Smith Partnership units at the time of the partnership merger;
|
|
who is not required to recognize gain by reason of the application of section 707(a) of the Internal Revenue Code and the
Treasury regulations thereunder to the partnership merger, with the result that the partnership merger is treated as part of a disguised sale by reason of any transactions undertaken by Smith Partnership prior to or in connection with
the partnership merger or any debt of Smith Partnership that is assumed or repaid in connection with the partnership merger; and
|
|
whose at risk amount does not fall below zero as a result of the merger and the partnership merger.
|
Termination of the Merger Agreement (see page 100)
|
|
a judgment, injunction, order, decree or action by any governmental entity preventing the consummation of either the merger
or the partnership merger becomes final and non-appealable;
|
|
the merger and the partnership merger have not been completed before March 31, 2002; however, neither Archstone nor Smith
Residential may terminate the merger agreement if its breach is the reason that the merger or the partnership merger have not been completed by that date;
|
|
the holders of at least two-thirds of the outstanding shares of Smith Residential common stock fail to approve the merger
and the merger agreement, or if the holders of Smith Partnership units fail to approve the partnership merger or the amendment to the partnership agreement of Smith Partnership by the required consent, but Smith Residential may not terminate for
either of these reasons if it is in breach in any material respect of its obligations contained in the merger agreement relating to obtaining the required stockholder votes and unitholder consents; or
|
|
the holders of at least a majority of the outstanding Archstone common shares fail to approve the merger and the merger
agreement, but Archstone may not terminate for either of these reasons if it is in breach in any material respect of its obligations contained in the merger agreement relating to obtaining the required shareholder votes.
|
|
Smith Residential or Smith Partnership breaches or fails to perform any of its covenants, obligations or agreements contained
in the merger agreement, or upon a breach of any representation or warranty of Smith Residential or Smith Partnership or if any representation or warranty of Smith Residential or Smith Partnership is or becomes untrue, in either case so that the
conditions to the consummation of the merger contained in the merger agreement would be incapable of being satisfied by March 31, 2002, or as otherwise extended by the parties;
|
|
the Smith Residential board has failed to recommend or has withdrawn, modified, amended or qualified, or proposed publicly
not to recommend or to withdraw, modify, amend or qualify, in any manner adverse to Archstone, its approval or recommendation of the merger, the partnership merger or the merger agreement, or approved or recommended any superior alternative
acquisition proposal or the Smith Residential board or any committee of the Smith Residential board has resolved to do any of the foregoing; or
|
|
following the announcement or receipt of an alternative acquisition proposal, Smith Residential has failed to call a special
meeting of stockholders or failed to prepare and mail to its stockholders this joint proxy statement/prospectus, or the Smith Residential board or any committee of the Smith Residential board has resolved to do any of the foregoing.
|
|
Archstone or Archstone-Smith breaches or fails to perform any of its covenants, obligations or agreements contained in the
merger agreement, or upon a breach of any representation or warranty of Archstone or Archstone-Smith, or if any representation or warranty of Archstone or Archstone-Smith is or becomes untrue, in either case so that the conditions to the
consummation of the merger contained in the merger agreement would be incapable of being satisfied by March 31, 2002, or as otherwise extended by the parties; or
|
|
the Smith Residential board has withdrawn, modified, amended or qualified in any manner adverse to Archstone its approval or
recommendation of the merger, the partnership merger or the merger agreement in connection with, or approved or recommended, any superior alternative acquisition proposal, or in order to enter into a binding written agreement with respect to a
superior alternative acquisition proposal, so long as, in each case, Smith Residential has complied with the terms of the no solicitation provisions contained in the merger agreement and, at the same time as or before terminating the merger
agreement, has paid to Archstone the termination fee.
|
Termination Fee and Termination Expenses (see page 101)
|
|
by Smith Residential under the circumstances described above where it is permitted to terminate the merger agreement because
its board of directors has withdrawn, modified, amended or qualified in any manner adverse to Archstone its approval or recommendation of the merger, the partnership merger or the merger agreement in connection with, or approved or recommended, any
superior alternative acquisition proposal, or in order to enter into a binding written agreement with respect to a superior alternative acquisition proposal, so long as, in each case, Smith Residential complied with the terms of the no solicitation
provisions contained in the merger agreement; or
|
|
by Archstone, if the Smith Residential board has failed to recommend or has withdrawn, modified, amended or qualified, or
proposed publicly not to recommend or to withdraw, modify, amend or qualify, in any manner adverse to Archstone its approval or recommendation of the merger, the partnership merger or the merger agreement or approved or recommended any superior
alternative acquisition proposal, or has resolved to do any of the foregoing.
|
|
Smith Residential or Smith Partnership has received a proposal for an alternative acquisition transaction before the
termination of the merger agreement;
|
|
before or within 12 months after the termination of the merger agreement, Smith Residential or Smith Partnership enters into
an agreement regarding any alternative acquisition transaction that is later completed whether or not the agreement is related to the pre-termination proposal described above; and
|
|
Archstone or Archstone-Smith terminated the merger agreement because:
|
|
Smith Residential or Smith Partnership breaches or fails to perform its covenants, obligations and agreements in the merger
agreement, upon a breach of any representation or warranty of Smith Residential or Smith Partnership, or if any of its representations or warranties is or becomes untrue, in either case so that the conditions to the consummation of the merger
contained in the merger agreement, relating to performance of covenants and breach of representations and warranties would be incapable of being satisfied by March 31, 2002, or as otherwise extended by the parties,
|
|
the holders of at least two-thirds of the outstanding Smith Residential common stock fail to approve the merger and the
merger agreement or if the holders of Smith Partnership units fail to approve the partnership merger or the amendment to the partnership agreement of Smith Partnership by the required consent, or
|
|
following the announcement or receipt of an alternative acquisition proposal, Smith Residential has failed to call a special
meeting of stockholders or failed to prepare and mail to its stockholders this joint proxy statement/prospectus.
|
|
Smith Residential terminates the merger agreement because the merger and the partnership merger have not been
completed before March 31, 2002 and Smith Residential shall not have breached in any material respect its obligations under the merger agreement in any manner that shall have caused either the merger or the partnership merger to not be completed by
March 31, 2002;
|
|
Smith Residential or Smith Partnership has received a proposal for an alternative acquisition transaction before the
termination of the merger agreement;
|
|
prior to termination of the merger agreement but after receipt of a proposal for an alternative acquisition transaction,
Archstone and/or Archstone-Smith does not announce, enter into or agree to effect any merger, acquisition, exchange offer, consolidation, reorganization or other business combination with any third party; and
|
|
before or within 12 months after the termination of the merger agreement above, Smith Residential or Smith Partnership enters
into an agreement regarding any alternative acquisition transaction that is later completed.
|
|
a reduction in base salary, fringe benefits or bonus eligibility, except when generally applicable to peer
employees,
|
|
a substantial reduction of responsibilities or areas of supervision or an instruction to report to a lower level supervisor
after a change in control,
|
|
a substantial increase in responsibilities or areas of supervision without an appropriate increase in compensation,
or
|
|
after a change in control, a required change of office location outside of the metropolitan area in which the
executive was previously located.
|
|
if, during the first six months following the merger, Mr. Minami terminates his employment with Archstone-Smith for any
reason, he will be entitled to the benefits he would have been entitled to receive under his existing severance agreement with Smith Residential had his employment been terminated by Smith Residential immediately prior to the merger for good reason;
and
|
|
Mr. Minami will not be subject to the non-competition provisions of the severance arrangement.
|
Six Months
Ended June 30, |
Years Ended December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 |
2000 |
1999 |
1998 |
1997 |
1996 |
|||||||
Operations Summary: | ||||||||||||
Total revenues | $ 335,835 | $ 723,234 | $ 667,022 | $ 513,645 | $ 355,662 | $ 326,246 | ||||||
Property operating expenses | 104,095 | 225,608 | 217,527 | 173,760 | 123,051 | 128,122 | ||||||
Net operating income | 223,247 | 462,936 | 420,281 | 310,779 | 212,009 | 193,924 | ||||||
Depreciation on real estate investments | 61,495 | 143,694 | 132,437 | 96,337 | 52,893 | 44,887 | ||||||
Interest expense | 67,076 | 145,173 | 121,494 | 83,350 | 61,153 | 35,288 | ||||||
General and administrative expense | 11,806 | 23,157 | 22,156 | 16,092 | 18,350 | 23,268 | ||||||
Nonrecurring expenses(1) | | | | 2,193 | 71,707 | | ||||||
Earnings from operations(1) | 80,422 | 176,466 | 169,339 | 134,571 | 24,686 | 94,089 | ||||||
Gains on dispositions of depreciated real estate, net | 70,521 | 93,071 | 62,093 | 65,531 | 48,232 | 37,492 | ||||||
Preferred share cash dividends paid | 11,211 | 25,340 | 23,733 | 20,938 | 19,384 | 24,167 | ||||||
Net earnings attributable to common shares: | ||||||||||||
basic | 135,820 | 236,045 | 204,526 | 177,022 | 53,534 | 106,544 | ||||||
diluted | 140,161 | 244,625 | 204,526 | 186,999 | 53,534 | 121,261 | ||||||
Common share cash distributions paid | $ 99,844 | $ 201,257 | $ 208,018 | $ 165,190 | $ 105,547 | $ 90,728 | ||||||
Per Share Data: | ||||||||||||
Net earnings attributable to common shares: | ||||||||||||
basic(1) | $ 1.12 | $ 1.79 | $ 1.46 | $ 1.49 | $ 0.65 | $ 1.46 | ||||||
diluted(1) | 1.10 | 1.78 | 1.46 | 1.49 | 0.65 | 1.44 | ||||||
Common share cash distributions paid(2) | 0.82 | 1.54 | 1.48 | 1.39 | 1.30 | 1.24 | ||||||
Series A convertible preferred share cash dividends
paid |
1.10 | 2.07 | 1.99 | 1.87 | 1.75 | 1.75 | ||||||
Series B preferred share cash dividends paid(3) | 0.79 | 2.25 | 2.25 | 2.25 | 2.25 | 2.25 | ||||||
Series C preferred share cash dividends paid | 1.08 | 2.16 | 2.16 | 1.08 | | | ||||||
Series D preferred share cash dividends paid | $ 1.10 | $ 2.19 | $ 0.88 | $ | $ | $ | ||||||
Weighted average common shares outstanding: | ||||||||||||
basic | 121,569 | 131,874 | 139,801 | 118,592 | 81,870 | 73,057 | ||||||
diluted | 127,306 | 137,730 | 139,829 | 125,825 | 81,908 | 84,340 | ||||||
June 30,
2001 |
December 31, |
|||||||||||
2000 |
1999 |
1998 |
1997 |
1996 |
||||||||
Financial Position: | ||||||||||||
Real estate owned, at cost | $4,349,595 | $5,058,910 | $5,086,486 | $4,771,315 | $2,567,599 | $2,133,207 | ||||||
Investments in and advances to unconsolidated real
estate entities |
212,649 | 226,020 | 130,845 | 98,486 | 37,320 | 20,156 | ||||||
Mortgage notes receivable, net | 23 | 124 | 210,357 | 211,967 | 285,238 | 189,829 | ||||||
Total assets | 4,650,591 | 5,016,131 | 5,302,437 | 5,059,898 | 2,805,686 | 2,282,432 | ||||||
Unsecured credit facilities(4) | | 193,719 | 493,536 | 264,651 | 231,500 | 110,200 | ||||||
Long-term unsecured debt | 1,390,519 | 1,401,262 | 1,276,572 | 1,231,167 | 630,000 | 580,000 | ||||||
Mortgages payable | 831,653 | 875,804 | 694,948 | 676,613 | 265,652 | 217,188 | ||||||
Total liabilities | 2,362,536 | 2,671,188 | 2,679,628 | 2,410,114 | 1,265,250 | 1,014,924 | ||||||
Redeemable preferred shares | 179,701 | 286,856 | 297,635 | 272,515 | 240,210 | 267,374 | ||||||
Shareholders equity | $2,194,725 | $2,251,606 | $2,567,506 | $2,628,325 | $1,540,436 | $1,267,508 | ||||||
Number of common shares outstanding | 121,246 | 122,838 | 139,008 | 143,313 | 92,634 | 75,511 |
Six Months
Ended June 30, |
Years Ended December 31, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 |
2000 |
1999 |
1998 |
1997 |
1996 |
|||||||||||||
Other Data: | ||||||||||||||||||
Cash Flows: | ||||||||||||||||||
Net cash provided by operating activities | $ 140,305 | $ 322,320 | $ 296,010 | $ 231,153 | $ 159,724 | $ 143,939 | ||||||||||||
Net cash provided by (used in) investing activities | 432,951 | 105,563 | (223,914 | ) | (318,764 | ) | (403,112 | ) | (360,935 | ) | ||||||||
Net cash provided by (used in) financing activities | $(493,171 | ) | $(428,878 | ) | $ (72,143 | ) | $ 92,803 | $ 242,672 | $ 195,720 | |||||||||
Ratio of earnings to combined fixed charges and preferred
share dividends(5) |
1.7 | 1.7 | 1.6 | 1.6 | 0.9 | 1.7 | ||||||||||||
Computation of Funds From Operations:(6)(7) | ||||||||||||||||||
Net earnings attributable to common shares: | ||||||||||||||||||
basic | $ 135,820 | $ 236,045 | $ 204,526 | $ 177,022 | $ 53,534 | $ 106,544 | ||||||||||||
Add (Deduct): | ||||||||||||||||||
Depreciation on real estate investments | 61,495 | 143,694 | 132,437 | 96,337 | 52,893 | 44,887 | ||||||||||||
Provision for possible loss on depreciated real
estate |
2,000 | 5,200 | 450 | 282 | 1,500 | | ||||||||||||
Gains on dispositions of depreciated real estate, net | (70,521 | ) | (93,071 | ) | (62,793 | ) | (65,531 | ) | (48,232 | ) | (37,492 | ) | ||||||
Extraordinary itemsloss on early extinguishment of
debt |
| 911 | 1,113 | 1,497 | | 739 | ||||||||||||
Other, net | 3,446 | 2,544 | 610 | (462 | ) | (650 | ) | (73 | ) | |||||||||
Funds from operations attributable to common shares: | ||||||||||||||||||
basic | 132,240 | 295,323 | 276,343 | 209,145 | 59,045 | 114,605 | ||||||||||||
Series A convertible preferred share dividends | 3,563 | 7,254 | 8,206 | 9,332 | | 14,717 | ||||||||||||
Minority interest | 778 | 1,326 | 1,118 | 645 | | | ||||||||||||
Funds from operations attributable to common shares: | ||||||||||||||||||
diluted | $ 136,581 | $ 303,903 | $ 285,667 | $ 219,122 | $ 59,045 | $ 129,322 | ||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||
diluted | 127,306 | 137,730 | 146,087 | 125,825 | 81,908 | 84,340 | ||||||||||||
(1)
|
Non-recurring expenses in 1998 include $1.1 million in transaction integration costs associated with the merger of Security
Capital Atlantic Incorporated with and into Archstone and $1.1 million associated with the introduction of Archstones national branding strategy. Both are included within the other expense category in Archstones Statement of
Earnings for 1998. In 1997, the non-recurring expense represents the impact of a one-time, non-cash charge of $71.7 million associated with the costs incurred in acquiring Archstones REIT and property management companies from Security Capital
Group Incorporated.
|
(2)
|
In addition to the quarterly cash distributions shown, the following distributions were made to Archstones shareholders
in 1996 and 1997: (i) in November 1996, Archstone made a distribution to its shareholders of the shares of common stock of Homestead Village Incorporated and warrants to purchase common stock of Homestead that it owned and in the aggregate were
valued at $3.032 per Archstone common share; and (ii) in September 1997, Security Capital Group Incorporated distributed .052646 warrants for each Archstone common share held by Archstones common shareholders. Each warrant entitled the holder
to acquire one share of Security Capital Group Incorporated Class B common stock at a price of $28 per share.
|
(3)
|
On May 7, 2001, Archstone redeemed all of its outstanding Series B preferred shares. The cash dividends paid for the first
quarter of 2001 and for the period from April 1, 2001 to May 7, 2001 were $0.5625 and $0.23125 per share, respectively.
|
(4)
|
At September 19, 2001, Archstone had no balance outstanding under its $580 million unsecured credit facility and under its
$100 million short-term unsecured borrowing facility.
|
(5)
|
Earnings from operations were insufficient to cover combined fixed charges and preferred share dividends by $12.3 million for
the year ended December 31, 1997. This shortage was a result of a one-time, non-cash charge of $71.7 million, recorded in 1997 associated with costs incurred in acquiring Archstones REIT and property management companies from Security Capital
Group Incorporated. Excluding the charge, the ratio of earnings to combined fixed charges and preferred share dividends for the year ended December 31, 1997 would have been 1.6.
|
(6)
|
Funds from operations has been an industry-wide standard used to measure operating performance of a REIT since its adoption
by the National Association of Real Estate Investment Trusts in 1991. In October 1999, NAREIT revised the definition of funds from operations. We have restated the amounts for 1996 to 1999 to reflect NAREITs revised definition. Funds from
operations should not be considered as an alternative to net earnings or any other generally accepted accounting principles measurement of performance or as an alternative to cash flow from operating, investing or financing activities as a measure
of liquidity. The funds from operations measure presented by Archstone, while consistent with NAREITs definition, will not be comparable to similarly titled measures of other REITs that do not compute funds from operations in a manner
consistent with Archstone.
|
(7)
|
Funds from operations in 1997 includes the impact of a one-time, non-cash charge of $71.7 million associated with the costs
incurred in acquiring Archstones REIT and property management companies from Security Capital Group Incorporated.
|
Six Months
Ended June 30, |
Years Ended December 31, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 |
2000 |
1999(1) |
1998(1) |
1997 |
1996 |
|||||||||||||
Operating Data: | ||||||||||||||||||
Rental properties | ||||||||||||||||||
Revenues | $ 215,721 | $ 383,233 | $ 301,233 | $ 250,067 | $199,944 | $163,939 | ||||||||||||
Expenses | 114,696 | 191,574 | 152,856 | 130,449 | 104,333 | 89,136 | ||||||||||||
Equity in income of property service businesses before
gains/losses |
6,990 | 8,373 | 5,740 | 8,433 | 7,597 | 7,846 | ||||||||||||
Corporate general and administrative expenses | 7,135 | 11,290 | 9,607 | 8,947 | 6,563 | 5,255 | ||||||||||||
Interest income | 190 | 345 | 1,091 | 809 | 1,063 | 1,029 | ||||||||||||
Interest expense | 44,489 | 78,371 | 57,094 | 47,334 | 45,411 | 43,606 | ||||||||||||
Income before gains/losses and extraordinary items | 58,682 | 113,181 | 89,699 | 73,027 | 52,297 | 34,817 | ||||||||||||
Net income of the Operating Partnership | 55,781 | 179,248 | 153,814 | 69,870 | 52,210 | 34,817 | ||||||||||||
Net income attributable to common stockholders(2) | 28,612 | 94,692 | 82,237 | 30,407 | 24,712 | 10,977 | ||||||||||||
Per Share Data: | ||||||||||||||||||
Earnings per common sharebasic: | ||||||||||||||||||
Before extraordinary item | $ 1.26 | $ 4.44 | $ 4.25 | $ 2.40 | $ 1.87 | $ 1.11 | ||||||||||||
Extraordinary item | | | (0.01 | ) | (0.54 | ) | | | ||||||||||
$ 1.26 | $ 4.44 | $ 4.24 | $ 1.86 | $ 1.87 | $ 1.11 | |||||||||||||
Earnings per common sharediluted: | ||||||||||||||||||
Before extraordinary item | $ 1.24 | $ 4.09 | $ 4.05 | $ 2.39 | $ 1.86 | $ 1.11 | ||||||||||||
Extraordinary item | | | (0.01 | ) | (0.54 | ) | | | ||||||||||
$ 1.24 | $ 4.09 | $ 4.04 | $ 1.85 | $ 1.86 | $ 1.11 | |||||||||||||
Other Data: | ||||||||||||||||||
Funds from operations(3): | ||||||||||||||||||
Net income of the Operating Partnership | $ 55,781 | $ 179,248 | $ 153,814 | $ 69,870 | $ 52,210 | $ 34,817 | ||||||||||||
Less: Preferred dividends | (1,946 | ) | (3,955 | ) | (8,093 | ) | (3,647 | ) | | | ||||||||
Gain on sales | | (66,067 | ) | (64,475 | ) | (18,150 | ) | | | |||||||||
Plus: Depreciation and amortization of rental property | 24,970 | 44,778 | 33,906 | 28,958 | 20,666 | 17,931 | ||||||||||||
Depreciation from unconsolidated properties | 668 | 1,015 | 570 | | | | ||||||||||||
Other | 2,901 | 434 | 430 | 5,173 | | | ||||||||||||
Extraordinary itemloss on extinguishment of debt | | | 360 | 16,384 | 87 | | ||||||||||||
Funds from operations of the Operating Partnership | 82,374 | 155,453 | 116,512 | 98,588 | 72,963 | 52,748 | ||||||||||||
Minority interest | (27,477 | ) | (54,606 | ) | (44,048 | ) | (40,554 | ) | (35,799 | ) | (28,879 | ) | ||||||
Funds from operations attributable to stockholders(4) | $ 54,897 | $ 100,847 | $ 72,464 | $ 58,034 | $ 37,164 | $ 23,869 | ||||||||||||
Net cash flows provided by (used in): | ||||||||||||||||||
Operating activities | $ 63,896 | $ 183,256 | $ 141,185 | $ 118,566 | $ 75,223 | $ 50,958 | ||||||||||||
Investing activities | (148,363 | ) | (356,825 | ) | (298,490 | ) | (289,995 | ) | (196,924 | ) | (72,742 | ) | ||||||
Financing activities | 84,467 | 163,012 | 167,862 | 171,429 | 117,803 | 16,204 | ||||||||||||
Cash dividends per share | $ 1.170 | $ 2.235 | $ 2.155 | $ 2.095 | $ 2.035 | $ 1.975 | ||||||||||||
Average core occupancy rate(5) | 96.2 | % | 97.2 | % | 97.5 | % | 96.6 | % | 96.4 | % | 97.0 | % | ||||||
Apartment unitscore portfolio(6) | 17,830 | 16,435 | 15,482 | 14,301 | 14,198 | 12,462 | ||||||||||||
Apartment unitstotal portfolio | 28,910 | 28,453 | 24,948 | 19,279 | 18,236 | 15,200 | ||||||||||||
Rental properties, net(7) | $1,983,973 | $1,911,767 | $1,539,042 | $1,093,963 | $804,323 | $470,093 | ||||||||||||
Total assets | 2,221,206 | 2,075,232 | 1,704,778 | 1,185,399 | 865,506 | 522,211 | ||||||||||||
Total mortgage loans and notes payable | 1,340,584 | 1,223,704 | 969,323 | 790,579 | 610,971 | 546,544 | ||||||||||||
Shareholders equity (deficit)(7) | 594,169 | 555,569 | 481,364 | 264,977 | 158,314 | (37,379 | ) |
(1)
|
Certain reclassifications have been made to conform to the current years presentation.
|
(2)
|
Reflects Smith Residentials pro rata share of net income attributable to all shareholders of 64.1% in 2000, 61.9% in
1999, 58.9% in 1998, 50.9% in 1997 and 45.3% in 1996, less preferred dividends and distributions in excess of earnings allocated to minority interest.
|
(3)
|
Funds from operations is defined by NAREIT as net income (loss), computed in accordance with accounting principles generally
accepted in the United States of America, excluding gains (or losses) from debt restructuring and property sales, plus depreciation/amortization of assets unique to the real estate industry. Funds from operations does not represent cash flow from
operating activities in accordance with accounting principles generally accepted in the United States of America (which, unlike funds from operations, generally reflects all cash effects of transactions in the determination of net income) and should
not be considered an alternative to net income as an indication of Smith Residentials performance or to cash flow as a measure of liquidity or ability to make distributions. Smith Residential considers funds from operations a meaningful,
additional measure of operating performance because it excludes the assumption that the value of real estate assets diminishes predictably over time, and because industry analysts have accepted it as a performance measure. A comparison of Smith
Residentials presentation of funds from operations, using the NAREIT definition, to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by
such REITs.
|
(4)
|
Reflects Smith Residentials pro rata shares of 64.9% in 2000, 62.2% in 1999, 58.9% in 1998, 50.9% in 1997 and 45.3% in
1996.
|
(5)
|
Average occupancy is defined as gross potential rent for the core portfolio less vacancy allowance divided by gross potential
rent for the period, expressed as a percentage.
|
(6)
|
Core portfolio represents operating properties fully owned or stabilized by Smith Residential as of December 31, two years
prior to the reporting date. Total portfolio represents all operating properties fully or partially-owned by Smith Residential at the reporting date.
|
(7)
|
At the formation of Smith Residential, all contributed rental properties were recorded at historical cost which was
significantly less than market value resulting in diluted shareholders equity.
|
For the Six
Months Ended June 30, 2001 |
For the
Year Ended December 31, 2000 |
|||||||
---|---|---|---|---|---|---|---|---|
Basic |
Diluted |
Basic |
Diluted |
|||||
Net earnings from continuing operations per common share: | ||||||||
Archstone | $1.12 | $1.10 | $1.80 | $1.78 | ||||
Archstone-Smith pro forma combined | 0.94 | 0.90 | 1.91 | 1.86 | ||||
Smith Residential | 1.26 | 1.24 | 4.44 | 4.09 | ||||
Smith Residential pro forma combined equivalent | 1.86 | 1.78 | 3.77 | 3.67 |
For the
Six Months Ended June 30, 2001 |
For the
Year Ended December 31, 2000 |
|||
---|---|---|---|---|
Cash distributions declared per common share: | ||||
Archstone | $ 0.82 | $ 1.54 | ||
Archstone-Smith pro forma combined | N/A | N/A | ||
Smith Residential | 1.170 | 2.235 | ||
Smith Residential pro forma combined equivalent | N/A | N/A | ||
Shareholders equity (book value) per common share (end of period): | ||||
Archstone | $16.62 | $15.99 | ||
Archstone-Smith pro forma combined | $20.13 | N/A | ||
Smith Residential | $15.30 | $13.87 | ||
Smith Residential pro forma combined equivalent | $39.76 | N/A |
Price per share |
||||||
---|---|---|---|---|---|---|
Archstone |
Smith
Residential |
Smith
Residential pro forma equivalent(1) |
||||
May 3, 2001 | $25.18 | $45.56 | $49.73 | |||
September 19, 2001 | $26.10 | $51.18 | $51.55 |
(1)
|
Computed by multiplying the Archstone common share closing price by the 1.975 exchange ratio.
|
Six Months
Ended June 30, 2001 |
Year Ended
December 31, 2000 |
|||
---|---|---|---|---|
Operations Summary: | ||||
Total revenues | $560,837 | $1,128,387 | ||
Property operating expenses (rental expenses and real estate taxes) | 193,391 | 378,003 | ||
Net operating income | 349,672 | 704,511 | ||
Depreciation on real estate investments | 90,449 | 201,603 | ||
Interest expense | 108,620 | 223,110 | ||
General and administrative expenses | 17,723 | 33,312 | ||
Earnings from operations | 135,594 | 282,088 | ||
Total minority interest | 29,469 | 62,555 | ||
Gains on dispositions of depreciated real estate, net | 70,521 | 159,138 | ||
Preferred share cash dividends paid | 20,631 | 45,587 | ||
Net earnings from continuing operations attributable to common shares: | ||||
Basic | 156,015 | 333,084 | ||
Diluted | 168,911 | 361,612 | ||
Per Share Data: | ||||
Net earnings from continuing operations per common share: | ||||
Basic | $ 0.94 | $ 1.91 | ||
Diluted | $ 0.90 | $ 1.86 | ||
Weighted average common shares outstanding-basic | 166,314 | 174,006 | ||
Weighted average common shares outstanding-diluted | 187,045 | 194,747 |
June 30,
2001 |
||
---|---|---|
Financial Position: | ||
Real estate owned, at cost | $7,788,944 | |
Investment in and advances to unconsolidated property service businesses | 114,015 | |
Investment in and advances to unconsolidated real estate entities | 268,148 | |
Total assets | 8,242,675 | |
Unsecured credit facilities | 64,000 | |
Long-term unsecured debt | 1,390,219 | |
Mortgages payable | 2,138,950 | |
Total liabilities | 3,794,236 | |
Minority interest | 614,096 | |
Redeemable preferred shares | 386,201 | |
Shareholders equity | 3,834,343 | |
Number of common shares outstanding | 171,298 |
|
following the merger, Archstone-Smith may not achieve the expected cost savings and operating efficiencies, including the
ability to realize economies of scale;
|
|
the Smith Residential and Archstone portfolios may not perform as well as currently anticipated;
|
|
the concentration of Archstone-Smiths properties in a few identified markets may increase Archstone-Smiths
exposure to the economic conditions of those markets;
|
|
Archstone-Smith may experience difficulties and incur expenses related to the assimilation and retention of Smith Residential
employees;
|
|
Archstone-Smith may incur increased costs, due to required consents, transfer taxes and other similar expenses, if it
completes the Archstone reorganization into an UPREIT using the alternative merger structure described later in this joint proxy statement/prospectus under the heading The Merger AgreementArchstone Reorganization beginning on page
85; and
|
|
Archstone-Smith may not effectively merge and integrate Smith Residentials operations.
|
|
Three current directors of Smith Residential, Messrs. Smith, Kogod and Gerardi, will become trustees of Archstone-Smith, and
Messrs. Smith and Kogod, or their replacement nominees, will have the right to be nominated to serve on the Archstone-Smith board for a period of ten years from the date of the closing of the merger provided such person or his related persons or
entities continue to beneficially own at least 1,000,000 Archstone-Smith common shares;
|
|
Archstone-Smith and Archstone will provide exculpation and indemnification for current and former directors and officers of
Smith Residential and specified subsidiaries, including for actions taken in connection with the merger, which is the same as the exculpation and indemnification provided by Smith Residential and specified subsidiaries as of the date of the merger
agreement;
|
|
Archstone-Smith and Archstone will indemnify and hold harmless current and former directors and officers of Smith Residential
and Smith Partnership after the merger to the fullest extent permitted by law;
|
|
Archstone-Smith and Archstone have agreed to provide directors and officers insurance covering acts or omissions
occurring before the merger, for the benefit of those individuals currently covered by Smith Residentials insurance for a period of six years after the merger;
|
|
Unvested options to purchase an aggregate of 878,761 shares of Smith Residential common stock at an average exercise price of
$38.22 per share previously awarded to Smith Residential directors and executive officers will vest in connection with the merger pursuant to the plans under which they were issued and in any event no later than the day before the merger closes.
These Smith Residential directors and executive officers also currently hold vested options to purchase an aggregate of an additional 379,337 shares of Smith Residential common stock at an average exercise price of $32.06. All Smith Residential
stock options will be converted in the merger into options to purchase Archstone-Smith common shares under the terms of the merger agreement. Under the merger agreement, holders of Smith Residential stock options will be entitled to tender the
Archstone-Smith options that they will receive in the merger to Archstone for a cash payment equal to the excess, if any, of $49.48 per share over the exercise price of the Smith Residential stock options multiplied by the number of shares of Smith
Residential common stock converted in the merger, subject to their options, which acquisition and payment, less applicable withholding taxes, will be made within seven business days of the closing of the merger. In the event that all Smith
Residential directors and officers tender all of their options for cash, such persons would receive an aggregate payment from Archstone of approximately $17.2 million, before any applicable withholding taxes. Options to purchase Archstone-Smith
common shares that are not tendered to Archstone as described above would remain outstanding under the same terms and conditions of the Smith Residential stock options from which such options were converted but the exercise price of each option will
be adjusted to reflect the merger and all options will be fully vested.
|
|
Under severance agreements that Smith Residential and specified subsidiaries have entered into with specified executive
officers, these executive officers will be entitled to receive estimated cash payments ranging from approximately $864,000 to $1.4 million as a base amount, or approximately $5.3 million in the aggregate, if their employment with Archstone-Smith is
terminated within two years following the closing of the merger, other than for cause or if they voluntarily terminate their employment for good reason. In the event that these executive officers become entitled to receive the tax gross-up payment
as described under The MergerInterests of Smith Residential Directors and Executive Officers in the Merger and the Partnership MergerSeverance Agreements beginning on page 73 the tax reimbursement amounts could range from $0
to $493,000 per individual, or approximately $1.3 million in the aggregate. The calculation of the estimated cash payments under the severance agreements assumes that the obligations under the agreements are triggered immediately upon the closing of
the merger, which they are, that the applicable persons are terminated, which they are not currently expected to be, and that the merger will close on October 1, 2001. The amounts described above include estimated 2001 bonuses through the closing
date. Neither Smith Residential nor Archstone-Smith has yet determined that any tax gross-up payments would be required;
|
|
Under the Archstone declaration of trust that will be in effect following the closing of the partnership merger, Archstone
has agreed, for the benefit of the Smith Partnership unitholders, not to sell, exchange or otherwise dispose of, except in tax-free or tax-deferred transactions, any of the Smith
Partnership properties or any interest therein or any interest in Smith Realty Company until at least January 1, 2022 and to maintain specified levels of borrowings outstanding with respect to the Smith Partnership properties for the same
period;
|
|
Following the completion of the merger, Mr. Smith will be employed by Archstone-Smith at a minimum annual salary of $300,000
with a minimum annual bonus of $150,000 for each year during his employment. Mr. Smith will also be entitled to receive an annual grant of options to purchase Archstone-Smith common shares and participation in Archstone-Smiths benefit plans.
Mr. Kogod will be employed by Archstone-Smith at a minimum annual salary of $150,000 and will be entitled to participate in Archstone-Smiths benefit plans. Mr. Gerardi will be employed by Consolidated Engineering Services, Inc. at an annual
salary of $200,000 with an annual bonus to be determined, and he will also be entitled to maintain his existing company-provided apartment and whole life insurance policy. Mr. Gerardi will be entitled to participate in Archstone-Smith benefit plans.
Mr. Minami will be employed by Archstone-Smith at an annual salary of $360,000 for the balance of 2001 and for 2002, plus a target bonus for 2001 of not less than $450,000, subject to approval by the management development and compensation committee
of the Archstone-Smith board of trustees. Mr. Minami will also be entitled to receive a grant of 25,000 restricted share units upon closing of the merger, will have his current severance agreement, subject to specified exceptions, remain in effect
until six months after closing of the merger and will be entitled to the same benefits as other division presidents of Archstone-Smith;
|
|
In connection with the merger, Archstone will purchase 100% of the voting common stock of Smith Management Construction,
Inc., a non-controlled property service subsidiary of Smith Partnership, for an aggregate of $70,560 in cash from Smith Management Construction Partnership, the holder of its voting common stock. Smith Management Construction Partnership is a
general partnership controlled by Mr. Gerardi and the children of Messrs. Smith and Kogod; and
|
|
A general partnership controlled by Mr. Gerardi and the children of Messrs. Smith and Kogod will continue to own its interest
in Consolidated Engineering Services, Inc. and, it is contemplated that prior to the closing of the merger, Consolidated Engineering Services, Inc. will issue up to an aggregate of 100,000 shares of restricted non-voting stock to its officers and
will grant options to purchase up to an aggregate of 588,600 shares of its non-voting common stock to its officers and directors. Such non-voting common stock will convert into voting common stock upon the occurrence of various corporate events
involving Consolidated Engineering Services, Inc. Of this amount, it is expected that Mr. Gerardi will receive shares of restricted stock and options to purchase shares, although no determination has been made as to the number of shares subject to
such awards.
|
|
Prior to the merger, the right to purchase the shares of voting common stock of Smith Management Construction, Inc. will be
assigned by Archstone to a newly formed subsidiary of Archstone in exchange for all of the non-voting interests in that subsidiary. Immediately following the merger, the voting common stock of Consolidated Engineering Services, Inc. owned by
Archstone, as successor to Smith Partnership by the partnership merger, will be contributed by Archstone to a newly formed subsidiary of Archstone in exchange for all of the non-voting interests in that subsidiary. R. Scot Sellers, the
chairman and chief executive officer of Archstone-Smith and Archstone, will purchase all of the voting interests in each subsidiary for a purchase price of approximately $3,500 and $20,000, respectively; and
|
|
Under change in control agreements that Archstone has entered into with six executive officers, these executive officers will
be entitled to receive estimated cash payments ranging from approximately $520,000 to $5.9 million as a base amount, or approximately $10.5 million in the aggregate, in the event that their employment is terminated after the merger under specified
circumstances. In the event that these executive officers become entitled to receive the tax reimbursement as described under The MergerInterests of Archstone Trustees and Executive Officers in the Merger and the Partnership
MergerChange in Control Arrangements beginning on page 77, the tax reimbursement amounts could range from $0 to $2.8 million per individual, or approximately $3.2 million in the aggregate. The senior officers would be entitled to receive
estimated cash payments ranging from approximately $450,000 to $3.6 million, or approximately $11.8 million in the aggregate. The calculation of the estimated cash payments under the change in control agreements assumes that Archstone-Smiths
obligations under the agreements are triggered immediately upon the closing of the merger, which they are, that the applicable persons are terminated, which they are not currently expected to be, and that the merger will close on October 1, 2001.
The amounts described above include estimated bonuses through the closing date but do not include any applicable tax reimbursement payments. Archstone does not currently expect that it will be required to make any payments under these
agreements.
|
Total
Principal Payments(1) (in 000s) |
||
---|---|---|
2001 (July through December) | $ 93,268 | |
2002 | 132,826 | |
2003 | 191,530 | |
2004 | 121,723 | |
2005 | 285,144 | |
Thereafter | 2,704,678 | |
Total | $3,529,169 | |
(1)
|
Includes outstanding long-term unsecured debt and mortgages payable on a pro forma basis, as of June 30, 2001.
Archstone-Smith also has $730 million of available capacity on its unsecured credit facilities, of which $150 million of capacity matures in February 2004 and $580 million of capacity matures in December 2003. The $580 million facility also has a
one-year extension option.
|
|
so advise Archstones secretary, Caroline Brower, c/o Archstone Communities Trust, 7670 South Chester Street, Suite 100,
Englewood, Colorado 80112, in writing or by facsimile before your Archstone common shares have been voted by the proxy holders at the meeting,
|
|
give new proxy instructions on the Internet or by telephone,
|
|
deliver to Archstones secretary before the date of the meeting your revised proxy instructions, or
|
|
attend the meeting and vote your Archstone common shares in person.
|
|
so advise Smith Residentials secretary, Robert Zimet, c/o Charles E. Smith Residential Realty, Inc., 2345 Crystal
Drive, Arlington, Virginia 22202, in writing or by facsimile before your Smith Residential common stock has been voted by the proxy holders at the meeting,
|
|
give new proxy instructions by telephone,
|
|
deliver to Smith Residentials secretary before the date of the meeting your revised proxy instructions, or
|
|
attend the meeting and vote your Smith Residential common stock in person.
|
General
|
|
the reorganization of Archstone into an UPREIT
|
|
Archstone will be reorganized into an UPREIT in a transaction pursuant to which Archstone, or in the alternative structure, a
newly created Maryland real estate investment trust that will be the successor to Archstones assets and liabilities, will become a subsidiary of Archstone-Smith, and thereafter will be named Archstone-Smith Operating Trust,
followed by
|
|
the election by Archstone to be treated for federal income tax purposes as either a domestic eligible entity with a single
owner disregarded as a separate entity or as a partnership, followed by
|
|
the merger of Smith Residential with Archstone-Smith
|
|
the merger, in which Smith Residential will merge with and into Archstone-Smith and Smith Residential will cease to exist,
followed by
|
|
the merger of Smith Partnership with Archstone
|
|
the partnership merger, in which Smith Partnership will merge with and into Archstone and Smith Partnership will cease to
exist, with Archstone thereafter being treated as a partnership for federal income tax purposes.
|
Merger Consideration
|
|
holders of Archstone common shares will receive, for each Archstone common share issued and outstanding immediately prior to
the reorganization, one Archstone-Smith common share; and
|
|
holders of Archstone preferred shares will receive, for each Archstone preferred share issued and outstanding immediately
prior to the reorganization, one Archstone-Smith preferred share of a series with equivalent rights and preferences.
|
|
holders of Smith Residential common stock will receive, for each share of Smith Residential common stock issued and
outstanding immediately before the merger, 1.975 Archstone-Smith common shares;
|
|
holders of Smith Residential Series A preferred stock will receive, for each share of Smith Residential Series A preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series H preferred share;
|
|
holders of Smith Residential Series C preferred stock will receive, for each share of Smith Residential Series C preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series I preferred share;
|
|
holders of Smith Residential Series E preferred stock will receive, for each share of Smith Residential Series E preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series J preferred share;
|
|
holders of Smith Residential Series F preferred stock will receive, for each share of Smith Residential Series F preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series K preferred share; and
|
|
holders of Smith Residential Series G preferred stock will receive, for each share of Smith Residential Series G preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series L preferred share.
|
|
the average closing price of an Archstone common share on the New York Stock Exchange for the 20 trading days immediately
preceding the closing date of the merger by
|
|
the fraction of an Archstone-Smith common share which such holder would otherwise be entitled to receive.
|
|
holders of Class A common units in Smith Partnership, other than Archstone-Smith, as successor to Smith Residential as a
result of the merger, will receive, for each Smith Partnership Class A common unit issued and outstanding immediately before the partnership merger, 1.975 Archstone Class A-1 common units, rounded to the nearest whole unit, with 0.5 of a unit
rounded up;
|
|
holders of Class B common units in Smith Partnership will receive for each Smith Partnership Class B common unit issued and
outstanding immediately before the partnership merger, 1.975 Archstone Class B common units, rounded to the nearest whole unit, with 0.5 of a unit rounded up;
|
|
Archstone-Smith, as successor to Smith Residential as a result of the merger, will receive, for each Smith Partnership Class
A common unit issued and outstanding held by it immediately before the partnership merger, 1.975 Archstone Class A-2 common units, rounded to the nearest whole unit, with 0.5 of a unit rounded up;
|
|
the Series A preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series H preferred units of Archstone;
|
|
the Series C preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series I preferred units of Archstone;
|
|
the Series E preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series J preferred units of Archstone;
|
|
the Series F preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series K preferred units of Archstone; and
|
|
the Series G preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series L preferred units of Archstone.
|
Positive Factors Considered by the Archstone Board
|
|
the transaction will increase Archstones presence in protected markets such as Washington, D.C., Chicago, Boston and
southeast Florida, with access to what the Archstone board believes to be a high quality portfolio of well-located assets in these protected markets;
|
|
the Archstone board believes that the Smith Residential portfolio is one of the most desirable apartment portfolios and is
the largest high-rise apartment portfolio outside of Manhattan, New York;
|
|
the Archstone board believes that the merger transaction represented an attractive valuation for the real estate assets based
on an 8.3% capitalization rate (using the May 3, 2001 closing price of $25.18 per Archstone common share to value Archstone common shares to be issued in the merger), given the geographic distribution of the Smith Residential portfolio which is
located exclusively in protected markets;
|
|
Smith Residentials net operating income for its same-store portfoliomeaning the group of apartments that were
fully operating during the periods being comparedhas had a higher growth rate than Archstone has had for its same-store portfolio. Therefore management believes that the net operating income of the combined companys same-store portfolio
will grow at a greater rate than did Archstones same-store portfolio on a stand alone basis, which should also enhance the long-term growth rate of Archstones net earnings. The following table shows same-store revenue and net operating
income growth rates for each of the last three fiscal years:
|
Smith Residential |
Archstone |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 |
1999 |
1998 |
2000 |
1999 |
1998 |
|||||||||||||
Revenue | 7.7 | % | 6.5 | % | 4.8 | % | 6.7 | % | 3.6 | % | 3.6 | % | ||||||
Net operating income | 10.7 | % | 8.8 | % | 7.4 | % | 7.7 | % | 6.2 | % | 5.6 | % |
|
the combination of the two companies creates the potential for substantial revenue increases and approximately $7 million to
$8 million of anticipated cost synergies through the adoption of best practices of each party and the elimination of public company costs and other redundant expenses;
|
|
the acquisition of the Smith Residential portfolio and management team will add what the Archstone board believes to be
well-located high-rise assets as well as high-rise development and management capability to allow expansion of Archstones high-rise business into its west coast markets;
|
|
the transaction should result in improved liquidity for Archstone shareholders as a result of the increased equity
capitalization and the increased shareholder base, while at the same time allowing Archstone to retain a strong balance sheet. The combined company will have a combined total debt to total undepreciated book capitalization ratio of
42.6%;
|
|
the transaction will give Archstone access to another high-quality brand name in Archstones operating
platform;
|
|
the transaction would create the second largest publicly traded apartment REIT and the fourth largest publicly traded REIT
overall in the United States, based on total equity market capitalization, with a pro forma total market capitalization of approximately $9.3 billion based on the closing market price of Archstone common shares on May 3, 2001;
|
|
Archstone will be reorganized into a more typical UPREIT structure which will give the combined company a greater ability to
acquire assets using a tax deferred acquisition currency;
|
|
Archstone believes that the high quality of the portfolio of the combined company together with Archstone-Smiths
desirable national platform will make Archstone-Smith one of the most sought after purchasers of properties in the real estate market using UPREIT currency and therefore will increase the opportunity of the combined company to acquire attractive
properties;
|
|
the exchange ratio, which determines the number of Archstone-Smith common shares required to be issued in the merger and the
number of Archstone units required to be issued in the partnership merger, is fixed and will not be adjusted in the event of a decline in the trading price of Archstone common shares;
|
|
the due diligence review of Smith Residential and its assets conducted by Archstone management and its advisors, including,
among other things, site tours of a significant number of Smith Residentials properties, and Archstone managements favorable assessment of the high quality of Smith Residentials assets;
|
|
historical and prospective information concerning Archstones and Smith Residentials respective businesses,
operations and financial performance, including, among other things, the earnings prospects of Archstone and its debt service and financial obligations, both before and after the merger; and
|
|
the opinion, analyses and presentations of Morgan Stanley described under Opinion of Morgan Stanley below,
including the opinion of Morgan Stanley that, as of the date of that opinion, and based upon and limited by the matters stated in that opinion, the consideration to be paid by Archstone under the merger agreement is fair, from a financial point of
view, to Archstone.
|
Negative Factors Considered by the Archstone Board
|
|
the risk that the anticipated benefits of the merger and the partnership merger to Archstone and its shareholders may not be
realized as a result of possible changes in the real estate market in the Washington, D.C. and other markets;
|
|
the risk that anticipated benefits of the merger to Archstone and its shareholders may not be realized as a result of any
inability to achieve the anticipated cost savings and expense reduction and other potential difficulties in integrating the two companies and their respective operations;
|
|
the limitations on Archstones ability to sell the Smith Residential properties resulting from the tax related
undertakings, the tax protection agreement and other tax protection agreements between Smith Partnership and various unitholders to be assumed in connection with the merger as described under The Merger AgreementTax Related Undertakings
of ArchstoneAssumption of Smith Partnership Tax Protection Agreements beginning on page 113;
|
|
the significant cost involved in connection with completing the merger and the partnership merger, estimated to be
approximately $40 million in the aggregate, and the substantial management time and effort required to effect the merger and the partnership merger and integrate the businesses of Archstone and Smith Residential;
|
|
the estimated $0.03 dilution to Archstones 2002 funds from operations per share in connection with the
transaction;
|
|
the fact that the exchange ratio is fixed and will not be adjusted in the event of an increase in the trading price of
Archstone common shares or a decrease in the trading price of Smith Residential common stock;
|
|
the risk that the merger could be viewed negatively by investors or analysts and, as a result, the Archstone or
Archstone-Smith share price could be adversely affected;
|
|
the risk that rating agencies may view the merger and the partnership merger unfavorably and decrease Archstones rating
thereby potentially increasing Archstones cost of debt; and
|
|
the risk that the merger might not be completed based upon the failure to satisfy covenants or closing
conditions.
|
|
reviewed certain publicly available financial statements and other business and financial information of Smith Residential
and Archstone, respectively;
|
|
reviewed certain internal financial statements and other financial and operating data concerning Smith Residential prepared
by the management of Smith Residential;
|
|
analyzed certain internal financial forecasts prepared by the managements of Smith Residential and Archstone,
respectively;
|
|
reviewed information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared
by the managements of Smith Residential and Archstone, respectively;
|
|
discussed the past and current operations and financial condition and the prospects of Archstone, including information
relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of Archstone;
|
|
reviewed the pro forma impact of the merger on Archstones funds from operations per share, cash flow, and consolidated
capitalization and financial ratios;
|
|
reviewed the reported prices and trading activity for Smith Residential common stock and Archstone common shares,
respectively;
|
|
compared the financial performance of Smith Residential and Archstone and the prices and trading activity of Smith
Residential common stock and Archstone common shares with that of certain other publicly-traded companies comparable with Smith Residential and Archstone, respectively, and their securities;
|
|
reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
|
|
participated in discussions and negotiations among representatives of Smith Residential and Archstone and their financial and
legal advisors;
|
|
reviewed the draft merger agreement, dated as of May 3, 2001, and certain related documents; and
|
|
considered such other factors and performed such other analyses as Morgan Stanley deemed appropriate.
|
Metric |
Period Date |
Smith Residential
Stock Price |
Proposal
% Premium |
||||
---|---|---|---|---|---|---|---|
Price on May 2, 2001 | 5/2/01 | $44.91 | 10.7 | % | |||
Average Price | Last 2 weeks | 45.42 | 9.4 | ||||
Average Price | Last 6 months | 45.25 | 9.9 | ||||
Average Price | 2001 | 45.24 | 9.9 | ||||
Price on May 2, 2000 | 5/2/00 | 37.94 | 30.8 | ||||
All-Time High | 12/28/00 | 48.18 | 3.2 |
Terminal Forward 12-Month Capitalization Rates |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Discount Rates |
7.75% |
8.00% |
8.25% |
8.50% |
8.75% |
9.00% |
||||||
10.5% | 61.65 | 59.21 | 56.91 | 54.75 | 52.71 | 50.79 | ||||||
11.0% | 59.88 | 57.48 | 55.23 | 53.12 | 51.12 | 49.23 | ||||||
11.5% | 58.15 | 55.80 | 53.60 | 51.52 | 49.56 | 47.72 | ||||||
12.0% | 56.46 | 54.16 | 52.00 | 49.96 | 48.05 | 46.24 | ||||||
12.5% | 54.81 | 52.56 | 50.44 | 48.44 | 46.56 | 44.79 |
Terminal Forward 12-Month Funds From Operations Multiples |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Discount Rates |
9.0x |
9.5x |
10.0x |
10.5x |
11.0x |
|||||
14.0% | $50.69 | $52.85 | $55.00 | $57.16 | $59.31 | |||||
14.5% | 49.82 | 51.93 | 54.04 | 56.16 | 58.27 | |||||
15.0% | 48.96 | 51.03 | 53.11 | 55.18 | 57.25 | |||||
15.5% | 48.13 | 50.16 | 52.19 | 54.22 | 56.26 | |||||
16.0% | 47.31 | 49.30 | 51.30 | 53.29 | 55.28 |
|
Archstone;
|
|
AvalonBay Communities, Inc.;
|
|
BRE Properties, Inc.;
|
|
Equity Residential Properties Trust;
|
|
Essex Property Trust;
|
|
Post Properties, Inc.; and
|
|
Summit Properties Inc.
|
Price/Funds From
Operations Multiples |
Price/Adjusted
Funds From Operations Multiples |
Funds From
Operations Multiples/ Total Return |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2001 |
2002 |
2000 |
2001 |
2001 |
|||||||
High | 11.0x | 10.25x | 14.0x | 13.0x | 75.0 | % | |||||
Low | 9.5 | 9.0 | 12.5 | 12.0 | 60.0 |
20% Premium to: |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Price/Funds From
Operations Multiples |
Price/Adjusted
Funds From Operations Multiples |
Funds From
Operations Multiples/ Total Return |
||||||||
2001 |
2002 |
2000 |
2001 |
2001 |
||||||
High | $53.59 | $55.10 | $51.74 | $53.04 | $54.33 | |||||
Low | 46.28 | 48.38 | 46.20 | 48.96 | 46.17 |
|
Equity Residential Properties Trust acquisition of Grove Property Trust;
|
|
The Olympus Real Estate Corporation acquisition of Walden Residential Properties, Inc.;
|
|
Equity Residential Properties Trust acquisition of Lexford Realty Co.;
|
|
The Apto LLC (Krupp Group) acquisition of Berkshire Realty Co.;
|
|
The Irvine Company acquisition of Irvine Apartment Communities, Inc.;
|
|
Equity Residential Properties Trust acquisition of Merry Land & Investment Company;
|
|
Security Capital Pacific Trust acquisition of Security Capital Atlantic Incorporated;
|
|
Bay Apartment Communities, Inc. acquisition of Avalon Properties, Inc.;
|
|
Apartment and Investment Management Company acquisition of Ambassador Apartments, Inc.;
|
|
Camden Realty Trust acquisition of Oasis Residential, Inc.;
|
|
Equity Residential Properties Trust acquisition of Evans Withycombe Residential;
|
|
Post Properties, Inc. acquisition of Columbus Realty Trust;
|
|
Equity Residential Properties Trust acquisition of Wellsford Residential Properties Trust;
|
|
Camden Properties Trust acquisition of Paragon Group, Inc.;
|
|
United Dominion Realty Trust acquisition of South West Property Trust;
|
|
Wellsford Residential Properties Trust acquisition of Holly Residential Properties;
|
|
Equity Office Properties Trust pending acquisition of Spieker Properties, Inc.;
|
|
Equity Office Properties Trust acquisition of Cornerstone Properties, Inc.;
|
|
Duke Realty Investments, Inc. acquisition of Weeks Corporation;
|
|
New Plan Realty Trust acquisition of Excel Realty Trust;
|
|
Kimco Realty Corporation acquisition of Price REIT, Inc.;
|
|
Equity Office Properties Trust acquisition of Beacon Properties Corporation; and
|
|
Simon Property Group, Inc. acquisition of DeBartolo Realty Corporation.
|
Premium to |
|||||||||
---|---|---|---|---|---|---|---|---|---|
Unaffected
Price |
52-Week
High |
Green Street
Net Asset Value |
|||||||
Low | 5.0 | % | 0.0 | % | 7.5 | % | |||
High | 25.0 | 12.5 | 25.0 |
Premium to |
||||||
---|---|---|---|---|---|---|
Unaffected
Price |
52-Week
High |
Green Street
Net Asset Value |
||||
Low | $47.16 | $48.25 | $47.57 | |||
High | 56.14 | 54.28 | 55.31 |
Projected |
20022005 |
20012005 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 |
2002 |
2003 |
2004 |
2005 |
CAGR |
CAGR |
|||||||||||||
FFO Per Share |
|||||||||||||||||||
Smith Residential | $ 4.06 | $ 4.48 | $ 4.91 | $ 5.39 | $ 5.91 | 9.7% | 9.9% | ||||||||||||
Archstone | $ 2.32 | $ 2.53 | $ 2.76 | $ 3.01 | $ 3.28 | 9.0% | 9.0% | ||||||||||||
Combined | 2.29 | 2.49 | 2.70 | 2.94 | 3.20 | 8.7% | 8.7% | ||||||||||||
$ Accretion (Dilution) | $(0.03 | ) | $(0.04 | ) | $(0.05 | ) | $(0.07 | ) | $(0.08 | ) | |||||||||
% Accretion (Dilution) | (2.3 | )% | (1.6 | )% | (2.0 | )% | (2.2 | )% | (2.4 | )% | |||||||||
Synergies Assumed (p/t) | $ 3.4 | $ 7.0 | $ 7.2 | $ 7.4 | $ 7.6 |
|
the pro forma equity market capitalization for Archstone would be approximately $5.4 billion, assuming a share price of
$25.17 and assuming approximately 213.0 million Archstone-Smith common shares and Archstone common shares redeemable for Archstone-Smith common units outstanding after completion of the merger. The pro forma total market capitalization would be
approximately $9.3 billion assuming $3.6 billion in debt and $0.3 million of preferred stock; and
|
|
Archstones total debt to total market capitalization ratio would decrease, upon completion of the merger, from 39.3%
before the merger to 39.2% after the assumption of Smith Residentials outstanding debt plus incremental debt incurred for the payment of the transaction costs.
|
Positive Factors Considered by the Smith Residential Board
|
|
the terms of the merger agreement, including that each share of Smith Residential common stock will be converted into 1.975
common shares of Archstone-Smith, which based on the implied $49.73 per
share price represents a premium of 9.15% over the closing price for Smith Residential common stock as of May 3, 2001;
|
|
the fact that holders of Smith Residential common stock currently receive a dividend of $0.585 per share per quarter and
that, as adjusted to reflect the 1.975 Archstone-Smith common shares to be received in the merger for each outstanding share of Smith Residential common stock, such holders will receive a distribution of approximately $0.810 per quarter for such
share following the merger;
|
|
a combined company would own and operate an exceptional apartment portfolio concentrated in high barrier-to-entry markets,
including more than 70% of its property investments located in some of the nations most desirable protected markets, including the Washington, D.C. metropolitan area, Boston, Chicago, the San Francisco Bay area, southern California, southeast
Florida and Seattle;
|
|
the presence of Archstones complementary garden apartment properties in desirable protected geographic markets outside
of markets in which Smith Residential primarily operates its high-rise operations would result in a strong and varied property portfolio with an expanded geographic scope and would increase Archstone-Smiths ability to expand its high-rise
product to new markets;
|
|
the ability to maintain Smith Residentials high-rise residential operations as a semi-autonomous division of
Archstone-Smith and the preservation of the brand name, culture and traditions of the Smith Residential organization, which the Smith Residential board of directors believes add value to the Smith Residential assets;
|
|
the strong recognition and industry respect for the Archstone brand and the prospect of Archstone-Smith creating the
preeminent residential apartment industry brand following the merger;
|
|
the ability to maintain Smith Residentials primary business operations in the Crystal City area of Arlington, Virginia
which increases the likelihood of retaining talented employees and maintaining Smith Residentials long-time presence in the Washington, D.C. metropolitan area;
|
|
the similarity of the corporate cultures and philosophies of Smith Residential and Archstone promotes employee retention and
facilitates the integration of the companies;
|
|
managements belief that the complementary nature of Archstones garden apartment operations with Smith
Residentials high-rise operations facilitates the companies integration efforts and benefits each companys employees;
|
|
the reputation, strength and expertise of Archstones management team;
|
|
managements assessment that a merger of Smith Residential with another entity with a complementary property portfolio
and a strong presence in among the most desirable protected geographic markets was Smith Residentials most attractive strategic alternative, and that a combination of Smith Residential and Archstone would be expected to produce a combined
company with enhanced, long-term, sustainable growth due to, among other things:
|
|
Archstones strong market position in some of the most desirable protected real estate markets in the
nation;
|
|
Archstones internally funded expansion opportunities, which allow for enhanced development capability and enable the
national extension of Smith Residentials high-rise business to additional markets including, New York City, Los Angeles, San Francisco and Seattle; and
|
|
the operational efficiencies expected to result from the merger, which are estimated at $7 million dollars annually, allowing
a stronger, sustainable growth rate;
|
|
the fact that a combined company would result in a larger, more diverse and more liquid stockholder base for the Smith
Residential stockholders and the likelihood that the larger, more diverse stockholder base of the combined company would result in a lower cost of capital for the combined company, enhance liquidity and increase financial flexibility;
|
|
the fact that two of the three representatives of Smith Residential, or their nominees, to be elected to the Archstone-Smith
board of trustees will be nominated to continue to serve on such board for a period of ten years, increasing the likelihood that Smith Residential stockholders interests will continue to be represented following the merger;
|
|
the fact that the initial president of the Smith Residential high-rise division of Archstone-Smith will be W.D. Minami,
president of Smith Residential, which should benefit employees of Smith Residential and therefore help to preserve the special characteristics and value of the Smith Residential business;
|
|
the due diligence review of Archstone and its assets conducted by or on behalf of Smith Residential management by its
advisors, including, among other things, site tours of a number of Archstones properties, and Smith Residential managements assessment of the high quality of Archstones assets;
|
|
the financial presentation of Goldman Sachs on May 3, 2001 and the oral opinion of Goldman Sachs rendered to the Smith
Residential board on May 3, 2001 that, as of May 3, 2001, the exchange ratio of 1.975 Archstone-Smith common shares to be received for each share of Smith Residential common stock pursuant to the initial merger agreement was fair, from a financial
point of view, to the Smith Residential common stockholders and the written confirmation of its oral opinion, dated as of May 31, 2001, to the Smith Residential board that, as of May 3, 2001, the exchange ratio of 1.975 Archstone-Smith common shares
to be received for each share of Smith Residential common stock pursuant to the merger agreement, as amended and restated, was fair, from a financial point of view, to the Smith Residential common stockholders;
|
|
the social and economic effect on the employees of Smith Residential and its subsidiaries, including, among other things,
similar corporate cultures and philosophies of Smith Residential and Archstone and that the merger agreement requires Archstone-Smith to allow former Smith Residential employees to participate in Archstone-Smith plans in substantially the same
manner as other similarly situated employees of Archstone-Smith or, if not practicable in the determination of Archstone-Smith, to allow former Smith Residential employees to continue to be eligible to participate in Smith Residential employee
benefit plans;
|
|
the fact that the consideration to be received by Smith Residential common stockholders in the merger, except for any cash
paid instead of fractional shares of Archstone-Smith, will generally be a tax-free transaction to those stockholders; and
|
|
the likelihood that the transactions contemplated by the merger agreement would be successfully completed.
|
Negative Factors Considered by the Smith Residential Board
|
|
the fact that the consideration to be received by Smith Residential common stockholders consists of Archstone-Smith common
shares, the exact number of which is based on a fixed exchange ratio of 1.975 Archstone-Smith common shares for each share of Smith Residential common stock. As a result, a decrease in the trading price of Archstone common shares before the closing
of the merger will reduce the value of the per share and aggregate consideration that will be received by the Smith Residential stockholders;
|
|
the risk that the anticipated benefits of the merger to Smith Residential stockholders discussed above under
Positive Factors Considered by the Smith Residential Board may not be realized as a result of possible changes in the real estate market or as a result of potential difficulties in integrating the two companies and their respective
operations;
|
|
the risk that the market may not perceive the combination of Smith Residentials high-rise residential operations and
Archstones garden apartment operations as a positive factor;
|
|
the possibility that the public announcement of the merger would lead to a decrease in the trading price of Archstones
common shares which, due to the fact that the consideration to be received by Smith Residential common stockholders consists entirely of Archstone-Smith common shares, would reduce the overall value of the merger consideration;
|
|
the possibility that a public announcement of the merger would make it more difficult for Smith Residential to retain
employees because of the likelihood that some Smith Residential employees would anticipate that they would not have a position with the combined company and would begin to search for new employment even before the merger closed;
|
|
the estimated dilution of funds from operations per share for Archstone common shares in 2002, which the Smith Residential
board estimated to be approximately $0.045 per share, as a result of the merger;
|
|
the significant cost involved in connection with completing the merger, which the Smith Residential board estimated at $40
million in the aggregate, the substantial management time and effort required to effectuate the merger and to integrate the businesses of the companies and the related disruption to Smith Residentials operations; and
|
|
the termination fee of up to $95 million payable by Smith Residential and Smith Partnership to Archstone under certain
circumstances, which might discourage some proposals to acquire Smith Residential because of the increased price that the acquiror would have to pay.
|
|
the initial merger agreement and the merger agreement;
|
|
the Annual Reports to Stockholders and Annual Reports on Form 10-K of Smith Residential and Archstone for the five years
ended December 31, 2000;
|
|
interim reports to stockholders and Quarterly Reports on Form 10-Q of Smith Residential and Archstone;
|
|
other communications from Smith Residential and Archstone to their respective stockholders, including proxy materials, press
releases and investor presentations and quarterly financial disclosures publicly available at the time; and
|
|
internal financial analyses and forecasts for Smith Residential and Archstone prepared by their respective managements,
including certain estimates of net cost savings and operating synergies projected by the managements of Smith Residential and Archstone to result from the transactions contemplated by the merger agreement.
|
|
reviewed the reported price and trading activity for shares of Smith Residential common stock and the Archstone common
shares;
|
|
compared financial and stock market information for Smith Residential and Archstone with similar information for certain
other companies the securities of which are publicly traded;
|
|
reviewed the financial terms of recent business combinations in the real estate industry and in other industries generally
and performed other studies and analyses it considered appropriate.
|
|
AvalonBay Communities, Inc.;
|
|
Archstone Communities Trust;
|
|
Essex Properties Trust, Inc.;
|
|
BRE Properties, Inc.;
|
|
Equity Residential Properties Trust;
|
|
Post Properties, Inc.;
|
|
Summit Properties, Inc.;
|
|
Gables Residential Trust;
|
|
Home Properties of New York, Inc.;
|
|
Camden Property Trust;
|
|
United Dominion Realty Trust, Inc.; and
|
|
Apartment Investment & Management Co.
|
|
the May 1, 2001 closing share price as a percentage of the 52-week high share price;
|
|
the annual dividend yield;
|
|
total market capitalization;
|
|
net debt as a percentage of total market capitalization;
|
|
the May 1, 2001 closing share price as a multiple of estimated 2001 and 2002 FFO;
|
|
the estimated FFO growth rate for 2001 to 2002; and
|
|
the May 1, 2001 closing share price as a percentage of NAV.
|
Transaction Price |
Current Market Price |
|||||
---|---|---|---|---|---|---|
Closing price on May 1, 2001 as a percentage of 52-week high | 105.4 | % | 93.5 | % | ||
Annual dividend yield | NA | 5.2 | % | |||
Total market capitalization (in millions) | $3,378.4 | $3,172.6 | ||||
Net debt as a percentage of total market capitalization | 37.0 | % | 39.5 | % | ||
Price/2001E FFO | 12.7 | x | 11.3 | x | ||
Price/2002E FFO | 11.6 | x | 10.3 | x | ||
Estimated 2001-2002 FFO growth rate | 9.7 | % | 9.7 | % | ||
Stock price as a percentage of NAV | 114.9 | % | 102.0 | % |
Transaction Price |
Current Market Price |
|||||
---|---|---|---|---|---|---|
Closing price on May 1, 2001 as a percentage of 52-week high | 105.4 | % | 93.5 | % | ||
Annual dividend yield | NA | 5.2 | % | |||
Total market capitalization (in millions) | $3,378.4 | $3,172.6 | ||||
Net debt as a percentage of total market capitalization | 37.0 | % | 39.5 | % | ||
Price/2001E FFO | 12.5 | x | 11.1 | x | ||
Price/2002E FFO | 11.3 | x | 10.1 | x | ||
Estimated 2001-2002 FFO growth rate | 10.3 | % | 10.3 | % | ||
Stock price as a percentage of NAV | 114.9 | % | 102.0 | % |
HIGH |
MEDIAN |
MEAN |
LOW |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Closing price on May 1, 2001 as a percentage of 52
week high |
99.5 | % | 90.6 | % | 90.8 | % | 78.7 | % | ||||
Annual dividend yield | 8.4 | % | 7.2 | % | 7.0 | % | 5.2 | % | ||||
Total market capitalization (in millions) | $14,547.2 | $2,898.9 | $4,471.3 | $1,666.6 | ||||||||
Net debt as a percentage of total market capitalization | 51.8 | % | 41.0 | % | 41.5 | % | 32.0 | % | ||||
Price/2001E FFO | 11.2 | x | 9.6 | x | 9.7 | x | 8.2 | x | ||||
Price/2002E FFO | 10.2 | x | 8.9 | x | 8.9 | x | 7.4 | x | ||||
Estimated 2001-2002 FFO growth rate | 12.8 | % | 8.8 | % | 8.8 | % | 5.8 | % | ||||
Stock price as a percentage of NAV | 100.6 | % | 94.3 | % | 94.1 | % | 86.1 | % |
Period |
Implied Exchange Ratio |
|
---|---|---|
May 1, 2001 | 1.753x | |
Five day average for the period ended May 1, 2001 | 1.778x | |
Ten day average for the period ended May 1, 2001 | 1.794x | |
Three month average for the period ended May 1, 2001 | 1.826x | |
One year average for the period ended May 1, 2001 | 1.782x |
Equity Discount Rate |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
12.0% |
13.0% |
14.0% |
15.0% |
|||||||
Terminal | 9.5x | $46.84 | $44.98 | $43.21 | $41.54 | |||||
10.0x | $48.79 | $46.85 | $45.00 | $43.25 | ||||||
FFO | 10.5x | $50.75 | $48.72 | $46.79 | $44.96 | |||||
11.0x | $52.70 | $50.59 | $48.58 | $46.68 | ||||||
Multiple | 11.5x | $54.66 | $52.46 | $50.37 | $48.39 | |||||
Equity Discount Rate | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
12.0% |
13.0% |
14.0% |
15.0% |
|||||||
Terminal | 9.5x | $48.57 | $46.64 | $44.80 | $43.06 | |||||
10.0x | $50.62 | $48.60 | $46.68 | $44.85 | ||||||
FFO | 10.5x | $52.67 | $50.56 | $48.55 | $46.64 | |||||
11.0x | $56.80 | $54.51 | $52.33 | $50.26 | ||||||
Multiple | 11.5x | $58.94 | $56.56 | $54.29 | $52.14 |
Acquirer |
Target |
|
---|---|---|
Equity Office Properties Trust | Spieker Properties, Inc. | |
Equity Office Properties Trust | Cornerstone Properties, Inc. | |
Duke Realty Investments, Inc. | Weeks Corporation | |
Equity Residential Properties Trust | Merry Land & Investment Co. | |
Camden Property Trust | Oasis Residential, Inc. | |
Equity Residential Properties Trust | Evans Withycombe Residential | |
Equity Residential Properties Trust | Wellsford Residential Properties Trust |
|
the premium of the implied offer price to the target stock price on the day prior to announcement of the particular
transaction;
|
|
the transaction FFO multiple, based on the implied offer price and current year IBES FFO estimates for transactions announced
prior to June 30 and forward year IBES FFO estimates for transactions announced after June 30; and
|
|
the transaction FFO multiple as a percentage of the acquirors FFO multiple.
|
Selected REIT Mergers |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
High |
Median |
Low |
Proposed
Transaction* |
|||||||||
Premium of implied offer price to target stock price on day prior
to announcement |
21.0 | % | 11.5 | % | 5.3 | % | 12.7 | % | ||||
Transaction FFO multiple | 12.7 | x | 11.5 | x | 10.1 | x | 12.7 | x | ||||
Transaction FFO multiple as a percentage of acquirers FFO
multiple |
124.1 | % | 98.7 | % | 94.9 | % | 114.6 | % |
*As of May 1, 2001.
|
|
financial advisor to Smith Residential in connection with its private placement of $90 million aggregate amount of Series H
cumulative convertible redeemable preferred shares of Smith Residential and Series H preferred units of Smith Partnership in September 1999; and
|
|
having acted as financial advisor to Smith Residential in connection with, and participating in certain of the negotiations
leading to, the merger agreement.
|
|
Goldman Sachs also has provided certain investment banking services to Archstone from time to time, including having acted
as:
|
|
agent and dealer on Archstones Medium Term Notes Program and having placed $50 million aggregate principal amount of
Archstones Medium Term Notes over the last three years; and
|
|
lead-managing underwriter of a secondary public offering of 29,500,000 Archstone common shares in February 2001.
|
Name |
Unvested Smith
Residential Stock Options |
Total Outstanding
Smith Residential Stock Options |
Average Exercise
Price of Outstanding Smith Residential Stock Options |
Cash Value of
Tender of Outstanding Smith Residential Stock Options |
||||
---|---|---|---|---|---|---|---|---|
Ernest A. Gerardi, Jr. | 206,566 | 269,350 | $ 38.08 | $ 3,071,914 | ||||
Roger J. Kiley, Jr. | 0 | 5,000 | $ 38.00 | $ 57,400 | ||||
Robert P. Kogod | 219,816 | 325,100 | $ 32.96 | $ 5,369,242 | ||||
R. Michael McCullough | 0 | 5,000 | $ 35.06 | $ 72,100 | ||||
Robert H. Smith | 219,816 | 325,100 | $ 32.96 | $ 5,369,242 | ||||
Karen Hastie Williams | 0 | 5,000 | $ 38.00 | $ 57,400 | ||||
W.D. Minami | 59,966 | 99,800 | $ 36.85 | $ 1,249,382 | ||||
Alfred G. Neely | 47,023 | 64,340 | $ 37.16 | $ 792,890 | ||||
Charles B. Gill | 0 | 0 | N/A | N/A | ||||
Matthew B. McCormick | 65,996 | 65,996 | $ 38.96 | $ 694,101 | ||||
Robert D. Zimet | 33,608 | 33,608 | $ 38.01 | $ 365,631 | ||||
Steve F. Hallsey | 30,000 | 30,000 | $ 45.77 | $ 113,100 | ||||
All directors and executive
officers as a group (12 persons) |
878,761 | 1,228,294 | $ 35.44 | $17,212,402 |
|
a reduction in base salary, fringe benefits or bonus eligibility, except when generally applicable to peer
employees,
|
|
a substantial reduction of responsibilities or areas of supervision or an instruction to report to a lower level supervisor
after a change in control,
|
|
a substantial increase in responsibilities or areas of supervision without an appropriate increase in compensation,
or
|
|
after a change in control, a required change of office location outside of the metropolitan area in which the
executive was previously located.
|
|
if, during the first six months following the merger, Mr. Minami terminates his employment with Archstone-Smith for any
reason, he will be entitled to the benefits he would have been entitled to receive under his existing severance agreement with Smith Residential had his employment terminated immediately prior to the merger for good reason; and
|
|
Mr. Minami will not be subject to the non-competition provisions of the severance arrangement.
|
Target Bonus Advances
|
|
holders of Class A common units in Smith Partnership, other than Archstone-Smith, as successor to Smith Residential as a
result of the merger, will receive, for each Smith Partnership Class A common unit issued and outstanding immediately before the partnership merger, 1.975 Archstone Class A-1 common units, rounded to the nearest whole unit, with 0.5 of a unit
rounded up;
|
|
holders of Class B common units in Smith Partnership will receive for each Smith Partnership Class B common unit issued and
outstanding immediately before the partnership merger, 1.975 Archstone Class B common units, rounded to the nearest whole unit, with 0.5 of a unit rounded up;
|
|
Archstone-Smith, as successor to Smith Residential as a result of the merger, will receive, for each Smith Partnership Class
A common unit issued and outstanding held by it immediately before the partnership merger, 1.975 Archstone Class A-2 common units, rounded to the nearest whole unit, with 0.5 of a unit rounded up;
|
|
the Series A preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series H preferred units of Archstone;
|
|
the Series C preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series I preferred units of Archstone;
|
|
the Series E preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series J preferred units of Archstone;
|
|
the Series F preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series K preferred units of Archstone; and
|
|
the Series G preferred units of Smith Partnership held by Archstone-Smith will be exchanged for an equivalent number of
Series L preferred units of Archstone.
|
Purpose
|
|
to attract and retain persons eligible to participate in the plan;
|
|
to motivate participants, by means of appropriate incentives, to achieve long-range goals;
|
|
to provide incentive compensation opportunities that are competitive with those of other similar companies; and
|
|
to further identify participants interests with those of Archstone-Smiths other shareholders through compensation
that is based on Archstone-Smith common shares, and to thereby promote the long-term financial interest of Archstone-Smith and its subsidiaries, including the growth in value of Archstone-Smiths equity and enhancement of long-term shareholder
return.
|
General
|
|
no more than 1,000,000 common shares may be issued for options and share appreciation rights granted to any one
individual in any one calendar-year period; and
|
|
no more than 1,000,000 common shares may be issued for bonus shares, share unit awards, performance share awards,
performance unit awards, restricted share awards and restricted share unit awards that are intended to be performance-based compensation granted to any one individual during any one calendar-year period.
|
|
adjustment of the number and kind of shares which may be delivered under the plan;
|
|
adjustment of the number and kind of shares subject to outstanding awards;
|
|
adjustment of the exercise price of outstanding options and share appreciation rights; and
|
|
any other adjustments that the committee determines to be equitable.
|
Replacement Awards
|
Options
|
Share Appreciation Rights
|
Other Share Awards
|
|
bonus sharesa grant of common shares in return for previously performed services, or in return for the participant
surrendering other compensation that may be due;
|
|
share unitsa right to receive common shares in the future;
|
|
performance shares and performance unitsa right to receive common shares or share units, or the right to receive a
designated dollar value of common shares that is contingent upon achievement of performance or other objectives;
|
|
restricted shares and restricted share unitsa grant of common shares and a grant of the right to receive common shares
in the future, with such shares or rights subject to a risk of forfeiture or other restrictions that lapse upon the achievement of one or more goals relating to completion of service by the participant or the achievement of performance or other
objectives, as determined by the committee.
|
Amendment and Termination
|
Federal Income Tax Considerations
|
Non-Qualified Options
|
Incentive Share Options
|
Replacement Awards
|
Change In Control
|
Tax Advice
|
Primary Structure
|
|
holders of Archstone common shares will receive, for each Archstone common share issued and outstanding immediately before
the merger, one Archstone-Smith common share;
|
|
holders of Archstone Series A preferred shares will receive, for each Archstone Series A preferred share issued and
outstanding immediately before the merger, one Archstone-Smith Series A preferred share;
|
|
holders of Archstone Series C preferred shares will receive, for each Archstone Series C preferred share issued and
outstanding immediately before the merger, one Archstone-Smith Series C preferred share;
|
|
holders of Archstone Series D preferred shares will receive, for each Archstone Series D preferred share issued and
outstanding immediately before the merger, one Archstone-Smith Series D preferred share;
|
|
holders of Archstone Series E preferred shares, if any, will receive, for each Archstone Series E preferred share issued and
outstanding immediately before the merger, one Archstone-Smith Series E preferred share;
|
|
holders of Archstone Series F preferred shares, if any, will receive, for each Archstone Series F preferred share issued and
outstanding immediately before the merger, one Archstone-Smith Series F preferred share; and
|
|
holders of Archstone Series G preferred shares, if any, will receive, for each Archstone Series G preferred share issued and
outstanding immediately before the merger, one Archstone-Smith Series G preferred share.
|
|
the average closing price of an Archstone common share on the New York Stock Exchange for the 20 trading days immediately
preceding the closing date of the Archstone reorganization by
|
|
the fraction of an Archstone-Smith common share which such holder would otherwise be entitled to receive.
|
Alternative Structure
|
|
the Archstone shareholders either disapprove or fail to approve the proposed amendment to the Archstone declaration of trust
within 110 days after the matter is submitted for their approval or, if earlier, by March 1, 2002; or
|
|
the Archstone shareholders approve the proposed amendment to the Archstone declaration of trust, the merger agreement, the
merger and the partnership merger, but the reorganization of Archstone into an UPREIT through the primary structure is not consummated within 60 days after the Archstone shareholders approval.
|
|
the average closing price of an Archstone common share on the New York Stock Exchange for the 20 trading days immediately
preceding the closing date of the Archstone reorganization by
|
|
the fraction of an Archstone-Smith common share which such holder would otherwise be entitled to receive.
|
|
holders of Smith Residential common stock will receive, for each share of Smith Residential common stock issued and
outstanding immediately before the merger, 1.975 Archstone-Smith common shares;
|
|
holders of Smith Residential Series A preferred stock will receive, for each share of Smith Residential Series A preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series H preferred share;
|
|
holders of Smith Residential Series C preferred stock will receive, for each share of Smith Residential Series C preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series I preferred share;
|
|
holders of Smith Residential Series E preferred stock will receive, for each share of Smith Residential Series E preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series J preferred share;
|
|
holders of Smith Residential Series F preferred stock will receive, for each share of Smith Residential Series F preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series K preferred share; and
|
|
holders of Smith Residential Series G preferred stock will receive, for each share of Smith Residential Series G preferred
stock issued and outstanding immediately before the merger, one Archstone-Smith Series L preferred share.
|
|
the average closing price of an Archstone common share on the New York Stock Exchange for the 20 trading days preceding the
closing date of the merger by
|
|
the fraction of an Archstone-Smith common share which such holder would otherwise be entitled to receive.
|
|
the excess, if any, of $49.48 over the exercise price of the Smith Residential stock options, multiplied by
|
|
the number of shares of Smith Residential common stock subject to that Smith Residential stock option.
|
|
due organization and good standing;
|
|
capital structure;
|
|
authorization to enter into the merger agreement and to consummate the merger or the partnership merger, as
applicable;
|
|
enforceability of the merger agreement;
|
|
no breach of organizational documents or material agreements as a result of the merger agreement or the consummation of the
merger or the partnership merger, as applicable;
|
|
required governmental and third-party consents;
|
|
compliance with SEC reporting requirements;
|
|
no material undisclosed liabilities;
|
|
no changes since December 31, 2000 that would have a material adverse effect;
|
|
no material legal proceedings;
|
|
real property;
|
|
environmental matters;
|
|
tax matters, including qualification as a REIT;
|
|
finders fees;
|
|
compliance with laws;
|
|
contracts and debt instruments;
|
|
receipt of opinion of financial advisor;
|
|
exemption from anti-takeover statutes;
|
|
inapplicability of the Investment Company Act of 1940; and
|
|
required stockholder and unitholder approvals.
|
|
disclosure of all related party transactions;
|
|
appropriate funding of employee benefit plans and compliance with applicable regulations;
|
|
disclosure of all payments to employees, officers and directors as a result of the merger or the partnership merger or a
termination of service after the merger or the partnership merger; and
|
|
action by Smith Residentials board of directors to render the stockholder rights plan inapplicable to the merger and
the partnership merger.
|
|
conduct its business only in the ordinary course and in a manner which is substantially consistent with past
practice;
|
|
use commercially reasonable efforts to preserve intact its business organizations and goodwill;
|
|
use commercially reasonable efforts to keep available the services of its officers and employees, provided that, in the case
of Smith Residential, such efforts do not require additional compensation;
|
|
confer on a regular basis with the other party to report material operational matters and, subject to the non-solicitation
provision of the merger agreement as discussed in No Solicitation by Smith Residential below, any proposals to engage in material transactions;
|
|
promptly notify the other party of the occurrence or existence of any circumstance, event, occurrence, change or effect that
has had or would reasonably be expected to have a material adverse effect on the business, properties, assets, financial condition or results of operations of the party providing such notice and its subsidiaries taken as a whole;
|
|
promptly deliver to the other party true and correct copies of any report, statement, schedule or other document filed with
the SEC;
|
|
maintain its books and records in accordance with generally accepted accounting principles consistently applied, and not
change any of its methods, principles or practices of accounting in any material manner, except as required by the SEC, applicable law or generally accepted accounting principles;
|
|
duly and timely file all reports, tax returns and other documents required to be filed with federal, state, local and other
authorities, subject to extensions permitted by law, provided that notice of the partys availing itself to such extension is provided to the other party and that such extensions do not adversely affect its status as a REIT under the Internal
Revenue Code; and
|
|
maintain in full force and effect insurance coverage substantially similar to insurance coverage maintained on the date of
the merger agreement.
|
|
unless required by law or necessary either to preserve a partys status as a REIT or to qualify or preserve the status
of any subsidiary of a party as a partnership for federal income tax purposes, as a qualified REIT subsidiary or as a taxable REIT subsidiary as defined under the Internal Revenue Code, as the case may be:
|
|
make or rescind any express or deemed election relating to taxes; or
|
|
change in any material respect any of its methods of reporting income or deductions for federal income tax purposes from
those employed in the preparation of its federal income tax returns that have been filed for prior taxable years, except as may be required by applicable law or except for changes that are reasonably expected not to have a material adverse effect on
Archstone and its subsidiaries or Smith Residential and its subsidiaries, respectively;
|
|
amend its organizational documents except in specified instances, including, in the case of Archstone, the proposed amendment
to Archstones declaration of trust and the amendment and restatement of its charter documents in connection with the transactions contemplated by the merger agreement;
|
|
classify or reclassify any unissued shares of beneficial interest, with respect to Archstone, or shares of stock, with
respect to Smith Residential, except in specified circumstances;
|
|
make any change in the number of shares of beneficial interest with respect to Archstone, and the number of shares of stock,
membership interests or units with respect to Smith Residential and Smith Partnership, issued and outstanding, except in specified instances;
|
|
authorize, declare, set aside or pay any dividend, or make any other distribution or payment with respect to Archstone common
or preferred shares or the Smith Residential common or preferred stock or the common or preferred units of Smith Partnership, except quarterly distributions, with respect to Smith Residential common stock and Archstone common shares, or regular
distributions under the partnership agreement of Smith Partnership, redemptions of Smith Partnership units under the partnership agreement of Smith Partnership where solely Smith Residential common stock is used and in connection with the use of
Smith Residential common stock to pay the exercise price or tax withholding in connection with equity-based employee benefit plans, or as necessary to maintain REIT status and avoid corporate level taxation with respect to any undistributed income
or gain;
|
|
directly or indirectly redeem, purchase or acquire any shares of capital stock or any option, warrant or right to acquire, or
security convertible into, shares of capital stock, of Archstone or units of partnership interest of Smith Residential or any Smith Residential subsidiary, other than the use of Archstone common stock in connection with equity-based employee benefit
plans or other than redemptions of Smith Partnership units under the partnership agreement of Smith Partnership where solely Smith Residential common stock is used, the use of Smith Residential common stock to pay the exercise price or tax
withholding in connection with equity-based employee benefit plans or as necessary to maintain REIT status and avoid corporate level taxation with respect to any undistributed income or gain;
|
|
adopt any new employee benefit plan, policy, program or arrangement, or amend any existing employee plans or rights, except
in specified instances;
|
|
settle any stockholder derivative or class action claims arising out of or in connection with any of the transactions
contemplated by the merger agreement;
|
|
with respect to Archstone only, enter into or agree to effect:
|
|
any merger, acquisition, consolidation, reorganization or other business combination with any third party in which Archstone
is not the surviving party to the transaction, or
|
|
any merger, acquisition, exchange offer or other business combination with a third party in which Archstone is the surviving
party that would result in the issuance of equity securities representing in excess of 15% of the outstanding Archstone common shares on the date any business combination is entered into or agreed to;
|
unless, in either case, the business combination is approved by Smith Residential, which approval will not be unreasonably
withheld or delayed, or
|
|
authorize or publicly announce an intention to do any of the prohibited actions in this Conduct of Business Pending the
Merger section, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing prohibited actions.
|
|
unless required by law or necessary to preserve Smith Residentials status as a REIT or to qualify or preserve the
status of any subsidiary of Smith Residential as a partnership for federal income tax purposes, as a qualified REIT subsidiary or as a taxable REIT subsidiary as defined under the Internal Revenue Code, as the case may be, settle or compromise any
material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to taxes, except where such settlement or compromise will not materially and adversely affect Smith Residential and its subsidiaries
taken as a whole;
|
|
acquire, enter into any option to acquire, or exercise an option or other right or election or enter into any commitment for
the acquisition of any real property, except as permitted in a property capital budget approved in writing by Archstone, or transactions involving consideration of less than $10,000,000 in the aggregate for all such transactions;
|
|
encumber assets, commence construction of or enter into any commitment to develop or construct real estate projects, except
for specified ongoing renovations or capital repair projects or in the ordinary course of its leasing activities consistent with past practice;
|
|
incur or enter into any commitment to incur additional debt, except for refinancings of specified debt in the ordinary course
of its business consistent with past practices and on commercially reasonable terms, working capital under its revolving line(s) of credit or other debt that is secured by a second mortgage on any property of Smith Residential or its subsidiaries
and commitments for debt for specified purposes so long as their consolidated debt does not exceed specified amounts;
|
|
materially modify, amend or terminate, or enter into any commitment to materially modify, amend or terminate, any debt in
existence on the date of the merger agreement, except in specified instances;
|
|
grant options or any other rights or commitments relating to its shares of capital stock, membership interests or units, or
any security convertible into its shares of capital stock, membership interests or units, or any security the value of which is measured by shares of beneficial interest, or any security subordinated to the claim of its general creditors, except in
specified instances;
|
|
amend or waive any rights under any options or other stock rights;
|
|
sell, lease, mortgage, subject to lien or otherwise dispose of any real property, except in specified instances, in the
ordinary course of business and in connection with real property that is the subject of a binding contract in existence on May 3, 2001, or in connection with leasing activities consistent with past practice and good business judgment;
|
|
sell, lease, mortgage, subject to lien or otherwise dispose of any personal property or intangible property, except in the
ordinary course of business and as is not material, individually or in the aggregate;
|
|
make any loans, advances or capital contributions to, or investments in, any other person, except in specified
instances;
|
|
enter into any new, or amend or supplement any existing, contract, lease or other agreement with Smith Management
Construction, Inc. or Consolidated Engineering Services, Inc.;
|
|
pay, discharge or satisfy any claims, liabilities or obligations whether absolute, accrued, asserted or unasserted,
contingent or otherwise, except in specified instances;
|
|
guarantee the debt of another person, enter into any keep well or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the same economic effect, except in specified instances;
|
|
enter into any commitment with any officer, director or affiliate of Smith Residential or any of its subsidiaries or Smith
Management Construction, Inc. or Consolidated Engineering Services, Inc., or with a consultant, except in specified instances;
|
|
increase any compensation, pay any bonuses or enter into or amend any employment, severance or other arrangement with any of
its officers, directors or employees earning more than $100,000 per year, other than as required by any contract or employee plan;
|
|
change the ownership of any of its subsidiaries or Smith Management Construction, Inc. or Consolidated Engineering Services,
Inc., except in specified instances;
|
|
accept a promissory note in payment of the exercise price payable under any option to purchase shares of Smith Residential
common stock;
|
|
enter into any tax protection agreement;
|
|
settle or compromise any material federal, state, local or foreign tax liability; or
|
|
authorize or publicly announce an intention to do any of the prohibited actions in this Conduct of Business Pending the
Merger section, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing prohibited actions.
|
Regular Dividends
|
Final Dividend
|
Conditions to Each Partys Obligations to Effect the Merger and the Partnership Merger
|
|
the approval of the merger and the merger agreement by the affirmative vote of the holders of:
|
|
at least a majority of the outstanding Archstone common shares;
|
|
at least two-thirds of the outstanding shares of Smith Residential common stock; and
|
|
the approval of the partnership merger by the consent of at least a majority of the outstanding common units of Smith
Partnership, including common units owned by Smith Residential;
|
|
the approval of the amendment to the partnership agreement of Smith Partnership by at least a majority of the outstanding
common units of Smith Partnership, excluding common units owned by Smith Residential;
|
|
the waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 will have expired or been
terminated;
|
|
the New York Stock Exchange will have approved for listing the Archstone-Smith common shares, the Archstone-Smith Series A
preferred shares, the Archstone-Smith Series C preferred shares and the Archstone-Smith Series D preferred shares to be issued in the merger;
|
|
the registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part will have become effective
and will not be the subject of any stop order or proceedings by the SEC seeking a stop order;
|
|
the registration statement on Form S-4 relating to the partnership merger of which the consent solicitation
statement/prospectus forms a part will have become effective and will not be the subject of any stop order or proceedings by the SEC seeking a stop order;
|
|
no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the completion of the Archstone reorganization, the merger or the partnership merger, or any of the other transactions contemplated by the merger agreement will be in effect;
and
|
|
Archstone and Archstone-Smith will have received all state securities or blue sky permits and other
authorizations necessary to issue the Archstone-Smith common and preferred shares issuable in the Archstone reorganization and the merger and the Archstone common and preferred units issuable in the partnership merger.
|
Conditions to the Obligations of Archstone-Smith and Archstone to Effect the Merger and the Partnership
Merger
|
|
each of the representations and warranties of Smith Residential and Smith Partnership contained in the merger agreement,
disregarding exceptions relating to materiality or a Smith Residential material adverse effect, as described below, will be true and correct as of the date of the merger agreement and as of the closing of the merger and the partnership merger
except:
|
|
to the extent that these representations and warranties are expressly limited by their terms to another date, in which case
these representations and warranties will be true and correct as of that other date; and
|
|
where the failure of these representations and warranties to be true and correct would not, individually or in the aggregate,
reasonably be expected to have a Smith Residential material adverse effect, as described below;
|
|
Smith Residential and Smith Partnership will have performed in all material respects all obligations required to be performed
by them under the merger agreement at or before the completion of the merger and the partnership merger;
|
|
since May 3, 2001, there will have been no Smith Residential material adverse effect, as described below;
|
|
Archstone will have received a certificate of an officer of Smith Residential certifying to each of the above;
|
|
Archstone will have received an opinion, dated as of the closing date of the merger, from counsel:
|
to Smith Residential relating to the REIT status of Smith Residential and the partnership status of Smith Partnership;
|
to Archstone relating to the REIT status of Archstone and Archstone-Smith;
|
to Archstone relating to the federal income tax treatment of the merger and the partnership merger; and
|
to Archstone relating to the federal income tax treatment of the reorganization of Archstone into an UPREIT.
|
|
Archstone will have received a comfort letter from Arthur Andersen LLP;
|
|
all of the voting shares of Smith Management Construction, Inc. will have been transferred to an Archstone subsidiary
designated by Archstone;
|
|
the recapitalization of Consolidated Engineering Services, Inc. as described in Acquisition of Consolidated
Engineering Services, Inc. will have occurred; and
|
|
each of Messrs. Robert H. Smith and Robert P. Kogod will have entered into the shareholders agreement with Archstone and
Archstone-Smith.
|
|
changes in general economic conditions nationally or regionally;
|
|
changes affecting the real estate industry generally which do not affect Smith Residential or Smith Partnership, as the case
may be, materially disproportionately relative to other participants in the real estate industry similarly situated; or
|
|
in and of itself and without the occurrence of any other Smith Residential material adverse effect, changes in the trading
prices of Smith Residential common stock or any series of Smith Residential preferred stock.
|
Conditions to the Obligations of Smith Residential and Smith Partnership to Effect the Merger and the Partnership
Merger
|
|
each of the representations and warranties of Archstone and Archstone-Smith contained in the merger agreement, disregarding
exceptions relating to materiality or an Archstone material adverse effect, as described below, will be true and correct as of the date of the merger agreement and as of the closing of the merger and the partnership merger, except:
|
|
to the extent that these representations and warranties are expressly limited by their terms to another date, in which case
these representations and warranties will be true and correct as of that other date; and
|
|
where the failure of these representations and warranties to be true and correct would not reasonably be expected to have an
Archstone material adverse effect, as described below;
|
|
Archstone and Archstone-Smith will have performed in all material respects all obligations required to be performed by them
under the merger agreement at or before the completion of the merger and the partnership merger;
|
|
since May 3, 2001, there will have been no Archstone material adverse effect, as described below;
|
|
Smith Residential will have received a certificate of an officer of Archstone and Archstone-Smith certifying to each of the
foregoing;
|
|
Smith Residential will have received opinions, dated as of the closing date of the merger and the partnership merger, from
counsel:
|
|
to Archstone relating to the REIT status of Archstone and Archstone-Smith;
|
|
to Archstone relating to the federal income tax treatment of the reorganization of Archstone into an UPREIT;
|
|
to Archstone relating to the treatment of Archstone as a partnership for federal income tax purposes immediately prior to,
and at the time of, the partnership merger;
|
|
to Smith Residential relating to the federal income tax treatment of the merger and the partnership merger;
|
|
Smith Residential and Smith Partnership will have received a comfort letter from KPMG LLP;
|
|
Archstone will have properly filed an election with the IRS to be treated as a domestic eligible entity with a single owner
disregarded as a separate entity or as a partnership for federal income tax purposes;
|
|
the reorganization of Archstone into an UPREIT will have been completed not less than two days prior to the closing date of
the merger;
|
|
Archstone will have completed a restructuring of assets in which it or any of its subsidiaries owns an interest that on the
day after the merger closing would be considered owned by Archstone-Smith pursuant to applicable Treasury regulations so that Archstone-Smith will satisfy all of the asset requirements applicable to REITs; and
|
|
Archstone and Archstone-Smith will have entered into the shareholders agreement with Messrs. Smith and Kogod.
|
|
changes in general economic conditions nationally or regionally;
|
|
changes affecting the real estate industry generally which do not affect Archstone materially disproportionately relative to
other participants in the real estate industry similarly situated; or
|
|
in and of itself and without the occurrence of any other Archstone material adverse effect, changes in the trading prices of
Archstone common shares or any series of Archstone preferred shares.
|
|
invite, initiate, solicit or encourage, directly or indirectly, any inquiries, proposals, discussions or negotiations or the
making or implementation of any proposal or offer, including any proposal or offer to its stockholders, with respect to an alternative acquisition proposal, as defined below;
|
|
engage in any discussions or negotiations with or provide any confidential or non-public information or data to, or afford
access to properties, books or records to, any person relating to, or that may reasonably be expected to lead to, an alternative acquisition proposal;
|
|
enter into any letter of intent, agreement in principle or agreement relating to an alternative acquisition
proposal;
|
|
propose publicly to agree to do any of the foregoing; or
|
|
otherwise facilitate any effort or attempt to make or implement an alternative acquisition proposal, including by amending or
granting any waiver under the Smith Residential stockholder rights plan.
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immediately cease and cause to be terminated any existing activities, discussions or negotiations with any persons or
entities conducted before the merger agreement with respect to any alternative acquisition proposal, and inform each Smith Residential representative and cause each of them to comply with this obligation;
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request that each person, if any, that has executed a confidentiality agreement in the twenty-four months before the date of
the merger agreement in connection with the consideration by the person of any alternative acquisition proposal to return or destroy all confidential information furnished to that person by or on behalf of Smith Residential and its subsidiaries;
and
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notify Archstone promptly if Smith Residential or any of its subsidiaries or any Smith Residential representative
receives:
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an alternative acquisition proposal or any amendment or change in any previously received alternative acquisition
proposal;
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any request for confidential or nonpublic information or data relating to, or for access to the properties, books or records
of, Smith Residential or any of its subsidiaries by any person that has made or to its knowledge may be considering making an alternative acquisition proposal; or
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any oral or written expression that any activities, discussions or negotiations described above are sought to be initiated or
continued with it;
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and, as applicable, include in that notice the identity of the person making the alternative acquisition proposal, indication
or request, the material terms of that alternative acquisition proposal, indication or request and, if in writing, promptly deliver to Archstone copies of any proposal, indication or request along with all other related documentation and
correspondence and keep Archstone informed of the status and material terms, including all changes to the status or material terms, of any alternative acquisition proposal, indication or request.
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a majority of the board of directors of Smith Residential determines in good faith, after consultation with its financial
advisors of nationally recognized reputation and outside legal counsel, that the alternative acquisition proposal is reasonably likely to result in a superior acquisition proposal, as defined below;
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each of Smith Residential and Smith Partnership complies with all its obligations under the merger agreement;
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before furnishing that information to, or entering into discussions or negotiations with, that person, Smith Residential
provides written notice to Archstone which states that it is furnishing information to, or entering into discussions with, that person; and
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Smith Residential enters into a confidentiality agreement with that person the terms of which are in all material respects no
less favorable to Smith Residential and no less restrictive to the person making the alternative acquisition proposal, than the terms of the confidentiality agreement entered into with Archstone.
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merger, consolidation, business combination, reorganization, recapitalization, liquidation, dissolution or similar
transaction;
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sale, acquisition, tender offer, exchange offer, or the filing of a registration statement under the Securities Act in
connection with an exchange offer, share exchange or other transaction or series of related transactions, that, if completed, would result in the issuance of securities representing, or the sale, exchange or transfer of, 15% or more of the
outstanding voting equity securities of Smith Residential or outstanding units of Smith Partnership, except an underwritten public offering of Smith Residential common stock for cash; or
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sale, lease, exchange, mortgage, pledge, transfer or other disposition of any assets of Smith Residential or Smith
Partnership in one or a series of related transactions that, if completed, would result in the transfer of more than 15% of the assets of Smith Residential or Smith Partnership, other than the merger and the partnership merger.
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Smith Residential complies fully with the non-solicitation provisions and provides Archstone with at least three business
days prior written notice of its intent to withdraw, modify, amend or qualify its recommendation of the merger agreement or the merger;
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if during those three business days Archstone makes a counter proposal to the superior alternative acquisition proposal,
Smith Residentials board of directors in good faith, taking into account the advice of its outside financial advisors of nationally recognized reputation, determines that the Archstone counter proposal is not at least as favorable:
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to Smith Residentials stockholders as the superior alternative acquisition proposal, from a financial point of view;
or
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generally to Smith Residentials stockholders, taking into account all financial and strategic considerations and other
relevant factors, including relevant legal, financial, regulatory and other aspects of the proposals, and the conditions, prospects and time required for completion of that proposal; and
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Smith Residential terminates the merger agreement under the terms of the merger agreement and pays to Archstone the
termination fee of up to $95 million.
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on terms which a majority of the board of directors of Smith Residential determines in good faith, after consultation with
Smith Residentials financial advisors of nationally recognized reputation, are
superior, from a financial point of view, to Smith Residentials stockholders to those provided for in the merger;
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on terms which a majority of the board of directors of Smith Residential determines in good faith to be more favorable
generally to Smith Residentials stockholders than those provided for in the merger, taking into account all financial and strategic considerations and other relevant factors, including relevant legal, financial, regulatory and other aspects of
the proposals, and the conditions, prospects and time required for completion of the proposal;
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for which financing, to the extent required, in the reasonable judgment of the board of directors of Smith Residential is
capable of being obtained; and
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which the board of directors of Smith Residential determines in good faith is reasonably capable of being
consummated.
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Right to Terminate
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by mutual written consent duly authorized by the Archstone board of trustees and the Smith Residential board of
directors;
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by Archstone or Smith Residential if:
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any judgment, injunction, order, decree or action by any governmental entity preventing the consummation of the
reorganization of Archstone into an UPREIT, or either the merger or the partnership merger becomes final and non-appealable;
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the merger and the partnership merger have not been completed before March 31, 2002; however, neither Archstone nor Smith
Residential may terminate the merger agreement if its breach is the reason that the merger or partnership merger has not been completed by that date;
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the holders of at least two-thirds of the outstanding shares of Smith Residential common stock fail to approve the merger and
the merger agreement at the Smith Residential special meeting, or if the holders of the Smith Partnership units fail to approve the partnership merger and the amendment to the partnership agreement by the required consent, but Smith Residential may
not terminate for either of these reasons if it is in breach in any material respect of its obligations contained in the merger agreement relating to obtaining the required stockholder votes and unitholder consents; or
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the holders of at least a majority of the outstanding Archstone common shares fail to approve the merger and the merger
agreement at the Archstone special meeting, but Archstone may not terminate for either of these reasons if it is in breach in any material respect of its obligations contained in the merger agreement relating to obtaining the required shareholder
votes.
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by Archstone:
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upon a breach of or failure to perform any covenant, obligation or agreement on the part of Smith Residential or Smith
Partnership contained in the merger agreement, or upon a breach of any representation or warranty of Smith Residential or Smith Partnership or if any representation or warranty of Smith Residential or Smith Partnership is or becomes untrue, in
either case so that the conditions to the consummation of the merger contained in the merger agreement would be incapable of being satisfied by March 31, 2002, or as otherwise extended by the parties; or
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if
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the Smith Residential board of directors has failed to recommend or has withdrawn, modified, amended or qualified, or
proposed publicly not to recommend or to withdraw, modify, amend or qualify, in any manner adverse to Archstone, its approval or recommendation of the merger, the partnership merger or the merger agreement, or approved or recommended any superior
alternative acquisition proposal,
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Ø
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following the announcement or receipt of an alternative acquisition proposal, Smith Residential has failed to call a special
meeting of stockholders or failed to prepare and mail to its stockholders this joint proxy statement/prospectus, or
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Ø
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the Smith Residential board of directors or any committee of the Smith Residential board of directors has resolved to do any
of the foregoing.
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by Smith Residential:
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upon a breach of or failure to perform any covenant, obligation or agreement on the part of Archstone or Archstone-Smith
contained in the merger agreement, or upon a breach of any representation or warranty of Archstone or Archstone-Smith or if any representation or warranty of Archstone or Archstone-Smith is or becomes untrue, in either case so that the conditions to
the consummation of the merger contained in the merger agreement would be incapable of being satisfied by March 31, 2002 or as otherwise extended by the parties; or
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if the Smith Residential board has withdrawn, modified, amended or qualified in any manner adverse to Archstone its approval
or recommendation of the merger, the partnership merger or the merger agreement in connection with, or approved or recommended, any superior alternative acquisition proposal, or to enter into a binding written agreement with respect to a superior
alternative acquisition proposal, so long as, in each case, Smith Residential has complied with the terms of the no solicitation provisions contained in the merger agreement and, at the same time as or before terminating the merger agreement, has
paid to Archstone the termination fee.
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Effect of Termination
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Expenses; Termination Fee
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by Smith Residential,
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if the Smith Residential board of directors has withdrawn, modified, amended or qualified in any manner adverse to Archstone
its approval or recommendation of the merger, the partnership merger or the merger agreement in connection with, or approved or recommended, any superior alternative acquisition proposal, or
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in order to enter into a binding written agreement with respect to a superior alternative acquisition proposal, so long as,
in each case, Smith Residential complied with the terms of the nonsolicitation provisions contained in the merger agreement;
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by Archstone, if the Smith Residential board of directors has failed to recommend or has withdrawn, modified, amended or
qualified, or proposed publicly not to recommend or to withdraw, modify, amend or qualify, in any manner adverse to Archstone its approval or recommendation of the merger, the partnership merger or the merger agreement or approved or recommended any
superior alternative acquisition proposal, or has resolved to do any of the foregoing; or
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by such party and under the circumstances listed below, but only if (a) Smith Residential or Smith Partnership has received a
proposal for an alternative acquisition transaction before the termination of the merger agreement and (b) before or within 12 months after the termination of the merger agreement, Smith Residential or Smith Partnership enters into an agreement
regarding any alternative acquisition transaction that is later completed whether or not the agreement is related to the pre-termination proposal described above:
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by Archstone, if Smith Residential or Smith Partnership breaches or fails to perform in all material respects its covenants,
obligations and agreements in the merger agreement and the failure cannot be rectified by March 31, 2002, or as otherwise extended by the parties;
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by Archstone, if Smith Residential or Smith Partnership is in breach of any of its representations or warranties in the
merger agreement, or if any representation or warranty is or becomes untrue, and the breach reasonably would be expected to have a material adverse effect on the business, properties, assets, financial condition or results of operations of Smith
Residential, Smith Partnership and their subsidiaries taken as a whole and cannot be rectified by March 31, 2002, or as otherwise extended by the parties;
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by Archstone or Smith Residential, if the holders of at least two-thirds of the outstanding shares of Smith Residential
common stock fail to approve the merger and the merger agreement at the Smith Residential special meeting, or the holders of units of Smith Partnership fail to approve the partnership merger and the amendment to the partnership agreement by the
required consent; or
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by Archstone, if following Smith Residentials receipt or announcement of an alternative acquisition proposal, Smith
Residential fails to call the Smith Residential special meeting or fails to prepare and mail to its stockholders this joint proxy statement/prospectus.
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by Smith Residential, if the merger and the partnership merger are not completed before March 31, 2002, Smith Residential has
not breached in any material respect its obligations under the merger agreement in any manner that shall have caused either the merger or the partnership merger to not be completed by March 31, 2002, or as otherwise extended by the parties, and each
of the following conditions is present:
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Smith Residential or Smith Partnership has received a proposal for an alternative acquisition transaction before the
termination of the merger agreement;
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after Smith Residential or Smith Partnership receives this proposal for an alternative acquisition transaction and before the
termination of the merger agreement, Archstone and/or Archstone-Smith does not announce, enter into or agree to effect any merger, acquisition, exchange offer, consolidation, reorganization or other business combination with any third party;
and
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before or within 12 months after the termination of the merger agreement, Smith Residential or Smith Partnership enters into
an agreement regarding any alternative acquisition transaction that is later completed whether or not the agreement is related to the pre-termination proposal above.
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$95 million less termination expenses, as described below, paid or payable under the merger agreement; and
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the maximum amount that can be paid to Archstone without causing Archstone to fail to meet the REIT income requirements under
the Internal Revenue Code.
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by Archstone, if Smith Residential or Smith Partnership breaches or fails to perform in all material respects all of its
covenants, obligations and agreements in the merger agreement and the failure cannot be rectified by March 31, 2002, or if Smith Residential or Smith Partnership is in breach of any of its representations or warranties in the merger agreement, and
the breach reasonably would be expected to have a material adverse effect on the business, properties, assets, financial condition or results of operations of Smith Residential, Smith Partnership and their subsidiaries taken as a whole, and the
breach cannot be rectified by March 31, 2002, or as otherwise extended by the parties, in each case, so long as Smith Residential was not entitled to terminate the merger agreement because Archstone failed to perform in all material respects all of
its covenants, obligations and agreements in the merger agreement, or because Archstone is in breach of any of its representations or warranties in the merger agreement; or
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by either Archstone or Smith Residential, if the holders of at least two-thirds of the outstanding shares of Smith
Residential common stock fail to approve the merger and the merger agreement at the Smith Residential special meeting, or the holders of the units of Smith Partnership fail to approve the partnership merger and the amendment to the partnership
agreement by the required vote, but neither Archstone nor Smith Residential may terminate for any of these reasons if it is in breach in any material respect of its obligations contained in the merger agreement relating to obtaining the required
shareholder and unitholder votes.
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by Smith Residential, if Archstone fails to perform in all material respects all of its covenants, obligations and agreements
in the merger agreement and the failure cannot be rectified by March 31, 2002, or as otherwise extended by the parties, or if Archstone is in breach of any of its representations or warranties in the merger agreement, and the breach reasonably would
be expected to have a material adverse effect on the business, properties, assets, financial condition or results of operations of Archstone, Archstone-Smith and the subsidiaries of Archstone taken as a whole, and the breach cannot be rectified by
March 31, 2002, or as otherwise extended by the parties, in each case, so long as Archstone was not entitled to terminate the merger agreement because Smith Residential or Smith Partnership failed to perform in all material respects all of its
covenants, obligations and agreements in the merger agreement, or because Smith Residential or Smith Partnership is in breach of any of its representations or warranties in the merger agreement; or
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by either Smith Residential or Archstone, if the holders of a majority of the outstanding Archstone common shares fail to
approve the merger and the merger agreement at the Archstone special meeting, but neither Archstone nor Smith Residential may terminate for this reason if it is in breach in any material respect of its obligations contained in the merger agreement
relating to obtaining the required shareholder and unitholder votes, so long as Archstone was not entitled to terminate the merger agreement because Smith Residential or Smith Partnership failed to perform in all material respects all of its
covenants, obligations and agreements in the merger agreement, or because Smith Residential or Smith Partnership is in breach of any of its representations or warranties in the merger agreement.
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extend the time for the performance of any of the obligations or other acts of the other party;
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waive any inaccuracies in the representations and warranties of the other party contained in the merger agreement or in any
document delivered under the merger agreement; or
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waive compliance with any of the agreements or conditions of the other party contained in the merger agreement, except as
specified.
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the requirement that Archstone common shareholders and Smith Residential common stockholders approve the merger agreement and
the merger;
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the requirement that unitholders of Smith Partnership approve the partnership merger and the amendment to the partnership
agreement of Smith Partnership; or
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any court order or law preventing the closing of the merger or the partnership merger.
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who is a U.S. person;
|
|
who does not exercise its redemption right with respect to Archstone Class A-1 common units under the Archstone declaration
of trust on a date sooner than the date two years after the partnership merger;
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|
who does not receive a cash distribution in connection with the partnership merger, or a deemed cash distribution resulting
from relief or a deemed relief from liabilities, including as a result of the prepayment of indebtedness of Smith Partnership in connection with or following the partnership merger, in excess of such holders adjusted basis in its Smith
Partnership units at the time of the partnership merger;
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who is not required to recognize gain by reason of the application of section 707(a) of the Internal Revenue Code and the
Treasury regulations thereunder to the partnership merger, with the result that the partnership merger is treated as part of a disguised sale by reason of any transactions undertaken by Smith Partnership prior to or in connection with
the partnership merger or any debt of Smith Partnership that is assumed or repaid in connection with the partnership merger; and
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|
whose at risk amount does not fall below zero as a result of the merger and the partnership merger.
|
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the fact that he or she is or was an officer, employee or director of Smith Residential or any of its subsidiaries or any
action or omission by that person in his or her capacity as a director; or
|
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the merger agreement or the transactions contemplated by the merger agreement, whether in any case asserted or arising before
or after the completion of the merger.
|
|
for adoption and approval of the merger agreement, the merger, the partnership merger, the amendment to the partnership
agreement of Smith Partnership and the transactions contemplated thereby; and
|
|
against approval or adoption of any action or agreement, other than the merger agreement or the transactions contemplated
thereby, made or taken in opposition to or in competition with the merger or the partnership merger.
|
|
for adoption and approval of the merger agreement, the merger, the partnership merger and the transactions contemplated
thereby; and
|
|
against approval or adoption of any action or agreement, other than the merger agreement or the transactions contemplated
thereby, made or taken in opposition to or in competition with the merger or the partnership merger.
|
|
such person is employed by, or has equity investment interests, directly or indirectly, in, any material competitor of
Archstone-Smith or Archstone, unless such investment constitutes less than one-half of one percent (0.50%) of the equity ownership in a public company;
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|
such person is not reasonably experienced in business, financial, or real estate industry matters;
|
|
such person has been convicted of, or has pled nolo contendere to, a felony;
|
|
the election of such person would violate any law; or
|
|
such person is involved in specified legal proceedings, including, but not limited to
|
|
any conviction or being named the subject of a pending criminal proceeding, excluding traffic violations and minor
offenses;
|
|
being the subject of certain orders, judgments, or decrees temporarily or permanently enjoining such person from engaging in
certain business activities, including those related to the purchase or sale of securities or commodities; or
|
|
any finding by a court or administrative body of a violation of any federal or state securities law or federal commodities
law, not subsequently reversed, suspended, or vacated.
|
|
if the board desires to increase its size by one additional member, then, at the time the board adds such additional member,
Messrs. Smith and Kogod, or their representatives, as the case may be, as a group, will be entitled to nominate one additional member at the same time the board adds such additional member; and
|
|
thereafter, Messrs. Smith and Kogod, or their representatives, as the case may be, as a group, will be entitled to nominate
one additional member for every second additional member added by the board and at the time thereof.
|
|
neither Archstone-Smith nor any subsidiary thereof will conduct operations related to its high-rise business, including the
high-rise business formerly operated by Smith Residential, except through the newly created Charles E. Smith Residential division, other than as may be determined by the chief executive officer of Archstone-Smith with respect to high-rise apartments
not owned by Smith Residential prior to the merger; and
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Archstone-Smith will use the name Charles E. Smith Residential in the operation of all high-rise apartments. As
to any mid-rise apartments that Archstone-Smith may acquire or develop after the merger, the chief executive officer of Archstone-Smith will determine whether such assets should be operated as part of the high-rise business or as part of the garden
apartment business.
|
|
affiliates;
|
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respective spouses and descendants, whether natural or adopted, and any trust for the benefit of Messrs. Smith or Kogod or
their respective spouses and/or descendants or any entity controlled by Messrs. Smith or Kogods respective spouses and/or descendants; and
|
|
charitable foundations.
|
|
any existing or future lender to whom such securities are pledged, hypothecated, mortgaged or encumbered pursuant to a bona
fide financing incurred for investment or other valid business purposes upon customary commercial terms; and
|
|
any person to whom such shares are transferred upon foreclosure, or in lieu of foreclosure of any loan contemplated by the
first clause above.
|
|
with respect to Mr. Smith, at such time as Mr. Smith and his permitted transferees, other than charitable foundations,
beneficially own less than 1,000,000 common shares of Archstone-Smith; and
|
|
with respect to Mr. Kogod, at such time as Mr. Kogod and his permitted transferees, other than charitable foundations,
beneficially own less than 1,000,000 common shares of Archstone-Smith.
|
|
the guarantee agreement is substantially in the form of the guarantee agreement being replaced;
|
|
the guarantee is given to the lender in connection with, and in consideration for, the replacement debt;
|
|
the guarantee must be executed and delivered by the lender;
|
|
the aggregate amount of guarantees, indemnities and other similar undertakings for the replacement debt does not exceed the
face amount of the replacement debt; and
|
|
no other person would be considered to bear the economic risk of loss with respect to the portion of the debt
being guaranteed.
|
|
existing Smith Partnership nonrecourse debt, or any replacement debt therefor, is treated as allocable to specified
contributed Smith Partnership properties in amounts not less than the amounts set forth on a schedule to the tax protection agreement at the time of the merger, subject to reduction for scheduled amortization;
|
|
excess nonrecourse liabilities are allocated to the Smith Partnership unitholders to the extent that section
704(c) gain of any Smith Partnership unitholder exceeds such unitholders section 704(c) minimum gain with respect to Smith Partnership properties;
|
|
Smith Partnership unitholders that are shown on a schedule to the tax protection agreement as having liability for a
specified dollar amount of an existing nonrecourse debt that is partner nonrecourse debt are allocated a dollar amount of such debt equal to the amount shown on the schedule with respect to such unitholder, subject to reduction for
scheduled amortization; and
|
|
in making allocations of debt under Treasury regulation section 1.752-3(a)(2) with respect to a specific property contributed
by Smith Partnership, allocations are made
|
|
first to the Smith Partnership unitholders in an amount equal to the lesser of
|
Ø
|
the section 704(c) minimum gain that such Smith Partnership unitholder would have been allocated by Smith
Partnership under Treasury regulation section 1.752-3(a)(2) immediately prior to the partnership merger, or
|
Ø
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the section 704(c) minimum gain that such Smith Partnership unitholder would have been allocated by Smith
Partnership under Treasury regulation section 1.752-3(a)(2) immediately after the unitholder acquired an interest in Smith Partnership by reason of the contribution of an interest in the contributed property to Smith Partnership in exchange for an
interest in Smith Partnership, and
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thereafter pro rata among the Smith Partnership unitholders based upon the number of Archstone units that they hold and their
proportionate shares of the section 704(c) minimum gain existing immediately after the partnership merger in excess of amounts described in the second arrow above.
|
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Smith Partnerships obligation with respect to property formerly managed by Commonwealth Atlantic Properties, Inc. and
acquired by Smith Partnership in 1999 pursuant to an asset contribution agreement dated March 3, 1999 not to dispose of the property in a taxable transaction prior to January 2, 2004, and to maintain specified debt obligations relating to the
property.
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Smith Partnerships obligation with respect to property formerly managed by Infinity/Terrace, L.L.C. and acquired by
Smith Partnership in 1998 pursuant to a real estate contribution agreement dated August 19, 1998 not to dispose of the property in a taxable transaction during the 19-year tax protection period, for the 10 years following the expiration of the tax
protection period, to use diligent efforts to effectuate any sale of the property without recognition of taxable gain, and during the 19-year tax protection period to maintain, and the 10-year period following the expiration of the tax protection
period to endeavor to maintain, specified debt obligations relating to the property.
|
|
Smith Partnerships obligation with respect to property formerly managed by 2470 N. Clark Street Venture and acquired by
Smith Partnership in 1998 pursuant to a real estate contribution agreement dated August 19, 1998 not to dispose of the property in a taxable transaction during the 19-year tax protection period, for the 10-year period following the expiration of the
tax protection period, to use diligent efforts to effectuate any sale of the property without recognition of taxable gain, and during the 19-year tax protection period to maintain, and the 10-year period following the expiration of the tax
protection period to endeavor to maintain, specified debt obligations relating to the property.
|
|
Smith Partnerships obligation with respect to property formerly managed by Somerset Limited Partnership and acquired by
Smith Partnership in 1998 pursuant to a real estate contribution agreement dated August 19, 1998 not to dispose of the property in a taxable transaction during the 19-year tax protection period, for the 10-year period following the expiration of the
tax protection period, to use diligent efforts to effectuate any sale of the property without recognition of taxable gain, and during the 19-year tax protection period to maintain, and the 10-year period following the expiration of the tax
protection period to endeavor to maintain, specified debt obligations relating to the property.
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|
Smith Partnerships obligation with respect to property formerly managed by Countryside Operating Partnership I and
Countryside Residential Partners, Ltd. and acquired by Smith Partnership in 1998 pursuant to a real estate contribution agreement dated August 19, 1998 not to dispose of the property in a taxable transaction during the 19-year tax protection period,
for the 10-year period following the expiration of the tax protection period, to use diligent efforts to effectuate any sale of the property without recognition of taxable gain, and during the 19-year tax protection period to maintain, and during
the 10-year period following the expiration of the tax protection period to endeavor to maintain, specified debt obligations relating to the property.
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|
Smith Partnerships obligation with respect to partnership interest of Dearborn Delaware Associates acquired by Smith
Partnership in 1997 pursuant to an agreement to acquire partnership interests dated October 7, 1997 is subject to no restriction of sale, but includes a need to maintain specified debt obligations relating to the partnership interest.
|
|
Smith Partnerships obligation with respect to property formerly managed by R&B Executive InvestmentsCharter
Oak Associates, The Edward R. Broida Trust No.1, The R.J. Franks Trust No.1, The Howard F. Ruby Trust and Connecticut General Life Insurance Company and acquired by Smith Partnership in 1996 pursuant to an agreement to acquire partnership interests
dated February 20, 1996 not to dispose of the property in a taxable transaction during six years after the closing date, and to maintain specified debt obligations relating to the property.
|
|
Smith Partnerships obligation with respect to property formerly managed by 1841 Columbia Road Limited Partnership and
acquired by Smith Partnership in 1995 pursuant to a real estate contribution agreement dated December 12, 1995 not to dispose of the property in a taxable transaction during ten years after the closing date, and to maintain specified debt
obligations relating to the property.
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|
Smith Partnerships obligation with respect to property formerly managed by Kenmore Apartments Joint Venture and
acquired by Smith Partnership in 1996 pursuant to a real estate contribution agreement dated December 26, 1996 not to dispose of the property in a taxable transaction during ten years after the closing date, and to maintain specified debt
obligations relating to the property.
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|
Smith Partnerships obligation with respect to property formerly managed by Tower Associates Limited Partnership and
acquired by Smith Partnership in 1997 pursuant to a real estate contribution agreement dated January 30, 1997 not to dispose of the property in a taxable transaction during seven years after the closing date, and to maintain specified debt
obligations relating to the property.
|
|
Smith Partnerships obligation with respect to property formerly managed by Plaza Associates Limited Partnership and
acquired by Smith Partnership in 1997 pursuant to a real estate contribution agreement dated January 30, 1997 not to dispose of the property in a taxable transaction during seven years after the closing date, and to maintain specified debt
obligations relating to the property.
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|
Smith Partnerships obligation with respect to property formerly managed by Commonwealth Reservoir Park Limited
Partnership and acquired by Smith Partnership in 1997 pursuant to a real estate acquisition agreement dated October 10, 1997 not to dispose of the property in a taxable transaction during eight and half years after the closing date, and to maintain
specified debt obligations relating to the property.
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|
Smith Partnerships obligation with respect to property formerly managed by Janet Burstein Svirsky, Maralyn Burstein
Milgrom, Aaron Milgrom and Joseph Burstein and acquired by Smith Partnership in 1997 pursuant to a real estate acquisition agreement dated June 30, 1997 not to dispose of the property in a taxable transaction during ten years after the closing, and
to maintain specified debt obligations relating to the property.
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|
Smith Partnerships obligation with respect to property formerly managed by certain partners in Tunlaw Apartments
Company Limited Partnership and acquired by Smith Partnership in 1998 pursuant to a contribution agreement dated January 1, 1998 not to dispose of the property in a taxable transaction during seven years after the closing.
|
|
Smith Partnerships obligation with respect to property formerly managed by Roy S. MacDowell, Jr. and the Boulder
Company, Inc. and acquired by Smith Partnership in 1998 pursuant to an asset contribution agreement dated February 2, 1998 not to dispose of the property in a taxable transaction during eight years after the closing date, and to maintain specified
debt obligations relating to the property.
|
|
the tax consequences to you may vary depending on your particular tax situation;
|
|
you may be subject to special rules that are not discussed below if you are:
|
|
a tax-exempt organization;
|
|
a broker-dealer;
|
|
a trader in securities that elects to mark to market;
|
|
a person who holds Archstone shares as part of a hedge, straddle or conversion transaction;
|
|
a person who acquired Archstone shares pursuant to the exercise of employee stock options or otherwise as
compensation;
|
|
a person who does not hold its Archstone shares as a capital asset;
|
|
a non-U.S. corporation, non-U.S. partnership, non-U.S. trust, non-U.S. estate, or individual who is not taxed as a citizen or
resident of the United States, all of which may be referred to collectively as non-U.S. persons;
|
|
a trust;
|
|
an estate;
|
|
a regulated investment company;
|
|
an insurance company;
|
|
U.S. expatriates who are subject to special rules; or
|
|
otherwise subject to special tax treatment under the Internal Revenue Code;
|
|
this discussion does not address state, local, or foreign tax considerations; and
|
|
this discussion is not intended to be, and should not be construed as, tax advice.
|
|
Receipt of Archstone-Smith Shares. An Archstone shareholder that exchanges his, her or its
Archstone shares for Archstone-Smith shares will not recognize gain or loss on such exchange. An Archstone shareholder will have a tax basis in the Archstone-Smith shares received in the reorganization equal to the shareholders adjusted tax
basis in the Archstone shares exchanged.
|
|
Fractional Shares. An Archstone shareholder that receives cash instead of a fractional
Archstone-Smith common share will be treated as if the fractional share was received in the reorganization and then redeemed by Archstone-Smith. The Archstone shareholder generally will recognize capital gain or loss equal to the difference between
the amount of cash received for the fractional share and the shareholders basis in the fractional share. The capital gain or loss will be long-term capital gain or loss if the Archstone shareholders holding period in the Archstone common
stock is more than one year.
|
|
Holding Period. The holding period of the Archstone-Smith shares received by an Archstone
shareholder in the reorganization will include the holding period of the Archstone shares exchanged.
|
|
the aggregate fair market value of the Archstone-Smith common and preferred shares received in the merger plus any cash
received instead of fractional shares; and
|
|
the shareholders adjusted tax basis in Archstone shares.
|
|
the cost or other basis of the stock or securities transferred in the exchange; and
|
|
the amount of stock, securities or other property received in the exchange.
|
|
furnishes a correct taxpayer identification number and certifies that he or she is not subject to backup withholding on
Internal Revenue Service Form W-9, or an appropriate substitute form;
|
|
provides a certificate of foreign status on Internal Revenue Service Form W-8BEN, or an appropriate substitute form;
or
|
|
is otherwise exempt from backup withholding.
|
|
the tax consequences to you may vary depending on your particular tax situation;
|
|
you may be subject to special rules that are not discussed below if you are:
|
|
a tax-exempt organization;
|
|
a broker-dealer;
|
|
a trader in securities that elects to mark to market;
|
|
a person who holds Smith Residential stock as part of a hedge, straddle or conversion transaction;
|
|
a person who acquired shares of Smith Residential stock pursuant to the exercise of employee stock options or otherwise as
compensation;
|
|
a person who does not hold its shares of Smith Residential stock as a capital asset;
|
|
a non-U.S. corporation, non-U.S. partnership, non-U.S. trust, non-U.S. estate, or individual who is not taxed as a citizen or
resident of the United States, all of which may be referred to collectively as non-U.S. persons;
|
|
a trust;
|
|
an estate;
|
|
a regulated investment company;
|
|
an insurance company;
|
|
U.S. expatriates who are subject to special rules; or
|
|
otherwise subject to special tax treatment under the Internal Revenue Code;
|
|
this discussion does not address state, local, or foreign tax considerations; and
|
|
this discussion is not intended to be, and should not be construed as, tax advice.
|
|
Receipt of Archstone-Smith Common Shares. A Smith Residential common stockholder will not
recognize gain or loss on the exchange of Smith Residential common stock for Archstone-Smith common shares. A Smith Residential common stockholder will have a tax basis in the Archstone-Smith common shares received equal to the stockholders
tax basis in his, her or its Smith Residential common stock exchanged for such Archstone-Smith shares.
|
|
Fractional Shares. A Smith Residential common stockholder that receives cash instead of a
fractional Archstone-Smith common share will be treated as if the fractional share was received in the merger and then redeemed by Archstone-Smith. The Smith Residential common stockholder generally will recognize capital gain or loss equal to the
difference between the amount of cash received for the fractional share and the stockholders basis in the fractional share. This capital gain or loss will be long-term capital gain or loss if the Smith Residential stockholders holding
period in the Smith Residential common stock is more than one year.
|
|
Holding Period. The holding period of the Archstone-Smith common shares received by a Smith
Residential common stockholder in the merger will include the holding period of the Smith Residential common stock exchanged.
|
|
Receipt of Archstone-Smith Preferred Shares. A Smith Residential preferred stockholder that
exchanges his, her or its Smith Residential preferred stock for only Archstone-Smith preferred shares will not recognize gain or loss on such exchange. A Smith Residential preferred stockholder will have a tax basis in the Archstone-Smith preferred
shares received equal to the stockholders adjusted tax basis in the Smith Residential preferred stock exchanged.
|
|
Holding Period. The holding period of the Archstone-Smith preferred shares received by a Smith
Residential preferred stockholder in the merger will include the holding period of the Smith Residential preferred stock exchanged.
|
|
furnishes a correct taxpayer identification number and certifies that he or she is not subject to backup withholding on
Internal Revenue Service Form W-9, or an appropriate substitute form;
|
|
provides a certificate of foreign status on Internal Revenue Service Form W-8BEN, or an appropriate substitute form;
or
|
|
is otherwise exempt from backup withholding.
|
|
the cost or other basis of the stock or securities transferred in the exchange; and
|
|
the amount of stock, securities or other property received in the exchange.
|
|
the aggregate fair market value of the Archstone-Smith common and preferred shares received in the merger plus any cash
received instead of fractional shares; and
|
|
the stockholders adjusted tax basis in its Smith Residential stock.
|
General
|
(1)
|
85% of its REIT ordinary income for such year;
|
(2)
|
95% of its REIT capital gain net income for such year, other than capital gains Archstone-Smith elects to retain and pay tax
on as described below; and
|
(3)
|
any undistributed taxable income from prior years,
|
Share ownership test
|
Asset tests
|
Gross income tests
|
(1)
|
rents from real property except as modified below;
|
(2)
|
interest on obligations secured by mortgages on, or interests in, real property;
|
(3)
|
gains from the sale or other disposition of non dealer property, which means interests in real property and real
estate mortgages, other than gain from property held primarily for sale to customers in the ordinary course of its trade or business;
|
(4)
|
dividends or other distributions on shares in other REITs, as well as gain from the sale of such shares;
|
(5)
|
abatements and refunds of real property taxes;
|
(6)
|
income from the operation of, and gain from the sale of, foreclosure property, which means property acquired at
or in lieu of a foreclosure of the mortgage secured by such property;
|
(7)
|
commitment fees received for agreeing to make loans secured by mortgages on real property or to purchase or lease real
property; and
|
(8)
|
certain qualified temporary investment income attributable to the investment of new capital received by Archstone-Smith in
exchange for its shares or certain publicly offered debt which income is received or accrued during the one-year period following the receipt of such capital.
|
(1)
|
its failure to comply was due to reasonable cause and not to willful neglect;
|
(2)
|
Archstone-Smith reports the nature and amount of each item of its income included in the tests on a schedule attached to its
tax return; and
|
(3)
|
any incorrect information on this schedule is not due to fraud with intent to evade tax.
|
Annual distribution requirements
|
Tax aspects of its investments in partnerships
|
|
with respect to the Smith Partnership properties, except to the extent required under a pre-existing agreement to use another
method, which requirement is not waived, and
|
|
with respect to each of the properties owned by Archstone-Smith Operating Trust immediately prior to the partnership
merger.
|
Failure to qualify
|
Taxation of taxable domestic shareholders
|
Backup withholding
|
Taxation of tax-exempt shareholders
|
Taxation of foreign shareholders
|
Investments in taxable REIT subsidiaries
|
Tax on built-in gain
|
Possible legislative or other actions affecting tax consequences
|
State and local taxes
|
Class or Series of Shares |
Issued and
Outstanding Shares |
|
---|---|---|
Common Shares | 171,638,428 | |
Series A Preferred Shares | 3,174,235 | |
Series B Preferred Shares | 0 | |
Series C Preferred Shares | 1,969,100 | |
Series D Preferred Shares | 1,989,956 | |
Series E Preferred Shares | 0 | |
Series F Preferred Shares | 0 | |
Series G Preferred Shares | 0 | |
Series H Preferred Shares | 2,640,325 | |
Series I Preferred Shares | 500 | |
Series J Preferred Shares | 684,931 | |
Series K Preferred Shares | 666,667 | |
Series L Preferred Shares | 641,026 |
|
at least a majority of the board of trustees, and
|
|
holders of not less than a majority of the outstanding shares of beneficial interest entitled to vote on the
matter.
|
Series A Preferred Shares
|
|
no distributions, other than distributions paid solely in Archstone-Smith common shares, other shares of beneficial interest
ranking junior to Series A preferred shares as to distributions and distribution of assets upon liquidation or options, warrants or rights to acquire any such shares, may be declared or paid or set aside for payment or other distribution declared or
made upon the Archstone-Smith common shares, or any other shares of beneficial interest of Archstone-Smith ranking junior to the Series A preferred shares as to distributions or distribution of assets upon liquidation; and
|
|
no Archstone-Smith common shares or any other shares of beneficial interest of Archstone-Smith ranking junior to the Series A
preferred shares as to distributions or distribution of assets upon liquidation may be redeemed, purchased or otherwise acquired for any consideration, or any moneys be paid to or made available for a sinking fund for the redemption of any such
shares of beneficial interest, by Archstone-Smith, except by conversion into or exchange for other shares of beneficial interest of Archstone-Smith ranking junior to Series A preferred shares as to distributions and distribution of assets upon
liquidation, and except for redemptions, purchases or other acquisitions of common shares made for purposes of an employee incentive or benefit plan of Archstone-Smith or its subsidiaries.
|
Series C Preferred Shares
|
Series D Preferred Shares
|
Series E Preferred Shares
|
Series F Preferred Shares
|
Series G Preferred Shares
|
Liquidation Rights of Series A, C, D, E, F and G Preferred Shares
|
Voting Rights of Series A, C and D Preferred Shares
|
|
amend, alter or repeal any of the provisions of the declaration of trust or the bylaws that materially and adversely affect
the powers, rights or preferences of the holders of such series,
|
|
enter into a share exchange that affects such series, or consolidate with or merge Archstone-Smith with or into any other
entity, unless in each case each preferred share of such series remains outstanding without a material adverse change to its terms and rights or is converted into or exchanged for preferred shares of the surviving entity having preferences,
conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption thereof identical to those of such series, except for changes that do not materially and adversely affect
the holders of such series, and
|
|
authorize, create or increase the authorized amount of any class of shares of beneficial interest having rights senior to
such series with respect to the payment of distributions or distribution of assets upon liquidation, dissolution or winding up of the affairs of Archstone-Smith.
|
Voting Rights of Series E, F and G Preferred Shares
|
|
designate or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to such
series of preferred shares with respect to the payment of distributions or rights upon liquidation, dissolution or winding up of Archstone-Smith, or reclassify any authorized shares of Archstone-Smith into any such shares, or create, authorize or
issue any obligations or security convertible into or evidencing the right to purchase any such shares;
|
|
designate or create, or increase the authorized or issued amount of, any shares ranking, as to distributions or distribution
of assets upon liquidation, dissolution or winding up of Archstone-Smith on a parity with such preferred series, or reclassify any authorized shares of Archstone-Smith into any such shares, or create, authorize or issue any obligations or security
convertible into or evidencing the right to purchase any such shares, but only to the extent such parity shares are issued to an affiliate of Archstone-Smith;
|
|
consolidate, merge into or with, or convey, transfer or lease its assets substantially as an entirety, to any corporation,
real estate investment trust or other entity, unless, in each case, each preferred share of such series remains outstanding without change, or the resulting, surviving or transferee entity substitutes such series of preferred shares for other
preferred shares having substantially the same terms and same rights as the Series E, F or G preferred shares; and
|
|
amend, alter or repeal the provisions of the Archstone-Smith declaration of trust or bylaws that materially and aversely
affect the powers, special rights, preferences, privileges or voting power of such series of preferred shares.
|
Series H Preferred Shares to be Issued in the Merger
|
|
for 20 trading days, within the last 30 trading days immediately before the date of the notice of the redemption, the
weighted average trading price of the Archstone-Smith common shares on the New York Stock Exchange equals or exceeds $14.81 per share, which may be adjusted in specified circumstances; and
|
|
at least 1,000,000 common shares were traded during such 30 trading days.
|
|
no distributions, other than distributions paid solely in Archstone-Smith common shares, other shares of beneficial interest
ranking junior to Series H preferred shares as to distributions and distribution of assets upon liquidation or options, warrants or rights to acquire such junior shares, may be declared or paid or set aside for payment or other distribution declared
or made upon the Archstone-Smith common shares or any other shares of beneficial interest of Archstone-Smith ranking junior to the Series H preferred shares as to distributions or distribution of assets upon liquidation; and
|
|
no Archstone-Smith common shares or any other shares of beneficial interest of Archstone-Smith ranking junior to the Series H
preferred shares as to distributions or distribution of assets upon liquidation may be redeemed, purchased or otherwise acquired for any consideration, or any moneys be paid to or made available for a sinking fund for the redemption of any such
shares of beneficial interest, by Archstone-Smith, except by conversion into or exchange for other shares of beneficial interest of Archstone-Smith ranking junior to Series H preferred shares as to distributions and distribution of assets upon
liquidation, and except for redemptions, purchases or other acquisitions of common shares made for purposes of an employee incentive or benefit plan of Archstone-Smith or its subsidiaries.
|
Series I Preferred Shares to be Issued in the Merger
|
Series J Preferred Shares to be Issued in the Merger
|
|
if for 20 consecutive trading days, within the last 30 trading days immediately before the date of the notice of redemption,
the weighted average trading price of the Archstone-Smith common shares on the New York Stock Exchange equals or exceeds $19.9584 per share, which may be adjusted in specified circumstances; and
|
|
at least 1,000,000 common shares were traded during such 30 trading days.
|
Series K Preferred Shares to be Issued in the Merger
|
|
for 20 consecutive trading days, within the last 30 trading days immediately before the date of the notice of redemption, the
weighted average trading price of the Archstone-Smith common shares on the New York Stock Exchange equals or exceeds $20.5092 per share, which may be adjusted in specified circumstances; and
|
|
at least 1,000,000 common shares were traded during such 30 trading days.
|
Series L Preferred Shares to be Issued in the Merger
|
|
for 20 consecutive trading days, within the last 30 trading days immediately before the date of the notice of redemption, the
average trading price of the Archstone-Smith common shares on the New York Stock Exchange exceeds $21.33 per share, which may be adjusted in specified circumstances; and
|
|
at least 1,000,000 common shares were traded during such 30 trading days.
|
Voting Rights of Archstone-Smith Series H, I, J, K and L Preferred Shares
|
|
amend, alter or repeal any of the provisions of the declaration of trust or the bylaws that materially and adversely affect
the powers, rights or preferences of the holders of such series,
|
|
enter into a share exchange that affects such series, or consolidate with or merge Archstone-Smith with or into any other
entity, unless in each case each preferred share of such series remains outstanding without a material adverse change to its terms and rights or is converted into or exchanged for preferred shares of the surviving entity having preferences,
conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption thereof identical to those of such series, except for changes that do not materially and adversely affect
the holders of such series, or
|
|
authorize, reclassify, create, or increase the authorized amount of any class of shares of beneficial interest having rights
senior to such series with respect to the payment of distributions or distribution of assets upon liquidation, dissolution or winding up of the affairs of Archstone-Smith.
|
|
create a direct or indirect ownership of shares in excess of the ownership limit;
|
|
result in shares being beneficially owned by fewer than 100 persons, determined without reference to any rules of
attribution, as provided in section 856(a) of the Internal Revenue Code;
|
|
result in Archstone-Smith being closely held within the meaning of section 856(h) of the Internal Revenue Code;
or
|
|
result in Archstone-Smith failing to qualify as a REIT,
|
|
the price paid by the purported transferee for the excess shares, or, if no consideration was paid, fair market value on the
day of the event causing the excess shares to be held in trust; and
|
|
the price received from the sale or other disposition of the excess shares held in trust.
|
|
the price paid for the excess shares by the purported transferee, or, if no consideration was paid, fair market value at the
time of event causing the shares to be held in trust; and
|
|
the fair market value of the excess shares on the date Archstone-Smith elects to purchase such shares.
|
|
the last reported sales price on the New York Stock Exchange on the trading day immediately preceding the relevant
date,
|
|
if not then traded on the New York Stock Exchange, the last reported sales price on the trading day immediately preceding the
relevant date as reported on, over or through any exchange or quotation systems, or
|
|
if not then traded on, over or through any exchange or quotation system, then the market price on the relevant date as
determined in good faith by the board of trustees.
|
|
Classified board of trustees and size of board fixed with range; two-thirds shareholder vote required for
removalThe board of trustees of Archstone-Smith is divided into three classes with staggered terms of office. The total number of trustees is fixed by a majority vote of the board of trustees within a range of a minimum of three and a
maximum of 15. Trustees may be removed with or without cause, but only by the vote of two-thirds of all of the votes entitled to be cast in the election of trustees. These provisions may make it more difficult for a third party to gain control of
the board of trustees of Archstone-Smith. Unless two-thirds of the shareholders have voted to remove incumbent trustees, at least two annual meetings of shareholders of Archstone-Smith, instead of one, generally would be required to effect a change
in a majority of the board of trustees, and the number of trustees cannot be increased above the maximum number of trustees specified in the declaration of trust without board and shareholder approvals.
|
|
Unsolicited Takeover Provisions of Maryland LawMaryland law provides that the board of trustees is not
subject to higher duties with regard to actions taken in a takeover context. These provisions may make it more difficult to effect an unsolicited takeover of a Maryland real estate investment trust. Maryland law also allows publicly held Maryland
real estate investment trusts with at least three independent trustees to elect to be governed by all or any part of Maryland law provisions relating to extraordinary actions and unsolicited takeovers.
|
|
Call of Special Meetings of ShareholdersThe Archstone-Smith declaration of trust provides that special
meetings of shareholders may be called only by the chairman of the board, the president, the chief executive officer or a majority of the board of trustees, or by the holders of shares entitled to cast not less than 25% of all the votes entitled to
be cast at the meeting. The effect of this provision is to make it more difficult for a shareholder to call a special meeting than if a lower percentage were required in the declaration of trust.
|
|
Advance Notice Provisions for Shareholder Nominations and Shareholder New Business ProposalsThe
Archstone-Smith bylaws require advance written notice for shareholders to nominate a trustee or bring other business before a meeting of shareholders. This provision limits the ability of shareholders to make nominations for trustees or introduce
other proposals that are not timely received for consideration at a meeting.
|
|
Two-thirds Shareholder Vote Required to Approve Some Amendments to the Declaration of TrustSome
amendments to the declaration of trust must first be declared advisable by the board of trustees and thereafter must be approved by shareholders by the affirmative vote of not less than two-thirds of all votes entitled to be cast. These voting
requirements may make amendments to the Archstone-Smith declaration of trust that shareholders believe desirable more difficult to effect.
|
|
Business Combination with Interested ShareholdersThe Maryland Business Combination Act provides that,
unless exempted, a Maryland real estate investment trust may not engage in business combinations, including mergers, dispositions of 10% or more of its assets, issuances of shares and other specified transactions, with an interested
shareholder or its affiliates, for five years after the most recent date on which the interested shareholder became an interested shareholder and thereafter unless specified criteria are met.
|
|
Control Share AcquisitionsThe Maryland Control Shares Acquisition Act provides that shares acquired by
any person over one-tenth, one-third and a majority of the voting power of a real estate investment trust do not have voting rights, except to the extent approved by the vote of two-thirds of the votes entitled to be cast on the matter. The
Archstone-Smith bylaws exempt from the provisions of the Maryland Control Share Acquisition Act any business combination with any person. However, this provision of the bylaws, by its terms, may be amended, altered or repealed at any time, in whole
or in part, by the board of trustees.
|
|
Other ConstituenciesMaryland law expressly codifies the authority of a Maryland real estate investment
trust to include in its charter a provision that allows the board of trustees to consider the effect of a potential acquisition of control on shareholders, employees, suppliers, customers, creditors and communities in which offices or other
establishments of the trust are located. The Archstone-Smith declaration of trust does not include a provision of this type. Maryland law also provides, however, that the inclusion or omission of this type of provision in the declaration of trust of
a Maryland real estate investment trust does not create an inference concerning factors that may be considered by the board of trustees regarding a potential acquisition of control. This law may allow the board of trustees to reject an acquisition
proposal even though the proposal was in the best interests of Archstone-Smith shareholders.
|
|
it is proved that the person actually received an improper benefit or profit in money, property or services, for the amount
of the benefit or profit in money, property or services actually received; or
|
|
a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding that the
persons action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.
|
|
the act or omission 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;
|
|
the person actually received an improper personal benefit in money, property or services; or
|
|
in the case of any criminal proceeding, the person had reasonable cause to believe that the act or omission was
unlawful.
|
|
by the board of directors by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding
or, if a quorum cannot be obtained, then by a majority vote of a committee of the board consisting solely of two or more directors not, at the time, parties to the proceeding and who a majority of the board of directors designated to act in the
matter;
|
|
by special legal counsel selected by the board or board committee by the vote set forth above or, if such vote cannot be
obtained, by a majority of the entire board; or
|
|
by the shareholders.
|
|
its directors and officers, whether serving the corporation or at its request any other entity, to the full extent required
or permitted by Maryland law now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law; and
|
|
other employees and agents to such extent as shall be authorized by the board of directors or Smith Residentials bylaws
and be permitted by law.
|
|
accept, recommend, or respond to any proposal by a person seeking to acquire control;
|
|
authorize the corporation or real estate investment trust, as applicable, to redeem any rights under, modify, or render
inapplicable a shareholder or a stockholder rights plan;
|
|
make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act, as described
below;
|
|
elect to be subject to any or all of the elective provisions related to unsolicited takeovers described below;
or
|
|
act or fail to act solely because of:
|
|
the effect the act or failure to act may have on an acquisition or potential acquisition of control; or
|
|
the amount or type of consideration that may be offered or paid to shareholders in an acquisition.
|
|
imposes an enhanced level of scrutiny when a board implements anti-takeover measures in a change of control context,
and
|
|
in these circumstances shifts the burden of proof to directors to show that the defensive mechanism adopted by a board is
reasonable in relation to the threat posed.
|
|
at least 80% of the outstanding voting shares and
|
|
at least two-thirds of the outstanding voting shares, other than voting shares held by the interested shareholder or any of
its affiliates.
|
|
with or involving Robert H. Smith, Robert P. Kogod and all persons, firms or corporations affiliated with either of them or
acting in concert or as a group with either of them; or
|
|
which may be involved in the issuance of shares of capital stock in connection with the redemption of units of Smith
Partnership.
|
|
if approved by shareholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter,
excluding all interested shares; or
|
|
if the acquisition of the shares has been approved or exempted at any time before the acquisition of the shares.
|
|
10 days following a public announcement that a person or group has become an acquiring person, as described below,
or
|
|
10 business days, or a later date to be determined by the board of directors prior to the time any person becomes an
acquiring person, following the date any person or group commences or announces an intention to make a tender or exchange offer which, if completed, would result in that person or group beneficially owning 15% or more of the outstanding shares of
common stock of Smith Residential, with some exceptions.
|
|
10 days following a public announcement that a person or group has become an acquiring person, as described below,
or
|
|
15 business days, or a later date to be determined by the board of trustees prior to the time any person becomes an acquiring
person, following the date any person or group commences or announces an intention to make a tender or exchange offer which, if completed, would result in that person beneficially owning 25% or more of the outstanding common shares of Archstone,
with some exceptions.
|
|
10 days following a public announcement that a person or group has become an acquiring person, as described below,
or
|
|
15 business days, or a later date to be determined by the board of trustees prior to the time any person becomes an acquiring
person, following the date any person or group commences or announces an intention to make a tender or exchange offer which, if completed, would result in that person beneficially owning 15% or more of the outstanding common shares of
Archstone-Smith, with some exceptions.
|
|
would cause more than 50% in value of Smith Residentials shares to be owned, either directly or constructively under
the applicable attribution rules of the Internal Revenue Code, by five or fewer individuals, as defined in the Internal Revenue Code to include various tax-exempt entities, other than, in general, qualified domestic pension funds, or
|
|
would result in Smith Residentials shares being beneficially owned by less than 100 persons, determined without
reference to any rules of attribution.
|
|
in the case of a deemed exchange for excess common stock resulting from a transfer, the price paid for the shares in such
transfer or, in the case of a deemed exchange for excess common stock resulting from some other event, the fair market value, on the date of the deemed exchange, of the shares deemed exchanged, and
|
|
the fair market value of the shares for which such excess common stock will be deemed to be exchanged on the date of the
designation of the transferee.
|
|
create a direct or indirect ownership of shares in excess of the ownership limit;
|
|
result in shares being beneficially owned by fewer than 100 persons, determined without reference to any rules of
attribution, as provided in section 856(a) of the Internal Revenue Code;
|
|
result in Archstone-Smith being closely held within the meaning of section 856(h) of the Internal Revenue Code;
or
|
|
result in Archstone-Smith failing to qualify as a REIT,
|
|
the price paid by the purported transferee for the excess shares, or, if no consideration was paid, fair market value on the
day of the event causing the excess shares to be held in trust; and
|
|
the price received from the sale or other disposition of the excess shares held in trust.
|
|
the price paid for the excess shares by the purported transferee, or, if no consideration was paid, fair market value at the
time of event causing the shares to be held in trust; and
|
|
the fair market value of the excess shares on the date Archstone-Smith elects to purchase such shares.
|
|
the last reported sales price on the New York Stock Exchange on the trading day immediately preceding the relevant
date,
|
|
if not then traded on the New York Stock Exchange, the last reported sales price on the trading day immediately preceding the
relevant date as reported on any exchange or quotation systems, or
|
|
if not then traded through any exchange or quotation system, then the market price on the relevant date as determined in good
faith by the board of trustees.
|
Public Reference Room
|
450 Fifth Street, N.W.
|
Room 1024
|
Washington, D.C. 20549
|
Archstone SEC Filings (File No. 1-10272): | ||
2000 Annual Report on Form 10-K | Filed on March 9, 2001 | |
Quarterly Reports on Form 10-Q | Filed on May 15, 2001 and August 14, 2001 | |
Current Reports on Form 8-K | Filed on February 16, 2001, June 19, 2001 and September 4,
2001 |
|
Registration Statements on Form 8-A | Filed with respect to, and setting forth the descriptions of,
Archstone common and preferred shares and the related preferred share purchase rights, including any amendments or reports filed for the purpose of updating such description |
|
Smith Residential SEC Filings (File No. 1-13174): | ||
2000 Annual Report on Form 10-K | Filed on March 20, 2001 | |
Quarterly Reports on Form 10-Q | Filed on May 2, 2001, as amended on June 22, 2001, and
August 14, 2001 |
|
Current Reports on Form 8-K | Filed on January 5, 2000 (as amended on January 24, 2000 and
March 2, 2000), November 9, 2000, May 9, 2001, June 19, 2001, June 25, 2001 (as amended on June 26, 2001) and August 28, 2001 |
Registration Statements on Form 8-A | Filed with respect to, and setting forth the description of, the Smith
Residential common stock and related preferred stock purchase rights, including any amendments or reports filed for the purpose of updating such description |
Archstone Communities Trust
7670 South Chester Street, Suite 100
Englewood, Colorado 80112
Attention: Julie Brubaker
Telephone: (800) 982-9293
|
Charles E. Smith Residential Realty, Inc.
2345 Crystal Drive
Arlington, Virginia 22202
Attention: Greg Samay
Telephone: (703) 769-1029
|
Pro Forma Condensed Combined Balance Sheet as of June 30, 2001 (Unaudited) | F-3 | |
Pro Forma Condensed Combined Statement of Earnings From Operations for the
six months ended June 30, 2001 (Unaudited) |
F-4 | |
Pro Forma Condensed Combined Statement of Earnings From Operations for the
year ended December 31, 2000 (Unaudited) |
F-5 | |
Notes to Pro Forma Condensed Combined Financial Statements (Unaudited) | F-6 |
Smith Residential |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pro Forma |
Merger
Adjustments |
Archstone-Smith
Pro Forma |
|||||||||||||||
Archstone
Historical(a) |
Historical(a) |
Purchase Price
Adjustments(b) |
Purchase
Value(b) |
||||||||||||||
Assets |
|||||||||||||||||
Real estate | $4,349,595 | $2,270,153 | $1,169,196 | $3,439,349 | $ | $7,788,944 | |||||||||||
Less accumulated depreciation | 361,358 | 286,180 | (286,180 | ) | | | 361,358 | ||||||||||
3,988,237 | 1,983,973 | 1,455,376 | (c) | 3,439,349 | | 7,427,586 | |||||||||||
Investment in and advances to unconsolidated
property service businesses |
| 114,015 | | 114,015 | | 114,015 | |||||||||||
Investment in and advances to unconsolidated
real estate entities |
212,649 | 55,499 | | 55,499 | | 268,148 | |||||||||||
Net investments | 4,200,886 | 2,153,487 | 1,455,376 | 3,608,863 | | 7,809,749 | |||||||||||
Cash and cash equivalents | 89,162 | | (64,083 | )(d) | (64,083 | ) | (5,934 | )(j) | 19,145 | ||||||||
Restricted cash in tax-deferred exchange
escrow |
260,935 | 1,492 | | 1,492 | | 262,427 | |||||||||||
Other assets | 99,608 | 66,227 | (14,481 | )(e) | 51,746 | | 151,354 | ||||||||||
Total assets | $4,650,591 | $2,221,206 | $1,376,812 | $3,598,018 | $ (5,934 | ) | $8,242,675 | ||||||||||
Liabilities and Shareholders Equity |
|||||||||||||||||
Liabilities: | |||||||||||||||||
Unsecured credit facilities | $ | $ 64,000 | $ | $ 64,000 | $ | $ 64,000 | |||||||||||
Long-term unsecured debt | 1,390,219 | | | | | 1,390,219 | |||||||||||
Mortgages payable | 831,653 | 1,276,584 | 30,713 | (f) | 1,307,297 | | 2,138,950 | ||||||||||
Accounts payable, accrued expenses and
other liabilities |
140,664 | 60,403 | | 60,403 | | 201,067 | |||||||||||
Total liabilities | 2,362,536 | 1,400,987 | 30,713 | 1,431,700 | | 3,794,236 | |||||||||||
Minority interest: | |||||||||||||||||
Perpetual preferred units | 73,180 | | | | | 73,180 | |||||||||||
Convertible operating partnership units | 20,150 | 226,050 | 406,233 | (g) | 632,283 | (111,517 | )(k) | 540,916 | |||||||||
Total minority interest | 93,330 | 226,050 | 406,233 | 632,283 | (111,517 | ) | 614,096 | ||||||||||
Shareholders equity: | |||||||||||||||||
Convertible preferred shares | 80,166 | 156,500 | 79,185 | (l) | 235,685 | (79,185 | )(l) | 236,666 | |||||||||
Cumulative redeemable preferred shares | 99,535 | 50,000 | (3,471 | )(l) | 46,529 | 3,471 | (l) | 149,535 | |||||||||
Common Shares (121,246 historical $1.00
par value per share; 171,298 pro forma $0.01 par value per share) |
121,246 | 252 | 249 | 501 | (120,034 | )(m) | 1,713 | ||||||||||
Additional paid-in capital and other
comprehensive income (loss) |
1,911,079 | 313,229 | 938,091 | (i) | 1,251,320 | (1,500 | )(j) | 3,468,164 | |||||||||
111,517 | (k) | ||||||||||||||||
79,185 | (l) | ||||||||||||||||
(3,471 | )(l) | ||||||||||||||||
120,034 | (m) | ||||||||||||||||
Distributions in excess of net earnings | (17,301 | ) | 74,188 | (74,188 | ) | | (4,434 | )(j) | (21,735 | ) | |||||||
Total shareholders equity | 2,194,725 | 594,169 | 939,866 | (h) | 1,534,035 | 105,583 | 3,834,343 | ||||||||||
Total liabilities and shareholders
equity |
$4,650,591 | $2,221,206 | $1,376,812 | $3,598,018 | $ (5,934 | ) | $8,242,675 | ||||||||||
Archstone
Historical(n) |
Smith
Residential Historical(n) |
Pro Forma
Merger Adjustments |
Archstone-Smith
Pro Forma |
||||||
---|---|---|---|---|---|---|---|---|---|
Revenues: | |||||||||
Rental revenue | $327,342 | $215,721 | $ | $543,063 | |||||
Income from unconsolidated real estate entities | 1,211 | 9,091 | | 10,302 | |||||
Other income | 7,282 | 190 | | 7,472 | |||||
335,835 | 225,002 | | 560,837 | ||||||
Expenses: | |||||||||
Rental expenses | 75,297 | 71,136 | | 146,433 | |||||
Real estate taxes | 28,798 | 18,160 | | 46,958 | |||||
Depreciation on real estate investments | 61,495 | 25,400 | 3,554 | (p) | 90,449 | ||||
Interest expense | 67,076 | 44,489 | (2,945 | )(q) | 108,620 | ||||
General and administrative expenses | 11,806 | 5,917 | | (r) | 17,723 | ||||
Provision for possible loss on investments | 9,909 | 772 | | 10,681 | |||||
Other expenses | 1,032 | 3,347 | | 4,379 | |||||
255,413 | 169,221 | 609 | 425,243 | ||||||
Earnings from operations | 80,422 | 55,781 | (609 | ) | 135,594 | ||||
Less: | |||||||||
Minority interestperpetual preferred units | 3,134 | | | 3,134 | |||||
Minority interestconvertible preferred units | | 1,081 | | 1,081 | |||||
Minority interestconvertible operating
partnership units |
778 | | | 778 | |||||
Minority interestredeemable operating
partnership units |
| 16,668 | 7,808 | (s) | 24,476 | ||||
Plus: gains on dispositions of depreciated
real estate, net |
70,521 | | | 70,521 | |||||
Net earnings from continuing operations | 147,031 | 38,032 | (8,417 | ) | 176,646 | ||||
Less: preferred share dividends | 11,211 | 9,420 | | 20,631 | |||||
Net earnings from continuing operations attributable to
common sharesbasic |
$135,820 | $ 28,612 | $(8,417 | ) | $156,015 | ||||
Weighted average common shares outstanding
basic(s) |
121,569 | 166,314 | |||||||
Weighted average common shares outstanding
diluted(t) |
127,306 | 187,045 | |||||||
Net earnings from continuing operations per
common share: |
|||||||||
Basic(t) | $ 1.12 | $ 0.94 | |||||||
Diluted(t) | $ 1.10 | $ 0.90 | |||||||
Smith Residential |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Archstone
Historical(n) |
Historical(n) |
Acquisitions/
Dispositions(o) |
Pre Merger
Pro Forma |
Pro Forma
Merger Adjustments |
Archstone-Smith
Pro Forma |
||||||||||
Revenues: | |||||||||||||||
Rental revenues | $688,544 | $383,233 | $10,737 | $393,970 | $ | $1,082,514 | |||||||||
Income from unconsolidated real estate
entities |
2,575 | 10,838 | | 10,838 | | 13,413 | |||||||||
Other income | 32,115 | 345 | | 345 | | 32,460 | |||||||||
723,234 | 394,416 | 10,737 | 405,153 | | 1,128,387 | ||||||||||
Expenses: | |||||||||||||||
Rental expenses | 166,800 | 113,786 | 4,697 | 118,483 | | 285,283 | |||||||||
Real estate taxes | 58,808 | 33,010 | 902 | 33,912 | | 92,720 | |||||||||
Depreciation on real estate investments | 143,694 | 44,778 | 1,462 | 46,240 | 11,669 | (p) | 201,603 | ||||||||
Interest expense | 145,173 | 78,371 | 5,608 | 83,979 | (6,042 | )(q) | 223,110 | ||||||||
General and administrative expenses | 23,157 | 10,155 | | 10,155 | | (r) | 33,312 | ||||||||
Provision for possible loss on investments | 5,200 | | | | | 5,200 | |||||||||
Other expenses | 3,936 | 1,135 | | 1,135 | | 5,071 | |||||||||
546,768 | 281,235 | 12,669 | 293,904 | 5,627 | 846,299 | ||||||||||
Earnings from operations | 176,466 | 113,181 | (1,932 | ) | 111,249 | (5,627 | ) | 282,088 | |||||||
Less: | |||||||||||||||
Minority interestperpetual preferred units | 5,915 | | | | | 5,915 | |||||||||
Minority interestconvertible preferred
units |
| 3,656 | | 3,656 | | 3,656 | |||||||||
Minority interestconvertible operating
partnership units |
1,326 | | | | | 1,326 | |||||||||
Minority interestredeemable operating
partnership units |
| 60,653 | (669 | ) | 59,984 | (8,326 | )(s) | 51,658 | |||||||
Plus: gains on dispositions of depreciated real
estate, net |
93,071 | 66,067 | | 66,067 | | 159,138 | |||||||||
Net earnings (loss) from continuing operations
before extraordinary items |
262,296 | 114,939 | (1,263 | ) | 113,676 | 2,699 | 378,671 | ||||||||
Less: preferred share dividends | 25,340 | 20,247 | | 20,247 | | 45,587 | |||||||||
Net earnings (loss) from continuing operations
before extraordinary items attributable to common sharesbasic |
$236,956 | $ 94,692 | $(1,263 | ) | $ 93,429 | $ 2,699 | $ 333,084 | ||||||||
Weighted average common shares outstanding
basic(s) |
131,874 | 174,006 | |||||||||||||
Weighted average common shares outstanding
diluted(t) |
137,730 | 194,747 | |||||||||||||
Net earnings from continuing operations before
extraordinary items per common share: |
|||||||||||||||
Basic(t) | $ 1.80 | $ 1.91 | |||||||||||||
Diluted(t) | $ 1.78 | $ 1.86 | |||||||||||||
(a)
|
Reflects condensed historical balance sheet as of June 30, 2001. Certain reclassifications have been made to Smith
Residentials balance sheet to conform to Archstones presentation.
|
(b)
|
Represents adjustments to record the merger between Archstone-Smith and Smith Residential based upon the assumed purchase
price of $3.6 billion and application of the purchase method of accounting. The assumed purchase price was based in part upon a market value of $24.39 for each Archstone common share or share equivalent assumed to be issued, as shown in notes (g)
and (h). The $24.39 share price was based on the average closing price of Archstones common shares for the five day period ranging from two days prior to and two days after the merger agreement was announced. For accounting purposes,
Archstone-Smith is treated as the acquiring entity since Archstone-Smiths equity is being issued to Smith Residentials shareholders and Archstone-Smith is assuming Smith Residentials liabilities. Furthermore, we estimate that
immediately upon completion of the merger, former holders of Archstone common shares will have a 60% majority interest in Archstone-Smith, on a fully diluted and as-converted basis. The merger acquisition cost was computed as follows:
|
Assumption of Smith Residentials total liabilities | $1,400,987 | ||
Mark-to-market adjustment on Smith Residentials debt (see note (f)) | 30,713 | ||
Estimated fair value of liabilities incurred or assumed | 1,431,700 | ||
Estimated fair value of minority interest assumed (see note (g)) | 632,283 | ||
Issuance of Archstone-Smith common shares (see note (h)) | 1,220,779 | ||
Issuance of Archstone-Smith cumulative convertible redeemable preferred shares (see
note (h)) |
235,685 | ||
Issuance of Archstone-Smith cumulative redeemable preferred shares (see note (h)) | 46,529 | ||
Valuation of Smith Residential stock options assuming 50% of all option holders
choose not to accept the cash offer (see note (h)) |
31,042 | ||
Estimated fair value of equity issued | 1,534,035 | ||
Total merger acquisition cost | $3,598,018 | ||
(c) Represents the estimated increase over Smith Residentials investment in real estate based upon the merger acquisition cost to reflect the allocation to other tangible assets of Smith Residential being acquired: | |||
Merger acquisition cost (see note (b)) | $3,598,018 | ||
Adjusted for: | |||
Historical cost of Smith Residentials total assets | (2,221,206 | ) | |
Elimination of deferred loan and lease costs (see note (e)) | 14,481 | ||
Assumed amount of cash on hand used to fund merger-related costs
(see note (d)) |
64,083 | ||
Adjustment to record step-up in basis of real estate based on assumed purchase
price |
$1,455,376 | ||
The stepped-up basis falls within managements range of fair value estimates for Smith Residentials real estate assets.
Managements fair value estimates were based on the application of a range of estimated current market capitalization rates to each communitys expected net operating income.
|
(d)
|
Represents $36,466 in merger-related costs and the assumed $27,617 payment related to an offer to redeem 50% of the
outstanding Smith Residential stock options for cash (see calculation below) assumed to be paid with cash on hand, leaving $19,145 of cash on hand. See note (j) for registration and transfer tax cost assumptions.
|
The following is a calculation of estimated merger-related costs, including costs related to the concurrent reorganization of Archstone
into an UPREIT structure:
|
Investment advisory fees | $16,250 | |
Mortgage assumption fees | 7,931 | |
Employee termination costs | 10,000 | |
Legal, accounting and other fees | 2,285 | |
36,466 | ||
Payment to Smith Residential stock option holders to redeem 1,851 Smith Residential stock
options at the fixed offer price of $49.48 each, less the weighted average exercise price of $34.56 per option assuming 50% of all option holders choose to accept the cash offer |
27,617 | |
Merger-related costs assumed to be funded with cash on hand | $64,083 | |
(e)
|
Represents the elimination of Smith Residentials unamortized deferred loan and lease costs.
|
(f)
|
Represents the adjustments necessary to reflect Smith Residentials mortgages payable at their estimated market values,
using effective interest rates currently available for debt obligations with similar terms and features.
|
(g)
|
Represents adjustment to reflect Smith Residentials minority interests at estimated fair value assuming a market value
of $24.39 for each unit redeemable for an Archstone common share. The $24.39 share price is based on the average closing price of Archstones common shares for the five day period ranging from two days prior to and two days after the merger
agreement was announced.
|
Issuance of 25,924 Archstone Class A-1 common units (redeemable for Archstone-Smith
common shares) in exchange for 13,126 Smith Partnership Class A common units (redeemable for Smith Residential common shares) based on the 1.975:1 exchange ratio) |
$ 632,283 | ||
Less: Smith Residentials minority interest at historical cost | (226,050 | ) | |
Adjustment to reflect Smith Residentials minority interest at estimated fair value | $ 406,233 | ||
(h)
|
Represents adjustments to record the exchange of Archstone-Smith shares for Smith Residential shares at fair value, assuming
a market value of $24.39 for each Archstone-Smith common share. The $24.39 share price is based on the average closing price of Archstones common shares for the five day period ranging from two days prior to and two days after the merger
agreement was announced.
|
Issuance of 50,052 Archstone-Smith common shares in exchange for 25,343 shares of
Smith Residential common stock based on the 1.975:1 fixed exchange rate |
$1,220,779 | ||
Issuance of 2,640 Archstone-Smith Series H cumulative convertible redeemable
preferred shares (1.975:1 conversion rate) in exchange for 2,640 shares of Smith Residential Series A cumulative convertible redeemable preferred stock (1:1 conversion rate) |
127,169 | ||
Issuance of 685 Archstone-Smith Series J cumulative convertible redeemable preferred
shares (1.975:1 conversion rate) in exchange for 685 shares of Smith Residential Series E cumulative convertible redeemable preferred stock (1:1 conversion rate) |
32,997 | ||
Issuance of 667 Archstone-Smith Series K cumulative convertible redeemable preferred
shares (1.975:1 conversion rate) in exchange for 667 shares of Smith Residential Series F cumulative convertible redeemable preferred stock (1:1 conversion rate) |
32,130 | ||
Issuance of 641 Archstone-Smith Series L cumulative convertible redeemable preferred
shares (1.975:1 conversion rate) in exchange for 641 shares of Smith Residential Series G cumulative convertible redeemable preferred stock (1:1 conversion rate) |
30,877 | ||
Issuance of 400 Archstone-Smith Series M cumulative convertible redeemable preferred
shares (1.2824:1 conversion rate) in exchange for 400 shares of Smith Residential Series H cumulative convertible redeemable preferred stock (0.65:1 conversion rate) |
12,512 | ||
Total cumulative convertible redeemable preferred shares at estimated fair value | 235,685 | ||
Issuance of 0.5 of one Archstone-Smith Series I cumulative redeemable preferred share
in exchange for 0.5 of one share of Smith Residential Series C cumulative redeemable preferred stock (annual dividend 7.91%, par value per share $100,000, face value $50,000) at estimated fair value based on the current public market preferred rate of 8.5% |
46,529 | ||
Valuation of Smith Residential stock options assuming 50% of all option holders choose
not to accept the cash offer. All Smith Residential options become fully vested as a result of the merger. 3,702 options × 50% × $16.77 (estimated value per option was calculated using the Black-Scholes valuation model and the following assumptions: (1) risk-free interest rate 4.51%; (2) dividend yield 5.269%; (3) volatility 15.0%; and (4) expected option life 3 years) |
31,042 | ||
Total estimated fair value of common and preferred shares issued to Smith Residential
stockholders |
1,534,035 | ||
Less: Smith Residentials stockholders equity at historical cost | (594,169 | ) | |
Adjustment to reflect Smith Residentials stockholders equity at estimated fair value | $ 939,866 | ||
(i)
|
Represents the adjustments necessary to record additional paid-in capital at estimated fair value:
|
Issuance of 50,052 Archstone-Smith common shares in exchange for 25,343 shares of
Smith Residential common stock (see note (h)) |
$1,220,779 | ||
Less: par value of shares at $0.01 (50,052 × $0.01) | (501 | ) | |
Subtotal | 1,220,278 | ||
Valuation of Smith Residential stock options assuming 50% of all option holders choose
not to accept the cash offer (see note (h)) |
31,042 | ||
Less: Smith Residentials historical additional paid-in capital | (313,229 | ) | |
Adjustment to reflect Smith Residentials additional paid-in capital at estimated fair
value |
$ 938,091 | ||
(j)
|
Represents a $1,500 charge to additional paid-in capital for the estimated merger registration costs and a $4,434 charge to
distributions in excess of net earnings for the estimated transfer taxes expected to be paid
by Archstone as a result of the expected reorganization into an UPREIT. Since the intent of the accompanying pro forma condensed statements of earnings is to reflect the expected continuing impact of the merger, the one-time adjustment related to
the estimated transfer taxes has been excluded. It will be recorded as an operating expense on Archstone-Smiths statement of earnings upon consummation of the merger.
|
An incremental use of cash on hand of $5,934 to fund these amounts has also been reflected in the accompanying pro forma
balance sheet.
|
(k)
|
Represents adjustment to minority interest relating to convertible operating partnership units to reflect the merger as
follows:
|
Archstone historical common shareholders equity and minority interest relating to
convertible operating partnership units |
$2,035,174 | ||
Smith Residential historical common stockholders equity and minority interest relating
to convertible operating partnership units |
613,719 | ||
Pro forma and merger adjustments to common shareholders equity and minority
interest relating to convertible operating partnership units |
1,340,165 | ||
Total | 3,989,058 | ||
Minority interest ownership percentage relating to redeemable Archstone Class A-1
common units after the merger (see calculation below) |
13.56 | % | |
Minority interest ownership relating to redeemable Archstone Class A-1 common units
after the merger |
540,916 | ||
Less: pro forma minority interest relating to redeemable Archstone Class A-1 common
units prior to merger adjustment ($20,150 + $632,283) |
(652,433 | ) | |
Adjustment to minority interest ownership of redeemable Archstone common units to
reflect the merger |
$ (111,517 | ) | |
As of June 30, 2001 |
|||||||||
---|---|---|---|---|---|---|---|---|---|
Shares |
Units |
Total |
|||||||
Number of shares of Smith Residential common stock and Smith
Partnership units outstanding |
25,343 | 13,126 | 38,469 | ||||||
Historical ownership percentages | 65.88 | % | 34.12 | % | 100 | % | |||
Number of Archstone-Smith common shares and Archstone Class A-1
common units to be issued after assumed conversion at the exchange ratio of 1.975 |
50,052 | 25,924 | 75,976 | ||||||
Historical number of Archstone common shares and units
outstanding |
121,246 | 949 | 122,195 | ||||||
Pro forma number of Archstone-Smith common shares and units
outstanding |
171,298 | 26,873 | 198,171 | ||||||
Recomputed ownership percentage | 86.44 | % | 13.56 | % | 100 | % | |||
(l)
|
Represents the adjustment necessary to allocate the estimated market value in excess of the liquidation preference on Smith
Residentials preferred stock to additional paid-in capital as follows:
|
New Preferred Shares Series (after exchange) |
Estimated
Market Value (see note (h)) |
Liquidation
Value |
Amount to
be Allocated to Additional Paid-in Capital |
||||
---|---|---|---|---|---|---|---|
Archstone-Smith Series H cumulative convertible
redeemable preferred shares |
$127,169 | $ 71,500 | $55,669 | ||||
Archstone-Smith Series J cumulative convertible
redeemable preferred shares |
32,997 | 25,000 | 7,997 | ||||
Archstone-Smith Series K cumulative convertible
redeemable preferred shares |
32,130 | 25,000 | 7,130 | ||||
Archstone-Smith Series L cumulative convertible
redeemable preferred shares |
30,877 | 25,000 | 5,877 | ||||
Archstone-Smith Series M cumulative convertible
redeemable preferred shares |
12,512 | 10,000 | 2,512 | ||||
Subtotal | 235,685 | 156,500 | 79,185 | ||||
Archstone-Smith Series I cumulative redeemable preferred
shares |
46,529 | 50,000 | (3,471 | ) | |||
Total | $282,214 | $206,500 | $75,714 | ||||
Listed below is a combined summary of Archstone-Smiths preferred shares as of June 30, 2001. The preferred shareholders
are entitled to receive, when and as authorized by Archstone-Smith, cumulative preferential cash distributions. Archstone-Smith may redeem the preferred shares at certain dates in whole or in part at a cash redemption price equal to the redemption
preference plus all accrued unpaid dividends to the date fixed for redemption.
|
Series |
Liquidation
Preference Per Share |
Balance
Outstanding |
Quarterly
Distribution Amount Per Share |
Distribution
Frequency |
Archstone-Smiths
Voluntary Redemption Date (s) |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Series A (1) | $ 25.00 | $80,166 | $ 0.55 | Quarterly | On or after 11/30/2003 | |||||
Series C | $ 25.00 | $49,730 | $ 0.54 | Quarterly | On or after 08/20/2002 | |||||
Series D | $ 25.00 | $49,805 | $ 0.55 | Quarterly | On or after 08/06/2004 | |||||
Series H | $ 27.08 | $71,500 | (2) | Quarterly | On or after 05/15/2003 | |||||
Series I | $100,000 | $50,000 | $1,915 | Quarterly | On or after 02/01/2028 | |||||
Series J | $ 36.50 | $25,000 | (2) | Quarterly | On or after 07/13/2002 | |||||
Series K | $ 37.50 | $25,000 | (3) | Quarterly | On or after 10/01/2004 | |||||
Series L | $ 39.00 | $25,000 | (4) | Quarterly | On or after 11/05/2005 | |||||
Series M (5) | $ 25.00 | $10,000 | (2) | Quarterly | On or after 09/13/2004 |
(1)
|
The Series A preferred shares are convertible at any time, at the option of the holder, into a number of Archstone-Smith
common shares obtained by dividing the aggregate liquidation preference by the conversion price of $18.561, which is equivalent to a conversion rate of 1.3469 common shares for each Archstone-Smith Series A preferred share.
|
(2)
|
Cash distributions equal the greater of $2.02, $3.1025 and $2.03125 per year per share for Series H, J and M, respectively,
or the dividend on the common shares into which these preferred shares are convertible.
|
(3)
|
Cash distributions equal to the greater of 8.25% of the $37.50 liquidation preference per year, equivalent to $3.09375 per
year per share, through October 1, 2001, and 8.50% of the liquidation preference, equivalent to $3.1875 per year per share after October 1, 2001 or the dividend on the common shares into which a Series K preferred share is convertible.
|
(4)
|
Cash distributions equal to the greater of 8.25% of the $39.00 liquidation preference per year, equivalent to $3.2175 per
year per share, through November 5, 2001, and 8.50% of the liquidation preference, equivalent to $3.315 per year per share after November 5, 2001 or the dividend on the common shares into which a Series L preferred share is convertible.
|
(5)
|
On June 29, 2001, 1,800,000 Series M preferred shares were converted into 1,168,831 shares of Smith Residential common
stock.
|
(m)
|
Represents the adjustment necessary to record all Archstone-Smith common shares at par value of $0.01 per share (formerly
$1.00 per share), as follows:
|
Archstones 121,246 common shares at $1.00 par value per share | $121,246 | |
Archstone-Smiths 121,246 common shares at $0.01 par value per share | 1,212 | |
Adjustment | $120,034 | |
Note that Smith Residentials common stock is already reflected at $0.01 par.
|
(n)
|
Reflects condensed historical statement of earnings from continuing operations. Certain reclassifications have been made to
Smith Residentials statement of earnings from operations to conform to Archstones presentation.
|
(o)
|
Reflects the pro forma impact of certain acquisitions and dispositions of operating communities by Smith Residential during
2000. Smith Residentials Form 8-K dated October 25, 2000, which is incorporated herein by reference, provides further detail regarding these transactions and the related pro forma adjustments for the six months ended June 30, 2000. One
acquisition, Harbour House, was closed on October 25, 2000, subsequent to the period covered by the Form 8-K. The impact of this acquisition for the period from July 1, 2000 to October 25, 2000 is also reflected, as shown below. Note that no
adjustments to the accompanying pro forma combined condensed balance sheet as of June 30, 2001 or the pro forma combined condensed statement of earnings from operations for the six months ended June 30, 2001 were necessary, since each transaction
was consummated during 2000.
|
Form 8-K Dated
October 25, 2000 |
Harbour House
July 1, 2000 to October 25, 2000 |
Total |
|||||||
---|---|---|---|---|---|---|---|---|---|
Rental revenues | $ 6,909 | $ 3,828 | $10,737 | ||||||
Rental expenses | (3,192 | ) | (1,505 | ) | (4,697 | ) | |||
Real estate taxes | (495 | ) | (407 | ) | (902 | ) | |||
Depreciation on real estate investments | (933 | ) | (529 | ) | (1,462 | ) | |||
Interest expense | (3,392 | ) | (2,216 | ) | (5,608 | ) | |||
Minority interest | 382 | 287 | 669 | ||||||
Total | $ (721 | ) | $ (542 | ) | $(1,263 | ) | |||
(p)
|
Represents estimated net increase in depreciation of real estate as a result of the step-up in basis to record Smith
Residentials real estate based on the merger acquisition cost:
|
Land |
Buildings and
Improvements |
Properties
Under Construction |
Total |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Estimated value based on the merger
acquisition cost |
$1,002,202 | $2,316,349 | $120,798 | $3,439,349 | ||||||
Depreciable basis | N/A | $2,316,349 | N/A | $2,316,349 | ||||||
Pro forma annual depreciation expense based
on an estimated useful life of 40 years |
$ 57,909 | $ 57,909 | ||||||||
Less: Historical depreciation expense for
year ended December 31, 2000 |
(44,778 | ) | (44,778 | ) | ||||||
Pro forma adjustment for depreciation
expense related to Smith Residentials 2000 acquisitions/dispositions |
(1,462 | ) | (1,462 | ) | ||||||
Pro forma adjustment to depreciation
expense |
$ 11,669 | $ 11,669 | ||||||||
Pro forma depreciation expense based on an
estimated useful life of 40 years for the six months ended June 30, 2001 |
$ 28,954 | $ 28,954 | ||||||||
Less: Historical depreciation expense for the
six months ended June 30, 2001 |
(25,400 | ) | (25,400 | ) | ||||||
Pro forma adjustment to depreciation
expense |
$ 3,554 | $ 3,554 | ||||||||
(q)
|
Represents the following pro forma interest expense adjustments:
|
Six Months
Ended June 30, 2001 |
Year Ended
December 31, 2000 |
|||||
---|---|---|---|---|---|---|
Decreases to interest expense: | ||||||
Reversal of Smith Residentials historical loan cost amortization due
to the elimination of deferred loan costs |
$ (924 | ) | $(2,000 | ) | ||
Amortization of $30.7 million mark-to-market adjustment made to
Smith Residentials debt (see note (f)) |
(2,021 | ) | (4,042 | ) | ||
Net decrease in interest expense | $(2,945 | ) | $(6,042 | ) | ||
(r)
|
Management has estimated that there will be a reduction of over 50% of Smith Residentials general and administrative
expenses as a result of the merger on a pro forma basis for the six months ended June 30, 2001 and the year ended December 31, 2000. The general and administrative expense savings have not been included in the pro forma condensed combined statements
of earnings from operations as there can be no assurance that such costs savings will be realized.
|
(s)
|
Represents adjustments for the recomputation of net earnings from continuing operations allocable to the redeemable operating
partnership units. The recomputed percentage allocable to common shares and operating partnership units was calculated as follows:
|
Six Months Ended
June 30, 2001 |
Year Ended
December 31, 2000 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares |
Units |
Total |
Shares |
Units |
Total |
|||||||||||||
Weighted average number of shares of Smith Residential
common stock and Smith Partnership units |
22,656 | 13,211 | 35,867 | 21,333 | 13,664 | 34,997 | ||||||||||||
Historical ownership percentages | 63.17 | % | 36.83 | % | 100 | % | 60.96 | % | 39.04 | % | 100 | % | ||||||
Weighted average number of Archstone-Smith common shares
and Archstone units to be issued after assumed conversion at the exchange ratio of 1.975 |
44,745 | 26,092 | 70,837 | 42,132 | 26,987 | 69,119 | ||||||||||||
Weighted average number of Archstone common shares | 121,569 | | 121,569 | 131,874 | | 131,874 | ||||||||||||
Pro forma weighted average Archstone-Smith common shares
and Archstone units outstanding |
166,314 | 26,092 | 192,406 | 174,006 | 26,987 | 200,993 | ||||||||||||
Recomputed ownership percentage | 86.44 | % | 13.56 | % | 100 | % | 86.57 | % | 13.43 | % | 100 | % | ||||||
Six Months
Ended June 30, 2001 |
Year Ended
December 31, 2000 |
|||||
---|---|---|---|---|---|---|
Pro forma net earnings from continuing operations attributable to
common sharesbasic |
$156,015 | $333,084 | ||||
Add back Smith Residentials historical minority interest
redeemable operating partnership units |
16,668 | 60,653 | ||||
Less pro forma adjustment to minority interest related to Smith
Residentials 2000 acquisitions/dispositions |
| (669 | ) | |||
Add back (less) pro forma adjustment to Smith Residentials
historical minority interestredeemable operating partnership units |
7,808 | (8,326 | ) | |||
Pro forma net earnings from continuing operations before
reallocation |
180,491 | 384,742 | ||||
Recomputed minority interest ownership percentage (see above) | 13.56 | % | 13.43 | % | ||
Recomputed net earnings allocable to minority interestredeemable
Archstone common units |
24,476 | 51,658 | ||||
Less Smith Residentials historical minority interestredeemable
operating partnership units |
(16,668 | ) | (60,653 | ) | ||
Add back pro forma adjustment to minority interest related to Smith
Residentials 2000 acquisitions/dispositions |
| 669 | ||||
Pro forma adjustment to minority interestredeemable Archstone
common units |
$ 7,808 | $ (8,326 | ) | |||
(t)
|
A reconciliation of the numerator and denominator used to compute basic earnings per common share to the numerator and
denominator used to compute diluted earnings per common share is as follows for the periods indicated:
|
Six Months Ended June 30, 2001 |
Archstone
Historical |
Archstone-Smith
Pro Forma |
||
---|---|---|---|---|
Net earnings from continuing operations attributable to
common sharesbasic |
$135,820 | $156,015 | ||
Dividends on convertible preferred shares | 3,563 | 11,037 | ||
Minority interestconvertible preferred units | | 1,081 | ||
Minority interestconvertible operating partnership units (1) | 778 | 778 | ||
Net earnings from continuing operations attributable to
common sharesdiluted |
$140,161 | $168,911 | ||
Weighted average common shares outstandingbasic (see note (s)) | 121,569 | 166,314 | ||
Assumed conversion of convertible preferred shares | 4,360 | 16,309 | ||
Assumed conversion of convertible preferred units | | 2,285 | ||
Assumed conversion of convertible operating partnership units (1) | 949 | 949 | ||
Assumed exercise of options | 428 | 1,188 | ||
Weighted average common shares outstandingdiluted | 127,306 | 187,045 | ||
Net earnings from continuing operations per common share: | ||||
Basic | $ 1.12 | $ 0.94 | ||
Diluted | $ 1.10 | $ 0.90 | ||
Year Ended December 31, 2000 |
Archstone
Historical |
Archstone-Smith
Pro Forma |
||
Net earnings from continuing operations before extraordinary items
attributable to common sharesbasic |
$236,956 | $333,084 | ||
Dividends on convertible preferred shares | 7,254 | 23,546 | ||
Minority interestconvertible preferred units | | 3,656 | ||
Minority interestconvertible operating partnership units (1) | 1,326 | 1,326 | ||
Net earnings from continuing operations before extraordinary items
attributable to common sharesdiluted |
$245,536 | $361,612 | ||
Weighted average common shares outstandingbasic (see note (s)) | 131,874 | 174,006 | ||
Assumed conversion of convertible preferred shares | 4,721 | 16,695 | ||
Assumed conversion of convertible preferred units | | 2,311 | ||
Assumed conversion of convertible operating partnership units (1) | 876 | 876 | ||
Assumed exercise of options | 259 | 859 | ||
Weighted average common shares outstandingdiluted | 137,730 | 194,747 | ||
Net earnings from continuing operations before extraordinary items per
common share: |
||||
Basic | $ 1.80 | $ 1.91 | ||
Diluted | $ 1.78 | $ 1.86 | ||
(1)
|
Excludes the impact of Smith Partnerships convertible operating partnership units which may be redeemed at the
unitholders sole discretion. Such redemption, at Archstone-Smiths election, may be made for cash or for common shares on a one-for-one basis, which does not have a dilutive effect.
|
Six Months Ended
June 30, 2001 |
Year Ended
December 31, 2000 |
|||||||
---|---|---|---|---|---|---|---|---|
Archstone
Historical |
Archstone-Smith
Trust Pro Forma |
Archstone
Historical |
Archstone-Smith
Trust Pro Forma |
|||||
Ratio of earnings to fixed charges | 1.9 | 2.0 | 1.9 | 2.0 |
Page |
||||
---|---|---|---|---|
ARTICLE 1 | THE ARCHSTONE MERGER AND THE MERGERS | A-3 | ||
1.1 | The Primary Archstone Merger | A-3 | ||
1.2 | Alternative Structure of the Archstone Merger | A-5 | ||
1.3 | The Merger | A-8 | ||
1.4 | The Partnership Merger | A-8 | ||
1.5 | Closings | A-9 | ||
1.6 | Effective Time | A-9 | ||
1.7 | Effect of Partnership Merger on Smith Agreement of Limited Partnership and Archstone
Surviving Subsidiary Declaration of Trust and Bylaws |
A-10 | ||
1.8 | Effect of Merger on Smith Articles of Incorporation and Bylaws and New Archstone
Declaration of Trust and Bylaws |
A-10 | ||
1.9 | Trustees of New Archstone | A-10 | ||
1.10 | Effect of Archstone Merger and Merger on Capital Stock and Shares of Beneficial
Interest |
A-10 | ||
1.11 | Effect of Partnership Merger on Partnership Interests and Shares of Beneficial Interest | A-10 | ||
1.12 | Partnership Merger Consideration; Merger Consideration | A-11 | ||
1.13 | Partner Approval | A-13 | ||
1.14 | Appraisal or Dissenters Rights | A-13 | ||
1.15 | Exchange of Certificates in Merger; Pre-Closing Dividends; Fractional Shares | A-14 | ||
ARTICLE 2 | REPRESENTATIONS AND WARRANTIES OF SMITH AND SMITH
PARTNERSHIP |
A-18 | ||
2.1 | Organization, Standing and Power | A-18 | ||
2.2 | Smith Subsidiaries | A-18 | ||
2.3 | Capital Structure | A-19 | ||
2.4 | Other Interests | A-21 | ||
2.5 | Authority; Noncontravention; Consents | A-21 | ||
2.6 | SEC Documents; Financial Statements, Undisclosed Liabilities | A-23 | ||
2.7 | Absence of Certain Changes or Events | A-23 | ||
2.8 | Litigation | A-24 | ||
2.9 | Properties | A-24 | ||
2.10 | Environmental Matters | A-26 | ||
2.11 | Related Party Transactions | A-27 | ||
2.12 | Employee Benefits | A-27 | ||
2.13 | Employee Policies | A-29 | ||
2.14 | Taxes | A-29 | ||
2.15 | No Payments to Employees, Officers or Directors | A-31 | ||
2.16 | Broker; Schedule of Fees and Expenses | A-31 | ||
2.17 | Compliance with Laws | A-31 | ||
2.18 | Contracts; Debt Instruments | A-31 | ||
2.19 | Opinion of Financial Advisor | A-33 | ||
2.20 | State Takeover Statutes | A-33 | ||
2.21 | Stockholder Rights Plan | A-33 | ||
2.22 | Investment Company Act of 1940 | A-33 | ||
2.23 | Definition of Knowledge of Smith | A-33 | ||
2.24 | Required Stockholder Approvals and Partner Approvals | A-33 |
Page |
||||
---|---|---|---|---|
ARTICLE 3 | REPRESENTATIONS AND WARRANTIES OF ARCHSTONE AND NEW
ARCHSTONE |
A-33 | ||
3.1 | Organization, Standing and Power of Archstone | A-33 | ||
3.2 | Archstone Subsidiaries | A-34 | ||
3.3 | Capital Structure | A-34 | ||
3.4 | Other Interests | A-36 | ||
3.5 | Authority; Noncontravention; Consents | A-36 | ||
3.6 | SEC Documents; Financial Statements; Undisclosed Liabilities | A-37 | ||
3.7 | Absence of Certain Changes or Events | A-38 | ||
3.8 | Litigation | A-38 | ||
3.9 | Properties | A-38 | ||
3.10 | Environmental Matters | A-40 | ||
3.11 | Taxes | A-40 | ||
3.12 | Brokers, Schedule of Fees and Expenses | A-42 | ||
3.13 | Compliance with Laws | A-42 | ||
3.14 | Contracts; Debt Instruments | A-42 | ||
3.15 | Opinion of Financial Advisor | A-42 | ||
3.16 | State Takeover Statutes | A-43 | ||
3.17 | Investment Company Act of 1940 | A-43 | ||
3.18 | Definition of Knowledge of Archstone | A-43 | ||
3.19 | Required Shareholder Approvals | A-43 | ||
ARTICLE 4 | COVENANTS | A-43 | ||
4.1 | Conduct of Smiths and Smith Partnerships Business Pending Merger | A-43 | ||
4.2 | Conduct of Archstones Business Pending Merger | A-46 | ||
4.3 | No Solicitation | A-47 | ||
4.4 | Affiliates | A-50 | ||
4.5 | Other Actions | A-50 | ||
ARTICLE 5 | ADDITIONAL COVENANTS | A-50 | ||
5.1 | Preparation of the Form S-4 and the Proxy Statement; Smith Stockholders Meeting,
Smith Partnership Consent Solicitation and Archstone Shareholders Meeting |
A-50 | ||
5.2 | Access to Information; Confidentiality | A-53 | ||
5.3 | Notification | A-53 | ||
5.4 | Tax Matters | A-54 | ||
5.5 | Public Announcements | A-54 | ||
5.6 | Listing | A-55 | ||
5.7 | Transfer and Gains Taxes | A-55 | ||
5.8 | Benefit Plans and Other Employee Arrangements | A-55 | ||
5.9 | Indemnification | A-56 | ||
5.10 | Declaration of Dividends and Distributions | A-58 | ||
5.11 | Transfer or Recapitalization of Smith Non-Controlled Subsidiaries | A-59 | ||
5.12 | Notices | A-59 | ||
5.13 | Resignations | A-59 | ||
5.14 | Assumption of Existing Tax Protection Agreements | A-59 | ||
5.15 | Registration Rights Agreements | A-59 | ||
5.16 | Exemption from Liability Under Section 16(b) | A-59 | ||
5.17 | Restructuring of Assets of Archstone | A-60 | ||
5.18 | Stockholder Rights Plan | A-60 |
Page |
||||
---|---|---|---|---|
ARTICLE 6 | CONDITIONS | A-60 | ||
6.1 | Conditions to Each Partys Obligation to Effect the Mergers | A-60 | ||
6.2 | Conditions to Obligations of Archstone and New Archstone | A-61 | ||
6.3 | Conditions to Obligations of Smith and Smith Partnership | A-62 | ||
ARTICLE 7 | TERMINATION, AMENDMENT AND WAIVER | A-64 | ||
7.1 | Termination | A-64 | ||
7.2 | Certain Fees and Expenses | A-65 | ||
7.3 | Effect of Termination | A-67 | ||
7.4 | Amendment | A-67 | ||
7.5 | Extension; Waiver | A-68 | ||
ARTICLE 8 | GENERAL PROVISIONS | A-68 | ||
8.1 | Nonsurvival of Representations and Warranties | A-68 | ||
8.2 | Notices | A-68 | ||
8.3 | Interpretation | A-69 | ||
8.4 | Counterparts | A-69 | ||
8.5 | Entire Agreement; No Third-Party Beneficiaries | A-69 | ||
8.6 | Governing Law | A-69 | ||
8.7 | Assignment | A-69 | ||
8.8 | Enforcement | A-70 | ||
8.9 | Severability | A-70 | ||
8.10 | Exculpation | A-70 | ||
8.11 | Joint and Several Obligations | A-70 |
Exhibit A | Form of Shareholders Agreement | |
Exhibit B | Form of Amended and Restated Declaration of Trust of Archstone Surviving Subsidiary | |
Exhibit C | Form of Amended and Restated Bylaws of Archstone Surviving Subsidiary | |
Exhibit D | Form of Amended and Restated Declaration of Trust of New Archstone | |
Exhibit E | Form of Amended and Restated Bylaws of New Archstone | |
Exhibit F | Form of Proposed Charter Amendments |
(a) Subject to Section 1.2, upon the terms and subject to the
conditions of this Agreement, and in accordance with Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended (Title 8), and other applicable state law, on the Archstone Closing Date (as defined
herein), Archstone Merger Sub shall be merged with Archstone with Archstone as the surviving entity and with New Archstone acquiring all outstanding shares of beneficial interest of Archstone and the holders of shares of beneficial interest in
Archstone receiving shares of beneficial interest in New Archstone, as follows:
|
(i) Each common share of beneficial interest, par value $1.00 per
share, of Archstone, together with the associated Right (as defined in the Rights Agreement between Archstone and Chemical Bank, dated as of July 21, 1994, as amended) (collectively, the Archstone Common Shares) issued and outstanding
immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one common share of beneficial interest, par value $.01 per share, of New Archstone, together with a right under the New
Archstone Rights Agreement to be adopted by New Archstone prior to the Archstone Closing (collectively, the New Archstone Common Shares). The New Archstone Rights Agreement shall mean the rights agreement to be adopted by the
New Archstone Board of Trustees prior to the Archstone Closing, the form and substance of which is subject to Smiths approval, which approval shall not be unreasonably withheld or delayed.
|
(ii) Each Cumulative Convertible Series A Preferred Share of
Beneficial Interest of Archstone (Archstone Series A Preferred Shares) issued and outstanding immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one Cumulative
Convertible Series A Preferred Share of Beneficial Interest of New Archstone (New Archstone Series A Preferred Shares).
|
(iii) Each Series C Cumulative Redeemable Preferred Share of
Beneficial Interest of Archstone (Archstone Series C Preferred Shares) issued and outstanding immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one Series C
Cumulative Redeemable Preferred Share of Beneficial Interest of New Archstone (New Archstone Series C Preferred Shares).
|
(iv) Each Series D Cumulative Redeemable Preferred Share of
Beneficial Interest of Archstone (Archstone Series D Preferred Shares) issued and outstanding immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one Series D
Cumulative Redeemable Preferred Share of Beneficial Interest of New Archstone (New Archstone Series D Preferred Shares).
|
(v) Each Cumulative Redeemable Perpetual Series E Preferred Share
of Beneficial Interest of Archstone (Archstone Series E Preferred Shares) issued and outstanding immediately prior to the effective time of the Archstone Merger, if any, shall be automatically converted into the right to receive one
Cumulative Redeemable Perpetual Series E Preferred Share of Beneficial Interest of New Archstone (New Archstone Series E Preferred Shares).
|
(vi) Each Cumulative Redeemable Perpetual Series F Preferred Share
of Beneficial Interest of Archstone (Archstone Series F Preferred Shares) issued and outstanding immediately prior to the effective time of the Archstone Merger, if any, shall be automatically converted into the right to receive one
Cumulative Redeemable Perpetual Series F Preferred Share of Beneficial Interest of New Archstone (New Archstone Series F Preferred Shares).
|
(vii) Each Cumulative Redeemable Perpetual Series G Preferred
Share of Beneficial Interest of Archstone (Archstone Series G Preferred Shares) issued and outstanding immediately prior to the effective time of the Archstone Merger, if any, shall be automatically converted into the right to receive
one Cumulative Redeemable Perpetual Series G Preferred Share of Beneficial Interest of New Archstone (New Archstone Series G Preferred Shares).
|
(b) In addition, pursuant to the Archstone Surviving Subsidiary
Declaration of Trust and the New Archstone Declaration of Trust (each as defined herein):
|
(i) Each 8.375% Cumulative Redeemable Perpetual Series E Preferred
Unit of Archstone Communities Limited Partnership (Archstone Series E Preferred Units) issued and outstanding immediately prior to the effective time of the Primary Archstone Merger, if any, shall continue to be convertible into one
Archstone Series E Preferred Share and each Archstone Series E Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series E Preferred Share.
|
(ii) Each 8.125% Cumulative Redeemable Perpetual Series F
Preferred Unit of Archstone Communities Limited Partnership II (Archstone Series F Preferred Units) issued and outstanding immediately prior to the effective time of the Primary Archstone Merger, if any, shall continue to be convertible
into one Archstone Series F Preferred Share and each Archstone Series F Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series F Preferred Share.
|
(iii) Each 8.625% Cumulative Redeemable Series G Preferred Unit of
Archstone Communities Limited Partnership II (Archstone Series G Preferred Units) issued and outstanding immediately prior to the effective time of the Primary Archstone Merger, if any, shall continue to be convertible
into one Archstone Series G Preferred Share and each Archstone Series G Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series G Preferred Share.
|
(c) Upon the terms and subject to the conditions of this
Agreement, and in accordance with Title 8 and other applicable state law, upon the Primary Archstone Merger, New Archstone shall receive securities in Archstone in the same number and of the same class or series as the securities of Archstone
outstanding immediately prior to the effective time of the Archstone Merger, with the rights, privileges, and preferences set forth in the Archstone Declaration of Trust in effect on the date hereof (the Archstone Declaration of
Trust).
|
(d) For federal income tax purposes, it is intended that the
Primary Archstone Merger shall qualify as reorganization under Section 368 (a)(1)(F) of the Code.
|
(a) In the event that (i) (A) the Proposed Archstone Charter
Amendments (as defined herein) are disapproved at the duly convened Archstone Shareholders Meeting (as defined herein), or otherwise are not approved by holders of a majority of the Archstone Common Shares entitled to vote within 110 days after the
matter is submitted for their approval (but in no event later than March 1, 2002) or (B) the holders of a majority of the Archstone Common Shares entitled to vote approve the Proposed Archstone Charter Amendments but the Primary Archstone Merger
shall not have been consummated within sixty (60) days after the receipt of such approval, and (ii) the holders of a majority of the Archstone Common Shares entitled to vote approve the Archstone Merger, then the Archstone Merger shall be
effectuated through the Alternative Archstone Merger as set forth in this Section 1.2.
|
(b) Archstone shall form Archstone Corporate Subsidiary and New
Archstone shall form Archstone REIT.
|
(c) Upon the terms and subject to the conditions of this Agreement
and in accordance with Title 3 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended (Title 3), and Title 8, on the Archstone Closing Date, Archstone shall merge with and into Archstone Corporate
Subsidiary with Archstone Corporate Subsidiary as the surviving entity and the holders of shares of beneficial interest in Archstone receiving shares of stock in Archstone Corporate Subsidiary, as follows:
|
(i) Each Archstone Common Share issued and outstanding immediately
prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of common stock, par value $.01 per share, of Archstone Corporate Subsidiary (ACS Common Shares). The ACS Common Shares
shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Common Shares outstanding on the date
hereof except that the ACS Common Shares shall not have an associated right similar to the Right.
|
(ii) Each Archstone Series A Preferred Share issued and
outstanding immediately prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of Cumulative Convertible Series A Preferred Stock of Archstone Corporate Subsidiary (ACS Series A
Preferred Shares). The ACS Series A Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those
of the Archstone Series A Preferred Shares outstanding on the date hereof.
|
(iii) Each Archstone Series C Preferred Share issued and
outstanding immediately prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of Series C Cumulative Redeemable Preferred Stock of Archstone Corporate Subsidiary (ACS Series C
Preferred Shares). The ACS Series C Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those
of the Archstone Series C Preferred Shares outstanding on the date hereof.
|
(iv) Each Archstone Series D Preferred Share issued and
outstanding immediately prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of Series D Cumulative Redeemable Preferred Stock of Archstone Corporate Subsidiary (ACS Series D
Preferred Shares). The ACS Series D Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those
of the Archstone Series D Preferred Shares outstanding on the date hereof.
|
(v) Each Archstone Series E Preferred Share issued and outstanding
immediately prior to the effective time of the ACS Merger, if any, shall be automatically converted into the right to receive one share of Cumulative Redeemable Perpetual Series E Preferred Stock of Archstone Corporate Subsidiary (ACS Series E
Preferred Shares). The ACS Series E Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those
of the Archstone Series E Preferred Shares outstanding on the date hereof. Each Archstone Series E Preferred Unit issued and outstanding immediately prior to the effective time of the ACS Merger shall become convertible into one ACS Series E
Preferred Share.
|
(vi) Each Archstone Series F Preferred Share issued and
outstanding immediately prior to the effective time of the ACS Merger, if any, shall be automatically converted into the right to receive one share of Cumulative Redeemable Perpetual Series F Preferred Stock of Archstone Corporate Subsidiary
(ACS Series F Preferred Shares). The ACS Series F Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption
thereof identical to those of the Archstone Series F Preferred Shares outstanding on the date hereof. Each Archstone Series F Preferred Unit issued and outstanding immediately prior to the effective time of the ACS Merger shall become convertible
into one ACS Series F Preferred Share.
|
(vii) Each Archstone Series G Preferred Share issued and
outstanding immediately prior to the effective time of the ACS Merger, if any, shall be automatically converted into the right to receive one share of Cumulative Redeemable Perpetual Series G Preferred Stock of Archstone Corporate Subsidiary
(ACS Series G Preferred Shares). The ACS Series G Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption
thereof identical to those of the Archstone Series G Preferred Shares outstanding on the date hereof. Each Archstone Series G Preferred Unit issued and outstanding immediately prior to the effective time of the ACS Merger shall become convertible
into one ACS Series G Preferred Share.
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(d) Upon the terms and subject to the conditions of this
Agreement, and in accordance with applicable state laws, Archstone Corporate Subsidiary and New Archstone shall then enter into a share exchange in accordance with Title 3 and other applicable state law, pursuant to which New Archstone shall issue
shares of beneficial interest in New Archstone to the holders of ACS Common Shares and ACS Preferred Shares, as follows:
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(i) Each ACS Common Share issued and outstanding immediately
prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Common Share.
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(ii) Each ACS Series A Preferred Share issued and outstanding
immediately prior to the effective time of the Share Exchange, if any, shall be exchanged for one New Archstone Series A Preferred Share.
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(iii) Each ACS Series C Preferred Share issued and outstanding
immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series C Preferred Share.
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(iv) Each ACS Series D Preferred Share issued and outstanding
immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series D Preferred Share.
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(v) Each ACS Series E Preferred Share issued and outstanding
immediately prior to the effective time of the Share Exchange, if any, shall be exchanged for one New Archstone Series E Preferred Share.
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(vi) Each ACS Series F Preferred Share issued and outstanding
immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series F Preferred Share.
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(vii) Each ACS Series G Preferred Share issued and outstanding
immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series G Preferred Share.
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(e) Upon the terms and subject to the conditions of this
Agreement, and in accordance with Title 3 and Title 8, Archstone Corporate Subsidiary shall then merge with and into Archstone REIT, with Archstone REIT as the surviving entity, with the ACS Common Shares and the ACS Preferred Shares being
extinguished and with Archstone REIT issuing the following shares of beneficial interest to New Archstone:
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(i) a number of Common Shares of Beneficial Interest, par value
$0.01 per share, of Archstone REIT (Archstone Surviving Subsidiary Common Shares) so that the number of Archstone Surviving Subsidiary Common Shares issued and outstanding immediately after the Archstone REIT Merger is equal the number
of ACS Common Shares issued and outstanding immediately prior to the Archstone REIT Merger;
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(ii) a number of Cumulative Convertible Series A Preferred Shares
of Beneficial Interest of Archstone REIT (Archstone Surviving Subsidiary Series A Preferred Shares) equal to the number of ACS Series A Preferred Shares being cancelled;
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(iii) a number of Series C Cumulative Redeemable Preferred Shares
of Beneficial Interest of Archstone REIT (Archstone Surviving Subsidiary Series C Preferred Shares) equal to the number of ACS Series C Preferred Shares being cancelled;
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(iv) a number of Series D Cumulative Redeemable Preferred Shares
of Beneficial Interest of Archstone REIT (Archstone Surviving Subsidiary Series D Preferred Shares) equal to the number of ACS Series D Preferred Shares being cancelled;
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(v) a number of Cumulative Redeemable Perpetual Series E Preferred
Shares of Beneficial Interest of Archstone REIT (Archstone Surviving Subsidiary Series E Preferred Shares) equal to the number of ACS Series E Preferred Shares being cancelled, if any;
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(vi) a number of Cumulative Redeemable Perpetual Series F
Preferred Shares of Beneficial Interest of Archstone REIT (Archstone Surviving Subsidiary Series F Preferred Shares) equal to the number of ACS Series F Preferred Shares being cancelled, if any; and
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(vii) a number of Cumulative Redeemable Perpetual Series G
Preferred Shares of Beneficial Interest of Archstone REIT (Archstone Surviving Subsidiary Series G Preferred Shares) equal to the number of ACS Series G Preferred Shares being cancelled, if any;
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(f) In addition, pursuant to the Archstone Surviving Subsidiary
Declaration of Trust and the New Archstone Declaration of Trust:
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(i) Each Archstone Series E Preferred Unit issued and outstanding
immediately prior to the effective time of the Archstone REIT Merger shall become convertible into one Archstone Surviving Subsidiary Series E Preferred Share and each Archstone Series E Preferred Share (whether or not outstanding) shall become
convertible into one New Archstone Series E Preferred Share.
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(ii) Each Archstone Series F Preferred Unit issued and outstanding
immediately prior to the effective time of the Archstone REIT Merger shall become convertible into one Archstone Surviving Subsidiary Series F Preferred Share and each Archstone Series F Preferred Share (whether or not outstanding) shall become
convertible into one New Archstone Series F Preferred Share.
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(iii) Each Archstone Series G Preferred Unit issued and
outstanding immediately prior to the effective time of the Archstone REIT Merger shall become convertible into one Archstone Surviving Subsidiary Series G Preferred Share and each Archstone Series G Preferred Share (whether or not outstanding) shall
become convertible into one New Archstone Series G Preferred Share.
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(g) For federal income tax purposes, it is intended that the
Alternative Archstone Merger (including the ACS Merger, the Share Exchange and the Archstone REIT Merger) shall qualify as one or more reorganizations under Section 368 (a)(1)(F) of the Code.
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(b) For federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under Section 368 (a)(1)(A) of the Code.
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(a) Upon the terms and subject to the conditions of this
Agreement, and in accordance with Title 8 and Title 6, Section 17-211 of the Delaware Revised Uniform Limited Partnership Act, as amended (the DRULPA), immediately after the effectiveness of the Merger, Smith Partnership shall be merged
with and into Archstone Surviving Subsidiary with Archstone Surviving Subsidiary as the surviving entity (the Surviving Entity), and with holders of partnership interests in Smith receiving shares of beneficial interest in Archstone
Surviving Subsidiary, as set forth in Section 1.12(a). The name of the Surviving Entity shall be Archstone-Smith Operating Trust.
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(b) For federal income tax purposes, it is intended that the
Partnership Merger have the characterization set forth in the fourteenth WHEREAS clause above. If, notwithstanding such intended characterization, the Partnership Merger is treated as a merger of two partnerships within the meaning of
the regulation under Section 708(b)(1)(A) of the Code, pursuant to Treasury Regulation § 1.708-1(c)(3), Smith Partnership and Archstone intend that the Partnership Merger be treated as an assets over form of merger, with the
consequences set forth in Treasury Regulation § 1.708-1(c)(3)(i). In addition, if and to the extent that any transaction entered into pursuant to this Agreement or otherwise deemed undertaken in connection with the transactions contemplated by
this Agreement is treated for federal income tax purposes as a direct or indirect transfer of cash from Archstone Surviving Subsidiary to a holder of
Smith OP Units or Smith Preferred OP Units (as defined herein) that would be characterized as a sale for federal income tax purposes, pursuant to Treasury Regulation § 1.708-1(c)(4) such sale shall be treated by all parties as a sale by the
former holder of Smith OP Units or Smith Preferred OP Units receiving (or deemed to receive) such cash of Smith OP Units or Smith Preferred OP Units to Archstone Surviving Subsidiary and as a direct purchase by Archstone Surviving Subsidiary of such
Smith OP Units or Smith Preferred OP Units from such former holder of Smith OP Units or Smith Preferred OP Units immediately prior to the Partnership Merger (and not as a transfer of cash from Archstone Surviving Subsidiary to Smith Partnership as
part of the Partnership Merger). Each holder of Smith OP Units or Smith Preferred OP Units who receives, directly or indirectly, any cash in connection with the Partnership Merger shall be deemed by such holders act of receiving and accepting
such cash, to have agreed to the characterization of such transaction set forth in the immediately preceding sentence for purposes of Treasury
Regulation § 1.708-1 (c)(4). |
(a) The effect of the Archstone Merger shall be as provided in the
applicable certificate or articles of merger in such form as the parties hereto shall mutually agree and as set forth in Section 1.1 (in the case of a merger effectuated in the form of the Primary Archstone Merger) or Section 1.2 (in the case of a
merger effectuated in the form of the Alternative Archstone Merger).
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(b) The effect of the Merger on the shares of stock of Smith shall
be as provided in the REIT Articles of Merger and in Section 1.12(b). The Merger shall not change the shares of beneficial interest of New Archstone outstanding immediately prior to the Merger.
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(a) Partnership Merger Consideration.
The consideration to be paid to holders of Partnership Units (as defined in the Smith Partnership Agreement) and Partnership Interests (as defined in the Smith Partnership Agreement) of Smith Partnership in the Partnership Merger
(collectively, the Partnership Merger Consideration) is as follows:
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(i) Each Class A Partnership Unit of Smith Partnership
(Class A Smith OP Units), outstanding immediately prior to the Effective Time of the Partnership Merger shall be converted into the right to receive 1.975 Class A Shares of Beneficial Interest of Archstone Surviving Subsidiary
(Archstone Surviving Subsidiary Class A Shares). The Archstone Surviving Subsidiary Class A Shares issued to the holders of Class A Smith OP Units (other than New Archstone, as the successor to Smith in the Merger) will be in the
Partnership Merger denominated as Class A-1 Shares of Beneficial Interest of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Class A-1 Shares). The Archstone Surviving Subsidiary Class A Shares issued to New Archstone (as
the successor to Smith in the Merger) will be denominated as Class A-2 Shares of Beneficial Interest of Archstone Surviving Subsidiary. The holders of the Archstone Surviving Subsidiary Class A-1 Shares issued in the Partnership Merger shall be
entitled to redeem such Archstone Surviving Subsidiary Class A-1 Shares immediately following the consummation of the Partnership Merger (and thereafter) pursuant to the terms of the Archstone Surviving Subsidiary Declaration of Trust, except that
for purposes of the exchange provisions thereof such Archstone Surviving Subsidiary Class A-1 Shares shall be deemed to have been issued as of the date the related Class A Smith OP Units were issued by Smith Partnership (or if earlier, one year
prior to the Effective Time of the Partnership Merger);
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(ii) Each Class B Partnership Unit of Smith Partnership, if
any (Class B Smith OP Units and together with the Class A Smith OP Units, the Smith OP Units), outstanding immediately prior to the Effective Time of the Partnership Merger shall be converted into the right to receive 1.975
Class B Shares of Beneficial Interest of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Class B Shares);
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(iii) Each Series A Cumulative Convertible Redeemable Preferred
Unit (as defined in the Smith Partnership Agreement) of Smith Partnership (Smith Series A Preferred OP Unit) outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to
receive one Series H Cumulative Convertible Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Series H
Preferred Shares);
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(iv) Each Series C Cumulative Redeemable Preferred Unit (as
defined in the Smith Partnership Agreement) of Smith Partnership (Smith Series C Preferred OP Unit) outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one
Series I Cumulative Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Series I Preferred
Shares);
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(v) Each Series E Cumulative Convertible Redeemable Preferred Unit
(as defined in the Smith Partnership Agreement) of Smith Partnership (Smith Series E Preferred OP Unit) outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive
one Series J Cumulative Convertible Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Series J Preferred
Shares);
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(vi) Each Series F Cumulative Redeemable Preferred Unit (as
defined in the Smith Partnership Agreement) of Smith Partnership (Smith Series F Preferred OP Unit) outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one
Series K Cumulative Redeemable Preferred Share of Beneficial Interest (as defined in the
Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Series K Preferred Shares);
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(vii) Each Series G Cumulative Convertible Redeemable Preferred
Unit (as defined in the Smith Partnership Agreement) of Smith Partnership (Smith Series G Preferred OP Unit) outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to
receive one Series L Cumulative Convertible Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Series L
Preferred Shares); and
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(viii) Each Series H Cumulative Redeemable Preferred Unit (as
defined in the Smith Partnership Agreement) of Smith Partnership (Smith Series H Preferred OP Unit) outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one
Series M Cumulative Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary (Archstone Surviving Subsidiary Series M Preferred
Shares).
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(b) Merger Consideration. The
consideration to be paid to holders of stock of Smith in the Merger (collectively, the Merger Consideration) is as follows:
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(i) Each share of common stock, par value $0.01 per share,
together with the associated preferred stock purchase right of Smith (Smith Common Stock), issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right to receive 1.975 validly issued,
fully paid and nonassessable New Archstone Common Shares together with a right under the New Archstone Rights Agreement.
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(ii) Each share of Series A Cumulative Convertible Redeemable
Preferred Stock, par value $0.01 per share, liquidation preference $27.08 per share, of Smith (Smith Series A Preferred Share) issued and outstanding immediately prior to the Effective Time of the Merger, if any, shall be converted into
the right to receive one Series H Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $27.08 per share, of New Archstone (New Archstone Series H Preferred
Share).
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(iii) Each share of Series C Convertible Cumulative Redeemable
Preferred Stock, par value $0.01 per share, liquidation preference $100,000 per share, of Smith (Smith Series C Preferred Share) issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the
right to receive one Series I Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $100,000 per share, of New Archstone (New Archstone Series I Preferred
Share).
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(iv) Each share of Series E Cumulative Convertible Redeemable
Preferred Stock, par value $0.01 per share, liquidation preference $36.50 per share, of Smith (Smith Series E Preferred Share) issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right
to receive one Series J Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $36.50 per share, of New Archstone (New Archstone Series J Preferred Share).
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(v) Each share of Series F Cumulative Convertible Redeemable
Preferred Stock, par value $0.01 per share, liquidation preference $37.50 per share, of Smith (Smith Series F Preferred Shares) issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the
right to receive one Series K Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $37.50 per share, of New Archstone (New Archstone Series K Preferred
Share).
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(vi) Each share of Series G Cumulative Convertible Redeemable
Preferred Stock, par value $0.01 per share, liquidation preference $39.00 per share, of Smith (Smith Series G Preferred Share) issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right
to receive one Series L Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $39.00 per share, of New Archstone (New Archstone Series L Preferred Share).
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(vii) Each share of Series H Cumulative Convertible Redeemable
Preferred Stock, par value $0.01 per share, liquidation preference $25.00 per share, of Smith (Smith Series H Preferred Share) issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right
to receive one Series M Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $25.00, of New Archstone (New Archstone Series M Preferred Share). As used herein, (i) Smith Preferred Stock
means, collectively, Smith Series A Preferred Shares, Smith Series C Preferred Shares, Smith Series E Preferred Shares, Smith Series F Preferred Shares, Smith Series G Preferred Shares and Smith Series H Preferred Shares and (ii) New Archstone
Preferred Shares means, collectively, New Archstone Series H Preferred Shares, New Archstone Series I Preferred Shares, New Archstone Series J Preferred Shares, New Archstone Series K Preferred Shares, New Archstone Series L Preferred Shares
and New Archstone Series M Preferred Shares.
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(viii) All shares of Smith Common Stock, together with the
associated Smith Right, when so converted as provided in Section 1.12(b)(i), and all shares of Smith Preferred Stock, when so converted as provided in Sections 1.12(b)(ii)-(vii), shall no longer be outstanding and shall automatically be cancelled
and retired and shall cease to exist, and each holder of a certificate (a Certificate) theretofore representing any such shares shall cease to have any rights with respect thereto, except the right to receive, upon the surrender of such
Certificate in accordance with Section 1.15(c), as applicable, (A) any dividends and other distributions in accordance with Section 1.15(d), (B) certificates representing the New Archstone Common Shares into which such shares of Smith Common Stock
are converted pursuant to Section 1.12(b)(i), (C) certificates representing the New Archstone Series H Preferred Shares into which Smith Series A Preferred Shares are converted pursuant to Section 1.12(b)(ii), if any, (D) certificates representing
the New Archstone Series I Preferred Shares into which Smith Series C Preferred Shares are converted pursuant to Section 1.12(b)(iii), (E) certificates representing the New Archstone Series J Preferred Shares into which Smith Series E Preferred
Shares are converted pursuant to Section 1.12(b)(iv), (F) certificates representing the New Archstone Series K Preferred Shares into which Smith Series F Preferred Shares are converted pursuant to Section 1.2(b)(v), (G) certificates representing the
New Archstone Series L Preferred Shares into which Smith Series G Preferred Shares are converted pursuant to Section 1.12(b)(vi), (H) certificates representing the New Archstone Series M Preferred Shares into which Smith Series H Preferred Shares
are converted pursuant to Section 1.12(b)(vii), and (I) any cash, without interest, in lieu of fractional New Archstone Common Shares to be issued or paid in consideration for Smith Common Stock upon the surrender of such Certificate in accordance
with Sections 1.15(d) and 1.15(h).
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(a) Archstone Merger. Each of the
shares of beneficial interest of New Archstone issued and outstanding immediately prior to the Effective Time of the Merger shall remain outstanding. Each certificate previously representing shares of beneficial interest of Archstone shall, after
the Archstone Merger, represent shares of beneficial interest of New Archstone.
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(b) Exchange Agent. Prior to the
Effective Time of the Merger, New Archstone shall appoint Chase Mellon Shareholder Services, LLC as the exchange agent, or another bank or trust company reasonably acceptable to Smith, to act as exchange agent (the Exchange Agent) for
the exchange of the Merger Consideration upon surrender of certificates representing issued and outstanding shares of Smith Common Stock and each series of Smith Preferred Stock.
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(c) New Archstone to Provide Merger Consideration; Smith to
Provide Funds for Smith Dividend. New Archstone shall provide to the Exchange Agent on or before the Effective Time of the Merger, for the benefit of the holders of Smith Common Stock and each series of Smith Preferred Stock, the Merger
Consideration issuable in exchange for the issued and outstanding Smith Common Stock and each series of Smith Preferred Stock pursuant to Section 1.12, together with any cash required to make payments in lieu of any fractional shares pursuant to
Section 1.15(h) (the Exchange Fund). The Exchange Agent (or other depository acting for the benefit of the Exchange Agent) shall invest any cash included in the Exchange Fund as directed by New Archstone, on a daily basis. Any interest
or other income resulting from such investments shall be paid to New Archstone. Smith shall provide to the Exchange Agent not later than one business day prior to the Effective Time of the Merger, for the benefit of the holders of Smith Common Stock
and each series of Smith Preferred Stock, cash payable in respect of any dividends required pursuant to Section 1.15(e)(i). Such cash shall be invested in accordance with written directions delivered by Smith to the Exchange Agent or other
depository not later than one business day prior to the Effective Time of the Merger, with any interest or other income earned on such investments to be paid to New Archstone as the successor to Smith in the Merger.
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(d) Exchange Procedure. New
Archstone shall use commercially reasonable efforts to cause the Exchange Agent, no later than the fifth business day after the Merger Closing Date, to mail to each holder of record of a Certificate or Certificates which immediately prior to the
Effective Time of the Merger represented outstanding shares of Smith Common Stock or any series of Smith Preferred Stock whose shares were converted into the right to receive the Merger Consideration pursuant to Section 1.12(b), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in a form and have such other provisions as
Archstone may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration together with any dividends or distributions to which such holder is entitled pursuant to Section
1.15(e) and cash, if any, payable in lieu of fractional shares pursuant to Section 1.15(h). Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as
may reasonably be required by the Exchange Agent, (i) the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration into which the shares of Smith Common Stock or a series of Smith Preferred Stock, as
applicable, theretofore represented by such Certificate shall have been converted pursuant to Section 1.12(b), together with any dividends or other distributions to which such holder is entitled pursuant to Section 1.15(e) and cash, if any, payable
in lieu of fractional shares pursuant to Section 1.15(h), (ii) New Archstone shall use commercially reasonable efforts to cause the Exchange Agent to mail (or make available for collection by hand if so elected by the surrendering holder) such
amount to such holder within five business days after receipt thereof, and (iii) the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of shares of Smith Common Stock or any series of Smith Preferred
Stock which is not registered in the transfer
records of Smith, payment may be made to a Person other than the Person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting
such payment either shall pay any transfer or other taxes required by reason of such payment being made to a Person other than the registered holder of such Certificate or establish to the satisfaction of New Archstone that such tax or taxes have
been paid or are not applicable. Until surrendered as contemplated by this Section 1.15, each Certificate shall be deemed at any time after the Effective Time of the Merger to represent only the right to receive upon such surrender the Merger
Consideration, without interest, into which the shares of Smith Common Stock or any series of Smith Preferred Stock heretofore represented by such Certificate shall have been converted pursuant to Section 1.12, and any dividends or other
distributions to which such holder is entitled pursuant to Section 1.15(e) and any cash payable in lieu of fractional shares pursuant to Section 1.15(h). No interest will be paid or will accrue on the Merger Consideration upon the surrender of any
Certificate or on any cash payable pursuant to Section 1.15(e) or Section 1.15(h). New Archstone or the Exchange Agent, as applicable, shall be entitled, in its sole and absolute discretion, to deduct and withhold from the cash, New Archstone Common
Shares or New Archstone Preferred Shares, or any combination thereof, that otherwise is payable pursuant to this Agreement to any holder of shares of Smith Common Stock or any series of Smith Preferred Stock such amounts as New Archstone or the
Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code or under any provision of state, local or foreign tax law. For this purpose, any New Archstone Common Shares or New Archstone Preferred
Shares deducted and withheld by New Archstone shall be valued at the last trading price of the New Archstone Common Shares or the New Archstone Preferred Shares, as applicable, on the New York Stock Exchange on the effective date of the Merger (or
in the event that a series of New Archstone Preferred Shares does not trade on the New York Stock Exchange, at the liquidation preference (excluding unpaid dividends) per New Archstone Preferred Share). To the extent that amounts are so withheld by
New Archstone or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Smith Common Stock or a series of Smith Preferred Stock, as applicable, in respect of
which such deduction and withholding was made by New Archstone or the Exchange Agent.
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(e) Record Dates for Final Dividends; Distributions with
Respect to Unexchanged Shares.
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(i) If and to the extent necessary for Smith to satisfy the
requirements of Section 857(a)(1) of the Code for the taxable year of Smith ending at the Effective Time of the Merger (and to avoid the payment of any tax with respect to undistributed income or gain), Smith shall declare a dividend (the
Smith Dividend) to holders of shares of Smith Common Stock and each series of Smith Preferred Stock, if and to the extent required by the terms thereof, the record date for which shall be the close of business on the last business day
prior to the Effective Time of the Merger, in an amount equal to the minimum dividend sufficient to permit Smith to satisfy such requirements. Any dividends payable hereunder to holders of Smith Common Stock and, if applicable, each series of Smith
Preferred Stock shall be paid on the last business day immediately preceding the Closing Date. In the event that Smith is required to declare a Smith Dividend with respect to the Smith Common Stock, Smith Partnership shall simultaneously declare a
distribution (the Smith Partnership Distribution) to holders of Smith OP Units in an amount per unit equal to the Smith Dividend payable per share of Smith Common Stock, together with any distributions required to be paid to holders of
Smith Preferred OP Units by reason of the payment of either the Smith Dividend or the Smith Partnership Distribution with respect to Smith OP Units, the record date for which shall be the close of business on the last business day prior to the
Effective Time of the Partnership Merger. The distribution payable hereunder to holders of Smith OP Units and, if applicable, Smith Preferred OP Units, shall be paid on the last business day immediately preceding the Closing Date.
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(ii) If Smith determines that it is necessary to declare the Smith
Dividend, Smith shall notify Archstone and New Archstone at least 20 days prior to the date for the Smith Stockholders Meeting (as defined herein), and New Archstone shall be entitled to declare a dividend per share payable to
holders of New Archstone Common Shares, the record date for which shall be the close of business on the last business day prior to the Effective Time of the Merger, in an amount per New Archstone Common Share equal to the quotient obtained by
dividing (x) the Smith Dividend paid by Smith with respect to each share of Smith Common Stock by (y) 1.975 (the Corresponding New Archstone Dividends). If, and to the extent, the terms of any series of New Archstone Existing Preferred
Shares require the payment of a dividend by reason of the payment of the Corresponding New Archstone Dividends, New Archstone shall declare and pay any such required dividends and distributions. The Corresponding New Archstone Dividends (and any
dividends payable to holders of New Archstone Existing Preferred Shares) shall be in addition to any Additional Corresponding New Archstone Dividends (and any dividends payable to holders of New Archstone Existing Preferred Shares) payable pursuant
to Section 5.10.
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(iii) No dividends or other distributions with respect to New
Archstone Common Shares or any series of New Archstone Preferred Shares with a record date after the Effective Time of the Merger shall be paid to the holder of any unsurrendered Certificate with respect to the New Archstone Common Shares or such
series of New Archstone Preferred Shares represented thereby, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 1.15(h), in each case until the surrender of such Certificate in accordance with this
Section 1.15. Subject to the effect of applicable escheat laws, following surrender of any such Certificate (A) with respect to Certificates that represent the right to receive New Archstone Common Shares, there shall be paid to the holder of such
Certificate, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of any fractional New Archstone Common Shares to which such holder is entitled pursuant to Section 1.15(h) and (ii) (x) at the time of such
surrender the amount of dividends or other distributions with a record date after the Effective Time of the Merger theretofore paid with respect to such whole New Archstone Common Shares, without interest, and (y) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the Effective Time of the Merger but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole New Archstone Common Shares
and (B) with respect to Certificates that represent the right to receive any series of New Archstone Preferred Shares, there shall be paid to the holder of such Certificate, without interest, (x) at the time of such surrender the amount of dividends
or other distributions with a record date after the Effective Time of the Merger theretofore paid with respect to such New Archstone Preferred Shares and (y) at the appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time of the Merger but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such New Archstone Preferred Shares.
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(f) No Further Ownership Rights in Smith Common Stock and Smith
Preferred Stock. All Merger Consideration paid upon the surrender of Certificates in accordance with the terms of this Section 1.15 (including any cash paid pursuant to Section 1.15(h)) shall be deemed to have been paid in
full satisfaction of all rights pertaining to the Smith Common Stock and each series of Smith Preferred Stock, as applicable, theretofore represented by such Certificates; provided, however, that Smith shall transfer to the Exchange
Agent cash sufficient to pay any dividends or make any other distributions with a record date prior to the Effective Time of the Merger which may have been declared or made by Smith on such Smith Common Stock or any such series of Smith Preferred
Stock in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time of the Merger and have not been paid prior to such surrender, and following the Effective Time of the Merger
there shall be no further registration of transfers on the stock transfer books of Smith of the Smith Common Stock or any series of Smith Preferred Stock which were outstanding immediately prior to the Effective Time of the Merger. If, after the
Effective Time of the Merger, Certificates are presented to New Archstone for any reason, they shall be canceled and exchanged as provided in this Section 1.15.
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(g) No Liability. None of Smith,
Archstone, New Archstone or the Exchange Agent shall be liable to any Person in respect of any Merger Consideration or dividends delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law. Any portion of the Exchange Fund delivered to the Exchange Agent pursuant to this Agreement that remains unclaimed for 12 months after the Effective Time of the Merger shall be
redelivered by the Exchange Agent to New Archstone, upon demand, and any holders of Certificates who have not theretofore complied with Section 1.15(d) shall thereafter look only to New Archstone for delivery of the Merger Consideration, any cash
payable in lieu of fractional shares pursuant to Section 1.15(h) and any unpaid dividends, subject to applicable escheat and other similar laws.
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(h) No Fractional New Archstone Shares, No Fractional Archstone
Surviving Subsidiary Shares of Beneficial Interest.
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(i) No certificates or scrip representing fractional New Archstone
Common Shares shall be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote, to receive dividends or to any other rights of a shareholder of New Archstone.
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(ii) No fractional New Archstone Common Shares shall be issued
pursuant to this Agreement. In lieu of the issuance of any fractional New Archstone Common Shares pursuant to this Agreement, each holder of Smith Common Stock and each holder of Archstone Common Shares (in the case of the Primary Archstone Merger)
or ACS Common Shares (in the case of the Alternative Archstone Merger) shall be paid an amount in cash (without interest), rounded to the nearest cent (with .5 of a cent rounded up), determined by multiplying (i) the average closing price of one
Archstone Common Share on the New York Stock Exchange on the twenty trading days immediately preceding the Closing Date by (ii) the fraction of a New Archstone Common Share which such holder would otherwise be entitled to receive under this Section
1.15.
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(iii) No fractional Archstone Surviving Subsidiary Shares of
Beneficial Interest shall be issued pursuant to this Agreement. In lieu of the issuance of any fractional Archstone Surviving Subsidiary Shares of Beneficial Interest pursuant to this Agreement, each holder of Smith OP Units who would receive, based
on the exchange ratio specified in Section 1.12(a)(i), a number of Archstone Surviving Subsidiary Shares of Beneficial Interest that is not a whole number shall receive instead a number of Archstone Surviving Subsidiary Shares of Beneficial Interest
equal to the whole number that is nearest to the number of Archstone Surviving Subsidiary Shares of Beneficial Interest that otherwise would be paid to such holder of Smith OP Units based on Section 1.12(a)(i) (with .5 of an Archstone Surviving
Subsidiary Share of Beneficial Interest rounded up).
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(i) Lost Certificates. If any
Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by New Archstone or the Exchange Agent, the posting by such
Person of a bond in such reasonable amount as New Archstone or the Exchange Agent reasonably may direct (but consistent with the practices New Archstone applies to its own shareholders) as indemnity against any claim that may be made against them
with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the cash, New Archstone Common Shares or New Archstone Preferred Shares to which the holders thereof are entitled pursuant to
Section 1.12, any cash payable pursuant to Section 1.15(h) to which the holders thereof are entitled and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 1.15(e).
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(j) Applicability to Partnership Merger.
Except for the provisions relating to the Exchange Agent, certificates, the exchange procedure and fractional New Archstone Common Shares (which shall not be applicable), all other provisions of this Section 1.15 shall apply to Smith
Partnership, Archstone Surviving Subsidiary, the Smith OP Units and the Smith OP Preferred Units with respect to the Partnership Merger.
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(a) Schedule 2.2 to the Smith Disclosure Letter sets forth
(i) each Smith Subsidiary and each Smith Non-Controlled Subsidiary, (ii) the ownership interest therein of Smith, (iii) if not directly or indirectly wholly owned by Smith, the identity and ownership interest of each of the other owners of such
Smith Subsidiary, (iv) each property owned by such Smith Subsidiary, and (v) if such property is not wholly owned by such Smith Subsidiary, the identity and ownership interest of each of the other owners of such property. As used in this Agreement,
(i) Subsidiary of any Person (as defined herein) means any corporation, partnership, limited liability company, joint venture, trust or other legal entity of which such Person owns (either directly or through or together with another
Subsidiary or Subsidiaries of such Person) either (A) a general partner, managing member or other similar interest, or (B)(1) 10% or more of the voting power of the voting capital stock or other voting equity interests, or (2) 10% or more of the
outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other legal entity; (ii) Smith Subsidiary means each Subsidiary of Smith, except for (x) any
Smith Non-Controlled Subsidiary, (y) any Subsidiary of any Smith Non-Controlled Subsidiary and (z) any Smith Other Interests (as defined herein); (iii) Smith Non-Controlled Subsidiary means either SMCI or CESI; and (iv)
Person means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. Schedule 2.2 of the Smith Disclosure Letter sets forth a true and
complete list of the equity securities owned by Smith or any Smith Subsidiary in any corporation, partnership, limited liability company, joint venture or other legal entity, excluding Smith Subsidiaries.
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(b) Except as set forth in Schedule 2.2 to the Smith
Disclosure Letter, (i) all of the outstanding shares of capital stock owned by Smith or any Smith Subsidiary of each Smith Subsidiary and each Smith
Non-Controlled Subsidiary that is a corporation have been duly authorized, validly issued and are (A) fully paid and nonassessable and not subject to preemptive or similar rights, and (B) owned free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever (collectively, Liens) and (ii) all equity interests in each Smith Subsidiary and each Smith Non-Controlled Subsidiary that is a partnership, joint venture, limited
liability company or trust which are owned by Smith, by another Smith Subsidiary or by Smith and another Smith Subsidiary are owned free and clear of all Liens. Each Smith Subsidiary and each Smith Non-Controlled Subsidiary that is a corporation is
duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now
being conducted, and each Smith Subsidiary and each Smith Non-Controlled Subsidiary that is a partnership, limited liability company or trust is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization
and has the requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted. Each Smith Subsidiary and each Smith Non-Controlled Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed, individually or in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect. Complete and correct copies of the forms of the charters, articles of incorporation, bylaws, organization documents
and partnership, joint venture and operating agreements of each Smith Subsidiary and each Smith Non-Controlled Subsidiary, as amended to the date of this Agreement, have been previously delivered or made available to Archstone and such forms fairly
represent the organizational documents of the Smith Subsidiaries and each Smith Non-Controlled Subsidiary. No effective amendment has been made to the Smith Partnership Agreement since April 7, 2001.
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(a) The authorized shares of stock of Smith consist of 145,000,000
shares of stock, par value $0.01 per share, 80,000,000 of which are classified as Smith Common Stock, 2,640,325 of which are classified as Series A Preferred Shares, 500 of which are classified as Series C Preferred Shares, 684,931 of which are
classified as Series E Preferred Shares, 666,667 of which are classified as Series F Preferred Shares, 641,026 of which are classified as Series G Preferred Shares, 2,200,000 of which are classified as Smith Series H Preferred Shares and 45,000,000
of which are classified as Excess Stock. 22,774,096 Shares of Smith Common Stock are issued and outstanding on April 30, 2001; 2,640,325 Smith Series A Preferred Shares are issued and outstanding on the date of this Agreement; 500 Smith Series C
Preferred Shares are issued and outstanding on the date of this Agreement; 684,931 Smith Series E Preferred Shares are issued and outstanding on the date of this Agreement; 666,667 shares of Smith Series F Preferred Shares are issued and outstanding
on the date of this Agreement; 641,026 Smith Series G Preferred Shares are issued and outstanding on the date of this Agreement; 2,200,000 Smith Series H Preferred Shares are issued and outstanding on the date of this Agreement; 72,980 shares of
Smith Participating Preferred Stock (par value $0.01 per share) have been reserved for issuance pursuant to the Smith Rights Plan and none are outstanding. Since April 30, 2001, no other shares of capital stock of Smith have been issued, except as a
result of the conversion of Smith Stock Rights, Smith Preferred Stock or Smith OP Units into Smith Common Stock.
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(b) Set forth in Schedule 2.3(b) to the Smith Disclosure
Letter is a true and complete list of the following: (i) each qualified or nonqualified option to purchase shares of Smith Common Stock or Smith OP Units granted under Smith First Amended and Restated Employee Stock and Unit Option Plan and Smith
Directors Stock Option Plan or any other formal or informal arrangement (collectively, the Smith Stock Options); and (ii) except for the Smith Rights and the Smith OP Units, all other warrants or other rights to acquire Smith Common
Stock, all stock appreciation rights, restricted stock, dividend equivalents, deferred compensation accounts, performance awards, restricted stock unit awards and other awards which are outstanding on May 2, 2001 (Smith Stock Rights).
Schedule 2.3(b) to the Smith Disclosure Letter
sets forth for each Smith Stock Option and Smith Stock Right as of May 2, 2001, the name of the grantee, the date of the grant, the type of grant, the number of shares of Smith Common Stock subject to each option or other award, the number and type
of shares subject to options or awards that are currently exercisable, and the exercise price per share; provided, however, that with respect to such deferred compensation accounts, Schedule 2.3(b) sets forth only the name, the
type of grant, and the number of shares of Smith Common Stock subject to such account. Since May 2, 2001, no Smith Stock Rights have been issued. All the option grants are nonqualified under Section 422 of the Code. On the date of this Agreement,
except as set forth, as appropriate in this Section 2.3 or excepted therefrom or as set forth in Schedule 2.3(b) or 2.3(d) to the Smith Disclosure Letter, and except for shares reserved for issuance on the exercise of options or upon
conversion of Smith OP Units, as described in clause (ii) of Section 2.3(d), no shares of Smith Common Stock or Smith Preferred Stock were outstanding or reserved for issuance.
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(c) All outstanding shares of Smith Common Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to preemptive or similar rights under law or the Smith Articles or Smith Bylaws, or any contract or instrument to which Smith is a party or by which it is bound. There are no
bonds, debentures, notes or other indebtedness of Smith having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which shareholders of Smith may vote.
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(d) Except (i) as set forth in this Section 2.3 or in Schedule
2.3(b) or 2.3(d) to the Smith Disclosure Letter, (ii) Smith OP Units, which may be redeemed for cash or, at the election of Smith, converted into shares of Smith Common Stock at a rate of one share of Smith Common Stock for each Smith OP
Unit, and (iii) Smith Convertible Preferred Units, as of April 30, 2001 there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which Smith, any Smith Subsidiary or
any Smith Non-Controlled Subsidiary is a party or by which such entity is bound, obligating Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock, voting securities or other ownership interests of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary or obligating Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking (other than to Smith, a Smith Subsidiary or any Smith Non-Controlled Subsidiary).
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(e) As of April 30, 2001, (i) 35,981,900 Smith OP Units are
validly issued and outstanding, fully paid and nonassessable (except and only to the extent set forth in (A) Section 10.5 of the Smith Partnership Agreement with respect to all Smith OP Units, and (B) Section 4.2 and Section 7.5 of the Smith
Partnership Agreement with respect to Smith OP Units owned by Smith) and not subject to preemptive or similar rights under law or the Smith Partnership Agreement, or any contract or instrument to which Smith or Smith Partnership is a party or by
which either is bound, of which 22,774,096 Smith OP Units are owned by Smith, (ii) the 2,640,325 Smith Series A Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, and
are owned by Smith, (iii) the 500 Smith Series C Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights and are owned by Smith, (iv) the 684,931 Smith Series E Preferred OP
Unit are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, and are owned by Smith, (v) the 666,667 Smith Series F Preferred OP Units are validly issued and outstanding, fully paid and
nonassessable and not subject to preemptive or similar rights, and are owned by Smith, (vi) the 641,026 Smith Series G Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar
rights, and are owned by Smith, and (vii) the 4,000,000 Smith Series H Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, of which 2,200,000 are owned by Smith. Since
April 30, 2001, no Smith OP Units and no Smith Preferred OP Units have been issued other than in connection with the exercise of any Smith Stock Options or conversion of any Smith Preferred Stock. Within ten (10) business days of the date of this
Agreement, Smith shall provide Archstone a list setting forth the name of each holder of Smith OP Units and each
holder of Smith Preferred OP Units and the number of Smith OP Units or Smith Preferred OP Units owned by each such holder as of the date of this Agreement. Except as provided in the Smith Partnership Agreement or as contemplated by this Agreement,
the Smith OP Units are not subject to any restrictions imposed by Smith or Smith Partnership on the transfer, assignment, pledge, distribution, encumbrance or other disposition thereof (either voluntarily or involuntarily and with or without
consideration) or on the exercise of the voting rights thereof provided in the Smith Partnership Agreement. Except as provided in the Smith Partnership Agreement, Smith Partnership has not issued or granted and is not a party to any outstanding
commitments of any kind relating to, or any presently effective agreements or understandings with respect to, the issuance or sale of interests in Smith Partnership, whether issued or unissued, or securities convertible into or exchangeable or
exercisable for interests in Smith Partnership.
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(f) All dividends on Smith Common Stock and each series of Smith
Preferred Stock and all distributions on Smith OP Units and Smith Preferred OP Units, which have been declared and are payable prior to the date of this Agreement, have been paid in full.
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(g) Set forth on Schedule 2.3(g) to the Smith Disclosure
Letter is a list of each registration rights agreement or other agreement with respect to the registration of securities between Smith and/or Smith Partnership, on the one hand, and one or more other parties, on the other hand, which sets forth the
rights of any such other party or parties to cause the registration of any securities of Smith and/or Smith Partnership pursuant to the Securities Act of 1933, as amended (the Securities Act), except for registration rights agreements or
other agreements pursuant to which a registration statement has been filed with the SEC and declared effective by the SEC on or prior to the date hereof.
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(a) Smith has the requisite corporate power and authority to enter
into this Agreement and, subject to the requisite Smith stockholder approval of the Merger (collectively, the Smith Stockholder Approvals) and the Smith Partner Approvals (as defined herein), to consummate the transactions contemplated
by this Agreement to which Smith is a party. The execution and delivery of this Agreement by Smith and the consummation by Smith of the transactions contemplated by this Agreement to which Smith is a party have been duly authorized by all necessary
action on the part of Smith, except for and subject to the Smith Stockholder Approvals and the Smith Partner Approvals. This Agreement has been duly executed and delivered by Smith and constitutes a valid and binding obligation of Smith, enforceable
against Smith in accordance with and subject to its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors rights and general principles of equity.
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(b) Smith Partnership has the requisite partnership power and
authority to enter into this Agreement and, subject to the requisite Smith Partner Approvals, to consummate the transactions contemplated by this Agreement to which Smith Partnership is a party. The execution and delivery of this Agreement by Smith
Partnership and the consummation by Smith Partnership of the transactions contemplated by this Agreement to which Smith Partnership is a party have been duly authorized by all necessary action on the part of Smith Partnership, except for and subject
to the Smith Stockholder Approvals and the Smith Partner Approvals. This Agreement has been duly executed and delivered by Smith Partnership and constitutes a valid and binding obligation of Smith Partnership, enforceable against Smith Partnership
in accordance with and subject to its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors rights and general principles of equity.
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(c) Except as set forth in Schedule 2.5(c)(1) to the Smith
Disclosure Letter and subject to receipt of the Smith Stockholder Approvals and the Smith Partner Approvals, the execution and delivery of this Agreement by Smith or Smith Partnership do not, and the consummation of the transactions contemplated by
this Agreement to which Smith or Smith Partnership is a party and compliance by Smith or Smith Partnership with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of Smith, any Smith Subsidiary or
any Smith Non-Controlled Subsidiary under, (i) the Smith Articles or Smith Bylaws or the comparable charter or organizational documents or partnership, operating, or similar agreement (as the case may be) of any Smith Subsidiary or any Smith
Non-Controlled Subsidiary, each as amended or supplemented, (ii) any loan or credit agreement, note, bond, mortgage, indenture, merger or other acquisition agreement, reciprocal easement agreement, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation (collectively, Laws) applicable to Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, or their respective properties or assets, other
than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or Liens that individually or in the aggregate would not reasonably be expected to (x) have a Smith Material Adverse Effect or (y) prevent or
materially impair the ability of Smith or Smith Partnership to perform any of its obligations hereunder or prevent or materially threaten or impede the consummation of the transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a
Governmental Entity), is required by or with respect to Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary in connection with the execution and delivery of this Agreement by Smith and Smith Partnership or the consummation
by Smith or any Smith Subsidiary of the transactions contemplated by this Agreement, except for (i) the filing with the Securities and Exchange Commission (the SEC) of (x) the Joint Proxy Statement (as defined herein), and (y) such
reports and filings under the Securities Act and Section 13(a) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (ii) the filing and acceptance for record of the Articles of
Merger by the Department, (iii) the filing of the Delaware Certificate of Merger with the Office of the Secretary of State of the State of Delaware, and (iv) such other consents, approvals, orders, authorizations, registrations, declarations and
filings (A) as are set forth in Schedule 2.5(c)(2) to the Smith Disclosure Letter, (B) as may be required under (w) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), (x) laws requiring transfer,
recordation or gains tax filings, (y) federal, state or local environmental laws or (z) the blue sky laws of various states, to the extent applicable, or (C) which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this Agreement or otherwise prevent Smith or Smith Partnership from performing its obligations under this Agreement in any material respect or reasonably be expected to have,
individually or in the aggregate, a Smith Material Adverse Effect.
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(a) Except as provided in Schedule 2.2 or Schedule
2.9(a) to the Smith Disclosure Letter, Smith, the Smith Subsidiary or the Smith Non-Controlled Subsidiary set forth on Schedule 2.2 to the Smith Disclosure Letter owns fee simple title to or holds a leasehold interest in each of the real
properties identified in Schedule 2.9(a) to the Smith Disclosure Letter (the Smith Properties), which are all of the real estate properties owned or leased by them. Schedule 2.9(a) to the Smith Disclosure Letter further
identifies which of the Smith Properties are owned in fee simple by Smith or the Smith Non-Controlled Subsidiary and which of the Smith Properties are subject to a ground lease. Except as set forth in Schedule 2.2 or Schedule 2.9(a) to
the Smith Disclosure Letter, no other Person has any ownership interest in any of the Smith Properties and any such ownership interest so scheduled could not reasonably be expected to have a Smith Material Adverse Effect. Except as set forth in
Schedule 2.9(a) and Schedule 2.18(i) to the Smith Disclosure Letter, none of the Smith Properties is subject to any restriction on the sale or other disposition thereof or on the financing or release of financing thereon.
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(b) The Smith Properties are not subject to any liens, mortgages
or deeds of trust, claims against title, charges which are liens, security interests or other encumbrances on title (Encumbrances), or to any rights of way, agreements, laws, ordinances and regulations affecting building use or
occupancy, or reservations of an interest in title (collectively, Property Restrictions), which reasonably could be expected to cause a Smith Material Adverse Effect.
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(c) Schedule 2.9(c) to the Smith Disclosure Letter lists
each of the Smith Properties which are under development as of the date of this Agreement (including development properties partially owned through joint ventures) and describes the status of such development as of the date hereof.
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(d) Valid policies of title insurance have been issued insuring
the applicable Smith Subsidiarys or Smith Non-Controlled Subsidiarys (as the case may be) fee simple title or leasehold estate, as the case may be, to the Smith Properties owned by it in amounts approximately equal to the purchase price
therefor paid by such Smith Subsidiary or such Smith Non-Controlled Subsidiary, except where the failure to obtain such policies of title insurance would not reasonably be expected to have a Smith Material Adverse Effect. Such policies are, at the
date hereof, in full force and effect. No material claim has been made against any such policy.
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(e) With respect to any Smith Property with Five Hundred (500)
units or more, Smith has no Knowledge:
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(i) that it has failed to obtain a certificate, permit or license
from any governmental authority having jurisdiction over such Smith Property where such failure would reasonably be expected to have a material adverse effect on such Smith Property or of any pending threat of modification or cancellation of any of
the same which would reasonably be expected to have a material adverse effect on such Smith Property;
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(ii) of any written notice of any violation of any federal, state
or municipal law, ordinance, order, regulation or requirement affecting such Smith Property issued by any governmental authority which would reasonably be expected to have a material adverse effect on such Smith Property; or
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(iii) that it has received written or published notice to the
effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to such Smith Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other improvements on any of such Smith Property or by the continued maintenance, operation or use of the parking areas other than such notices, which, in the aggregate, would not
reasonably be expected to have a material adverse effect on such Smith Property.
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(f) With respect to Smith Properties with less than Five Hundred
(500) units, Smith has no Knowledge:
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(i) that it has failed to obtain certificates, permits or licenses
from any governmental authority having jurisdiction over any such Smith Properties, the absence of which, in the aggregate, would reasonably be expected to have a Smith Material Adverse Effect or of any pending threat of modification or cancellation
of any of the same which, in the aggregate, would reasonably be expected to have a Smith Material Adverse Effect;
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(ii) of any written notices of any violation of any federal, state
or municipal law, ordinance, order, regulation or requirement affecting such Smith Properties issued by any governmental authority which, in the aggregate, would reasonably be expected to have a Smith Material Adverse Effect; or
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(iii) that it has received written or published notice to the
effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to any of such Smith Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other improvements on any of such Smith Properties or by the continued maintenance, operation or use of the parking areas other than such notices, which, in the aggregate, would not
reasonably be expected to have a Smith Material Adverse Effect.
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(g) Except as set forth in Schedule 2.9(g) to the Smith
Disclosure Letter, Smith has no Knowledge (i) of any structural defects relating to Smith Properties, Smith Properties whose building systems are not in working order, physical damage to any Smith Property for which there is not insurance in effect
covering the cost of the restoration and the loss of revenue (subject to a reasonable deduction or retention limit), except such structural defects, building systems not in working order and physical damage, which, in the aggregate, would not
reasonably be expected to have a Smith Material Adverse Effect.
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(h) Except as set forth in Schedule 2.9(h) to the Smith
Disclosure Letter, (i) all work required to be performed, payments required to be made and actions required to be taken prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site
approval, zoning reclassification or other similar action relating to any Smith Property (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation (as defined herein)) have been performed, paid or taken, as the
case may be, and (ii) Smith has no Knowledge of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, in each of case (i) and (ii) except as set forth in development or operating
budgets for such Smith Properties delivered to Archstone prior to the date hereof and other than those which would not reasonably be expected to have a Smith Material Adverse Effect. As used in this Agreement, Environmental Mitigation
means investigation, clean-up, removal action, remedial action, restoration, repair, response action, corrective action, monitoring, sampling and analysis, installation, reclamation, closure or post-closure in response to any actual or suspected
environmental condition or Hazardous Materials.
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(i) Insurance summaries previously provided by Smith to Archstone
contain a true and complete list, by type of insurance, carrier, coverages (including limits) and term, of all material policies of casualty, liability, group health, workers compensation, directors and officers and other types of insurance (except
title insurance) carried by Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary. All such policies are in full force and effect and none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has received from any
insurance company notice of any material defects or deficiencies affecting the insurability of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, or any of their respective assets thereunder.
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(a) Environmental Law shall mean all applicable Laws,
including any plans, other criteria, or guidelines promulgated pursuant to such Laws, relating to noise control, or the protection of human health, safety and natural resources, animal health or welfare or the environment, including, without
limitation, Laws relating to the use, manufacturing, production, generation, installation, recycling, reuse, sale, storage, handling, transport, treatment, release, threatened release or disposal of any Hazardous Materials (including the
Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. §9601 et seq. (CERCLA)). Hazardous Materials shall mean substances, wastes, radiation or materials (whether solids, liquids or
gases) (i) which are hazardous, toxic, infectious, explosive, radioactive, carcinogenic, or mutagenic, (ii) which are listed, regulated or defined under any Environmental Law, and shall include hazardous wastes, hazardous
substances, hazardous materials, pollutants, contaminants, toxic substances radioactive materials or solid wastes, (iii) the presence of which on property cause or
threaten to cause a nuisance pursuant to applicable statutory or common law upon the property or to adjacent properties, (iv) which contain without limitation polychlorinated biphenyls (PCBs), asbestos or asbestos-containing materials, lead-based
paints, urea-formaldehyde foam insulation, or petroleum or petroleum products (including, without limitation, crude oil or any fraction thereof) or (v) which pose a hazard to human health, safety, natural resources, industrial hygiene, or the
environment, or an impediment to working conditions. Release shall have the meaning set forth in Section 101 of CERCLA, without regard to the exclusions set forth therein.
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(b) Except as disclosed in the Smith SEC Documents and except as
set forth on Schedule 2.10 to the Smith Disclosure Letter,
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(i) none of Smith, any of the Smith Subsidiaries or any of the
Smith Non-Controlled Subsidiaries or, to Smiths Knowledge, any other Person has caused or permitted the presence of any Hazardous Materials at, on or under any of the Smith Properties and none of Smith, any of the Smith Subsidiaries or any of
the Smith Non-Controlled Subsidiaries has any Knowledge of the presence of any Hazardous Materials at, on or under any of the Smith Properties, in each of the foregoing cases, such that the presence of such Hazardous Materials (including the
presence of asbestos in any
buildings or improvements at the Smith Properties) would, individually or in the aggregate, reasonably be expected to have a Smith Material Adverse Effect;
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(ii) except as authorized by the Environmental Permits, there have
been no Releases of Hazardous Materials at, on, under or from (A) the Smith Properties or (B) any real property previously owned, operated or leased by Smith, the Smith Subsidiaries, or the Smith Non-Controlled Subsidiaries (the Former Smith
Properties) during the period of such ownership, operation or tenancy which would, individually or in the aggregate, reasonably be expected to have a Smith Material Adverse Effect;
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(iii) (y) Smith, the Smith Subsidiaries and the Smith
Non-Controlled Subsidiaries have not failed to comply with any Environmental Law, and (z) none of Smith, any of the Smith Subsidiaries or any of the Smith Non-Controlled Subsidiaries has any liability under the Environmental Laws, except in each of
cases (y) and (z) to the extent that any such failure to comply or any such liability, individually or in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect; and
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(iv) Smith, the Smith Subsidiaries and the Smith Non-Controlled
Subsidiaries have been duly issued, and currently have and will maintain through the Closing Date, all permits, licenses, certificates and approvals required under any Environmental Law (collectively, the Environmental Permits) necessary
to operate their businesses as currently operated except where the failure to obtain and maintain such Environmental Permit would not, individually or in the aggregate, reasonably be expected to have a Smith Material Adverse Effect. Smith, the Smith
Subsidiaries and the Smith Non-Controlled Subsidiaries have timely filed applications for all Environmental Permits.
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(a) None of Smith or any of its Controlled Group Members has any
continuing liability under any Welfare Plan which provides for continuing benefits or coverage for any employee, former employee or
any beneficiary of an employee or former employee after such employees or former employees termination of employment, except as may be required by Section 4980B of the Code or Section 601 (et seq.) of ERISA, or under any applicable state
law, and at the expense of the employee, former employee or beneficiary.
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(b) Each Employee Plan complies in all material respects with the
applicable requirements of the Code, ERISA and any other applicable law governing such Employee Plan, and each Employee Plan has at all times been properly administered in all material respects in accordance with all such requirements of law, and in
accordance with its terms and the terms of any applicable collective bargaining agreement to the extent consistent with all such requirements of law. Each Pension Plan which is intended to be qualified is qualified under Section 401(a) of the Code,
has received a favorable determination letter from the IRS stating that such Plan meets the requirements of Section 401(a) of the Code and that the trust associated with such Plan is tax-exempt under Section 501(a) of the Code and which covers all
material amendments to such plan for which the remedial amendment period (within the meaning of Section 401(b) of the Code and applicable regulations) has expired and, to the Knowledge of Smith, no event has occurred which would jeopardize the
qualified status of any such plan or the tax exempt status of any such trust under Sections 401(a) and Section 501(a) of the Code, respectively. No lawsuits, claims (other than routine claims for benefits) or formal complaints to, or by, any Person
or governmental entity have been filed, are pending or, to the Knowledge of Smith, threatened with respect to any Employee Plan and, to the Knowledge of Smith, there is no fact or contemplated event which would reasonably be expected to give rise to
any such lawsuit, claim (other than routine claims for benefits) or complaint with respect thereto. Without limiting the foregoing, the following are true with respect to each Employee Plan:
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(i) Smith and all of its Controlled Group Members have complied in
all material respects with the reporting and disclosure requirements of ERISA, the Code, or both, with respect to each Employee Plan and none of Smith or any of its Controlled Group Members has incurred any material liability in connection with such
reporting or disclosure;
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(ii) all contributions and payments with respect to Employee Plans
that are required to be made by Smith or any of its Controlled Group Members with respect to periods ending on or before the Closing Date (including periods from the first day of the current plan or policy year to the Closing Date) have been, or
will be, made or accrued before the Closing Date in accordance with the appropriate plan document, actuarial report, collective bargaining agreements or insurance contracts or arrangements or as otherwise required by ERISA or the Code or other
applicable law; and
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(iii) with respect to each such Employee Plan, to the extent
applicable, Smith has delivered to or has made available to Archstone true and complete copies of (A) plan documents, or any and all other documents that establish the existence of the plan, trust, arrangement, contract, policy or commitment and all
amendments thereto, (B) the most recent determination letter received from the IRS, (C) the three most recent Form 5500 Annual Reports (and all schedules and reports relating thereto) and actuarial reports and (D) all related trust agreements,
insurance contract or other funding agreements that implement each such Employee Plan.
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(c) With respect to each Employee Plan, to the Knowledge of Smith,
there has not occurred, and no Person is contractually bound to enter into, any prohibited transaction within the meaning of Section 4975(c) of the Code or Section 406 of ERISA, which transaction is not exempt under Section 4975(d) of
the Code or Section 408 of ERISA and which could subject Smith or any Controlled Group Member to material liability.
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(d) None of Smith or any Controlled Group Member has maintained or
been obligated to contribute to any Employee Plan subject to Code Section 412 or Title IV of ERISA and, except for multiemployer plans (within the meaning of section 3(37) of ERISA), none of the Employee Plans is subject to Title IV of ERISA. With
respect to each Employee Plan which is a multiemployer plan, all contributions have been made as required by the terms of the plan, the terms of any collective bargaining agreement and applicable law, none of Smith or any of its Controlled Group
Members has withdrawn, partially withdrawn or
received any notice of any claim or demand for withdrawal liability or partial withdrawal liability, and none of Smith or any of its Controlled Group Members has received any notice that any such plan is in reorganization, that increased
contributions may be required to avoid a reduction in plan benefits or the imposition of any excess tax, that any such plan is or has been funded at a rate less than required under Section 412 of the Code or that any such plan is or may become
insolvent.
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(e) With respect to each Pension Plan maintained by Smith or any
Controlled Group Member, such Plan provides the Plan Sponsor with the authority to amend or terminate the Plan at any time, subject to applicable requirements of ERISA and the Code and other requirements of applicable law.
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(f) There have been no acts or omissions by Smith or any of its
Controlled Group Members which have given rise to or are reasonably likely to give rise to fines, penalties, taxes or related charges under Section 502 of ERISA or Chapters 43, 47, 68 or 100 of the Code for which Smith or any of its Controlled Group
Members may be liable.
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(g) None of the assets of any Employee Plan are invested in
employer securities or employer real property.
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(a) Each of Smith, the Smith Subsidiaries and the Smith
Non-Controlled Subsidiaries (A) has filed all Tax returns and reports required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Entity having authority to do so) and all such returns and reports are
accurate and complete in all material respects, (B) has paid (or Smith has paid on its behalf) all Taxes (as defined herein) shown on such returns and reports as required to be paid by it, and (C) has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446, 3121, and 3402 of the Code or similar provisions under any
foreign laws) and has, within the time period prescribed by law, withheld and paid over to the proper governmental entities all amounts required to be so withheld and paid over under applicable laws and regulations, except, with respect to all of
the foregoing, where the failure to file such tax returns and reports or failure to pay such Taxes or failure to comply with such withholding requirements would not reasonably be expected to have a Smith Material Adverse Effect. The most recent
audited financial statements contained in the Smith SEC Documents reflect an adequate reserve for all material Taxes payable by Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements. Since the Smith Financial Statement Date, to Smiths Knowledge, Smith has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of the Code, including without limitation any Tax
arising from a prohibited transaction described in Section 857(b)(6) of the Code, and none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has incurred any material liability for Taxes other than in the ordinary course of
business. Except as set forth on Schedule 2.14(a) of the Smith Disclosure Letter, no event has occurred, and no condition or circumstance exists, which presents a material risk that any material Tax described in the preceding sentences will
be imposed upon Smith, any Smith Subsidiary, or any Smith Non-Controlled Subsidiary. None of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is the subject of any audit, examination, or other proceeding in respect of federal
income Taxes; to Smiths Knowledge, no audit, examination or other proceeding in respect of federal income Taxes involving any of Smith, any Smith Subsidiary, or Smith Non-Controlled Subsidiary is being considered by any Tax authority; and
except as set forth on Schedule 2.14(a) of the Smith Disclosure Letter, no audit, examination or other proceeding in respect of federal income taxes involving any of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has
occurred since
December 31, 1995. To the Knowledge of Smith, no deficiencies for any Taxes have been proposed, asserted or assessed against Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, and no requests for waivers of the time to assess any
such Taxes are pending. As used in this Agreement, Taxes shall include all taxes, charges, fees, levies and other assessments, including, without limitation, income, gross receipts, excise, property, sales, withholding (including,
without limitation, dividend withholding and withholding required pursuant to Sections 1445 and 1446 of the Code), social security, occupation, use, service, license, payroll, franchise, transfer and recording taxes, fees and charges, including
estimated taxes, imposed by the United States or any taxing authority (domestic or foreign), whether computed on a separate, consolidated, unitary, combined or any other basis, and any interest, fines, penalties or additional amounts attributable
to, or imposed upon, or with respect to any such taxes, charges, fees, levies or other assessments.
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(b) Smith (i) for all taxable years for which the Internal Revenue
Service (IRS) could assert a tax liability, has been subject to taxation as a real estate investment trust (a REIT) within the meaning of Section 856 of the Code and has satisfied all requirements to qualify as a REIT for all
such years, (ii) has operated since December 31, 2000 to the date of this representation, and intends to continue to operate, in such a manner as to qualify as a REIT for the taxable year ending on the earlier of December 31, 2001 or the Closing
Date and, if later, for the taxable year of Smith ending on the Closing Date, and (iii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT and, to Smiths Knowledge,
no such challenge is pending or threatened. Each Smith Subsidiary which is a partnership, joint venture or limited liability company, at all times since it became a Smith Subsidiary, (A) (i) has been treated for federal income tax purposes as a
partnership or as an entity that is disregarded for federal income tax purposes and not as a corporation or as an association taxable as a corporation and (ii) has not owned any assets (including, without limitation, securities) that would cause
Smith to violate Section 856(c)(4) of the Code or (B)(i) has been treated for federal income tax purposes as a corporation and that qualifies as a REIT within the meaning of Section 856 of the Code, a qualified REIT subsidiary under Section 856(i)
of the Code, or a taxable REIT subsidiary under Section 856(l) of the Code. Smith Partnership is not a publicly traded partnership within the meaning of Section 7704(b) of the Code that is taxable as a corporation pursuant to Section 7704(a) of the
Code. Each Smith Subsidiary which is a corporation has been since it became a Smith Subsidiary and each other issuer of securities in which Smith holds securities (within the meaning of Section 856(c) of the Code but excluding straight
debt of issuers described in Section 856(c)(7)) having a value of more than 10 percent of the total value of the outstanding securities of such issuer is a REIT within the meaning of Section 856 of the Code, a qualified REIT subsidiary under
Section 856(i) of the Code or a taxable REIT subsidiary under Section 856(l) of the Code. Except as set forth in Schedule 2.14(b) of the Smith Disclosure Letter, neither Smith nor any Smith Subsidiary holds any asset (x) the disposition of
which would be subject to rules similar to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or Temporary Treas. Reg. §1.337(d)-5T or (y) which is subject to a consent filed pursuant to Section 341(f) of the Code and
the regulations thereunder.
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(c) To Smiths knowledge, as of the date hereof, Smith is a
domestically-controlled REIT within the meaning of Section 897(h) of the Code.
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(d) There are no liens for Taxes upon the assets of Smith, the
Smith Subsidiaries or the Smith Non-Controlled Subsidiaries, other than liens for Taxes not yet due and payable.
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(e) Neither Smith nor any Smith Subsidiary is a party to any Tax
allocation or sharing agreement.
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(f) Except as set forth in Section 2.18(i), Smith does not
have any liability for the Taxes of any person other than Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries, and the Smith Subsidiaries do not have any liability for the Taxes of any person other than Smith, the Smith
Subsidiaries, the Smith Non-Controlled Subsidiaries and the Subsidiaries thereof (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by contract, or (D)
otherwise.
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(g) Smith and the Smith Subsidiaries have disclosed to the IRS
all positions taken on its federal income Tax returns which could reasonably be expected to give rise to a substantial understatement of Tax under Section 6662 of the Code.
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(a) None of Smith, any Smith Subsidiary or any Smith
Non-Controlled Subsidiary is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice or both would cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or any other material contract, agreement, arrangement or understanding, to which it is a party or by which it or any of its properties or assets is bound, nor
to the Knowledge of Smith does such a violation or default exist, except in each case to the extent that such violation or default, individually or in the aggregate, would not reasonably be expected to have a Smith Material Adverse
Effect.
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(b) Schedule 2.l8(b) to the Smith Disclosure Letter sets
forth a list of each material loan or credit agreement, note, bond, mortgage, indenture and any other agreement or instrument pursuant to which any Indebtedness (as defined herein) of Smith, the Smith Subsidiaries and any Smith Non-Controlled
Subsidiary, other than Indebtedness payable to Smith, a Smith Subsidiary or a Smith Non-Controlled Subsidiary, is outstanding or may be incurred. For purposes of this Section 2.18, Indebtedness shall mean (i) indebtedness for borrowed
money, whether secured or unsecured, (ii) obligations under conditional sale or other title retention agreements relating to property purchased by such Person, (iii) capitalized lease obligations, (iv) obligations under interest rate cap, swap,
collar or similar transaction or currency hedging transactions (valued at the termination value thereof) and (v) guarantees of any such indebtedness of any other Person. Except as set forth in Schedule 2.18(c), none of Smith, any Smith
Subsidiary or any Smith Non-Controlled Subsidiary has any derivative instruments outstanding.
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(c) To the extent not set forth in response to the requirements
of Section 2.18(b), Schedule 2.18(c) to the Smith Disclosure Letter sets forth each interest rate cap, interest rate collar, interest rate swap, currency hedging transaction, and any other agreement relating to a similar transaction to which
Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is a party or an obligor with respect thereto.
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(d) Except with respect to the agreements set forth in Schedule
2.18(b) or Schedule 2.18(i) of the Smith Disclosure Letter, none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is a party to any agreement which would restrict any of them from prepaying any of their Indebtedness
without penalty or premium at any time or which requires any of them to maintain any amount of Indebtedness with respect to any of the Smith Properties.
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(e) Except as set forth in Schedule 2.18(e) of the Smith
Disclosure Letter, none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is a party to any agreement relating to the management of any Smith Property by any Person other than Smith, a Smith Subsidiary or a Smith Non-Controlled
Subsidiary.
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(f) Smith has delivered to Archstone prior to the date of this
Agreement a true and complete capital budget for the year 2001 relating to budgeted capital improvements and development and the operating budget for the year 2001, each of which was prepared based on assumptions which management believed were
reasonable.
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(g) Schedule 2.18(g) to the Smith Disclosure Letter lists
all agreements entered into by Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary providing for the sale of, or option to sell, any Smith Properties or the purchase of, or option to purchase, by Smith, any Smith Subsidiary or any
Smith Non-Controlled Subsidiary, on the one hand, or the other party thereto, on the other hand, any real estate not yet consummated as of the date hereof.
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(h) Except as set forth in Schedule 2.18(h) to the Smith
Disclosure Letter, none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has any pending claims or, to the knowledge of Smith, any threatened claims regarding material continuing contractual liability (A) for indemnification
under any agreement relating to the sale of real estate previously owned, whether directly or indirectly, by Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary or (B) to pay any additional purchase price for any of the Smith
Properties.
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(i) None of Smith, any Smith Subsidiary or any Smith
Non-Controlled Subsidiary has entered into or is subject, directly or indirectly, to any Tax Protection Agreements, except as set forth in Schedule 2.18(i) to the Smith Disclosure Letter (true and correct copies of which have been
made available to Archstone). As used herein, a Tax Protection Agreement is an agreement, oral or written, (A) that has as one of its purposes to permit a Person to take the position that such Person could defer federal taxable income that otherwise
might have been recognized upon a transfer of property to the Smith Partnership or any other Smith Subsidiary that is treated as a partnership for federal income tax purposes, and that (i) prohibits or restricts in any manner the disposition of any
assets of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, (ii) requires that Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary maintain, put in place, or replace, indebtedness, whether or not secured by one or
more of the Smith Properties, or (iii) requires that Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary offer to any Person at any time the opportunity to guarantee or otherwise assume, directly or indirectly (including, without
limitation, through a deficit restoration obligation, guarantee (including, without limitation, a bottom guarantee), indemnification agreement or other similar arrangement), the risk of loss for federal income tax purposes
for indebtedness or other liabilities of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, (B) that specifies or relates to a method of taking into account book-tax disparities under Section 704(c) of the Code with respect to one
or more assets of Smith or a Smith Subsidiary, or (C) that requires a particular method for allocating one or more liabilities of Smith or any Smith Subsidiary under Section 752 of the Code. None of Smith, any Smith Subsidiary or any Smith
Non-Controlled Subsidiary is in violation of or in default under any Tax Protection Agreement.
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(b) New Archstone is a real estate investment trust duly
organized, validly existing and in good standing under the laws of Maryland. New Archstone has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted. New Archstone is
duly qualified or licensed to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary.
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(a) Schedule 3.2(a) to the Archstone Disclosure Letter sets
forth (i) each Archstone Subsidiary and each entity in which Archstone holds non-voting equity securities (but no voting equity securities) (collectively, the Archstone Non-Controlled Subsidiaries), (ii) the ownership interest therein of
Archstone, (iii) if not directly or indirectly wholly owned by Archstone, the identity and ownership interest of each of the other owners of such Archstone Subsidiary, (iv) each property owned by such Archstone Subsidiary, and (v) if not wholly
owned by such Archstone Subsidiary, the identity and ownership interest of each of the other owners of such property.
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(b) Except as set forth in Schedule 3.2(b) to the Archstone
Disclosure Letter, (i) all of the outstanding shares of capital stock owned by Archstone or an Archstone Subsidiary of each Archstone Subsidiary and each Archstone Non-Controlled Subsidiary that is a corporation have been duly authorized, validly
issued and are (A) fully paid and nonassessable and not subject to preemptive or similar rights and (B) owned free and clear of all Liens and (ii) all equity interests in each Archstone Subsidiary that is a partnership, joint venture, limited
liability company or trust which are owned by Archstone, by another Archstone Subsidiary or by Archstone and another Archstone Subsidiary are owned free and clear of all Liens. Each Archstone Subsidiary that is a corporation is duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted, and
each Archstone Subsidiary that is a partnership, limited liability company or trust is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own,
operate, lease and encumber its properties and carry on its business as now being conducted. Each Archstone Subsidiary is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, would not reasonably be expected to have
an Archstone Material Adverse Effect. Complete and correct copies of the articles of incorporation, bylaws, organization documents and partnership, joint venture and operating agreements of each Archstone Subsidiary, as amended to the date of this
Agreement, have been previously delivered or made available to Smith.
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(a) The authorized shares of beneficial interest of Archstone
consist of 250,000,000 shares of beneficial interest, consisting of 232,100,000 Archstone Common Shares, 9,200,000 Archstone Series A
Preferred Shares, 4,200,000 Archstone Series B Preferred Shares, 2,000,000 Archstone Series C Preferred Shares, 2,300,000 Archstone Series D Preferred Shares, 1,600,000 Archstone Series E Preferred Shares, 800,000 Archstone Series F Preferred
Shares, 600,000 Archstone Series G Preferred Shares and 2,500,000 Junior Participating Preferred Shares of Beneficial Interest, $1.00 par value per share (Archstone Participating Preferred Shares), of Archstone. As of May 2, 2001,
120,864,151 Archstone Common Shares were issued and outstanding, 3,237,435 Archstone Series A Preferred Shares were issued and outstanding, 4,200,000 Archstone Series B Preferred Shares were issued and outstanding (all of which will be redeemed
prior to May 11, 2001), 2,000,000 Archstone Series C Preferred Shares were issued and outstanding, 2,300,000 Archstone Series D Preferred Shares were issued and outstanding, no Archstone Series E Preferred Shares were issued and outstanding, no
Archstone Series F Preferred Shares were issued and outstanding, no Archstone Series G Preferred Shares were issued and outstanding, and no Archstone Participating Preferred Shares were issued and outstanding.
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(b) Set forth in Schedule 3.3(b) to the Archstone
Disclosure Letter is a true and complete list of the following: (i) each qualified or nonqualified option to purchase Archstones shares of beneficial interest granted under the Archstone 1997 Long-Term Incentive Plan, Archstone 1996 Share
Option Plan for Trustees, Archstone 1987 Share Option Plan for Outside Trustees and Archstone Communities Trust Employee Stock Purchase Plan or any other formal or informal arrangement (collectively, the Archstone Options); and (ii)
except for the Archstone Series A Preferred Shares, Archstone Series E Preferred Units, Archstone Series F Preferred Units, Archstone Series G Preferred Units and the Archstone Participating Preferred Shares, all other warrants or other rights to
acquire Archstones shares of beneficial interest, all share appreciation rights, phantom shares, dividend equivalents, performance units and performance shares which are outstanding on the date of this Agreement. Schedule 3.3(b) to the
Archstone Disclosure Letter sets forth the Archstone Options granted to Archstones Chief Executive Officer and four other most highly compensated officers, the date of each grant, the status of each Archstone Option as qualified or
nonqualified under Section 422 of the Code, the number of Archstone Common Shares subject to each Archstone Option, the number and type of Archstones Common Shares subject to Archstone Options that are currently exercisable, the exercise price
per share, and the number and type of such shares subject to share appreciation rights. On the date of this Agreement, except as set forth in this Section 3.3 or excepted therefrom or as set forth in Schedule 3.3(b) or 3.3 (d) to the
Archstone Disclosure Letter, no shares of beneficial interest of Archstone were outstanding or reserved for issuance.
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(c) All outstanding shares of beneficial interest of Archstone are
duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive or similar rights under law or the Archstone Declaration of Trust or Archstone Bylaws, or any contract or instrument to which Archstone is a party or by
which it is bound. There are no bonds, debentures, notes or other indebtedness of Archstone having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of Archstone
may vote.
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(d) Except as set forth in this Section 3.3 or in Schedule
3.3(b) or 3.3(d) to the Archstone Disclosure Letter, as of the date of this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements (other than this Agreement), arrangements or
undertakings of any kind to which Archstone or any Archstone Subsidiary is a party or by which such entity is bound, obligating Archstone or any Archstone Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of beneficial interest, voting securities or other ownership interests of Archstone or any Archstone Subsidiary or obligating Archstone or any Archstone Subsidiary to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking (other than to Archstone or an Archstone Subsidiary).
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(e) All dividends on Archstone Common Shares and Archstone
Existing Preferred Shares, which have been declared prior to the date of this Agreement have been paid in full.
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(f) The New Archstone Common Shares and the New Archstone
Preferred Shares to be issued by New Archstone pursuant to this Agreement have been duly authorized for issuance, and upon issuance will
be duly and validly issued, fully paid, nonassessable and not subject to preemptive or similar rights under law. The Archstone Common Shares and Archstone Preferred Shares to be issued by Archstone to holders of Smith OP Units and Smith Preferred
Units (other than New Archstone, as the successor to Smith in the Merger) in the Partnership Merger pursuant to this Agreement have been duly authorized for issuance, and upon issuance will be duly and validly issued, fully paid and nonassessable
(except and only to the extent set forth in Section 8.5 of Annex A to the Archstone Declaration of Trust and, only in the case of a recipient of Archstone Common Shares who has undertaken a deficit restoration obligation pursuant to
Section 13.3.B of Annex A of the Archstone Declaration of Trust, to the extent provided in Section 13.3.B, Section 13.3.C and Section 13.3.D thereof) and not subject to preemptive or similar rights under law. The Archstone Common Shares and
Archstone Preferred Shares to be issued by Archstone to New Archstone in the Archstone Merger and in the Partnership Merger pursuant to this Agreement have been duly authorized for issuance, and upon issuance will be duly and validly issued, fully
paid and nonassessable (except and only to the extent set forth in Sections 2.2, 5.5, 8.5 and 11.3 of Annex A to the Archstone Declaration of Trust) and not subject to preemptive or similar rights under law.
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(a) Each of Archstone and New Archstone (collectively the
Archstone Parties) has the requisite power and authority to enter into this Agreement and, subject to the requisite shareholder approval by the holders of Archstone Common Shares of the Merger, the Archstone Merger, the Proposed
Archstone Charter Amendments (as defined herein) and the amendment or adoption of any stock option plan as necessary to satisfy Archstones and New Archstones obligations under Section 5.8(c) (the Archstone Shareholder
Approvals and, together with the Smith Stockholder Approvals, the Shareholder Approvals), to consummate the transactions contemplated by this Agreement to which each Archstone Party is a party. The execution and delivery of this
Agreement by Archstone and New Archstone and the consummation by the Archstone Parties of the transactions contemplated by this Agreement to which each Archstone Party is a party have been duly authorized by all necessary action on the part of such
Archstone Party, except for and subject to the Archstone Shareholder Approvals. This Agreement has been duly executed and delivered by Archstone and New Archstone and constitutes a valid and binding obligation of Archstone and New Archstone,
enforceable against Archstone and New Archstone in accordance with and subject to its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors rights and general principles of
equity.
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(b) Except as set forth in Schedule 3.5(b)(1) to the
Archstone Disclosure Letter and subject to receipt of the Archstone Shareholder Approvals, the execution and delivery of this Agreement by Archstone or New Archstone do not, and the consummation of the transactions contemplated by this Agreement to
which any Archstone Party is a party and compliance by Archstone or New Archstone with the provisions of this Agreement will not, conflict with, or result in any violation of or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of any
Archstone Party or any Archstone Subsidiary under, (i) the Archstone Declaration of Trust or the Archstone Bylaws or the comparable charter or organizational documents or partnership, operating or similar agreement (as the case may be) of any other
Archstone Party or Archstone Subsidiary, each as amended or supplemented to the date of this Agreement, (ii) any loan or credit agreement, note, bond, mortgage, indenture, reciprocal easement agreement, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Archstone or any Archstone Subsidiary or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any Laws applicable
to Archstone or any Archstone Subsidiary or their respective properties or assets, other than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or Liens that individually or in the aggregate would not
reasonably be expected to (x) have an Archstone Material Adverse Effect or (y) prevent or materially impair the ability of Archstone to perform any of its obligations hereunder or prevent or materially threaten or impede the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to any Archstone Party or any Archstone Subsidiary in
connection with the execution and delivery of this Agreement by Archstone or the consummation by Archstone or any Archstone Subsidiary of any of the transactions contemplated by this Agreement, except for (i) the filing with the SEC of (x) the Form
S-4 (as defined herein) and (y) such reports and filings under the Securities Act and under Sections 13(a) and 13(d) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (ii)
the filing and acceptance for record of the REIT Articles of Merger and the Partnership Articles of Merger by the Department, (iii) the filing of the Delaware Certificate of Merger with the Office of the Secretary of State of the State of Delaware,
(iv) such filings as may be required in connection with the payment of any transfer and gains taxes and (v) such other consents, approvals, orders, authorizations, registrations, declarations and filings (A) as are set forth in Schedule
3.5(b)(2) to the Archstone Disclosure Letter or (B) as may be required under (w) the HSR Act, (x) federal, state or local environmental laws or (y) the blue sky laws of various states, to the extent applicable, or (C) which, if not
obtained or made, would not prevent or delay in any material respect the consummation of any of the transactions contemplated by this Agreement or otherwise prevent Archstone from performing its obligations under this Agreement in any material
respect or reasonably be expected to have, individually or in the aggregate, an Archstone Material Adverse Effect.
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(a) Except as set forth in Schedule 3.9(a) to the Archstone
Disclosure Letter, Archstone or one of the Archstone Subsidiaries owns fee simple title to each of the real properties listed in the Archstone SEC Filings as owned by it (the Archstone Properties).
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(b) The Archstone Properties are not subject to any Encumbrances
or Property Restrictions which reasonably could be expected to cause an Archstone Material Adverse Effect.
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(c) Valid policies of title insurance (or fully paid and
enforceable commitments therefor) have been issued insuring Archstones or the applicable Archstone Subsidiarys fee simple title or leasehold estate, as the case may be, to the Archstone Properties in amounts which are approximately equal
to the purchase price thereof paid by Archstone or the applicable Archstone Subsidiaries therefor, except where the failure to obtain such title insurance would not reasonably be expected to have an Archstone Material Adverse
Effect. Such policies are, at the date hereof, in full force and effect. No material claim has been made against any policy.
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(d) With respect to any Archstone Property with Five Hundred (500)
units or more, Archstone has no Knowledge:
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(i) that it has failed to obtain a certificate, permit or license
from any governmental authority having jurisdiction over such Archstone Property where such failure would reasonably be expected to have a material adverse effect on such Archstone Property or of any pending threat of modification or cancellation of
any of the same which would reasonably be expected to have a material adverse effect on such Archstone Property;
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(ii) of any written notice of any violation of any federal, state
or municipal law, ordinance, order, rule, regulation or requirement affecting such Archstone Property issued by any governmental authority which would reasonably be expected to have a material adverse effect on such Archstone Property;
or
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(iii) that it has received written or published notice to the
effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to such Archstone Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other improvements on any of such Archstone Property or by the continued maintenance, operation or use of the parking areas other than such notices, which, in the aggregate, would not
reasonably be expected to have a material adverse effect on such Archstone Property.
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(e) With respect to Archstone Properties with less than Five
Hundred (500) units, Archstone has no Knowledge:
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(i) that it has failed to obtain certificates, permits or licenses
from any governmental authority having jurisdiction over any such Archstone Properties, the absence of which, in the aggregate, would reasonably be expected to have an Archstone Material Adverse Effect or of any pending threat of modification or
cancellation of any of the same which, in the aggregate, would reasonably be expected to have an Archstone Material Adverse Effect;
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(ii) of any written notices of any violation of any federal, state
or municipal law, ordinance, order, regulation or requirement affecting such Archstone Properties issued by any governmental authority which, in the aggregate, would reasonably be expected to have an Archstone Material Adverse Effect; or
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(iii) that it has received written or published notice to the
effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to any of such Archstone Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by
the continued maintenance, operation or use of any buildings or other improvements on any of such Archstone Properties or by the continued maintenance, operation or use of the parking areas other than such notices, which, in the aggregate, would not
reasonably be expected to have an Archstone Material Adverse Effect.
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(f) Archstone has no Knowledge (i) of any structural defects
relating to Archstone Properties, Archstone Properties whose building systems are not in working order, physical damage to any Archstone Property for which there is not insurance in effect covering the cost of the restoration and the loss of revenue
(subject to a reasonable deduction or retention limit), except such structural defects, building systems not in working order and physical damage, which, in the aggregate, would not reasonably be expected to have an Archstone Material Adverse
Effect.
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(g) Except as set forth in Schedule 3.9(g) to the Archstone
Disclosure Letter, (i) all work to be performed, payments to be made and actions to be taken by Archstone or the Archstone Subsidiaries prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in
connection with a site approval, zoning reclassification or similar action relating to any Archstone Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation), have been performed, paid or taken, as
the case may be, and (ii) Archstone has no Knowledge of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, in each of cases (i) and (ii) except where the failure to do so would,
in the aggregate, not reasonably be expected to have an Archstone Material Adverse Effect.
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(h) Insurance summaries previously provided by Archstone to Smith
contain a true and complete list, by type of insurance, carrier, coverages (including limits) and term, of all material policies of casualty, liability and other types of insurance (except title insurance) carried by Archstone or any Archstone
Subsidiary. All such policies are in full force and effect and neither Archstone nor any Archstone Subsidiary has received from any insurance company notice of any material defects or deficiencies affecting the insurability of Archstone or any
Archstone Subsidiary or any of their respective assets thereunder.
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Except as disclosed in the Archstone SEC Documents,
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(i) none of Archstone, any of the Archstone Subsidiaries or, to
Archstones Knowledge, any other Person has caused or permitted the presence of any Hazardous Materials at, on or under any of the Archstone Properties, such that the presence of such Hazardous Materials (including the presence of asbestos in
any buildings or improvements at the Archstone Properties) would, individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect;
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(ii) except as authorized by the Environmental Permits, there have
been no Releases of Hazardous Materials at, on, under or from (A) the Archstone Properties, or (B) any real property formerly owned, operated or leased by Archstone or the Archstone Subsidiaries during the period of such ownership, operation or
tenancy, which would, individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect;
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(iii) (y) Archstone and the Archstone Subsidiaries have not failed
to comply with all Environmental Laws, and (z) neither Archstone nor any of the Archstone Subsidiaries has any liability under the Environmental Laws, except in each of cases (y) and (z) to the extent such failure to comply or any such liability,
individually or in the aggregate, would not reasonably be expected to have an Archstone Material Adverse Effect; and
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(iv) Archstone and the Archstone Subsidiaries have been duly
issued, and currently have and will maintain through the Merger Closing Date, all Environmental Permits necessary to operate their businesses as currently operated except where the failure to obtain and maintain such Environmental Permits would not,
individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect. Archstone and the Archstone Subsidiaries have timely filed applications for all Environmental permits.
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(a) Each of Archstone, the Archstone Subsidiaries and the
Archstone Non-Controlled Subsidiaries (i) has filed all Tax returns and reports required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Entity having authority to do so), and all such returns and
reports are accurate and complete in all material respects, (ii) has paid (or Archstone has paid on its behalf) all Taxes shown on such returns and reports as required to be paid by it and (iii) has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446, 3121, and 3402 of the Code or similar provisions under any
foreign laws) and has, within the time period prescribed by law, withheld and paid over to the proper governmental entities all amounts required to be so withheld and paid over under applicable laws and regulations, except, with respect to all of the
foregoing, where the failure to file such tax returns or reports or failure to pay such Taxes or failure to comply with such requirements would not reasonably be expected to have an Archstone Material Adverse Effect. The most recent audited
financial statements contained in the Archstone SEC Documents reflect an adequate reserve for all material Taxes payable by Archstone, the Archstone Subsidiaries and the Archstone Non-Controlled Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements. Since the Archstone Financial Statement Date, to Archstones Knowledge, Archstone has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of the Code, including without
limitation any Tax arising from a prohibited transaction described in Section 857(b)(6) of the Code, and none of Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary has incurred any material liability for Taxes other than
in the ordinary course of business. No event has occurred, and no condition or circumstance exists, which presents a material risk that any material Tax described in the preceding sentence will be imposed upon Archstone, any Archstone Subsidiary or
any Archstone Non-Controlled Subsidiary. None of Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary is the subject of any audit, examination, or other proceeding in respect of federal income Taxes, and to Archstones
Knowledge, no audit, examination or other proceeding in respect of federal income Taxes involving Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary is being considered by any Tax authority; and except as set forth on
Schedule 3.11(a) to the Archstone Disclosure Letter, no audit, examination or other proceeding in respect of federal income Taxes involving Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary has occurred. To the
Knowledge of Archstone, no deficiencies for any Taxes have been proposed, asserted or assessed against Archstone, any of the Archstone Subsidiaries or any Archstone Non-Controlled Subsidiary, and no requests for waivers of the time to assess any
such Taxes are pending.
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(b) Archstone (i) for all taxable years for which the IRS could
assert a tax liability, has been subject to taxation as a REIT within the meaning of Section 856 of the Code and has qualified as a REIT for all such years, (ii) has operated since December 31, 2000 to the date of this representation, and intends to
continue to operate, in such a manner as to qualify as a REIT for its taxable year that and (iii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT and, to
Archstones Knowledge, no such challenge is pending or threatened. New Archstone (i) has operated since its formation to the date of this representation, and intends to continue to operate, in such a manner as to qualify as a REIT for the
taxable year that includes the Closing Date and (ii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT and, to Archstones Knowledge, no such challenge is pending or
threatened. Each Archstone Subsidiary which is a partnership, joint venture or limited liability company, at all times since it became an Archstone Subsidiary, (A)(i) has been treated for federal income tax purposes as a partnership or as an entity
that is disregarded for federal income tax purposes and not as a corporation or as an association taxable as a corporation and (ii) has not owned any assets (including, without limitation, securities) that would cause Archstone to violate Section
856(c)(4) of the Code or (B)(i) has been treated for federal income tax purposes as a corporation and that qualifies as a REIT within the meaning of Section 856 of the Code, a qualified REIT subsidiary under Section 856(i) of the Code, or a taxable
REIT Subsidiary under Section 856(l) of the Code. Archstone Partnership is not a publicly traded partnership within the meaning of Section 7704(b) of the Code that is taxable as a corporation pursuant to Section 7704(a) of the Code. Each Archstone
Subsidiary which is a corporation has been since it became an Archstone Subsidiary, and each other issuer of securities in which Archstone holds securities (within the meaning of Section 856(c) of the Code but excluding straight debt of
issuers described in Section 856(c)(7)) having a value of more than 10 percent of the total value of the outstanding securities of such issuer is a qualified REIT subsidiary under Section 856(i) of the Code or a taxable REIT subsidiary under Section
856(l) of the Code. Except as set forth in Schedule 3.11(b) to the Archstone Disclosure Letter, neither Archstone nor any Archstone Subsidiary holds any asset (x) the disposition of which would be subject to rules similar to Section 1374 of
the Code as a result of an election under IRS Notice 88-19 or Temporary Treas. Reg. §1.337(d)-5T or (y) which is subject to a consent filed pursuant to Section 341(f) of the Code and the regulations thereunder.
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(c) To Archstones knowledge, as of the date hereof,
Archstone is a domestically-controlled REIT within the meaning of Section 897(h)(4)(B) of the Code.
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(d) There are no liens for Taxes upon the assets of Archstone, the
Archstone Subsidiaries or the Archstone Non-Controlled Subsidiaries.
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(e) Neither Archstone nor any Archstone Subsidiary is a party to
any Tax allocation or sharing agreement.
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(f) Archstone does not have any liability for the Taxes of any
person other than Archstone, the Archstone Subsidiaries and Archstone Non-Controlled Subsidiaries, the Archstone Subsidiaries and the Archstone Non-Controlled Subsidiaries do not have any liability for the Taxes of any person other than Archstone,
the Archstone Subsidiaries and the Archstone Non-Controlled Subsidiaries (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by contract, or (D)
otherwise.
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(g) Since Archstones taxable year which ended December 31,
1996, Archstone has qualified as a REIT, and commencing on January 1, 1997, and all times thereafter, Archstone qualified as an association described in Treasury Regulation §301.7701-2(b)(2) pursuant to Treasury Regulation
§301.7701-3(b)(3)(i), and Archstone has not made any election pursuant to Treasury Regulation §301.7701-3(c)(1)(i) to change its classification from that of an association. Archstone is currently eligible to change its classification from
that of an association to that of a partnership or an entity that is classified as an entity disregarded as separate from its owner, without being subject to the limitations imposed by Treasury Regulation §301.7701-3(c)(1)(iv).
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(h) Archstone and the Archstone Subsidiaries have disclosed to the
IRS all positions taken on its federal income Tax returns which could reasonably be expected to give rise to a substantial understatement of Tax under Section 6662 of the Code.
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(a) conduct its business only in the usual, regular and ordinary
course and in substantially the same manner as heretofore conducted, except for such changes as are expressly required by this Agreement;
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(b) use commercially reasonable efforts to preserve intact its
business organizations and goodwill and, provided it does not require additional compensation, keep available the services of its officers and employees;
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(c) confer on a regular basis with one or more representatives of
Archstone to report operational matters of materiality and, subject to Section 4.3, any proposals to engage in material transactions;
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(d) promptly notify Archstone of the occurrence or existence of
any circumstance, event, occurrence, change or effect that has had or would reasonably be expected to have a Smith Material Adverse Effect;
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(e) promptly deliver to Archstone true and correct copies of any
report, statement, schedule or other document filed with the SEC subsequent to the date of this Agreement;
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(f) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its methods, principles or practices of accounting in effect at the Smith Financial Statement Date, except as may be required by the SEC, applicable law or GAAP;
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(g) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other authorities, subject to extensions permitted by law, provided Smith notifies Archstone that it is availing itself of such extensions and provided such extensions do not adversely
affect Smiths status as a qualified REIT under the Code;
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(h) except as set forth in Schedule 4.1(h) to the Smith
Disclosure Letter, maintain in full force and effect insurance coverage substantially similar to insurance coverage maintained on the date hereof;
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(i) unless required by law or necessary to either (1) preserve
Smiths status as a REIT, or (2) qualify or preserve the status of any Smith Subsidiary as a partnership for federal income tax purposes, as a qualified REIT subsidiary under Section 856(i) of the Code, or as a taxable REIT subsidiary under
Section 856(l) of the Code, as the case may be (in which event Smith or the applicable Smith Subsidiary shall not fail to make such election in a timely manner) neither (A) make or rescind any express or deemed election relative to Taxes (except for
the Election), (B) settle or compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, except where such settlement or compromise will not materially and adversely affect
Smith, the Smith Subsidiaries or the Smith Non-Controlled Subsidiaries, nor (C) change in any material respect any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of its federal
income tax returns that have been filed for prior taxable years, except as may be required by applicable law or except for changes that are not reasonably expected to have a Smith Material Adverse Effect.
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(j) except as set forth in Schedule 4.1(j) to the Smith
Disclosure Letter, not (1) acquire, enter into any option to acquire, or exercise an option or other right or election or enter into any other commitment or contractual obligation (each, a Commitment) for the acquisition of any real
property except (A) as permitted in a property capital budget approved in writing by Archstone or delivered to Archstone as provided for in Section 2.18(f) or (B) other transactions involving consideration of less than $10,000,000 in the aggregate
for all such transactions, (2) encumber assets or commence construction of, or enter into any Commitment to develop or construct other real estate projects, except (A) ongoing renovations or capital repair projects as described on Schedule
4.1(j) or (B) in the ordinary course of its leasing activities consistent with past practice, (3) incur or enter into any Commitment to incur additional indebtedness (secured or unsecured) except for (A) refinancing or replacement of any
existing indebtedness in the ordinary course of business consistent with past practices on commercially reasonable terms for the matters set forth on Schedule 4.1(j), (B) working capital under its revolving line(s) of credit or other indebtedness
which is secured by a second mortgage on any Smith Property and (C) Commitments for indebtedness in connection with the matters described on Schedule 4.1(j); provided, however, the aggregate indebtedness outstanding of Smith, the Smith
Subsidiaries and the Smith Non-Controlled Subsidiaries (including any additional indebtedness permitted pursuant to Section 4.1(j)(3)(B) and Section 4.1(j)(3)(C)) shall at no time prior to September 30, 2001 exceed $1,600,000,000 and at no time
prior to March 30, 2002 exceed $1,750,000,000, or (4) materially modify, amend or terminate or enter into any Commitment to materially modify, amend or terminate, any indebtedness (secured or unsecured) in existence as of the date hereof except as
provided in this Section 4.1(j).
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(k) not amend the Smith Articles or the Smith Bylaws, or the
articles or certificate of incorporation, bylaws, code of regulations, partnership agreement, operating agreement or joint venture agreement or comparable charter or organization document of any Smith Subsidiary or any Smith Non-Controlled
Subsidiary except to the extent necessary to reflect the admission of additional limited partners in connection with transfers or conversions of interests as required by any contract or agreement of Smith, any Smith Subsidiary or any Smith
Non-Controlled Subsidiaries in effect as of the date hereof and except as permitted by this Agreement;
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(l) except in connection with, and as permitted by the
Recapitalization Agreement, not classify or re-classify any unissued shares of stock; make no change in the number of shares of stock, membership interests or units of limited partnership interest issued and outstanding, other than pursuant to (i)
the exercise of options disclosed in Schedule 2.3 to the Smith Disclosure Letter; (ii) the redemption of Smith OP Units under the Smith Partnership Agreement solely for shares of Smith Common Stock unless, and only to the extent that, such
redemption solely for shares of Smith Common Stock would reasonably be expected to cause Smith not to qualify as a REIT for federal income tax purposes; (iii) the conversion of Smith Preferred Shares or Smith Preferred Units; (iv) the issuance of up
to 350,000 shares of Smith in
connection with acquisitions of property by CESI or its Subsidiaries (and the corresponding issuance of OP Units); or (v) except as permitted by this Agreement;
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(m) except as set forth in Schedule 4.1(m) to the Smith
Disclosure Letter, grant no options or other right or commitment relating to its shares of capital stock, membership interests or units of limited partnership interest or any security convertible into its shares of capital stock, membership
interests or units of limited partnership interest, or any security the value of which is measured by shares of beneficial interest, or any security subordinated to the claim of its general creditors and not amend or waive any rights under any of
the Smith Stock Options or Smith Stock Rights;
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(n) except as provided in Section 5.10 and in connection with the
use of Smith Common Stock to pay the exercise price or tax withholding in connection with equity-based employee benefit plans by the participants therein, not (i) authorize, declare, set aside or pay any dividend or make any other distribution or
payment with respect to any Smith Common Stock, Smith Preferred Stock, Smith OP Unit or Smith Preferred OP Unit or (ii) directly or indirectly redeem, purchase or otherwise acquire any shares of stock, membership interests or units of partnership
interest or any option, warrant or right to acquire, or security convertible into, shares of stock, membership interests or units of partnership interest of Smith or any Smith Subsidiary, except for redemptions of Smith OP Units, whether or not
outstanding on the date of this Agreement, under the Smith Partnership Agreement in which solely Smith Common Stock is utilized;
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(o) not sell, lease, mortgage, subject to Lien (or, in the case of
an involuntary Lien, fail to have such Lien removed within 30 days of the creation thereof) or otherwise dispose of any of the Smith Properties, except in connection with (i) a transaction that is permitted by Section 4.1(j), (ii) a transaction that
is made in the ordinary course of business and is the subject of a binding contract in existence on the date of this Agreement and disclosed in Schedule 2.18 to the Smith Disclosure Letter or (iii) in connection with leasing activities
consistent with past practice or good business judgment;
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(p) not sell, lease, mortgage, subject to Lien or otherwise
dispose of any of its personal property or intangible property, except in the ordinary course of business and is not material, individually or in the aggregate;
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(q) except as set forth in Schedule 4.1(q) to the Smith
Disclosure Letter, not (i) make any loans, advances or capital contributions to, or investments in, any other Person, other than loans, advances and capital contributions to those Smith Subsidiaries or Smith or Smith Non-Controlled Subsidiaries or
its partners that are in existence or are contractually committed on the date hereof and ordinary course expense advances to employees and except in connection with a transaction permitted by Section 4.1(j), or (ii) enter into any new, or amend or
supplement any existing, contract, lease or other agreement with any Smith Non-Controlled Subsidiary other than in the ordinary course of business consistent with past practice;
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(r) not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of claims, in the ordinary course of business consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) furnished to Archstone or incurred in the ordinary course of business consistent with past practice or as
otherwise permitted under the terms of this Agreement;
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(s) except in connection with the transactions that are permitted
by Section 4.1(j), not guarantee the indebtedness of another Person, enter into any keep well or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic
effect of any of the foregoing;
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(t) except as set forth in Schedule 4.1(t) to the Smith
Disclosure Letter, not enter into any Commitment with any officer, director or Affiliate of Smith or any of the Smith Subsidiaries or Smith Non-Controlled Subsidiaries, which, if entered into prior to the date hereof, would have been required to be
disclosed on Schedule 2.11 to the Smith Disclosure Letter, or is with a consultant;
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(u) not increase any compensation, pay any bonuses or enter into
or amend any employment, severance or other similar arrangement with any of its officers, directors or employees earning more than $100,000 per annum, other than as required by any contract or Employee Plan;
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(v) except as set forth in Schedule 4.1(v) to the Smith
Disclosure Letter, not adopt any new employee benefit plan, policy, program or arrangement or amend any existing Employee Plans or rights;
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(w) not settle any stockholder derivative or class action claims
arising out of or in connection with any of the transactions contemplated by this Agreement;
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(x) not change the ownership of any of its Subsidiaries or any of
its Non-Controlled Subsidiaries, except (i) changes contemplated by this Agreement, (ii) changes which arise as a result of the acquisition of Smith OP Units in exchange for Smith Common Stock pursuant to exercise of the Smith OP Unit redemption
right under the Smith Partnership Agreement or (iii) changes by parties other than Smith, any of the Smith Subsidiaries or any of the Smith Non-Controlled Subsidiaries;
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(y) not accept a promissory note in payment of the exercise price
payable under any option to purchase shares of Smith Common Stock;
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(z) not enter into any Tax Protection Agreement;
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(aa) not settle or compromise any material federal, state, local
or foreign tax liability; and
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(bb) not authorize or publicly announce an intention to do any of
the foregoing prohibited actions, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing prohibited actions.
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(a) conduct its business only in the usual, regular and ordinary
course and in substantially the same manner as heretofore conducted, except for such changes as are expressly required by this Agreement;
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(b) use commercially reasonable efforts to preserve intact its
business organizations and goodwill and keep available the services of its officers and employees;
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(c) confer on a regular basis with one or more representatives of
Smith to report operational matters of materiality and, subject to Section 4.3, any proposals to engage in material transactions;
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(d) promptly notify Smith of the occurrence or existence of any
circumstance, event, occurrence, change or effect that has had or would reasonably be expected to have an Archstone Material Adverse Effect;
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(e) promptly deliver to Smith true and correct copies of any
report, statement, schedule or other document filed with the SEC subsequent to the date of this Agreement;
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(f) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its methods, principles or practices of accounting in effect at the Archstone Financial Statement Date, except as may be required by the SEC, applicable law or GAAP;
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(g) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other authorities, subject to extensions permitted by law, provided such extensions do not adversely affect Archstones status as a qualified REIT under the Code;
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(h) except as set forth in Schedule 4.2(h) to the Archstone
Disclosure Letter, maintain in full force and effect insurance coverage substantially similar to insurance coverage maintained on the date hereof,
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(i) unless required by law or necessary to either (1) preserve
Archstones status as a REIT, or (2) qualify or preserve the status or any Archstone Subsidiary as a partnership for federal income tax purposes, as a qualified REIT subsidiary under Section 856(i) of the Code, or as a taxable REIT subsidiary
under Section 856(l) of the Code, as the case may be (in which event Archstone or the applicable Archstone Subsidiary shall not fail to make such election in a timely manner), neither (A) make or rescind any express or deemed election relative to
Taxes (except for the Election) nor (B) change in any material respect any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of its federal income tax returns that have been filed
for prior taxable years, except as may be required by applicable law or except for changes that are reasonably expected not to have an Archstone Materially Adverse Effect;
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(j) except as contemplated by this Agreement and except as set
forth in Schedule 4.2(j) to the Archstone Disclosure Letter, not classify or re-classify any unissued shares of beneficial interest; make no change in the number of shares of beneficial interest issued and outstanding, (i) other than pursuant
to the exercise of options disclosed in Schedule 3.3 to the Archstone Disclosure Letter or (ii) except as permitted by this Agreement;
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(k) except as provided in Section 5.10 hereof and in connection
with the use of Archstone Common Shares to pay the exercise price or tax withholding in connection with equity-based employee benefit plans by the participants therein or as set forth in Schedule 4.2(l), not (i) authorize, declare, set aside
or pay any dividend or make any other distribution or payment with respect to any Archstone Common Shares or (ii) directly or indirectly redeem, purchase or otherwise acquire any shares of beneficial interest, membership interests or units of
partnership interest or any option, warrant or right to acquire, or security convertible into, shares of beneficial interest, membership interests, or units of partnership interest of Archstone or any Archstone Subsidiary, except for redemptions of
Archstone Common Shares required under the Archstone Declaration of Trust in order to preserve the status of Archstone as a REIT under the Code;
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(l) except as contemplated by this Agreement and except as set
forth on Schedule 4.2(l) to the Archstone Disclosure Letter, not adopt any new employee benefit plan, policy, program or arrangement or amend any existing plans or rights;
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(m) not settle any stockholder derivative or class action claims
arising out of or in connection with any of the transactions contemplated by this Agreement;
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(n) not (A) enter into or agree to effect any merger, acquisition,
consolidation, reorganization, or other business combination with any third party in which Archstone is not the surviving party thereto or (B) enter into or agree to effect any merger, acquisition, exchange offer or other business combination with a
third party in which Archstone is the surviving party that would result in the issuance of equity securities representing in excess of 15% of the outstanding Archstone Common Shares on the date any such business combination is entered into or agreed
to unless, in either such case, such business combination is approved by Smith, which approval shall not be unreasonably withheld or delayed;
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(o) except for the Archstone Declaration of Trust, the Archstone
Bylaws, the New Archstone Declaration of Trust, the New Archstone Bylaws, the Proposed Archstone Charter Amendments or as set forth on Schedule 4.2(o) to the Archstone Disclosure Letter, not amend the respective declaration of trust or bylaws
of Archstone or New Archstone; or
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(p) not authorize or publicly announce an intention to do any of
the foregoing prohibited actions, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing prohibited actions.
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(a) On and after the date hereof and prior to the Effective Time
of the Mergers, Smith (for itself and in its capacity as the sole general partner of Smith Partnership) agrees that:
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(i) none of it, any of its Subsidiaries (including Smith
Partnership) or any of its Non-Controlled Subsidiaries shall invite, initiate, solicit or encourage, directly or indirectly, any inquiries, proposals, discussions or negotiations or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to any direct or indirect (A) merger, consolidation, business combination, reorganization, recapitalization, liquidation, dissolution or similar transaction, (B) sale,
acquisition, tender offer, exchange offer (or the filing of a registration statement under the Securities Act in connection with such an exchange offer), share exchange or other transaction or series of related transactions that, if consummated,
would result in the issuance of securities representing, or the sale, exchange or transfer of, 15% or more of the outstanding voting equity securities of Smith or outstanding partnership interests of Smith Partnership (including, without limitation,
partnership interests and units), except an underwritten public offering of Smith Common Stock, for cash, or (C) sale, lease, exchange, mortgage, pledge, transfer or other disposition (Transfer) of any assets of Smith or Smith
Partnership in one or a series of related transactions that, if consummated, would result in the Transfer of more than 15% of the assets of Smith or Smith Partnership, other than the Mergers (any such proposal or offer being hereinafter referred to
as an Acquisition Proposal), or engage in any discussions or negotiations with or provide any confidential or non-public information or data to, or afford access to properties, books or records to, any Person relating to, or that may
reasonably be expected to lead to, an Acquisition Proposal, or enter into any letter of intent, agreement in principle or agreement relating to an Acquisition Proposal, or propose publicly to agree to do any of the foregoing, or otherwise facilitate
any effort or attempt to make or implement an Acquisition Proposal (including, without limitation, by amending or granting any waiver under, the Smith Rights Agreement);
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(ii) Smith will use its best efforts to cause any officer,
director, employee, affiliate, agent, investment banker, financial advisor, attorney, accountant, broker, finder, consultant or other agent or representative of itself or any of its Subsidiaries (including Smith Partnership) or any of its
Non-Controlled Subsidiaries (each, a Representative) not to engage in any of the activities described in Section 4.3(a)(i);
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(iii) (A) it, any of its Subsidiaries (including Smith
Partnership) and any of its Non-Controlled Subsidiaries will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Persons conducted heretofore with respect to any of the foregoing (including,
without limitation, any Acquisition Proposal) and will take commercially reasonable actions to inform each of its Representatives, and each of the Persons referred to in Section 4.3(b), of the obligations undertaken in this Section 4.3 and to cause
each of its Representatives to comply with such obligations, and (B) it shall promptly request each Person, if any, that has executed a confidentiality agreement within the twenty-four months prior to the date hereof in connection with its
consideration of any Acquisition Proposal to return or destroy all confidential information heretofore furnished to such Person by or on behalf of it, any of its Subsidiaries (including Smith Partnership), and any of its Non-Controlled Subsidiaries;
and
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(iv) it will (A) notify Archstone promptly (but in any event
within 24 hours), orally and in writing, if it, any of its Subsidiaries (including Smith Partnership), any of its Non-Controlled Subsidiaries or any of its Representatives receive (1) an Acquisition Proposal or any amendment or change in any
previously received Acquisition Proposal, (2) any request for confidential or nonpublic information or data relating to, or for access to the properties, books or records of, any of its Subsidiaries (including Smith Partnership), or any of its
Non-Controlled Subsidiaries by any Person that has made, or to Smiths knowledge may be considering making, an Acquisition Proposal, or (3) any oral or written expression that any such activities, discussions or negotiations are sought to be
initiated or continued with it, and, as applicable, include in such notice the identity of the Person making such Acquisition Proposal, indication or request, the material terms of such Acquisition Proposal, indication or request and, if in writing,
shall promptly deliver to Archstone copies of any proposals, indications of interest, indication or request along with all other related documentation and
correspondence; and (B) will keep Archstone informed of the status and material terms of (including all changes to the status or material terms of) any such Acquisition Proposal, indication or request.
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(b) Notwithstanding Section 4.3(a), the Board of Directors of
Smith (including with respect to Smiths capacity as the sole general partner of Smith Partnership) shall not be prohibited from furnishing information to or entering into discussions or negotiations with, any Person that makes a bona fide
written Acquisition Proposal to the Board of Directors of Smith after the date hereof which was not invited, initiated, solicited or encouraged, directly or indirectly, by it, any of its Subsidiaries (including Smith Partnership), any of its
Non-Controlled Subsidiaries or any of its Representatives on or after the date hereof, if, and only to the extent that (i) a majority of the Board of Directors of Smith determines in good faith, after consultation with its financial advisors of
nationally recognized reputation and outside legal counsel, that such Acquisition Proposal is reasonably likely to result in a Superior Acquisition Proposal (as defined herein), (ii) Smith (including Smith Partnership) complies with all of its
obligations under this Agreement, (iii) prior to furnishing such information to, or entering into discussions or negotiations with, such Person, Smith provides written notice to Archstone to the effect that it is furnishing information to, or
entering into discussions with such Person and (iv) Smith enters into a confidentiality agreement with such Person the material terms of which are (without regard to the terms of such Acquisition Proposal) in all material respects no less favorable
to such party, and no less restrictive to the Person making such Acquisition Proposal, than those contained in the Confidentiality Agreement, dated April 19, 2001, between Smith and Archstone (the Confidentiality Agreement).
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(c) Notwithstanding anything to the contrary set forth in Section
4.3(a) or 4.3(b), in the event that an Acquisition Proposal constitutes a Superior Acquisition Proposal (as defined herein), nothing contained in this Agreement shall prohibit the Board of Directors of Smith from withdrawing, modifying, amending or
qualifying its recommendation of this Agreement and the Merger as required under Section 5.1(d) hereof and recommending such Superior Acquisition Proposal to its stockholders: (i) if but only if, Smith: (A) complies fully with this Section 4.3 and
(B) provides Archstone with at least three (3) business days prior written notice of its intent to withdraw, modify, amend or qualify its recommendation of this Agreement or the Merger, (ii) if, in the event that during such three (3) business
days Archstone makes a counter proposal to such Superior Acquisition Proposal (any such counter proposal being referred to in this Agreement as a Counter Proposal), Smiths Board of Directors in good faith, taking into account the
advice of its outside financial advisors of nationally recognized reputation, determines (A) that the Counter Proposal is not at least as favorable to Smiths stockholders as the Superior Acquisition Proposal, from a financial point of view, or
(B) the Counter Proposal is not at least as favorable generally to Smiths stockholders (taking into account all financial and strategic considerations and other relevant factors, including relevant legal, financial, regulatory and other
aspects of such proposals, and the conditions, prospects and time required for completion of such proposal) as the Superior Acquisition Proposal, and (iii) Smith shall have terminated this Agreement in accordance with Section 7.1(h).
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(d) For all purposes of this Agreement, Superior Acquisition
Proposal means a bona fide written proposal made by a third party to acquire, directly or indirectly, Smith (and/or Smith Partnership) pursuant to a tender or exchange offer, merger, share exchange, consolidation or sale of all or
substantially all of the assets of itself and its Subsidiaries (including Smith Partnership) or otherwise (i) on terms which a majority of Smiths Board of Directors determines in good faith, (A) after consultation with its financial advisors
of nationally recognized reputation, are superior, from a financial point of view, to Smiths stockholders to those provided for in the Merger and (B) to be more favorable generally to Smiths stockholders (taking into account all
financial and strategic considerations and other relevant factors, including relevant legal, financial, regulatory and other aspects of such proposals, and the conditions, prospects and time required for completion of such proposal) than the Merger,
(ii) for which financing, to the extent required, in the reasonable judgment of Smiths Board of Directors is capable of being obtained and (iii) which Smiths Board of Directors determines in good faith is reasonably capable of being
consummated.
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(e) Any disclosure that the Board of Directors of Smith may be
compelled to make with respect to the receipt of an Acquisition Proposal in order to comply with its duties to shareholders imposed by applicable law or Rule 14d-9 or 14e-2 of the Exchange Act will not constitute a violation of this Section
4.3.
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(f) Nothing in this Section 4.3 shall (i) permit Smith to
terminate this Agreement (except as expressly provided in Article 7) or (ii) affect any other obligations of Smith under this Agreement.
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(a) As promptly as practicable after execution of this Agreement,
(i) each of Smith and Archstone shall prepare and file with the SEC (with appropriate requests for confidential treatment, unless the parties hereto otherwise agree) under the Exchange Act, one or more joint proxy statements/prospectuses, forms of
proxies and information statements (such joint proxy statement(s)/prospectus(es) and information statements together with any amendments or supplements thereto, the Joint Proxy Statement) relating to the shareholder meeting of Smith and
the shareholder meeting of Archstone, the vote of the stockholders
of Smith with respect to the Merger and the shareholders of Archstone with respect to the Merger and the Archstone Merger (which shall include a vote for both the Primary Archstone Merger and the Alternative Archstone Merger), and the consent, if
any, of partners of Smith Partnership in connection with any required Smith Partner Approval and (ii) in connection with the clearance by the SEC of the Joint Proxy Statement, each of Archstone, New Archstone and Smith, if applicable, shall prepare
and file with the SEC under the Securities Act one or more registration statements on Form S-4 (such registration statements, together with any amendments or supplements thereto, the Form S-4), in which the Joint Proxy Statement will be
included, as one or more prospectuses in connection with the registration under the Securities Act of (A) the New Archstone Common Shares and New Archstone Preferred Shares to be distributed to the holders of Smith Common Stock and Smith Preferred
Shares in the Merger and to the holders of Archstone Shares of Beneficial Interest in the Archstone Merger and (B) the Archstone Surviving Subsidiary Class A Shares to be distributed to the holders of Smith OP Units in the Partnership Merger and the
corresponding New Archstone Common Shares that may be issued upon the redemption of such Archstone Surviving Subsidiary Class A Shares pursuant to the New Archstone Declaration of Trust. The respective parties will cause the Proxy Statement and the
Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. Each of Smith, Smith Partnership, Archstone and New Archstone shall furnish all
information about itself and its business and operations and all necessary financial information to the other as the other may reasonably request in connection with the preparation of the Joint Proxy Statement and the Form S-4. Each of Archstone,
New Archstone and Smith, if applicable, shall use its commercially reasonable efforts, and Smith will cooperate with Archstone, to have the Form S-4 declared effective by the SEC as promptly as practicable (including clearing the Proxy Statement
with the SEC). Each of Smith and Smith Partnership, on the one hand, and Archstone and New Archstone, on the other hand, agree promptly to correct any information provided by it for use in the Joint Proxy Statement and the Form S-4 if and to the
extent that such information shall have become false or misleading in any material respect, and each of the parties hereto further agrees to take all steps necessary to amend or supplement the Joint Proxy Statement and the Form S-4 and to cause the
Joint Proxy Statement and the Form S-4 as amended or supplemented to be filed with the SEC and to be disseminated to their respective stockholders and shareholders and partners, in each case as and to the extent required by applicable federal and
state securities laws. Each of Smith, Smith Partnership, Archstone and New Archstone agrees that the information provided by it for inclusion in the Joint Proxy Statement or the Form S-4 and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the respective meetings of stockholders and shareholders of Smith and Archstone and at the time of the respective taking of consents, if any, of partners of Smith Partnership, will not include an untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Archstone and New Archstone will advise and
deliver copies (if any) to Smith, promptly after it receives notice thereof, of any request by the SEC for amendment of the Joint Proxy Statement or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional
information (regardless of whether such requests relate to Archstone or New Archstone, on the one hand, or Smith or Smith Partnership, on the other hand), and Archstone and New Archstone shall promptly notify Smith, and Smith shall promptly notify
Archstone, if applicable, of (i) the time when the Form S-4 has become effective, (ii) the filing of any supplement or amendment thereto, (iii) the issuance of any stop order, and (iv) the suspension of the qualification and registration of the New
Archstone Common Shares, New Archstone Preferred Shares and Archstone Surviving Subsidiary Shares of Beneficial Interest issuable in connection with the Mergers or the Archstone Merger.
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(b) Each of Smith, Smith Partnership, Archstone and New Archstone
shall use its commercially reasonable efforts to timely mail the joint proxy statement/prospectus contained in the Form S-4 to its shareholders. It shall be a condition to the mailing of the joint proxy statement/prospectus that (i) Archstone shall
have received a comfort letter from Arthur Andersen LLP, independent public accountants for Smith and Smith Partnership, of the kind contemplated by the Statement of
Auditing Standards with respect to Letters to Underwriters promulgated by the American Institute of Certified Public Accountants (the AICPA Statement), dated as of the date on which the Form S-4 shall become effective and as of the
Effective Time of the Merger, addressed to Archstone, in form and substance reasonably satisfactory to Archstone, concerning the procedures undertaken by Arthur Andersen LLP with respect to the financial statements and information of Smith, Smith
Partnership and their Subsidiaries and Non-Controlled Subsidiaries contained in the Form S-4 and the other matters contemplated by the AICPA Statement and otherwise customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this Agreement and (ii) Smith shall have received a comfort letter from KPMG LLP, independent public accountants for Archstone, of the kind contemplated by the
AICPA Statement, dated as of the date on which the Form S-4 shall become effective and as of the Effective Time of the Merger, addressed to Smith and Smith Partnership, in form and substance reasonably satisfactory to Smith, concerning the
procedures undertaken by KPMG LLP with respect to the financial statements and information of Archstone, New Archstone and their Subsidiaries contained in the Form S-4 and the other matters contemplated by the AICPA Statement and otherwise customary
in scope and substance for letters delivered by independent public accountants in connection with transactions such as those contemplated by this Agreement. Each of Smith and Smith Partnership also shall use commercially reasonable efforts to cause
Hogan & Hartson L.L.P. or other counsel reasonably satisfactory to Archstone to have delivered an opinion, which opinion shall be filed as an exhibit to the Form S-4, as to the federal income tax matters described in clause (i) of Section 6.2(d)
and Section 6.3(e) and such other federal income tax matters as are required to be addressed in the Form S-4 and the Joint Proxy Statement under the applicable rules of the SEC. Archstone shall use commercially reasonable efforts to cause Mayer,
Brown & Platt or other counsel reasonably satisfactory to Smith to have delivered an opinion, which opinion shall be filed with the SEC as an exhibit to the Form S-4, as to the federal income tax matters described in clause (ii) of Section
6.2(d), Section 6.2(e) and Section 6.3(d) and such other federal income tax matters as are required to be addressed in the Form S-4 and the Joint Proxy Statement under the applicable rules of the SEC. Such opinions shall contain customary
exceptions, assumptions and qualifications and be based upon customary representations.
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(c) Archstone will duly call and give notice of and, as soon as
practicable following the date of this Agreement (but in no event sooner than 20 business days following the date the Joint Proxy Statement is mailed to the shareholders of Archstone), convene and hold a meeting of its shareholders (the
Archstone Shareholders Meeting) for the purpose of obtaining the Archstone Shareholder Approvals. Archstone shall, through its Board of Trustees, recommend to its shareholders approval of this Agreement, the Merger, the Archstone Merger,
the Proposed Archstone Charter Amendments and the transactions contemplated by this Agreement.
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(d) Smith will duly call and give notice of and, as soon as
practicable following the date of this Agreement (but in no event sooner than 20 business days following the date the Joint Proxy Statement is mailed to the shareholders of Smith), convene and hold a meeting of its shareholders (the Smith
Stockholders Meeting) for the purpose of obtaining the Smith Stockholder Approvals. Smith shall, through its Board of Directors, recommend to its shareholders approval of this Agreement, the Merger and the transactions contemplated by this
Agreement and include such recommendation in the Proxy Statement; provided, however, that prior to the Smith Stockholders Meeting, such recommendation may be withdrawn, modified, amended or qualified if and only to the extent permitted
by Section 4.3(c) hereof.
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(e) Archstone and Smith shall use their commercially reasonable
efforts to convene their respective shareholder meetings on the same day, which day, subject to the provisions of Sections 5.1(c), 5.1(d) and 5.3, shall be a day not later than 60 days after the date the Joint Proxy Statement is mailed.
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(f) If on the date for the Archstone Shareholders Meeting and
Smith Stockholders Meeting established pursuant to Section 5.1(e) of this Agreement, either Archstone or Smith has not received duly executed proxies for a sufficient number of votes to approve the Merger, then both parties shall recommend the
adjournment of their respective shareholders meetings until one or more dates not later than the date 10 days after the originally scheduled date of the shareholders meetings.
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(g) Smith shall request written consents for approval by the
limited partners of Smith Partnership of each of the matters described in the definition of Smith Partner Approvals. Smith shall vote in favor of or consent to, as applicable, each of the matters described in the definition of Smith Partner
Approvals, to the extent approval thereof is required by the Smith Partnership Agreement. Smith shall recommend to the limited partners of Smith Partnership that they approve such matters. Smith shall execute its written consent to each of the
matters described in the definition of Smith Partner Approvals, on the 20th business day after mailing of the Joint Proxy Statement to holders of the Smith OP Units and Smith Preferred OP Units.
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(a) Subject to the terms and conditions herein provided, Smith and
Smith Partnership shall: (i) use commercially reasonable efforts to cooperate with Archstone (or following the Archstone Merger, New Archstone) in (A) determining which filings are required to be made prior to the Effective Time of the Merger with,
and which consents, approvals, permits or authorizations are required to be obtained prior to the Effective Time of the Merger from, governmental or regulatory authorities of the United States, the several states and foreign jurisdictions and any
third parties in connection with the execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, including, without limitation, any filing under the HSR Act, and (B) timely making all such filings and
timely seeking all such consents, approvals, permits and authorizations; (ii) use commercially reasonable efforts (other than the payment of money which is not contractually required to be paid) to obtain in writing any consents required from third
parties to effectuate the Mergers, such consents to be in form reasonably satisfactory to each of the parties; (iii) use best efforts to obtain the Smith Stockholder Approvals and the Smith Partner Approvals; and (iv) use commercially reasonable
efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If at any time after the
Effective Time of the Merger any further action is necessary or desirable to carry out the purpose of this Agreement, Smith and Smith Partnership shall take all such necessary action.
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(b) Subject to the terms and conditions herein provided, Archstone
and New Archstone shall: (i) use commercially reasonable efforts to cooperate with Smith and Smith Partnership in (A) determining which filings are required to be made prior to the Effective Time of the Merger with, and which consents, approvals,
permits or authorizations are required to be obtained prior to the Effective Time of the Merger from, governmental or regulatory authorities of the United States, the several states and foreign
jurisdictions and any third parties in connection with the execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, including, without limitation, any filing under the HSR Act, and (B) timely making all
such filings and timely seeking all such consents, approvals, permits and authorizations; (ii) use commercially reasonable efforts (other than the payment of money which is not contractually required to be paid) to obtain in writing any consents
required from third parties to effectuate the Archstone Merger and the Mergers, such consents to be in form reasonably satisfactory to each of the parties; (iii) use best efforts to obtain the Archstone Shareholder Approvals; and (iv) use
commercially reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If at
any time after the Effective Time of the Merger any further action is necessary or desirable to carry out the purpose of this Agreement, Archstone and New Archstone shall take all such necessary action.
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(c) Smith and Smith Partnership shall use commercially reasonable
efforts to obtain from Arthur Andersen LLP access to all work papers relating to audits of Smith and Smith Partnership performed by Arthur Andersen LLP, and the continued cooperation of Arthur Andersen LLP with regard to the preparation of
consolidated financial statements for the Surviving Trust and the Surviving Entity.
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(d) Smith and Smith Partnership shall give prompt notice to
Archstone and New Archstone, and Archstone and New Archstone shall give prompt notice to Smith and Smith Partnership, (i) if such party becomes aware that any representation or warranty made by it contained in this Agreement that is qualified as to
materiality becomes untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becomes untrue or inaccurate in any material respect or (ii) of the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
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(a) Each of Archstone and New Archstone shall use its commercially
reasonable efforts before the effective time of the Archstone Merger to cause the Archstone Merger to qualify as one or more reorganizations under the provisions of Section 368(a)(1)(F) of the Code and to obtain the opinions of counsel referred to
in Sections 6.2(e) and 6.3(e).
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(b) Each of Archstone, New Archstone and Smith shall use its
commercially reasonable efforts before and after the Effective Time of the Merger to cause the Merger to qualify as a reorganization under the provisions of Sections 368(a) of the Code and the Partnership Merger to be treated as described in Section
1.4(b) and Sections 6.2(e) and 6.3(e) and to obtain with respect to the Mergers the opinions of counsel referred to in Sections 6.2(e) and 6.3(e).
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(c) Archstone Surviving Subsidiary shall elect pursuant to
Treasury Regulation § 301.7701-3(c)(1)(i) to be treated either as a domestic eligible entity with a single owner electing to be disregarded as a separate entity or as a partnership, as applicable, effective not later than one day prior to the
Merger Closing Date and shall file not later than one day prior to the Merger Closing Date, a properly completed and executed Form 8832 with the Internal Revenue Service to effect such election.
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(a) Benefit Plans. After the
Effective Time of the Merger, all employees of Smith, the Smith Subsidiaries, any Smith Non-Controlled Subsidiaries and any Subsidiary thereof who are employed by the Surviving Entity or any of the Surviving Entitys Subsidiaries shall be
eligible to participate in substantially the same manner as other similarly situated employees of the Surviving Entity or any of the Surviving Entitys Subsidiaries who were formerly employees of Archstone in any Pension Plan or Welfare Plan
sponsored or maintained by the Surviving Entity or the Surviving Trust after the Effective Time of the Merger (the Survivor Plans) or, if Archstone determines it is not practicable for such employees to do so immediately after the
Effective Time of the Merger, then such employees shall continue to be eligible to participate in Employee Plans which constitute Pension Plans or Welfare Plans which are continued by the Surviving Entity or the Surviving Trust until such time as
Archstone determines it is practicable to include them in the Survivor Plans as contemplated above. With respect to each Survivor Plan, service with Smith or any Smith Subsidiary (as applicable) and the predecessor of any of them shall be included
for purposes of determining eligibility to participate, vesting (if applicable) and determination of the level of entitlement to (other than benefit accrual under a defined benefit plan), benefits under such Survivor Plans to the extent such service
was taken into account for similar purposes under a corresponding Employee Plan. Archstone shall, or shall cause its Subsidiaries to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements of the Survivor Plan which is applicable to all employees of Smith, the Smith Subsidiaries, any Smith Non-Controlled Subsidiaries or any Subsidiary thereof who are employed by the Surviving Entity under any
Welfare Plan that such employees may be eligible to participate in after the Effective Time of the Merger, other than limitations or waiting periods that are in effect with respect to such employees as of the Effective Time of the Merger under a
Corresponding Employee Plan and that have not been satisfied as of the Effective Time of the Merger, and (ii) provide each such employee of Smith, the Smith Subsidiaries, any Smith Non-Controlled Subsidiaries or any Subsidiary thereof who is
employed by the Surviving Entity or any of the Surviving Entitys Subsidiaries with credit for any co-payments and deductibles paid during the plan year prior to the Effective Time of the Merger under a corresponding Employer Plan for purposes
of satisfying any applicable deductible or out-of-pocket requirements under any Survivor Plan which is a Welfare Plan that such employees are eligible to participate in after the Effective Time of the Merger.
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(b) Stock Option and Restricted Stock Plans.
The stock option plans or programs of Smith and the restricted stock plans or programs of Smith shall be discontinued as of the Effective Time of the Merger.
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(c) Smith Stock Options. Immediately
prior to the date on which the Smith stockholders approve the Merger, each outstanding Smith Stock Option shall, effective as of such time, become fully vested and exercisable to the extent not already so vested and exercisable and, to the extent
not otherwise provided in
the applicable option agreement as permitted by applicable law, each such Smith Stock Option shall be automatically converted at the Effective Time of the Merger into an option (a Substituted Option) to purchase a number of New Archstone
Common Shares equal to the number of shares of Smith Common Stock that could have been purchased (assuming full vesting) under such Smith Stock Option multiplied by 1.975 (rounded down to the nearest whole number of shares of Smith Common Stock) at
an exercise price per New Archstone Common Share equal to the per-share option exercise price specified in the Smith Stock Option divided by 1.975 (rounded up to the nearest whole cent). Such Substituted Option shall otherwise be subject to the same
terms and conditions as such Smith Stock Option. For purposes of expiration and otherwise, the date of grant of the Substituted Option shall be the date on which the corresponding Smith Stock Option was granted. As soon as practicable after the date
hereof and subject to applicable law, Archstone shall offer to purchase, subject to consummation of the Mergers, all outstanding Smith Stock Options from the holders thereof for an amount in cash in respect thereof equal to the product of (i) the
excess, if any, of (A) $49.48 over (B) the exercise price of such Smith Stock Option and (ii) the number of shares of Smith Common Stock subject thereto. If the holder of any such Smith Stock Option tenders such option prior to 11:59 p.m., Mountain
Time, on the second business day following the Effective Time of the Merger, then within seven business days after the Effective Time of the Merger, Archstone shall, subject to reduction for required withholding taxes, pay to each such tendering
former holder of Smith Stock Options the purchase price thereof. As promptly as reasonably practicable after the Effective Time of the Merger, New Archstone shall issue to each holder of an outstanding Smith Stock Option a document evidencing the
foregoing assumption by New Archstone. In respect of each Smith Stock Option assumed by New Archstone, but not tendered for cash, and converted into a substituted option, and the New Archstone Common Shares underlying such Substituted Option, New
Archstone shall, as soon as practicable after the Effective Time of the Merger, file and keep current a Registration Statement on Form S-8 or other appropriate registration statement for as long as Substituted Options remain outstanding.
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(d) Smith Stock Rights. All Smith
Stock Rights set forth in Schedule 5.8(d) of the Smith Disclosure Letter shall, by virtue of this Agreement and without further action of Smith, Archstone or the holder of such Smith Stock Rights, to the extent required in the plan, agreement
or instrument pursuant to which such shares of restricted stock were granted, vest and become free of all restrictions immediately prior to the Effective Time of the Merger and shall be converted into the Merger Consideration upon the Effective Time
of the Merger pursuant to Section 1.12.
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(a) From and after the Effective Time of the Merger, the Surviving
Trust and the Surviving entity (collectively, the Indemnifying Parties) shall provide exculpation and indemnification for each individual who is now or has been at any time prior to the date hereof or who becomes prior to the Effective
Time of the Merger, an officer or director of Smith or any Smith Subsidiary (the Indemnified Parties) which is the same as the exculpation and indemnification provided to the Indemnified Parties by Smith and the Smith Subsidiaries
immediately prior to the Effective Time of the Merger in its charter, Bylaws or in its partnership, operating or similar agreement, as in effect on the date hereof.
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(b) In addition to the rights provided in Section 5.9(a) above, in
the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any action by or on behalf of any or all security holders of Smith, New Archstone, or
Archstone Surviving Subsidiary or any Smith Subsidiary or Archstone Subsidiary, or by or in the right of Smith, Archstone, New Archstone, the Surviving Trust, the Surviving Entity or Archstone Surviving Subsidiary or any Smith Subsidiary or
Archstone Subsidiary, or any claim, action, suit, proceeding or investigation in which any individual who is now, or has been, at any time prior to the date hereof, or who becomes prior to the Effective Time of the Merger, an officer, employee or
director of Smith or any Smith Subsidiary (the Indemnification Parties) is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was an
officer,
employee or director of Smith or any of the Smith Subsidiaries or any action or omission by such individual in his capacity as a director, or (ii) this Agreement or the transactions contemplated by this Agreement, whether in any case asserted or
arising before or after the Effective Time of the Merger, the Indemnifying Parties shall, from and after the Effective Time of the Merger, indemnify and hold harmless, as and to the full extent permitted by applicable law, each Indemnification Party
against any losses, claims, liabilities, expenses (including reasonable attorneys fees and expenses), judgments, fines and amounts paid in settlement in accordance herewith in connection with any such threatened or actual claim, action, suit,
proceeding or investigation. Any Indemnification Party proposing to assert the right to be indemnified under this Section 5.9(b) shall, promptly after receipt of notice of commencement of any action against such Indemnification Party in respect of
which a claim is to be made under this Section 5.9(b) against the Indemnifying Parties, notify the Indemnifying Parties of the commencement of such action, enclosing a copy of all papers served; provided, however, that the failure to
provide such notice shall not affect the obligations of the Indemnifying Parties except to the extent such failure to notify materially prejudices the Indemnifying Parties ability to defend such claim, action, suit, proceeding or
investigation; and provided further, however, that, in the case of any action pending at the Effective Time of the Merger, notification pursuant to this Section 5.9(b) shall be received by Archstone prior to such Effective Time.
If any such action is brought against any of the Indemnification Parties and such Indemnification Parties notify the Indemnifying Parties of its commencement, the Indemnifying Parties will be entitled to participate in and, to the extent that they
elect by delivering written notice to such Indemnification Parties promptly after receiving notice of the commencement of the action from the Indemnification Parties, to assume the defense of the action and after notice from the Indemnifying Parties
to the Indemnification Parties of their election to assume the defense, the Indemnifying Parties will not be liable to the Indemnification Parties for any legal or other expenses except as provided below. If the Indemnifying Parties assume the
defense, the Indemnifying Parties shall have the right to settle such action without the consent of the Indemnification Parties; provided, however, that the Indemnifying Parties shall be required to obtain such consent (which consent
shall not be unreasonably withheld) if the settlement includes any admission of wrongdoing on the part of the Indemnification Parties or any decree or restriction on the Indemnification Parties; provided further, however, that no
Indemnifying Parties, in the defense of any such action shall, except with the consent of the Indemnification Parties (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnification Parties of a release from all liability with respect to such action. The Indemnification Parties will have the right to employ their own counsel
in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such Indemnification Parties unless (i) the employment of counsel by the Indemnification Parties has been authorized in writing by the
Indemnifying Parties, (ii) the Indemnification Parties have reasonably concluded (based on written advice of counsel to the Indemnification Parties) that there may be legal defenses available to them that are different from or in addition to and
inconsistent with those available to the Indemnifying Parties, (iii) a conflict or potential conflict exists (based on written advice of counsel to the Indemnification Parties) between the Indemnification Parties and the Indemnifying Parties (in
which case the Indemnifying Parties will not have the right to direct the defense of such action on behalf of the Indemnification Parties) or (iv) the Indemnifying Parties have not in fact employed counsel to assume the defense of such action within
a reasonable time after receiving notice of the commencement of the action from the Indemnification Parties, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the Indemnifying Parties
and shall promptly be paid by each Indemnifying Party as they become due and payable in advance of the final disposition of the claim, action, suit, proceeding or investigation to the fullest extent and in the manner permitted by law;
provided, however, that in no event shall any contingent fee arrangement be considered reasonable. Notwithstanding the foregoing, the Indemnifying Parties shall not be obligated to advance any expenses or costs prior to receipt of an
undertaking by or on behalf of the Indemnification Party to repay any expenses advanced if it shall ultimately be determined that the Indemnification Party is not entitled to be indemnified against such expense. It is understood that the
Indemnifying Parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other
charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such Indemnification Parties unless (a) the employment of more than one counsel has been authorized in writing by the Indemnifying Parties, (b)
any of the Indemnification Parties have reasonably concluded (based on written advice of counsel to the Indemnification Parties) that there may be legal defenses available to them that are different from or in addition to and inconsistent with those
available to other Indemnification Parties or (c) a conflict or potential conflict exists (based on written advice of counsel to the Indemnification Parties) between any of the Indemnification Parties and the other Indemnification Parties, in each
case of which the Indemnifying Parties shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels. Notwithstanding anything to the contrary set forth in this Agreement, the Indemnifying Parties (i) shall not be
liable for any settlement effected without their prior written consent and (ii) shall not have any obligation hereunder to any Indemnification Party to the extent that a court of competent jurisdiction shall determine in a final and non-appealable
order that such indemnification is prohibited by applicable law. In the event of a final and non-appealable determination by a court that any payment of expenses is prohibited by applicable law, the Indemnification Parties shall promptly refund to
the Indemnifying Parties the amount of all such expenses theretofore advanced pursuant hereto.
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(c) At or prior to the Effective Time of the Merger, Archstone and
New Archstone shall purchase directors and officers liability insurance covering acts or omissions occurring prior to the Effective Time of the Merger for a period of six years with respect to those individuals who are currently covered
by Smiths directors and officers liability insurance policy on terms with respect to such coverage and amount, taken together, no less favorable to Smiths directors and officers currently covered by such insurance than those
of such policy in effect on the date hereof.
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(d) This Section 5.9 is intended for the irrevocable benefit of,
and to grant third-party rights to, the Indemnified Parties, the Indemnification Parties and their successors, assigns and heirs and shall be binding on all successors and assigns of Archstone and New Archstone. Each of the Indemnified Parties and
the Indemnification Parties shall be entitled to enforce the covenants contained in this Section 5.9 and Archstone and New Archstone acknowledge and agree that each Indemnified Party and Indemnification Party would suffer irreparable harm and that
no adequate remedy at law exists for a breach of such covenants and such Indemnified Party or such Indemnification Party shall be entitled to injunctive relief and specific performance in the event of any breach of any provision in this Section
5.9.
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(e) If the Surviving Trust or the Surviving Entity or any of their
respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties
and assets to any Person, then, and in each such case the successors and assigns of such entity shall assume the obligations set forth in this Section 5.9, which obligations are expressly intended to be for the irrevocable benefit of, and shall be
enforceable by, each director and officer covered hereby.
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(a) Provided that Smith delivers to New Archstone the Section 16
Information with respect to Smith prior to the Effective Time of the Merger, the Board of Trustees of New Archstone, or a committee thereof consisting of Non-Employee Directors (as such term is defined for purposes of Rule 16b-3(d) under the
Exchange Act), shall adopt a resolution in advance of the Effective Time of the Merger providing that the receipt by the Smith Insiders of the New Archstone Common Shares in exchange for shares of Smith Common Stock, New Archstone Preferred Shares
in exchange for Smith Preferred Stock and of options to purchase New Archstone Common Shares upon assumption and conversion of Smith Stock Options, in
each case pursuant to the transactions contemplated hereby and to the extent such securities are listed in Section 16 Information, are intended to be exempt from liability pursuant to Rule 16b-3 under the Exchange Act.
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(b) For purposes of this Section 5.16, Section 16
Information shall mean information accurate in all respects regarding the Smith Insiders and the number of shares of Smith Common Stock, Smith Preferred Stock or other Smith equity securities deemed to be beneficially owned by each such Smith
Insider and expected to be exchanged for New Archstone Common Shares or New Archstone Preferred Shares in connection with the Merger.
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(c) For purposes of this Section 5.16, Smith
Insiders shall mean those officers and directors of Smith who are subject to the reporting requirements of Section 16(a) of the Exchange Act who are listed in the Section 16 Information.
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(a) Shareholder and Smith Partner Approvals.
The Smith Stockholder Approvals, the Archstone Shareholder Approvals and the Smith Partner Approvals shall have been obtained; provided, however, that, in the case of an Archstone Merger effectuated in the form of the
Alternative Archstone Merger, the Archstone Shareholder Approvals shall not include the approval by the holders of Archstone Common Shares of the Proposed Archstone Charter Amendments.
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(b) HSR Act. The waiting period (and
any extension thereof) applicable to the Archstone Merger, the Partnership Merger, the Merger or the transactions contemplated by the Stock Purchase Agreement or the Recapitalization Agreement under the HSR Act, if applicable to the Archstone
Merger, the Partnership Merger, the Merger or the transactions contemplated by the Stock Purchase Agreement or the Recapitalization Agreement, shall have expired or been terminated.
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(c) Listing of Shares. The NYSE
shall have approved for listing the New Archstone Common Shares, New Archstone Series A Preferred Shares, New Archstone Series C Preferred Shares and New Archstone Series D Preferred Shares to be issued in the Merger, subject to official notice of
issuance, prior to the Effective Time of the Merger.
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(d) Form S-4. The Form S-4 shall
have become effective under the Securities Act and shall not be the subject of any stop order or proceedings by the SEC seeking a stop order.
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(e) No Injunctions or Restraints.
No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Archstone Merger, the Mergers or any of
the other transactions contemplated hereby shall be in effect.
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(f) Blue Sky Laws. Archstone
Surviving Subsidiary and New Archstone shall have received all state securities or blue sky permits and other authorizations necessary to issue the Archstone Surviving Subsidiary Common Shares, the Archstone Surviving Subsidiary
Preferred Shares, the New Archstone Common Shares and the New Archstone Preferred Shares issuable in the Archstone Merger and the Mergers.
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(a) Representations and Warranties.
Each of the representations and warranties of Smith and Smith Partnership set forth in this Agreement, disregarding all qualifications and exceptions contained therein relating to materiality or Smith Material Adverse Effect, shall be true and
correct as of the date of this Agreement and as of the Merger Closing Date as though made on and as of the Merger Closing Date (except to the extent that such representations and warranties are expressly limited by their terms to another date, in
which case such representations and warranties shall be true and correct as of such other date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be
expected to have a Smith Material Adverse Effect; and New Archstone shall have received a certificate (which certificate may be qualified by knowledge to the same extent as the representations and warranties of Smith and Smith
Partnership contained herein are so qualified) signed on behalf of Smith by the chief executive officer or the chief financial officer of Smith, in such capacity, to such effect.
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(b) Performance of Obligations of Smith and Smith
Partnership. Smith and Smith Partnership shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Effective Time of the Merger, and Archstone
shall have received a certificate signed on behalf of Smith by the chief executive officer or the chief operating officer of Smith, in such capacity, to such effect.
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(c) Material Adverse Effect. Since
the date of this Agreement, there shall have been no Smith Material Adverse Effect and Archstone shall have received a certificate of the chief executive officer or chief operating officer of Smith, in such capacity, certifying to such
effect.
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(d) Tax Opinions Relating to REIT Status and Partnership
Status. New Archstone shall have received (i) an opinion of Hogan & Hartson L.L.P. or other counsel to Smith reasonably satisfactory to Archstone, dated as of the Merger Closing Date, to the effect that, (w) commencing
with its taxable year ended December 31, 1994 through and including its taxable year ending as of the Merger Closing Date, Smith was organized and has operated in conformity with the requirements for qualification as a REIT under the Code (with
customary exceptions, assumptions and qualifications and based on customary representations); and (x) Smith Partnership has been since June 30, 1994 through and including its taxable year ending as of the Merger Closing Date treated for federal
income tax purposes as a partnership and not as a corporation or association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary representations); and (ii) an opinion of Mayer, Brown &
Platt or other counsel to Archstone reasonably satisfactory to Smith, dated as of the Merger Closing Date, to the effect that, [I] in the event the Primary Archstone Merger is consummated, commencing with Archstones taxable year ended December
31, 1994, until the time the Election is effective, Archstone was organized and has operated in conformity with the requirements for qualification as a REIT under the Code and that New Archstones organization and proposed method of operation
will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year ending
December 31, 2001 (with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in clause (i) above) or (II) in the event the Alternative
Archstone Merger is consummated, (1) commencing with Archstones taxable year ended December 31, 1994, until the time that the ACS Merger is effective, Archstone was organized and has operated in conformity with the requirements for
qualification as a REIT under the Code, (2) that New Archstones organization and proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year
ending December 31, 2001, and (3) that commencing with Archstone REITs formation until the time of the Election, Archstone REIT was treated for federal income tax purposes as an entity disregarded as a separate entity and not as a corporation
or an association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in clause (i) above).
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(e) Tax Opinion Relating to the Mergers.
New Archstone shall have received an opinion dated the Merger Closing Date from Mayer, Brown & Platt or other counsel reasonably satisfactory to Archstone, based upon customary certificates and letters, which letters and certificates
are to be in a form to be agreed upon by the parties and dated the Merger Closing Date, and with customary exceptions, assumptions and qualifications, to the effect that (i) if the Merger is consummated in accordance with the terms of this
Agreement, the Merger will qualify as a reorganization under the provisions of Section 368(a) of the Code, (ii) if the Archstone Merger is consummated in accordance with the terms of this Agreement, the Archstone Merger will qualify as one or more
reorganizations under the provisions of Section 368(a)(1)(F) of the Code and (iii) the Partnership Merger will not result in the recognition of taxable gain or loss at the time of the Partnership Merger to a holder of Smith OP Units or Smith
Preferred OP Units, as applicable, (A) who is a U.S. person (as defined for purposes of Sections 897 and 1445 of the Code); (B) who does not exercise its redemption right with respect to Archstone Class A-1 Shares under the Archstone
Surviving Subsidiary Declaration of Trust on a date sooner than the date two years after the Effective Time of the Partnership Merger; (C) who does not receive a cash distribution in connection with the Partnership Merger (or a deemed cash
distribution resulting from relief or a deemed relief from liabilities, including as a result of the prepayment of indebtedness of Smith Partnership in connection with or following the Partnership Merger) in excess of such holders adjusted
basis in its Smith OP Units or its Smith Preferred OP Units, as applicable, at the time of the Partnership Merger); (D) who is not required to recognize gain by reason of the application of Section 707(a) of the Code and the Treasury Regulations
thereunder to the Partnership Merger, with the result that the Partnership Merger is treated as part of a disguised sale by reason of any transactions undertaken by Smith Partnership prior to or in connection with the Partnership Merger
or any debt of Smith Partnership that is assumed or repaid in connection with the Partnership Merger; and (E) whose at risk amount does not fall below zero as a result of the Mergers.
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(f) Comfort Letter.
Archstone shall have received a comfort letter from Arthur Andersen LLP, as described in Section 5.1(b).
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(g) NCS Agreements. The transactions
contemplated by the NCS Agreements shall have been consummated in the manner contemplated by such NCS Agreements.
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(h) Shareholders Agreement. Each of
Robert H. Smith and Robert P. Kogod shall have entered into the Shareholders Agreement.
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(a) Representations and Warranties.
Each of the representations and warranties of Archstone and New Archstone set forth in this Agreement, disregarding all qualifications and exceptions contained therein relating to materiality or Archstone Material Adverse Effect, shall be true
and correct as of the date of this Agreement and as of the Merger Closing Date as though made on and as of the Merger Closing
Date (except to the extent that such representations and warranties are expressly limited by their terms to another date, in which case such representations and warranties shall be true and correct as of such other date), except where the failure of
such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect; and Smith shall have received a certificate (which certificate may be
qualified by knowledge to the same extent as the representations and warranties of Archstone and New Archstone contained herein are so qualified) signed on behalf of Archstone and New Archstone by the chief executive officer or the chief
financial officer of Archstone and New Archstone, in such capacity, to such effect.
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(b) Performance of Obligations of Archstone and New
Archstone. Archstone and New Archstone shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Effective Time of the Merger, and Smith shall
have received a certificate of Archstone and New Archstone signed on behalf of Archstone and New Archstone by a duly authorized executive officer of Archstone and New Archstone, in such capacity, to such effect.
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(c) Material Adverse Effect. Since
the date of this Agreement, there shall have been no Archstone Material Adverse Effect and Smith shall have received a certificate of a duly authorized executive officers of Archstone and New Archstone, in such capacity, certifying to such
effect.
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(d) Tax Opinions Relating to REIT Status, Archstone Merger and
Partnership Status. Smith shall have received the opinion of Mayer, Brown & Platt or other counsel to Archstone reasonably satisfactory to Smith, dated as of the Merger Closing Date, that, (i) [I] in the event the
Primary Archstone Merger is consummated commencing with its taxable year ended December 31, 1994 until the time of the Election is effective, Archstone was organized and has operated in conformity with the requirements for qualification as a REIT
under the Code and that New Archstones organization and proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year ending December 31, 2001
(with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in Section 6.2(d) of this Agreement), or (II) in the event the Alternative
Archstone Merger is consummated, (1) commencing with Archstones taxable year ended December 31, 1994, until the time that the ACS Merger is effective, Archstone was organized and has operated in conformity with the requirements for
qualification as a REIT under the Code, (2) that New Archstones organization and proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year
ending December 31, 2001, and (3) that commencing with Archstone REITs formation until the time of the Election, Archstone REIT was treated for federal income tax purposes as an entity disregarded as a separate entity and not as a corporation
or an association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in clause (i) above); (ii) if the
Archstone Merger is consummated in accordance with the terms of this Agreement, the Archstone Merger will qualify as one or more reorganizations under the provisions of Section 368(a)(1)(F) of the Code (with customary exceptions, assumptions and
qualifications and based upon customary representations), and (iii) immediately prior to, and at the time of, the Partnership Merger, Archstone Surviving Subsidiary is and will be treated for federal income tax purposes pursuant to Treasury
Regulation §301.7701-3 as a partnership or an entity disregarded as a separate entity and not as a corporation or association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary
representations).
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(e) Tax Opinion Relating to the Mergers.
Smith shall have received an opinion dated the Merger Closing Date from Hogan & Hartson L.L.P. or other counsel reasonably satisfactory to Smith, based upon customary certificates and letters, which letters and certificates are to be
in a form to be agreed upon by the parties and dated the Merger Closing Date, and with customary assumptions, exceptions and qualifications, to the effect that (i) if the Merger is consummated in accordance with the terms of this Agreement, the
Merger will qualify as a reorganization under the provisions of Section 368(a) of the Code and (ii) the Partnership Merger will not result in the recognition of taxable gain or loss at the time of the
Partnership Merger to a holder of Smith OP Units or Smith Preferred OP Units, as applicable, (A) who is a U.S. person (as defined for purposes of Sections 897 and 1445 of the Code); (B) who does not exercise its redemption right with
respect to Archstone Class A-1 Shares under the Archstone Surviving Subsidiary Declaration of Trust on a date sooner than the date two years after the Effective Time of the Partnership Merger; (C) who does not receive a cash distribution in
connection with the Partnership Merger (or a deemed cash distribution resulting from relief or a deemed relief from liabilities, including as a result of the prepayment of indebtedness of Smith Partnership in connection with or following the
Partnership Merger) in excess of such holders adjusted basis in its Smith OP Units or its Smith Preferred OP Units, as applicable, at the time of the Partnership Merger; (D) who is not required to recognize gain by reason of the application of
Section 707(a) of the Code and the Treasury Regulations thereunder to the Partnership Merger, with the result that the Partnership Merger is treated as part of a disguised sale by reason of any transactions undertaken by Smith
Partnership prior to or in connection with the Partnership Merger or any debt of Smith Partnership that is assumed or repaid in connection with the Partnership Merger; and (E) whose at risk amount does not fall below zero as a result of
the Mergers.
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(f) Comfort Letter.
Smith and Smith Partnership shall have received a comfort letter from KPMG LLP, as described in Section 5.1 (b).
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(g) Entity Election. Archstone
Surviving Subsidiary shall have properly filed with the Internal Revenue Service, and the Internal Revenue Service shall have received, Archstone Surviving Subsidiarys election on Form 8832 to be treated as either a domestic eligible entity
with a single owner electing to be disregarded as a separate entity or a partnership, as applicable, as described in Section 5.4(b).
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(h) Archstone Merger. The Archstone
Merger shall have been completed in the manner contemplated by this Agreement not less than two (2) days prior to the Merger Closing Date.
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(i) Asset Restructuring. The Asset
Restructuring of Archstone Surviving Subsidiary shall have been completed and neither New Archstone nor Archstone Surviving Subsidiary shall not own any assets that, if the day following the Merger Closing Date were the last day of a calendar
quarter, would cause New Archstone to fail to satisfy one or more of the asset requirements applicable to REITs set forth in Section 856(c)(4)(B) of the Code (determined without regard to any curative period that otherwise might be available under
such Section of the Code).
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(j) Shareholders Agreement. Each of
the Surviving Trust and the Surviving Entity shall have entered into the Shareholders Agreement.
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(a) by mutual written consent duly authorized by the Board of
Trustees of Archstone (or following the Archstone Merger, New Archstone) and the Board of Directors of Smith;
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(b) by Archstone (or following the Archstone Merger, New
Archstone), (i) upon a breach of or failure to perform any covenant, obligation or agreement on the part of Smith or Smith Partnership set forth in this Agreement, or (ii) upon a breach of or in the event that any representation or warranty of Smith
or Smith Partnership is or shall have become untrue, in either case such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as the case may be, would be incapable of being satisfied by March 31, 2002 (or as otherwise
extended);
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(c) by Smith, (i) upon a breach of or failure to perform any
covenant, obligation or agreement on the part of Archstone or New Archstone set forth in this Agreement, or (ii) upon a breach of or in the event
that any representation or warranty of Archstone or New Archstone is or shall have become untrue, in either case such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as the case may be, would be incapable of being satisfied by
March 31, 2002 (or as otherwise extended);
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(d) by either Archstone (or following the Archstone Merger, New
Archstone) or Smith, if any judgment, injunction, order, decree or action by any Governmental Entity of competent authority preventing the consummation of the Archstone Merger or either of the Mergers shall have become final and
non-appealable;
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(e) by either Archstone (or following the Archstone Merger, New
Archstone) or Smith, if the Mergers shall not have been consummated before March 31, 2002; provided, however, that a party may not terminate pursuant to this clause (e) if the terminating party shall have breached in any material
respect its obligations under this Agreement in any manner that shall have caused either of the Mergers not to have been consummated by such date;
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(f) by either Archstone (or following the Archstone Merger, New
Archstone) or Smith (unless Smith or Smith Partnership is in breach in any material respect of its obligations under Section 5.1) if, upon a vote at a duly held Smith Stockholders Meeting or any adjournment thereof, the Smith Stockholder Approvals
shall not have been obtained as contemplated by Section 5.1 or if the Smith Partner Approvals have not been obtained as contemplated by Section 5.1;
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(g) by either Smith or Archstone (unless Archstone is in breach in
any material respect of its obligations under Section 5.1) if, upon a vote at a duly held Archstone Shareholders Meeting or any adjournment thereof, the Archstone Shareholder Approvals shall not have been obtained as contemplated by Section
5.1;
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(h) by Smith (i) if the Board of Directors of Smith shall have
withdrawn, modified, amended or qualified in any manner adverse to Archstone its approval or recommendation of either of the Merger or this Agreement in connection with, or approved or recommended, any Superior Acquisition Proposal, or, (ii) in
order to enter into a binding written agreement with respect to a Superior Acquisition Proposal, provided that, in each case, Smith shall have complied with the terms of Section 4.3 and, contemporaneous with or prior to terminating pursuant to this
Section 7.1(h), has paid to Archstone the Break-Up Fee (as defined herein) as provided by Section 7.2 hereof; and
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(i) by Archstone (or following the Archstone Merger, New
Archstone), if (1) the Board of Directors of Smith shall have failed to recommend or withdrawn, modified, amended or qualified, or proposed publicly not to recommend or to withdraw, modify, amend or qualify, in any manner adverse to Archstone (or
following the Archstone Merger, New Archstone) its approval or recommendation of either of the Mergers or this Agreement or approved or recommended any Superior Acquisition Proposal, (2) following the announcement or receipt of an Acquisition
Proposal, Smith shall have failed to call the Smith Stockholders Meeting in accordance with Section 5.1 (a) or failed to prepare and mail to its stockholders the Joint Proxy Statement in accordance with Section 5.1(a) or 5.1(b), or (3) the Board of
Directors of Smith or any committee thereof shall have resolved to do any of the foregoing.
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(a) if to Archstone or New Archstone, to:
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Archstone Communities Trust
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7670 South Chester Street
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Suite 100
|
Englewood, Colorado 80112
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Attention: General Counsel
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Fax No.: (303) 858-0021
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Mayer, Brown & Platt
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190 South LaSalle Street
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Chicago, Illinois 60603
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Attention: Edward J. Schneidman
|
Michael T. Blair
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Fax No.: (312) 701-7711
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(b) if to Smith or Smith Partnership, to:
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Charles E. Smith Residential Realty, Inc.
|
2345 Crystal Drive
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Crystal Park #4
|
Arlington, VA 22202
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Attention: General Counsel
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Fax No.: (703) 769-1312
|
Hogan & Hartson L.L.P.
|
555 Thirteenth Street, N.W.
|
Washington, D.C. 20004-1109
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Attention: J. Warren Gorrell, Jr.
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Bruce W. Gilchrist
|
Fax No.: (202) 637-5910
|
ARCHSTONE COMMUNITIES TRUST
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/S
/ CHARLES
E. MUELLER
, JR
.
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By:
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Name: Charles E. Mueller, Jr.
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Title: Chief Financial Officer
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NEW GARDEN RESIDENTIAL TRUST
|
/S
/ CAROLINE
BROWER
|
By:
|
Name: Caroline Brower
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Title: Senior Vice President
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CHARLES E. SMITH RESIDENTIAL REALTY, INC.
|
/S
/ WESLEY
D. MINAMI
|
By:
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Name: Wesley D. Minami
|
Title: President
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CHARLES E. SMITH RESIDENTIAL REALTY, L.P.
|
By:
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Charles E. Smith Residential Realty, Inc.,
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its sole general partner
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/S
/ WESLEY
D. MINAMI
|
By:
|
Name: Wesley D. Minami
|
Title: President
|
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company and Archstone, respectively;
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(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the Company;
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(iii) analyzed certain internal financial forecasts prepared by the
managements of the Company and Archstone, respectively;
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(iv) reviewed information relating to certain strategic, financial and
operational benefits anticipated from the Merger, prepared by the managements of the Company and Archstone, respectively;
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(v) discussed the past and current operations and financial condition and the
prospects of Archstone, including information relating to certain strategic, financial and operational benefits anticipated from the Merger, with senior executives of Archstone.
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(vi) reviewed the pro forma impact of the Merger on Archstones funds
from operations per share, cash flow, consolidated capitalization and financial ratios;
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(vii) reviewed the reported prices and trading activity for the Company
Common Stock and Archstones common shares, respectively;
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(viii) compared the financial performance of the Company and Archstone and
the prices and trading activity of the Company Common Stock and Archstones common shares with that of certain other publicly-traded companies comparable with the Company and Archstone, respectively, and their securities;
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(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
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(x) participated in discussions and negotiations among representatives of the
Company and Archstone and their financial and legal advisors;
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(xi) reviewed the draft Merger Agreement and certain related documents;
and
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(xii) considered such other factors and performed such other analyses as we
have deemed appropriate.
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Very truly yours,
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MORGAN STANLEY & CO. INCORPORATED
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/S
/ CHRISTOPHER
J. NIEHAUS
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By
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Christopher J. Niehaus
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Managing Director
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Very truly yours,
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/S
/ GOLDMAN
, SACHS
& CO
.
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Goldman, Sachs & Co.
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1. The following provision is hereby added at the end
of each of the following provisions of the Declaration of Trust; (i) Section (i)(ii) of Annex A to Article II, Section 2; (ii) Section (h)(ii) of Annex C to Article II, Section 3; and (i) Section 8(b) of the Articles Supplementary designating a
Series of Shares of Beneficial Interest as Series D Cumulative Redeemable Preferred Shares of Beneficial Interest:
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For purposes of the foregoing provisions, a share exchange
means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either
entity, and the term surviving entity shall include the entity acquiring equity securities in a share exchange.
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Charles E. Mueller, Jr.
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Senior Vice President and
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Chief Financial Officer
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(a) The grant of an Option entitles the Participant to
purchase Shares at an Exercise Price established by the Committee. Any Option granted under this Section 2 may be either an incentive share option (an ISO) or a non-qualified option (an NQO), as determined in the discretion
of the Committee. An ISO is an Option that is intended to satisfy the requirements applicable to an incentive stock option described in section 422(b) of the Code. An NQO is an Option that is not intended to be an
incentive share option as that term is described in section 422(b) of the Code.
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(b) A share appreciation right (an SAR) entitles the
Participant to receive, in cash or Shares (as determined in accordance with subsection 2.5), value equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a specified number of Shares at the time of exercise; over (b) an
Exercise Price established by the Committee.
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(a) Subject to the following provisions of this subsection 2.4,
the full Exercise Price for Shares purchased upon the exercise of any Option shall be paid at the time of such exercise (except that, in the case of an exercise arrangement approved by the Committee and described in paragraph 2.4(c), payment may be
made as soon as practicable after the exercise).
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(b) The Exercise Price shall be payable in cash, by promissory
note, or by tendering, by either actual delivery of Shares or by attestation, Shares acceptable to the Committee, and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Committee.
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(c) The Committee may permit a Participant to elect to pay the
Exercise Price upon the exercise of an Option by irrevocably authorizing a third party to sell Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to
pay the entire Exercise Price and any tax withholding resulting from such exercise.
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(a) A Bonus Share Award is a grant of Shares in return
for previously performed services, or in return for the Participant surrendering other compensation that may be due.
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(b) A Share Unit Award is the grant of a right to
receive Shares in the future.
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(c) A Performance Share Award is a grant of a right to
receive Shares or Share Units which is contingent on the achievement of performance or other objectives during a specified period.
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(d) A Performance Unit Award is a grant of a right to
receive a designated dollar value amount of Shares which is contingent on the achievement of performance or other objectives during a specified period.
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(e) A Restricted Share Award is a grant of Shares, and
a Restricted Share Unit Award is the grant of a right to receive Shares in the future, with such Shares or right to future delivery of such Shares subject to a risk of forfeiture or other restrictions that will lapse upon the achievement
of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Committee.
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(a) The Shares with respect to which Awards may be made under the
Plan shall be Shares currently authorized but unissued or currently held or, to the extent permitted by applicable law, subsequently acquired by the Company as treasury shares, including Shares purchased in the open market or in private
transactions.
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(b) Subject to the following provisions of this subsection 5.2,
the maximum number of Shares that may be delivered to Participants and their beneficiaries under the Plan shall be equal to 20,000,000 Shares.
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(c) To the extent provided by the Committee, any Award may be
settled in cash rather than Shares. To the extent any Shares covered by an Award are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, or the Shares are not delivered because the Award is settled in cash or
used
to satisfy the applicable tax withholding obligation, such Shares shall not be deemed to have been delivered for purposes of determining the maximum number of Shares available for delivery under the Plan.
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(d) If the exercise price of any option granted under the Plan is
satisfied by tendering Shares to the Company (by either actual delivery or by attestation), only the number of Shares issued net of the Shares tendered shall be deemed delivered for purposes of determining the maximum number of Shares available for
delivery under the Plan.
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(e) Subject to paragraph 5.2(f), the following additional maximums
are imposed under the Plan.
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(i) The maximum number of Shares that may be covered by Awards
granted to any one individual pursuant to Section 2 (relating to Options and SARs) shall be 1,000,000 Shares during any one calendar year period. If an Option is in tandem with an SAR, such that the exercise of the Option or SAR with respect to a
share of Shares cancels the tandem SAR or Option right, respectively, with respect to such share, the tandem Option and SAR rights with respect to each share of Shares shall be counted as covering only one Share for purposes of applying the
limitations of this subparagraph (i).
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(ii) The maximum number of Shares that may be issued during any
one calendar year in conjunction with Awards granted pursuant to Section 3 (relating to Other Shares Awards) which are intended to be performance-based compensation for purposes of section 162(m) of the Code shall be 1,000,000
Shares.
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(f) In the event of a corporate transaction involving the Company
(including, without limitation, any share dividend, share split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the Committee may adjust the terms of the
Plan and Awards to preserve the benefits or potential benefits of the Plan or the Awards. Action by the Committee with respect to the Plan or Awards may include: (i) adjustment of the number and kind of shares which may be delivered under the Plan;
(ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the Exercise Price of outstanding Options and SARs; and (iv) any other adjustments that the Committee determines to be equitable.
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(a) Notwithstanding any other provision of the Plan, the Company
shall have no liability to deliver any Shares under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the
Securities Act of 1933), and the applicable requirements of any securities exchange or similar entity.
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(b) To the extent that the Plan provides for issuance of
certificates to reflect the issuance of Shares, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange.
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(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Subsidiary,
in its sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Shares or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any
Subsidiary, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.
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(b) The Plan does not constitute a contract of employment or
continued service, and selection as a Participant will not give any participating individual the right to be retained in the employ or continued service of the Company or any Subsidiary, nor any right or claim to any benefit under the Plan, unless
such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which
the individual fulfills all conditions for receipt of such rights.
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(a) Subject to the provisions of the Plan, the Committee will have
the authority and discretion to select from among the Eligible Individuals those persons who shall receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of Shares covered by the Awards, to
establish the terms, conditions, performance criteria, restrictions, and other provisions of such Awards, and (subject to the restrictions imposed by Section 8) to cancel or suspend Awards.
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(b) To the extent that the Committee determines that the
restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those restrictions as the Committee
determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.
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(c) The Committee will have the authority and discretion to
conclusively interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any Award Agreement made pursuant to the Plan, and to make all other determinations that may
be necessary or advisable for the administration of the Plan.
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(d) Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding on all persons.
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(e) In controlling and managing the operation and administration
of the Plan, the Committee shall take action in a manner that conforms to the articles and by-laws of the Company, and applicable state corporate law.
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(a) Award. The term
Award means any award or benefit granted under the Plan, including, without limitation, the grant of Options, SARs, Bonus Share Awards, Share Unit Awards, Restricted Share Awards, Restricted Share Unit Awards, Performance Unit Awards,
Performance Share Awards, and Replacement Awards.
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(b) Board. The term
Board means the Board of Trustees of the Company.
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(c) Change in Control. The term
Change in Control shall be as defined in the Award Agreement, or as otherwise provided by the Committee.
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(d) Code. The term Code
means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.
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(e) Eligible Individual. For
purposes of the Plan, the term Eligible Individual means any employee of the Company or a Subsidiary, and any consultant or other person providing services to the Company or a Subsidiary; provided, however, that an incentive stock option
may only be granted to an employee of the Company or a Subsidiary.
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(f) Fair Market Value. For purposes
of determining the Fair Market Value of a Share as of any date, the following rules shall apply:
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(i) If the principal market for the Shares is a national
securities exchange or the Nasdaq securities market, then the Fair Market Value as of that date shall be the reported closing price of the Shares on the next preceding business day on the principal exchange or market on which the Shares
are then listed or admitted to trading.
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(ii) If the Shares are not listed on a national securities
exchange and the Shares are not quoted on the Nasdaq share market, then the Fair Market Value as of that date shall be the closing price for the Shares on the next preceding business day as reported on the Nasdaq OTC Bulletin Board
Service or by the National Quotation Bureau, Incorporated or a comparable service.
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(iii) If subparagraphs (i) and (ii) next above are otherwise
inapplicable, then the Fair Market Value of the Shares shall be determined in good faith by the Committee.
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(g) Merger Agreement means that certain Amended and
Restated Agreement and Plan of Merger among Archstone Communities Trust, Charles E. Smith Residential Realty, Inc., et. al., dated as of May 3, 2001.
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(h) Replacement Award. The term
Replacement Award shall have the meaning ascribed to it in Section 4.
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(i) Subsidiary. The term
Subsidiary means any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a
successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee.
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(j) Shares. The term
Shares means common shares of beneficial interest in the Company, par value $0.01 per share.
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