AMERICAN
COMMUNITY PROPERTIES TRUST
222
Smallwood Village Center
St.
Charles, Maryland 20602
SUMMARY
This
summary highlights selected information contained elsewhere in this proxy
statement relating to the Merger and other matters to be addressed at the
special meeting and may not contain all of the information that is important to
you. In this proxy statement, we refer to the merger of FCP/ACPT Acquisition
Company, Inc. with and into our Company as the “Merger,” and we refer to the
proposed amendment to our Amended and Restated Declaration of Trust as the
“Declaration of Trust Amendment.” For a more complete description of
the Merger and other transactions contemplated by the Merger Agreement and the
Declaration of Trust Amendment, you should carefully read this entire proxy
statement as well as the additional documents to which it refers, including the
Merger Agreement, a copy of which is attached to this proxy statement as Exhibit A,
and the Declaration of Trust Amendment, a copy of which is attached to this
proxy statement as Exhibit B. For
instructions on obtaining more information, see “¾Whom
can I call with questions” on page 16. References to “ACPT,” “the
Company,” “we,” “our,” or “us” in this proxy statement refer to American
Community Properties Trust and its subsidiaries unless otherwise indicated or
the context otherwise requires.
This
proxy statement is dated December 1, 2009 and is first being mailed to
shareholders on or about December 2, 2009.
Parties
to the Merger (Page 21)
American
Community Properties Trust
American
Community Properties Trust is a self-advised and self-managed real estate
holding company that is primarily engaged in the business of investing in and
managing multifamily rental properties as well as community development and
homebuilding. ACPT’s operations are primarily concentrated in the
Washington, D.C. metropolitan area and Puerto Rico. As of September
30, 2009, we owned or maintained interests in 22 multifamily rental properties,
directly and through partnerships, containing an aggregate of 3,366 completed
units and 184 units that are currently under construction. In
addition, as of September 30, 2009, we owned two commercial buildings containing
approximately 75,000 square feet of leasable space and approximately 4,000 acres
of land in St. Charles, Maryland and 600 acres of land in Puerto
Rico. We were formed as a Maryland real estate investment trust in
March 1997 to succeed to most of Interstate General Company L.P.’s (“IGC”) real
estate operations. On October 5, 1998, IGC transferred to ACPT the
common shares of four subsidiaries that collectively comprised the majority of
the principal real estate operations and assets of IGC. In exchange,
ACPT issued to IGC 5,207,954 Common Shares of ACPT, all of which were
distributed to the partners of IGC. We believe that we have qualified
and been taxable as a partnership for U.S. federal income tax purposes since
October 5, 1998. Our executive offices are located at 222 Smallwood
Village Center, St. Charles, Maryland, 20602, phone number (301)
843-8600. Our Common Shares currently are listed on the New York
Stock Exchange AMEX, or “NYSE Amex,” under the symbol “APO.” We
currently have no preferred shares outstanding.
FCP
Fund I, L.P.
Federal
Capital Partners is a Washington, .D.C.-based real estate investment company
that owns and manages a portfolio of multi-family office, industrial and retail
properties in the Mid-Atlantic region, including through FCP Fund I, L.P., its
equity fund, which we sometimes refer to in this proxy statement as
“FCP.” FCP’s executive offices are located at c/o Federal Capital
Partners, 1000 Potomac Street, Suite 120, Washington, D.C. 20007, phone
number (202) 333-6030.
FCP/ACPT
Acquisition Company, Inc.
FCP/ACPT
Acquisition Company, Inc., which we sometimes refer to in the proxy statement as
“Merger Sub,” is a Maryland corporation and indirect subsidiary of FCP formed
for the sole purpose of effecting the Merger. Merger Sub has not
conducted any business operations other than in connection with the transactions
contemplated by the Merger Agreement. Merger Sub’s executive offices
are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite
120, Washington, D.C. 20007, phone number (202) 333-6030.
The
Special Meeting (Page 19)
The
special meeting will be held at 10:00 a.m., local time, on Tuesday, December 22,
2009, at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus
Drive, Waldorf, Maryland. At the special meeting, you will be
asked to consider and vote upon (i) approval of the Merger pursuant to the
terms of the Merger Agreement, (ii) the Declaration of Trust Amendment and (iii)
approval of any proposal to adjourn the special meeting to solicit
additional proxies in favor of approval of the Merger and the Declaration of
Trust Amendment if there are insufficient votes at the time of the special
meeting to approve both the Merger and the Declaration of Trust
Amendment.
Record
Date, Notice and Quorum (Page 19)
We
have set the close of business on November 27, 2009 as the record date for
determining those shareholders who are entitled to notice of, attend and vote
at, the special meeting. As of the record date, 5,622,660 Common
Shares were outstanding.
The
presence at the special meeting, in person or by proxy, of holders of a majority
of the aggregate number of our Common Shares outstanding and entitled to vote on
the record date will constitute a quorum, allowing us to conduct the business of
the special meeting.
A properly executed proxy marked ABSTAIN and a
broker non-vote will be counted for purposes of determining whether a quorum is
present at the special meeting but will not be voted.
Voting
Requirements for the Proposals (Page 19)
The
Merger
Under
the Merger Agreement, the proposal to approve the Merger requires the
affirmative vote of holders of at least two-thirds of our issued and outstanding
Common Shares entitled to vote at the special meeting.
Declaration
of Trust Amendment
Under
Maryland law and our Declaration of Trust, the proposal to approve the
Declaration of Trust Amendment requires the affirmative vote of holders of at
least two-thirds of our issued and outstanding Common Shares entitled to vote at
the special meeting.
Adjournments
Under
our Bylaws, any proposal to adjourn the special meeting to solicit additional
proxies in favor of approval of the Merger and the Declaration of Trust
Amendment if there are insufficient votes at the time of the special meeting to
approve both the Merger and the Declaration of Trust Amendment would require the
affirmative vote of a majority of the votes cast at the special
meeting.
Other
Voting Matters
Each
Common Share is entitled to one vote. If you hold your Common Shares
in “street name” (that is, through a broker or other nominee), your broker or
nominee will not vote your shares unless you provide instructions to your broker
or nominee on how to vote your shares. You should instruct your
broker or nominee how to vote your shares by following the directions provided
by your broker or nominee.
Because
the required vote to approve the Merger and the Declaration of Trust Amendment
is based on the number of Common Shares outstanding rather than on the number of
votes cast, if you fail to authorize a proxy to vote your shares by completing
and returning the enclosed proxy card, fail to vote in person or fail to
instruct your broker or nominee on how to vote or abstain from voting, it will
have the same effect as a vote against these proposals.
An
abstention or a broker non-vote as to either the Merger or the Declaration of
Trust Amendment will have the same effect as a vote against that
proposal. An abstention or a broker non-vote, if any, as to
adjournment of the special meeting will have no effect on the result of the vote
on adjournment. A broker non-vote occurs when a broker returns a
properly executed proxy but does not vote on a proposal on which the broker is
prohibited from exercising its discretionary voting authority.
Proxies;
Revocation of Proxies (Page 20)
Any
of our common shareholders of record entitled to vote at the special meeting may
vote by returning the enclosed proxy card or by appearing and voting at the
special meeting in person. If you hold your Common Shares in “street
name” (that is, through a broker, bank or other nominee), your broker, bank or
nominee will not vote your shares unless you provide instructions to your
broker, bank or nominee on how to vote your shares. Accordingly, you
should instruct your broker, bank or nominee how to vote your shares by
following the directions provided by your broker, bank or nominee. If
you wish to vote in person at the special meeting and your Common Shares are
held by a broker, bank or nominee, you must bring to the special meeting a legal
proxy from the broker, bank or nominee authorizing you to vote your Common
Shares. It can often take several days to obtain a legal proxy from a
broker, bank or nominee.
Even after you have properly submitted your proxy
card, you may change your vote at any time before the proxy is voted by
delivering to our Secretary a duly executed proxy bearing a later
date. In addition, the proxy holders will not exercise your proxy if
you attend the special meeting in person and notify the chairman of the meeting
that you would like your proxy revoked. Attendance at the special
meeting will not by itself revoke a previously granted proxy. If you
have instructed a broker, bank or nominee to vote your shares, you must follow
the directions received from your broker, bank or nominee in order to change
your proxy instructions.
Voting
Agreement with the Wilson Family Shareholders (Page 22)
FCP and
Merger Sub have entered into a voting agreement with J. Michael Wilson, the
Chairman of our Board of Trustees, and certain of his family members and
affiliated entities, which we refer to in this proxy statement as the “Wilson
Family Shareholders.” The Wilson Family Shareholders own an aggregate of
2,650,720 of our Common Shares (which represents 47% of our outstanding fully
diluted Common Shares as of the record date). Pursuant to the voting
agreement, the Wilson Family Shareholders have agreed to vote in favor of the
Merger, the Merger Agreement and each transaction contemplated by the Merger
Agreement, including the Declaration of Trust Amendment. In addition,
the Wilson Family Shareholders have agreed to vote against certain matters that
would interfere with our ability to timely complete the Merger. The
voting agreement with the Wilson Family Shareholders will be terminated upon the
first to occur of (i) the closing of the Merger and (ii) a termination of the
Merger Agreement in accordance with its terms. The voting agreement
with the Wilson Family Shareholders may also be terminated at any time upon
notice from FCP.
Voting
by Our Trustees and Executive Officers (Page 38)
As
of the record date, our trustees and executive officers, excluding J. Michael
Wilson, beneficially owned an aggregate of 416,949 Common Shares, representing,
in the aggregate, approximately 7.4% of the voting power of our Common Shares
entitled to vote at the special meeting. Our executive officers and
trustees other than J. Michael Wilson have informed us that they intend to vote
the Common Shares that they beneficially own in favor of the approval of the
Merger and the Declaration of Trust Amendment, and for the approval of any
adjournments of the special meeting for the purpose of soliciting additional
proxies. As described above, J. Michael Wilson and the other Wilson
Family Shareholders are obligated to vote the Common Shares that they
beneficially own for the approval of the Merger and the Declaration of Trust
Amendment in accordance with the voting agreement.
Voting and Passive Investment
Arrangement with Paul J. Isaac (Page 38)
FCP has advised us that it has entered
into an arrangement with one of our shareholders, Paul J. Isaac, who, together
with certain related persons and affiliates, beneficially owns an aggregate of
865,329 of our Common Shares (representing 15.4% of our outstanding fully
diluted Common Shares), pursuant to which Mr. Isaac and substantially all of
such related persons and affiliates would, after the closing of the Merger, make
a passive indirect investment in the Surviving Entity. In addition,
Mr. Isaac and such related persons and affiliates who would participate in such
investment have agreed to vote 829,529 of the Common Shares of our Company that
they own in favor of the Merger and the Declaration of Trust Amendment at the
special meeting. These Common Shares, combined with the Common Shares
owned by the Wilson Family Shareholders and our other trustees and executive
officers, comprise, in the aggregate, 3,897,198 of our Common Shares
(representing 69% of our outstanding fully diluted Common Shares), and represent
a sufficient number of votes to approve the Merger and the Declaration of Trust
Amendment at the special meeting. FCP has informed us that Mr. Isaac
approached FCP unsolicited to explore such an arrangement after the execution
and announcement of the Merger Agreement and that, prior to such meeting, FCP
had not had any discussions or meetings, nor had it contemplated initiating any
such discussions or meetings, with Mr. Isaac or any of his related persons or
affiliates.
The
Merger (Page 21)
At
the closing of the Merger, Merger Sub will merge with and into the Company, with
the Company surviving the Merger as a subsidiary of FCP, pursuant to the terms
of the Merger Agreement. We sometimes use the term “Surviving Entity”
in this proxy statement to describe the Company as the Surviving Entity
following the Merger.
Merger
Consideration (Page 21)
In
the Merger, each outstanding Common Share of the Company will automatically be
converted into the right to receive $7.75 in cash, without interest and less any
applicable withholding tax. We refer to this amount in this proxy
statement as the “Merger Consideration.” However, Common Shares held
by the Company, FCP, Merger Sub or any subsidiary of the Company or FCP will be
cancelled and retired for no additional consideration. The Merger
Consideration is fixed and will not be adjusted for changes in the trading price
of our Common Shares. However, the Merger Consideration is subject to
adjustment for certain dividend payments, if any (as described in the enclosed
proxy statement). At this time, we do not expect to make any
dividends or other distributions that would reduce the Merger
Consideration.
Treatment
of Restricted Shares and Share Appreciation Rights (Page 22)
In
the Merger, each unvested restricted Common Share of the Company that, by its
terms, vests automatically upon the consummation of the Merger will fully vest
in accordance with its terms and be considered an outstanding Common Share for
all purposes, including the right to receive the Merger
Consideration. In addition, each unvested restricted Common Share of
the Company that, by its terms, does not vest in connection with a change of
control, such as the Merger, will be cancelled and retired for no additional
consideration. There are currently 313,965 restricted Common Shares
outstanding that, by their terms, will vest upon consummation of the
Merger.
Additionally,
in the Merger, each of the outstanding share appreciation rights, which we refer
to as SARs, will be cancelled and in lieu thereof, each holder will be entitled
to the right to receive an amount in cash equal to the product of (i) the excess
of the Merger Consideration over the exercise price per Common Share underlying
such share appreciation right, or SAR, multiplied by (ii) the number of Common
Shares subject to such share appreciation right. There are currently
10,400 SARs outstanding. The excess of the $7.75 per share Merger
Consideration over the weighted average exercise price per Common Share
underlying the 10,400 outstanding SARs is $3.75 per share, for a total of
$39,000.
Payment
Procedures (Page 43)
Following
the completion of the Merger, you will receive a letter of transmittal and
instructions describing how you may exchange your Common Shares for the Merger
Consideration by sending your Common Share certificates with your completed
letter of transmittal to the exchange agent. You should not send your
Common Share certificates to us or anyone else until you receive these
instructions. You will receive payment of the Merger Consideration
after we receive from you a properly completed letter of transmittal together
with your share
certificates. If
you hold your Common Shares in “street name,” your broker or nominee must
surrender your shares in exchange for your Merger Consideration following
completion of the Merger.
Declaration
of Trust Amendment (Page 63)
You
are also being asked to consider and vote upon the Declaration of Trust
Amendment, which will cause Section 5.3.3 to be of no operation or
effect. This amendment would suspend the requirement that we make a
minimum distribution to our common shareholders in connection with our net
taxable income that is allocable to our shareholders. The amendment
would render such section inapplicable for the taxable year ending December 31,
2009 and thereafter, unless the Merger Agreement is terminated and our Board of
Trustees makes a public announcement that Section 5.3.3 will thereafter be
operative and in effect. Our Board of Trustees approved the
Declaration of Trust Amendment at the request of FCP as a condition to its
willingness to sign the Merger Agreement and is recommending that our common
shareholders vote to approve such proposal because the Merger Consideration to
which we, FCP and Merger Sub agreed under the Merger Agreement was premised on
the mutual understanding that no distributions of any kind would be made by us
with respect to our Common Shares in the future so long as the Merger Agreement
remains in effect. The Merger Agreement provides that if we make any
distributions with respect to our Common Shares, the Merger Consideration will
be reduced accordingly.
The
effect of the Declaration of Trust Amendment, if approved, is that, even if we
have net taxable income that is allocable to our common shareholders for the
taxable year ending on December 31, 2009 and thereafter, we would not make a
cash distribution as currently required under our Declaration of
Trust. Instead, if the Merger is consummated, you will receive, as a
common shareholder, the Merger Consideration.
If
the special meeting occurs prior to December 31, 2009, and if both the Merger
and the Declaration of Trust Amendment are approved by our shareholders, we
expect to file the Declaration of Trust Amendment with the State Department of
Assessments and Taxation of Maryland (the “SDAT”) as soon as practicable after
such approval, and on or prior to December 31, 2009, even if the closing of the
Merger does not occur until after December 31, 2009. In the unlikely
event that the Declaration of Trust Amendment is approved, but the Merger is not
approved, our Board of Trustees may elect not to file the Declaration of Trust
Amendment with the SDAT.
Recommendation
of Our Board of Trustees (Page 29)
Our Board of Trustees recommends that
holders of Common Shares vote FOR approval of the Merger and FOR approval of the
Declaration of Trust Amendment. At a meeting held on September 25, 2009, the
Special Committee of our Board of Trustees appointed by our Board of Trustees
and comprised of the five independent and disinterested trustees who are not
also employees of the Company (the “Special Committee”) unanimously recommended
to the Board of Trustees that the Board of Trustees determine that the Merger,
on the terms set forth in the Merger Agreement, and the Declaration of Trust
Amendment are advisable and in the best interests of Company. The
recommendation of the Special Committee was made after careful consideration of
a variety of business, financial and other factors in consultation with its
independent financial and legal advisors. Based on the recommendation
of the Special Committee, the Board of Trustees, at a meeting held on September
25, 2009, declared that the Merger, on the terms set forth in the Merger
Agreement, and the Declaration of Trust Amendment are advisable and in our best
interests and further determined to recommend that our shareholders approve the
Merger and the Declaration of Trust Amendment. Two of the trustees,
J. Michael Wilson and Stephen K. Griessel, abstained from voting due to their
interests in the Merger; however, both of these trustees have indicated that
they intend to vote their Common Shares FOR approval of both the Merger and the
Declaration of Trust Amendment.
Opinion
of the Special Committee’s Financial Advisor (Page 31)
On
September 25, 2009, FBR Capital Markets & Co., which we refer to as FBR,
rendered its oral opinion to the Special Committee (which was subsequently
confirmed by delivery of FBR’s written opinion dated the same date) to the
effect that, as of September 25, 2009, the per share Merger Consideration of
$7.75 to be received by holders of our Common Shares other than the Wilson
Family Shareholders (which we refer to as the “Unaffiliated Holders”), in the
proposed Merger pursuant to the Merger Agreement was fair to such Unaffiliated
Holders from a financial point of view.
FBR’s
opinion was directed to the Special Committee and only addressed the fairness,
from a financial point of view, of the per share Merger Consideration to be
received by the Unaffiliated Holders, in the proposed Merger pursuant to the
Merger Agreement, and did not address any other aspect or implication of the
proposed Merger. The summary of FBR’s opinion in this proxy statement is
qualified in its entirety by reference to the full text of its written opinion,
which is included as Exhibit C
to this proxy statement and sets forth the procedures followed, assumptions
made, qualifications and limitations on the review undertaken and other matters
considered by FBR in preparing its opinion. However, neither FBR’s written
opinion nor the summary of its opinion and the related analyses set forth in
this proxy statement are intended to be, and do not, constitute advice or a
recommendation to any security holder as to how such security holder should act
or vote with respect to any matter relating to the Merger.
Available
Funds (Page 44)
As
noted above, the Merger is not subject to any conditions regarding the ability
of FCP or Merger Sub to obtain the financing necessary to complete the Merger.
FCP has represented to us in the Merger Agreement that it will, on the closing
date, have cash sufficient to pay the Merger Consideration and to satisfy the
obligations of FCP and Merger Sub at the time and in the manner contemplated by
the Merger Agreement, including without limitation, in connection with the
Merger and the other transactions contemplated by the Merger Agreement and all
related expenses.
No
Dissenters’ or Appraisal Rights (Page 68)
Under
Maryland law, because our Common Shares are listed on the NYSE Amex, appraisal
rights are not available to holders of our Common Shares in connection with the
Merger.
Interests
of Our Trustees, Executive Officers and Other Persons in the Merger (Page
37)
Each
of our executive officers and certain of our trustees and other persons have
interests in the Merger that differ from, or are in addition to, and therefore
may conflict with, your interests as a shareholder as described in “The
Merger—Interests of Our Trustees, Executive Officers and Other Persons in the
Merger” beginning on page 37. Our Board of Trustees is aware of these
interests and considered them in approving the Merger and the other transactions
contemplated by the Merger Agreement. These interests
include:
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restricted
Common Shares owned by our trustees and executive officers, including
290,995 restricted Common Shares that were granted on September 9, 2009,
to our Chief Executive Officer pursuant to the Amended and Restated
Employment Agreement, dated May 14, 2009, among us, our subsidiary
American Rental Properties Trust and our Chief Executive Officer, which
currently are subject to vesting restrictions and will become fully vested
upon consummation of the Merger but prior to the effectiveness of the
Merger and the holders of which will be entitled to receive the same
consideration as the holders of Common
Shares;
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pursuant
to an agreement between our Chief Executive Officer and Interstate
Business Corporation (“IBC”), an entity affiliated with J. Michael Wilson,
the Chairman of our Board of Trustees, 185,550 of our Common Shares owned
by IBC, which were to be transferred in annual installments from IBC to a
trust established by IBC for the sole and exclusive benefit of our Chief
Executive Officer, will instead be transferred to our Chief Executive
Officer upon the consummation of the Merger, and our Chief Executive
Officer will be entitled to receive the same per share Merger
Consideration in exchange for such 185,550 Common Shares as all other
holders of our Common Shares under the terms of the Merger
Agreement;
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share
appreciation rights, or SARs, will be cancelled and, in lieu thereof, each
holder will be entitled to the right to receive an amount in cash equal to
the product of (i) the excess of the Merger Consideration over the
exercise price per Common Share underlying such SAR multiplied by (ii) the
number of Common Shares subject to such SAR. An aggregate
amount of $37,500 will be paid out to one of our trustees in connection
with the cancellation of 10,000 SARs held by
him;
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J.
Michael Wilson, the Chairman of our Board of Trustees, had expressed a
strong desire on behalf of the Wilson Family Shareholders to sell their
Common Shares in order to created needed
liquidity;
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certain
of our executive officers, one of whom is also a trustee, may be employed
by FCP to assist with the management of the Surviving Entity following the
Merger;
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our
Board of Trustees and executive officers are entitled to indemnification
by FCP and the Surviving Entity and liability insurance coverage for a
period of six years following the effective time of the Merger;
and
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our
independent trustees are entitled to receive, for their service on the
Special Committee, lump sum payments of $25,000 per member and an
additional $40,000 and $20,000 payment to the chairman and vice chairman
of the Special Committee,
respectively.
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Solicitation
of Other Offers (Page 48)
From
the first business day after the date of the Merger Agreement until 11:59 p.m.,
Eastern Standard Time, on October 28, 2009 (we refer to this period as the
“go-shop period”), we were permitted to initiate, solicit and encourage
acquisition proposals (including by way of providing access to non-public
information pursuant to confidentiality agreements), and participate in
discussions or negotiations with respect to acquisition proposals or otherwise
cooperate with or assist or participate in, or facilitate any such discussions
or negotiations. The Special Committee directed FBR, during the
“go-shop period,” to approach potentially interested parties in an effort to
solicit acquisition proposals for the Company that constituted or were
reasonably likely to lead to a superior proposal. Accordingly, FBR
contacted 57 potential financial and strategic buyers of which 19 requested a
confidentiality agreement so they could consider whether to participate in the
process and 10 signed confidentiality agreements and conducted due
diligence. However, none of the potential buyers contacted by FBR
submitted an acquisition proposal prior to expiration of the “go-shop”
period.
After
the end of the go-shop period, we have agreed not to:
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initiate,
solicit or encourage any inquiries or the making of any proposal or offer
that constitutes, or could reasonably be expected to lead to, any
acquisition proposal;
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initiate,
enter into, engage in, continue, or otherwise participate in any
discussions or negotiations regarding, or provide any non-public
information or data to any person relating to, any acquisition
proposal;
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withdraw
the recommendation of the Board of
Trustees;
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approve,
endorse or recommend, or publicly propose to approve, endorse or
recommend, any acquisition
proposal;
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enter
into any agreement in principle, arrangement, understanding, contract or
agreement providing for, or relating to, an acquisition proposal or enter
into any agreement or agreement in principle requiring the Company to
abandon, terminate or fail to consummate the Merger or any of the
transactions contemplated by the Merger
Agreement;
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exempt
any person from the restrictions contained in any state “business
combination,” takeover or similar laws or otherwise cause such
restrictions not to apply to any person or to any acquisition
proposal;
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exempt
any person from the ownership limitations and restrictions contained in
Article IV of our Declaration of Trust or cause such limitations and
restrictions not to apply; or
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release
any person from or fail to enforce any standstill agreement or similar
obligation to us and our subsidiaries other than the automatic termination
of standstill obligations pursuant to the terms of agreements as in effect
as of the date hereof, by virtue of the execution and announcement of the
Merger Agreement.
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Notwithstanding
these restrictions:
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we
are permitted to continue discussions and provide non-public information
to any party that has made an acquisition proposal that satisfies certain
conditions, including the determination by the Board of Trustees or the
Special Committee that such proposal constitutes or is reasonably likely
to lead to a superior proposal, on or prior to October 28, 2009, and with
whom we are having ongoing discussions or negotiations as of October 28,
2009 (we must otherwise immediately cease or cause to be terminated
discussions except as permitted below and cause any confidential
information provided or made available to be returned or destroyed);
and
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at
any time after the date of the Merger Agreement and prior to the approval
of the Merger Agreement by our shareholders, we are permitted to furnish
information with respect to the Company and our subsidiaries to any person
making a bona fide written acquisition proposal and participate in
discussions or negotiations with the person making the bona fide
acquisition proposal, if such proposal is reasonably likely to lead to a
superior proposal (as defined in the Merger Agreement) and it would be
inconsistent with the trustees’ duties under applicable law to fail to
consider such bona fide proposal.
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In
addition, we may terminate the Merger Agreement and enter into a definitive
agreement with respect to a superior proposal under certain
circumstances. In the event that a superior proposal has been made
(or any material revision of a superior proposal has been made), we are not
allowed to effect a recommendation withdrawal (as defined in the Merger
Agreement) or terminate the agreement to accept such proposal
unless:
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we
shall have provided prior written notice to FCP and Merger Sub, at least
three business days in advance, of our intention to take any such action
with respect to such superior proposal, which notice shall specify the
material terms and conditions of such superior proposal (including the
identity of the party making such superior proposal);
and
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prior
to effecting any such action, we shall have negotiated, and shall have
caused our financial and legal advisors to negotiate, during the requisite
three-business day period, with FCP and Merger Sub in good faith (to the
extent FCP and Merger Sub desire to negotiate) to make such adjustments in
the terms and conditions of the Merger Agreement so that the transactions
contemplated by thereby are more favorable to our shareholders than the
superior proposal.
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See
“The Merger Agreement — Recommendation Withdrawal/ Termination in Connection
with a Superior Proposal.”
Conditions
to the Merger (Page 51)
The
Merger will be completed only if the conditions specified in the Merger
Agreement are either satisfied or waived (to the extent
permissible). The most significant conditions specified in the Merger
Agreement include:
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requisite
approval of both the Merger and the amendment to our Declaration of Trust
by our shareholders;
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the
absence of any legal prohibition on the
Merger;
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the
continued accuracy of the respective representations and warranties of FCP
and Merger Sub, on the one hand, and the Company, on the other hand,
contained in the Merger Agreement, except, with respect to most of such
representations and warranties, where the failure of such representations
and warranties to be accurate would not have a material adverse effect on
our Company, as defined in the Merger
Agreement;
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·
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FCP
and Merger Sub, on the one hand, and the Company, on the other hand,
having performed or complied in all material respects with all agreements
and covenants required by the Merger Agreement to be performed or complied
with on or prior to the closing
date;
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·
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the
Company having caused American Rental Properties Trust (“ARPT”), one of
our subsidiaries, to distribute certain inter-company obligations to the
Company in order to distribute the current and accumulated earnings and
profits of ARPT;
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·
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FCP
shall not have determined that there is a “substantial risk” (as described
in the Merger Agreement) that the Company does not qualify or has not
qualified as a partnership for tax purposes, provided that, in the event
of such determination, a tax opinion of legal counsel as to the Company’s
status as a partnership for tax purposes would satisfy such
condition;
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·
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the
receipt of certain third party consents;
and
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·
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the
absence of any event, fact, development, circumstance change or effect
that, individually or in the aggregate, would constitute a material
adverse effect on our Company, as defined in the Merger
Agreement. See “The Merger—The Merger Agreement—Definition of
Material Adverse Effect” on page 53 of this proxy
statement.
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The
Merger is not conditioned on FCP or FCP Merger Sub obtaining financing for the
Merger Consideration. See “—Available Funds” on page 44 for more
information regarding the financing of the Merger.
If
the holders of the requisite percentage of our Common Shares approve the Merger
and the Declaration of Trust Amendment and the other conditions to the Merger
are satisfied or waived (to the extent permissible), then we intend to
consummate the Merger as soon as practicable following the special
meeting.
Termination
of the Merger Agreement/Payment of Termination Payment and Merger Expenses (Page
53)
In
addition to customary termination events, including termination by mutual
consent of the parties, termination for breaches of representations or
warranties, failure to perform any required covenants or agreements, and
termination upon failure to receive the requisite shareholder approval for the
Merger, the Merger Agreement may be terminated under the following
circumstances:
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·
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by
us any time prior to receiving shareholder approval for the Merger in
order to enter into a definitive acquisition agreement that provides for
the implementation of a superior proposal in accordance with the
termination provisions contained in the Merger Agreement, provided that we
pay FCP (i) a $1.45 million termination payment and up to $300,000 of
FCP’s merger expenses if the termination was to accept a superior proposal
during the go-shop period or otherwise from a party who made a bona fide
written acquisition proposal during the go-shop period that was reasonably
likely to lead to a superior proposal (as defined in the Merger Agreement)
and with whom negotiations or discussions were continuing at the end of
the go-shop period or (ii) a $1.75 million termination payment and up to
$300,000 of FCP’s merger expenses if the termination was to accept a
superior proposal that arose after the go-shop period with any other
person; or
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·
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by
either us or FCP if the Merger is not completed on or before March 31,
2010; or
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·
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by
either us or FCP if the Merger is prohibited by any governmental
authority; or
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·
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by
FCP if our Board of Trustees or the Special Committee (i) makes a
recommendation withdrawal (as defined in the Merger Agreement) prior to
the special meeting, (ii) approves or recommends to the Company’s
shareholders an acquisition proposal other than the Merger or (iii) fails
to cause the recommendation of the Merger to be included in this proxy
statement, in which event, pursuant to the Merger Agreement, we would be
required to pay the $1.75 million termination payment and up to $300,000
of FCP’s merger expenses; provided, that we would be required to pay a
$1.45 million termination payment and up to $300,000 of FCP’s merger
expenses if the such actions were taken in connection with the acceptance
of a superior proposal during the go-shop period or otherwise from a party
who made a bona fide written acquisition proposal identified during the
go-shop period that was reasonably likely to lead to a superior proposal
(as defined in the Merger Agreement) and with whom negotiations or
discussions were continuing at the end of the go-shop period (of which
there were none).
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We
also would be required to pay FCP certain termination expenses and fees in the
following circumstances:
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·
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if
we breach our representations and warranties or fail to perform any
covenants or other agreements contained in the Merger Agreement and such
breach causes a condition to closing to not be satisfied or renders such
condition incapable of being satisfied by March 31, 2010, then we would be
required to pay the $1.75 million termination payment and up to $300,000
of FCP’s merger expenses; and
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·
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if
the shareholders do not approve the Merger and the Declaration of Trust
Amendment, we would be required to reimburse FCP for up to $600,000 of its
merger expenses; in addition, if we complete an acquisition proposal
within 12 months following the termination date of the Merger Agreement
(whether or not the acquisition proposal was received prior to the
termination date), we would be required to pay FCP a termination fee of
$1.45 million plus up to $600,000 of FCP’s merger expenses;
and
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·
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if
FCP or Merger Sub breaches any of their representations and warranties or
fails to perform any covenants or other agreements contained in the Merger
Agreement and such breach causes a condition to closing to not be
satisfied or renders such condition incapable of being satisfied by March
31, 2010, then FCP would be required to pay to us a $1.45 million
termination payment and up to $300,000 of our merger expenses; provided,
that if we terminate the Merger Agreement for any such breach by FCP or
Merger Sub within 5 business days prior to the effective time of the
Merger, then FCP would be required to pay to us a $5 million termination
payment and up to $300,000 of our merger
expenses.
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Certain
Tax Consequences of the Merger (Page 58)
You
will be subject to tax on your share of the income we recognize in connection
with the distribution by ARPT of certain inter-company obligations to us (the
“E&P Distribution”). You will also be subject to U.S. federal
income tax on any gain resulting from your receipt of the Merger Consideration
for your Common Shares. A significant portion of the E&P
Distribution and Merger Consideration could be taxed as ordinary
income. For further information on the material U.S. federal income
tax consequences of the Merger and the E&P Distribution, please see the
section captioned “Material United States Federal Income Tax
Consequences—Consequences of the Merger and the E&P Distribution to U.S.
Holders of Our Common Shares” on page 59. You should consult your own
tax advisor for a full understanding of the tax consequences of the Merger and
the E&P Distribution to you.
Fees
and Expenses (Page 40)
We
estimate that our Company will incur, and will be responsible for paying,
transaction-related fees and expenses, consisting primarily of filing fees, fees
and expenses of investment bankers, attorneys and accountants and other related
charges, totaling approximately $3.7 million, including loan assumption fees and
assuming the Merger and the other transactions contemplated by the Merger
Agreement are completed. In the event the Merger and the other
transactions contemplated by the Merger Agreement are completed, the Surviving
Entity will assume these fees and expenses, to the extent they have not been
paid. In the event the Merger is not completed, we will be
responsible for payment of these fees and expenses, other than the fees payable
to the financial advisor to the Special Committee and loan assumption fees,
which are both contingent on closing of the Merger.
Regulatory
Approvals (Page 40)
No
material federal or state regulatory approvals are required to be obtained by us
or the other parties to the Merger Agreement in connection with the
Merger. To effect the Merger, however, we must file articles of
merger with the SDAT and such articles of merger must be accepted for record by
the SDAT.
Litigation
Related to the Merger (Page 40)
On
October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder,
filed a class action complaint in the Circuit Court for Charles County,
Maryland, against the Company, our Board of Trustees and FCP. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The complaint further alleges that FCP
aided and abetted those breaches of fiduciary duties. The complaint
seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a
class action complaint in the Circuit Court for Charles County, Maryland,
against the Company, our Board of Trustees, FCP and Merger Sub. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The
complaint
further alleges that FCP and Merger Sub aided and abetted those breaches of
fiduciary duties. The complaint seeks to enjoin consummation of the
Merger and also seeks attorneys’ fees and expenses.
On November 13, 2009, the parties
submitted to the Court an agreed stipulation and proposed order consolidating
these two actions. This order has not yet been entered. On
November 19, 2009, the plaintiffs filed in each action a consolidated
complaint. The consolidated complaint names the same defendants named
in the two initial complaints and asserts the same claims for breach of
fiduciary duties. The consolidated complaint alleges further that the
defendants breached fiduciary duties in connection with the disclosures
contained in the Company's preliminary proxy statement.
Who
Can Answer Other Questions (Page 16)
If
you have any questions about the Merger or any of the other transactions
contemplated by the Merger Agreement or about how to submit your proxy or would
like additional copies of this proxy statement, you should contact our Matthew
M. Martin, our Chief Financial Officer and Secretary:
Matthew
M. Martin
American
Community Properties Trust
222
Smallwood Village Center
St.
Charles, Maryland 20602
(301)
843-8600
QUESTIONS
AND ANSWERS ABOUT THE MERGER
What
am I being asked to vote on?
Holders of our Common Shares are being asked to
consider and vote upon (i) the Merger of Merger Sub with and into our Company
pursuant to the terms of the Merger Agreement and (ii) an amendment to our
Declaration of Trust to cause Section 5.3.3 to be of no operation or effect,
thus suspending the requirement that we make a minimum distribution to our
shareholders in connection with our net taxable income that is allocable to our
shareholders.
What
will I receive in the Merger?
You
will be entitled to receive $7.75 in cash, without interest, for each
outstanding Common Share that you own as of the effective time of the
Merger. The Merger Consideration is fixed and will not be adjusted
for changes in the trading price of our Common Shares. However, the
Merger Consideration is subject to adjustment for certain dividend payments, if
any (as described in the enclosed proxy statement). At this time, we
do not expect to make any dividends or other distributions that would impact the
Merger Consideration.
What
does the Board of Trustees recommend?
Our
Board of Trustees and the Special Committee comprised solely of trustees
determined by our Board to be independent and disinterested have approved the
Merger and declared the Merger, on the terms set forth in the Merger Agreement,
advisable and in our best interests. Our Board of Trustees recommends that
holders of our Common Shares vote FOR approval of the
Merger. For a description of
factors considered by our Board of Trustees, please see the sections captioned
“The Merger—Reasons for the Merger” on page 30 and “The Merger—Recommendation of
Our Board of Trustees” on page 29. In addition, our Board of Trustees
and the Special Committee have approved the Declaration of Trust Amendment and
determined that such amendment was advisable and in the best interests of the
Company. Our
Board of Trustees also recommends that holders of our Common Shares vote FOR
approval of the Declaration of Trust Amendment and FOR any proposed adjournments
of the special meeting for the purpose of soliciting additional proxies if there
are insufficient votes at the time of the special meeting to approve the Merger
and the Declaration of Trust Amendment.
Why
was the Special Committee of our Board of Trustees appointed?
One
of our trustees who is also an executive officer and J. Michael Wilson, our
Chairman who, together with the other Wilson Family Shareholders beneficially
own an aggregate of 47% of our outstanding fully diluted Common Shares, may have
interests in the Merger and the other transactions contemplated by the Merger
Agreement that differ from those of our other shareholders and, as a result, may
have conflicts of interest in considering the Merger and related transactions,
including the Declaration of Trust Amendment. In order to limit the
effect of these conflicts of interest, as well as the conflict of interest of
one trustee who later resigned from our Board of Trustees on September 8, 2009,
in connection with the evaluation by our Board of Trustees of the Merger and the
other transactions contemplated by the Merger Agreement, our Board of Trustees
appointed a Special Committee comprised solely of the five non-employee trustees
whom the Board determined to be independent and disinterested for purposes of
evaluating the proposed transaction and the other strategic alternatives
available to the Company. The members of the Special Committee are
Donald J. Halldin, Thomas E. Green, Michael E. Williamson, Antonio Ginorio and
Thomas J. Shafer. For more information about the interests of our
trustees and executive officers, please see the section captioned “The
Merger—Interests of Our Trustees, Executive Officers and Other Persons in the
Merger” on page 37.
What
is the premium to the market price of our Common Shares offered in the
Merger?
The
$7.75 cash per share Merger Consideration represents an approximate 17% premium
to the closing price of our Common Shares on September 14, 2009, the last
trading day before we announced that we were considering various strategic
alternatives, including a possible sale of the Company, and a 18% premium over
the volume-weighted average closing price of our Common Shares over the 90
trading day period ended September 14, 2009.
When
do you expect to complete the Merger?
A
special meeting of our shareholders is scheduled to be held on December 22,
2009, to consider and vote on the Merger pursuant to the terms of the Merger
Agreement. Because obtaining the requisite approval of the Merger by
our shareholders is only one of the conditions to the completion of the Merger,
we can give you no assurance as to when or whether the Merger will occur, but we
expect to close the Merger either late in the fourth quarter of 2009 or early in
the first quarter of 2010. For more information regarding the other
conditions to the Merger, please see the section captioned “The Merger
Agreement—Conditions to the Merger” on page 51.
If
the Merger is completed, when can I expect to receive the Merger Consideration
for my Common Shares?
If
you are a registered holder of our Common Shares at the effective time of the
Merger, then following the completion of the Merger, you will receive (i) a
letter of transmittal describing how you may exchange your Common Shares for the
Merger Consideration and (ii) instructions for use in effecting the surrender of
any share certificates held by you. At that time, you must send your
share certificates with your completed letter of transmittal to the exchange
agent. You should not send your share certificates to us or anyone
else until you receive these instructions. You will receive payment
of the Merger Consideration, less any applicable tax withholding, after we
receive from you a properly completed letter of transmittal together with your
share certificates. If you hold your Common Shares in “street name,”
your broker or nominee must take the actions required to obtain delivery of your
portion of the Merger Consideration to your account on your behalf and you will
not be required to take any action yourself to receive the Merger
Consideration.
If
I am a U.S. shareholder, what are the tax consequences of the Merger to
me?
You will be subject to tax on your share of the
E&P Distribution. You will also be subject to U.S. federal income
tax on any gain resulting from your receipt of the Merger Consideration for your Common Shares. A
significant portion of the E&P Distribution and Merger Consideration could
be taxed as ordinary income. For further information on the material
U.S. federal income tax consequences of the Merger and the E&P Distribution,
please see the section captioned “Material United States Federal Income Tax
Consequences—Consequences of the Merger and the E&P Distribution to U.S.
Holders of Our Common Shares” on page 59. You should consult your own
tax advisor for a full understanding of the tax consequences of the Merger and
the E&P Distribution to you.
If
I am a non-U.S. shareholder, what are the tax consequences of the Merger to
me?
The
tax consequences to non-U.S. shareholders are complex and will depend on various
factors. Non-U.S. shareholders are urged to consult with their own
tax advisors, especially concerning the Foreign Investment in Real Property Tax
Act of 1980, U.S. federal income tax withholding rules and the possible
application of benefits under an applicable income tax
treaty.
What
vote is required to approve the Merger?
While
Maryland law and our Declaration of Trust only require the affirmative vote of
the holders of a majority of our Common Shares to approve the Merger, under the
Merger Agreement, approval of the Merger requires the affirmative vote of the
holders of two-thirds of our Common Shares that are issued and outstanding on
the record date. We urge you to complete, execute and return the
enclosed proxy card to assure the voting of your shares at the special
meeting.
As
noted above, the Wilson Family Shareholders, who own an aggregate of 2,650,720
Common Shares of our Company (representing 47% of our outstanding fully diluted
Common Shares) have agreed to vote their shares in favor of the Merger and the
Declaration of Trust Amendment and other trustees and officers of our Company
who own an aggregate of 416,949 of our Common Shares (representing 7.4% of our
outstanding fully diluted Common Shares) have indicated they will vote their
shares for the Merger and the Declaration of Trust
Amendment.
FCP
has advised us that it has entered into an arrangement with Mr. Isaac who,
together with certain related persons and affiliates, beneficially owns an
aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding
fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all
of his related persons and affiliates would make a passive indirect investment
in the Surviving Entity of the Merger immediately after the closing of the
Merger and have agreed to vote 829,529 of the Common Shares that they own
(representing 14.8% of
our
outstanding fully diluted Common Shares) in favor of the Merger and the
Declaration of Trust Amendment at the special meeting. These Common
Shares, combined with the Common Shares owned by the Wilson Family Shareholders
and our other trustees and executive officers, comprise, in the aggregate,
3,897,198 of our Common Shares (representing 69% of our outstanding fully
diluted Common Shares), and represent a sufficient number of votes to approve
the Merger and the Declaration of Trust Amendment at the special
meeting.
What
rights do I have if I oppose the Merger?
You
can vote against the Merger by indicating a vote against the proposal on your
proxy card and signing and mailing your proxy card or by voting against the
Merger in person at the special meeting. Because our Common Shares
are listed on NYSE Amex, you are not entitled to dissenters’ or appraisal rights
under Maryland law.
Why
is the Declaration of Trust being amended and what vote is required to approve
the Declaration of Trust Amendment?
You
are also being asked to consider and vote upon an amendment to our Declaration
of Trust to cause Section 5.3.3 to be of no operation or effect. This
amendment would suspend the requirement that we make a minimum distribution to
our shareholders in connection with our net taxable income that is allocable to
our shareholders. The amendment would render such section
inapplicable for the fiscal year ending December 31, 2009 and subsequent
thereto, unless the Merger Agreement is terminated and our Board of Trustees
makes a public announcement that Section 5.3.3 will thereafter be operative and
in effect. Our Board of Trustees approved the Declaration of Trust
Amendment and is recommending that our common shareholders vote to approve such
proposal because the Merger Consideration to which we, FCP and Merger Sub agreed
under the Merger Agreement was premised on the mutual understanding that no
distributions of any kind would be made by us with respect to our Common Shares
in the future so long as the Merger Agreement remains in effect. The
Merger Agreement provides that if we make any distributions with respect to our
Common Shares, the Merger Consideration will be reduced
accordingly.
Approval of the Declaration of Trust Amendment
requires the affirmative vote of the holders of two-thirds of our Common Shares
that are issued and outstanding on the record date.
Do
both the Merger and Declaration of Trust Amendment need to be approved to
consummate the Merger?
In
order for us to consummate the Merger, BOTH the Merger and the Declaration of
Trust Amendment must be approved by our common shareholders. The
obligations of FCP and Merger Sub to consummate the Merger are conditioned on,
among other things, approval by our shareholders of the Declaration of Trust
Amendment. If the Declaration of Trust Amendment is not approved, we
will not be able to consummate the Merger unless FCP and Merger Sub waive this
condition.
If
both the Merger and the Declaration of Trust Amendment are approved by our
common shareholders, we expect to file the Declaration of Trust Amendment with
the SDAT as soon as practicable to effectuate such amendment. In the
unlikely event that the Declaration of Trust Amendment is approved, but the
Merger is not approved, our Board of Trustees may elect not to file the
Declaration of Trust Amendment with the SDAT.
What
vote of our common shareholders is required to approve an adjournment of the
special meeting?
Approval of any adjournment of the special meeting
to solicit additional proxies requires the affirmative vote of a majority of the
votes cast on such proposal.
Who
is entitled to vote at the special meeting?
Only
our common shareholders of record at the close of business on the record date,
November 27, 2009, are entitled to receive notice of and to attend the special
meeting and to vote the shares that they held on that date at the special
meeting, or any postponements or adjournments of the special
meeting. Each common shareholder has one vote for each Common Share
owned at the close of business on the record date. As of the record
date, there were 134 common shareholders of record holding 5,622,660 Common
Shares entitled to vote at the special meeting. We currently have no
preferred shares outstanding.
What
is the location, date and time of the special meeting?
The special
meeting will be held at 10:00 a.m., local time, on Tuesday, December 22, 2009,
at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus Drive,
Waldorf, Maryland.
What
happens if I sell my Common Shares before the special meeting or before the
completion of the Merger?
If you held
your Common Shares on the record date but transfer them prior to the date of the
special meeting, you will retain your right to vote at the special meeting, but
not the right to receive the Merger Consideration for the Common
Shares. The right to receive such consideration will pass to the
person who owns your Common Shares when the Merger becomes
effective.
How
do I vote?
If you are a
registered holder of our Common Shares and properly complete and sign the proxy
card attached to this proxy statement and return it to us prior to the special
meeting, your shares will be voted as you direct. If you are a
registered shareholder and attend the special meeting, you may deliver your
completed proxy card or vote in person. If you elect to vote in
person at the special meeting and your shares are held by a broker or nominee,
you must bring to the special meeting a legal proxy from the broker or nominee
authorizing you to vote your shares.
If you fail
to either return your proxy card or vote in person at the special meeting, or if
you mark your proxy card ABSTAIN, the effect will be the same as a vote against
the Merger and against the Declaration of Trust Amendment. For the
purposes of the vote to adjourn the special meeting to solicit additional
proxies, abstentions and broker non-votes, if any, will not be counted as votes
cast and will have no effect on the result of the vote. If you sign
and return your proxy card and fail to indicate your vote on your proxy, your
shares will be voted FOR the Merger, FOR the Declaration of Trust Amendment, and
FOR any adjournment of the special meeting to solicit additional
proxies.
If
my Common Shares are held for me by my broker, will my broker vote my shares for
me?
If you hold
your Common Shares in “street name” through a broker, bank or other nominee,
your broker, bank or nominee will not vote your shares unless you provide
instructions on how to vote. You should instruct your broker, bank or
nominee how to vote your shares by following the instructions of your broker,
bank or nominee. If you do not provide instructions to your broker,
bank or nominee, your Common Shares will not be voted and this will have the
same effect as a vote against the proposals to approve the Merger and the
Declaration of Trust Amendment.
How
will proxy holders vote my Common Shares?
If you
complete and properly sign the proxy card attached to this proxy statement and
return it to us prior to the special meeting, your Common Shares will be voted
as you direct. Unless you give other instructions on your proxy card,
the persons named as proxy holders will vote your shares in accordance with the
Board of Trustees’ recommendation. Our Board of Trustees
recommends a vote FOR approval of the Merger and FOR approval of the Declaration
of Trust Amendment. Please see the section captioned “The
Merger—Recommendation of the Special Committee and Our Board of Trustees” on
page 29 and “Declaration of Trust Amendment—Recommendation of Our Board of
Trustees” on page 63.
How
can I change my vote after I have mailed my signed proxy card?
If you are a
registered holder of our Common Shares, you may change your vote by (i)
delivering to our Secretary, before the special meeting, a later-dated, signed
proxy card or a written revocation of your proxy or (ii) attending the special
meeting and notifying the chairman of the meeting that you would like your proxy
revoked and voting in person. The proxy holders will not exercise
your proxy
if you attend the special meeting in person and so
request; your attendance at the special meeting, however, will not, by itself,
revoke your proxy. Ifyou have instructed a broker or nominee to vote
your shares, you must follow the directions received from your broker or nominee
to change those instructions. Also, if you elect to vote in person at
the special meeting and your shares are held by a broker or nominee, you must
bring to the special meeting a legal proxy from the broker or nominee
authorizing you to vote your shares.
What
will happen to my Common Shares after completion of the Merger?
Following the completion of the Merger, your Common
Shares will be cancelled and will represent only the right to receive the Merger
Consideration. Trading in our Common Shares on the NYSE Amex will
cease and price quotations for our Common Shares will no longer be
available.
What
do I need to do now?
This
proxy statement contains important information regarding the Merger, the other
transactions contemplated by the Merger Agreement, and the Declaration of Trust
Amendment, as well as information about our Company and the other parties to the
Merger Agreement. It also contains important information about what
our Board of Trustees considered in approving the Merger. We urge to
you read this proxy statement carefully, including the
exhibits.
Should
I send my Common Share certificates now?
No. After the Merger is completed, a
paying agent will send you a letter of transmittal describing how you may
exchange your Common Share certificates for the Merger
Consideration. At that time, you must send in your Common Share
certificates or execute an appropriate instrument of transfer of your shares, as
applicable, with your completed letter of transmittal to the paying agent to
receive the Merger Consideration. If you hold your shares in “street
name,” your broker or nominee must surrender your shares following completion of
the Merger.
Where
can I find more information about American Community Properties
Trust?
We
file annual, quarterly and other periodic reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements, or other information we file with the Securities and
Exchange Commission at its public reference room in Washington, D.C. (100 F
Street, N.E. 20549). Our Securities and Exchange Commission filing
number is 001-14369. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
room. Our filings are also available to the public on the Internet, through a
website maintained by the Securities and Exchange Commission at http://www.sec.gov
and on our website at
www.acptrust.com. Information contained on our website is not part of, or
incorporated into, this proxy statement. Please see the section
captioned “Where You Can Find Additional Information” on page
68.
Whom
can I call with questions?
If
you have questions, require assistance voting your shares or need additional
copies of proxy materials, you may call:
Matthew
M. Martin
Chief
Financial Officer and Secretary
American
Community Properties Trust
222
Smallwood Village Center
St.
Charles, Maryland 20602
(301)
843-8600
Who
will solicit and pay the cost of soliciting proxies?
The
Company will pay the expenses related to printing, filing and mailing this proxy
statement. In addition to solicitation by mail and, without
additional compensation for such services, proxies may be solicited personally,
or by telephone or telecopy, by our officers or employees. We will
bear the cost of soliciting proxies. We will also request that
banking institutions, brokerage firms, custodians, trustees, nominees,
fiduciaries and other like parties
forward the solicitation materials to the beneficial
owners of Common Shares held of record by such persons, and we will, upon
request of such record holders, reimburse forwarding charges and out-of-pocket
expenses.
If
you have further questions, you may contact Matthew M. Martin, our Chief
Financial Officer and Secretary, at the address or telephone number indicated
above.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This
proxy statement contains certain forward-looking statements, including
statements relating to the financial condition, results of operations, plans,
objectives, future performance and businesses of our Company, as well as
information relating to the Merger, the Declaration of Trust Amendment, the
Merger Agreement and the transactions contemplated by the Merger Agreement,
including statements concerning the anticipated closing date of the Merger, the
conduct of the business of our Company if the Merger is not completed, tax
consequences of the Merger and the possibility that any of the conditions to
closing, including those outside our control, will be satisfied. The
Private Securities Litigation Reform Act of 1995 provides safe harbor provisions
for forward-looking information. These forward-looking statements are
based on current expectations, beliefs, assumptions, estimates and projections
about the current economic environment, our Company, the industry and markets in
which our Company operates. Words such as “believes,” “expects,”
“anticipates,” “intends,” “plans,” “estimates” and variations of such words and
similar words also identify forward-looking statements. Our Company
also may provide oral or written forward-looking information in other materials
released by the Company to the public.
You
should not place undue reliance on forward-looking statements because they
involve known and unknown risks, uncertainties and other factors which are, in
some cases, beyond our control. Although we believe that the
expectations reflected in any forward-looking statements that we made are based
upon reasonable assumptions, these risks, uncertainties and other factors may
cause our actual results, performance or achievements to differ materially from
anticipated future results, or the performance or achievements expressed or
implied by such forward-looking statements. Accordingly, there can be
no assurance that these expectations will be realized.
We
undertake no obligation to update or revise forward-looking statements in this
proxy statement to reflect changes in underlying assumptions or factors, new
information, future events or otherwise. Any forward-looking
statements speak only as of the date that they are made.
All
forward-looking statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained
or referred to in this section.
THE SPECIAL MEETING
The
special meeting will be held at 10:00 a.m., local time, on Tuesday, December 22,
2009, at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus
Drive, Waldorf, Maryland. At the special meeting, you will be
asked to consider and vote upon (i) the Merger pursuant to the terms of the
Merger Agreement (Proposal 1), (ii) the Declaration of Trust Amendment (Proposal
2) and (iii) any proposal to adjourn the special meeting to solicit additional
proxies in favor of approval of the Merger and the Declaration of Trust
Amendment if there are insufficient votes at the time of the special meeting to
approve both the Merger and the Declaration of Trust Amendment (Proposal
3).
Record
Date, Notice and Quorum Requirement
We
have set the close of business on November 27, 2009 as the record date for
determining those shareholders who are entitled to notice of, attend and vote
at, the special meeting. As of the record date, 5,622,660 Common
Shares were outstanding. We have no preferred shares of beneficial
interest outstanding.
The
presence at the special meeting, in person or by proxy, of holders of a majority
of the aggregate number of our Common Shares outstanding and entitled to vote on
the record date will constitute a quorum, allowing us to conduct the business of
the special meeting.
Shares
of a holder represented by a properly executed proxy marked ABSTAIN and a broker
non-vote will be counted as present for purposes of determining whether a quorum
is present at the special meeting but will not be voted.
Voting
Requirements for the Proposals
The
Merger
Under
the Merger Agreement, the proposal to approve the Merger requires the
affirmative vote of holders of at least two-thirds of our issued and outstanding
Common Shares entitled to vote at the special meeting.
Declaration
of Trust Amendment
Under
Maryland law and our Declaration of Trust, the proposal to approve the
Declaration of Trust Amendment requires the affirmative vote of holders of at
least two-thirds of our issued and outstanding Common Shares entitled to vote at
the special meeting. Approval of the Declaration of Trust Amendment
is a condition to the obligations of FCP to close the Merger.
Adjournments
Under
our Bylaws, any proposal to adjourn the special meeting to solicit additional
proxies in favor of approval of the Merger and the Declaration of Trust
Amendment if there are insufficient votes at the time of the special meeting to
approve both the Merger and the Declaration of Trust Amendment will require the
affirmative vote of holders of at least a majority of the votes cast on the
proposal at the special meeting.
Other
Voting Matters
Abstentions
and broker non-votes will have the same effect as a vote against the proposals
to approve the Merger and to approve the Declaration of Trust
Amendment. For purposes of the vote to adjourn the special meeting to
solicit additional proxies, abstentions and broker non-votes, if any, will not
be counted as votes cast and will have no effect on the result of the
vote.
Each
Common Share is entitled to one vote. If you hold your Common Shares
in “street name” (that is, through a broker or other nominee), your broker or
nominee will not vote your shares unless you provide instructions to your broker
or nominee on how to vote your shares. You should instruct your
broker or nominee how to vote your shares by following the directions provided
by your broker or nominee.
Proxies;
Revocation of Proxies
Any
of our common shareholders of record entitled to vote at the special meeting may
vote by returning the enclosed proxy card or by appearing and voting at the
special meeting in person. If you hold your Common Shares in “street
name” (that is, through a broker, bank or other nominee), your broker, bank or
nominee will not vote your shares unless you provide instructions to your
broker, bank or nominee on how to vote your shares. Accordingly, you
should instruct your broker, bank or nominee how to vote your shares by
following the directions provided by your broker, bank or nominee. If
you wish to vote in person at the special meeting and your Common Shares are
held by a broker, bank or nominee, you must bring to the special meeting a legal
proxy from the broker, bank or nominee authorizing you to vote your Common
Shares. It can often take several days to obtain a legal proxy from a
broker, bank or nominee.
Even
after you have properly submitted your proxy card, you may change your vote at
any time before the proxy is voted by delivering to our Secretary a duly
executed proxy bearing a later date. In addition, the proxy holders
will not exercise your proxy if you attend the special meeting in person and
notify the chairman of the meeting that you would like your proxy
revoked. Attendance at the special meeting will not by itself revoke
a previously granted proxy. If you have instructed a broker, bank or
nominee to vote your shares, you must follow the directions received from your
broker, bank or nominee in order to change your proxy instructions.
THE MERGER—PROPOSAL 1
THE PARTIES
American
Community Properties Trust.
American
Community Properties Trust is a self-advised and self-managed real estate
holding company that is primarily engaged in the business of investing in and
managing multifamily rental properties as well as community development and
homebuilding. ACPT’s operations are primarily concentrated in the
Washington, D.C. metropolitan area and Puerto Rico. As of September
30, 2009, we owned or maintained interests in 22 multifamily rental properties,
directly and through partnerships, containing an aggregate of 3,366 completed
units and 184 units that are currently under construction. In
addition, as of September 30, 2009, we owned two commercial buildings containing
approximately 75,000 square feet of leasable space and approximately 4,000 acres
of land in St. Charles, Maryland and 600 acres of land in Puerto
Rico. We were formed as a Maryland real estate investment trust on
March 17, 1997 to succeed to most of Interstate General Company L.P.’s (“IGC”)
real estate operations. On October 5, 1998, IGC transferred to ACPT
the common shares of four subsidiaries that collectively comprised the majority
of the principal real estate operations and assets of IGC. In
exchange, ACPT issued to IGC 5,207,954 Common Shares of ACPT, all of which were
distributed to the partners of IGC. We believe that we have qualified
and been taxable as a partnership for U.S. federal income tax purposes since
October 5, 1998. Our executive offices are located at 222 Smallwood
Village Center, St. Charles, Maryland, 20602, phone number (301)
843-8600. Our Common Shares currently are listed on the New York
Stock Exchange AMEX, or “NYSE Amex,” under the symbol “APO.” We
currently have no preferred shares outstanding.
FCP
Fund I, L.P.
Federal
Capital Partners is a Washington, .D.C.-based real estate investment
company that owns and manages a portfolio of multi-family office,
industrial and retail properties in the Mid-Atlantic region, including through
FCP Fund I, L.P., its equity fund, which we sometimes refer to in this proxy
statement as “FCP.” FCP’s executive offices are located at c/o
Federal Capital Partners, 1000 Potomac Street, Suite 120, Washington, D.C.
20007, phone number (202) 333-6030.
FCP/ACPT
Acquisition Company, Inc.
FCP/ACPT
Acquisition Company, Inc., which we sometimes refer to in this proxy statement
as “Merger Sub,” is a Maryland corporation and indirect subsidiary of FCP formed
for the sole purpose of effecting the Merger. Merger Sub has not
conducted any business operations other than in connection with the transactions
contemplated by the Merger Agreement. Merger Sub’s executive offices
are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite
120, Washington, D.C. 20007, phone number (202) 333-6030.
THE
MERGER
General
Description of the Merger
Overview
The
Merger Agreement provides for the Merger of Merger Sub with and into our
Company. Our Company will be the Surviving Entity in the Merger and
will be a subsidiary of FCP.
We
expect the Merger to occur as soon as practicable after our shareholders approve
the Merger and the Declaration of Trust Amendment and the satisfaction or waiver
of all other conditions to closing under the Merger Agreement. The
Merger will be completed when the articles of merger have been accepted for
record by the SDAT in accordance with Maryland law, or such later time as we and
Merger Sub may agree and designate in the articles of merger (not to exceed 30
days from the time the articles of merger are accepted for
record). We currently anticipate closing the Merger late in the
fourth quarter of 2009 or early in the first quarter of 2010.
Merger
Consideration to be Received by Holders of Our Common Shares
As
of the effective time of the Merger, holders of our Common Shares will have no
further ownership interest in the Surviving Entity. Instead, each
holder of our outstanding Common Shares immediately prior to the effective time
of the Merger will be entitled to receive $7.75 in cash per share, without
interest. However, the Merger Consideration is subject to adjustment
for certain dividend payments, if any (as described in this proxy
statement). At this time, we do not expect to make any dividends or
other distributions that would impact the Merger Consideration.
As
of the effective time of the Merger, each of our Common Shares that is owned by
us, by any of our subsidiaries or by FCP, Merger Sub or any of their
subsidiaries, other than shares held on behalf of third parties, will be
cancelled and retired and will cease to exist. No payment will be
made for any such cancelled shares.
Merger
Consideration to be Received by Holders of Restricted Shares and Share
Appreciation Rights
In
the Merger, each unvested restricted Common Share of our Company that, by its
terms, vests automatically upon the consummation of the Merger will fully vest
in accordance with its terms and be considered an outstanding Common Share for
all purposes, including the right to receive the Merger
Consideration. Each unvested restricted Common Share of our Company
that, by its terms, does not vest in connection with a change of control, such
as the Merger, will be cancelled and retired for no additional
consideration.
Additionally, in the Merger, each of the outstanding
share appreciation rights will be cancelled and in lieu thereof, each holder
will be entitled to receive an amount in cash equal to the product of (i) the
excess, if any, of the Merger Consideration over the base price per Common Share
underlying such share appreciation right multiplied by (ii) the number of Common
Shares subject to such share appreciation right. For more information
on these rights and privileges, see the section captioned “The Merger¾Interests
of Our Trustees, Executive Officers and Other Persons in the Merger” on page 37
of this proxy statement.
Merger
Vote Requirement
Pursuant
to the Merger Agreement, the affirmative vote of the holders of two-thirds of
our outstanding Common Shares entitled to vote at the special meeting is
required to approve the Merger. Common shares not voted at the
special meeting will have the same effect as a vote against the
Merger.
FCP
and Merger Sub have entered into a voting agreement with the Wilson Family
Shareholders who hold an aggregate of 2,650,720 of our Common Shares (which
represents 47% of our outstanding fully diluted Common
Shares). Pursuant to the voting agreement, the Wilson Family
Shareholders have agreed to vote their Common Shares in favor of the Merger and
the Declaration of Trust Amendment. The Wilson Family Shareholders
have agreed to vote against certain matters that would impact our ability to
timely complete the Merger as proposed herein. In addition, other
trustees and officers of our Company who own an aggregate of 416,949 of our
Common Shares (representing 7.4% of our outstanding fully diluted Common Shares)
have indicated that they will vote their shares in favor of the Merger and the
Declaration of Trust Amendment.
FCP
has advised us that it has entered into an arrangement with Mr. Isaac who,
together with certain related persons and affiliates, beneficially owns an
aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding
fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all
of such related persons and affiliates would make a passive indirect investment
in the Surviving Entity of the Merger immediately after the closing of the
Merger and have agreed to vote 829,529 of the Common Shares that they own
(representing 14.8% of our outstanding fully diluted Common Shares) in favor of
the Merger and the Declaration of Trust Amendment at the special
meeting. These Common Shares, combined with the Common Shares owned
by the Wilson Family Shareholders and our other trustees and executive officers,
comprise, in the aggregate, 3,897,198 of our Common Shares (representing 69% of
our outstanding fully diluted Common Shares), and represent a sufficient number
of votes to approve the Merger and the Declaration of Trust Amendment at the
special meeting.
Background
of the Merger
In
October 2008, following a change in senior management, we began exploring
strategic alternatives in an effort to identify a course of action that would
create shareholder value and position our Company to raise additional
capital
for growth. In November 2008, the Company engaged FBR to assist the
Company in analyzing potential strategic and structural alternatives. Between
November 2008 and March 2009, the Company, with the assistance of FBR, reviewed
its corporate and capital structure and their tax implications. Based
on this review, the Company concluded that, although the Company had originally
been structured so as to qualify as a real estate investment trust, or REIT, for
U.S. federal income tax purposes, the Company was not able to qualify as a REIT
due in part to the heavy concentration of ownership of the Company’s Common
Shares among a small number of shareholders. In February 2009, the Board of
Trustees met to consider the results of this review and concluded that its
current corporate and capital structure was inefficient from a tax perspective
and was adversely affecting the trading prices of its Common
Shares. As a consequence of this review, the Board of Trustees
determined to consider three potential alternatives for the
Company:
1) a
recapitalization pursuant to which the Company would issue shares of two new
classes of tracking shares in exchange for existing Company Common Shares, with
one class of the new tracking shares tracking the financial performance of the
Company’s multifamily apartment business and the other class of tracking shares
tracking the financial performance of the Company’s land and development
business. In connection with the recapitalization, the Company would
also seek to cause ARPT to qualify as a REIT. This alternative would
allow the Company to raise additional capital through the issuance of tracking
shares that tracked the financial performance of the Company’s apartment
business and, if the Company could cause American Rental Property Trust to
qualify as a REIT, would enable the Company to operate ARPT in a more
tax-efficient manner.
2) a
recapitalization pursuant to which the Company would either cause ARPT to
qualify as a REIT, or cause the Company to qualify as a REIT and move the
Company’s land and development business into a taxable REIT
subsidiary.
3) voluntarily
delisting and deregistering (“Going Dark”) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), as a result of which the Common Shares
would begin to trade in the over-the-counter market. This strategy
would reduce ongoing costs of being a public company, estimated to be between
$1.1 and $2.2 million annually, but continue to require the Company to provide
certain quarterly information to shareholders.
REIT
qualification, under any of these alternatives, was deemed to be important for
tax efficiency since this would allow the Company to avoid paying corporate tax
on its REIT taxable earnings to the extent such earnings were distributed to
shareholders. REIT qualification could only be achieved, however, by
raising additional equity capital to dilute the ownership percentage of the
Wilson Family Shareholders or by having the Wilson Family Shareholders sell down
their positions in order to satisfy certain REIT ownership tests.
At
the February 2009 Board meeting, the Board authorized FBR to contact both
financial and strategic investors in order to assess their level of interest in
a potential strategic investment in the Company in light of the three
alternatives under consideration. At the direction of the Board, FBR
contacted 42 potential strategic and financial investors, of which five
expressed an interest in exploring a potential transaction with the
Company. However, none of the parties whom FBR contacted ultimately
made an investment in the Company. At a Board meeting in April 2009,
the Board, with the assistance of FBR, reviewed the feedback received from the
potential financial and strategic investors contacted by FBR. After
reviewing this feedback, at the Board’s request, the Company’s Chief Executive
Officer, with the assistance of FBR, held face-to-face meetings with certain of
the Company’s existing significant minority shareholders in order to solicit the
views of those shareholders with respect to the Company and the alternative
strategies being considered by the Company.
The
feedback received in these discussions was that:
|
·
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the
Company was too small to remain a public
company,
|
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·
|
the
Company needed to implement a more tax-efficient corporate and capital
structure, presumably by qualifying all or a portion of its business as a
REIT,
|
|
·
|
the
tracking stock idea was not appealing given that the Company would
probably not be able to completely insulate its apartment business from
the liabilities associated with its land development business and would
add complexity to the Company’s corporate and tax
structures;
|
|
·
|
none
of the potential investors was interested in making a minority investment
in a small public company that was both inefficient from a tax standpoint
and controlled by an existing majority shareholder;
and
|
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·
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current
significant minority shareholders opposed Going Dark as long as the
Company continued to be controlled by a majority
shareholder.
|
As
of the result of this feedback, the Board of Trustees did not authorize
management of the Company to actively pursue any of the alternatives discussed
above.
In
May 2009, a party approached the Wilson Family Shareholders on an unsolicited
basis about the possibility of acquiring the Wilson Family Shareholders’ shares
in the Company for a price of $7.00 per share. The Wilson Family
Shareholders declined this offer.
In
June 2009, J. Michael Wilson, the Company’s Chairman, informed the Board that
the Wilson Family Shareholders were willing to sell at least 50% of their
Company Common Shares in order to address the ownership issues raised by the
minority shareholders and potential investors. The Board was
receptive to the Wilson Family Shareholders pursuing this strategy, so long as
the sale was to an investor or group of investors that would be willing to
invest additional capital in the Company or facilitate an alternative strategy
to create shareholder value. Mr. Wilson expressed a desire to engage
FBR to assist the Wilson Family Shareholders in locating a buyer or buyers for
the Wilson Family Shareholders’ shares. The Wilson Family believed
FBR would be best suited to help them locate potential purchasers of their
shares because of FBR’s familiarity with the Company and its assets and
structure gained in the course of its engagement as a financial advisor to the
Company in connection with the Company’s consideration of strategic
alternatives. At the request of the Wilson Family, the Board
determined to suspend its engagement of FBR in order to allow FBR to assist the
Wilson Family Shareholders with respect to the sale of their
shares.
In
June 2009, FBR was engaged by the Wilson Family Shareholders to assist them in
connection with a potential sale of the Wilson Family Shareholders’
shares. At the direction of the Wilson Family Shareholders, FBR
contacted 25 potential financial and strategic investors. Of those 25
potential investors, 14 signed confidentiality agreements and performed due
diligence and three ultimately submitted proposals to purchase the Wilson Family
Shareholders’ Common Shares as discussed below.
During
this process, FBR received feedback that was similar to the feedback received
from potential investors and existing shareholders during the earlier meetings
held in March, April and May 2009, and it became apparent that none of the
parties contacted were interested in acquiring a significant minority interest
in the Company. Accordingly, the Wilson Family Shareholders
determined that their best course of action was to sell their entire stake in
the Company and, at the direction of the Wilson Family Shareholders, FBR began
contacting potential purchasers of their entire interest. In July and August
2009, three of the parties that FBR contacted on behalf of the Wilson Family
Shareholders submitted non-binding indications of interest to acquire the Wilson
Family Shareholders’ shares for proposed purchase prices ranging from $6.00 per
share to $7.75 per share. The highest price expressed by one of the
initial bidders, which we refer to as Bidder A, was subject to a financing
contingency. FCP, which had already performed a significant amount of
due diligence on the Company, submitted a non-binding indication of interest of
$7.15 per share with no financing contingency. The lowest bid of
$6.00 per share was submitted by a group of high net worth individuals, which we
refer to collectively as Bidder B. Both FCP and Bidder B also
indicated in their indications of interest that any purchase by them of the
Wilson Family Shareholders’ shares would be conditioned on their ability to buy
out the remaining Company shareholders through a subsequent tender offer or
other subsequent purchase transaction and/or to cause the Company to delist its
Common Shares from any national securities exchange and deregister the Company
under the Exchange Act (i.e., Go Dark).
Based
on its demonstrated ability and willingness to work towards consummating a
transaction expeditiously, its reputation, the professionalism demonstrated by
its representatives and the fact that it had performed a significant amount of
due diligence in the Company and that its offer was not subject to any financing
contingency, the Wilson Family Shareholders believed that FCP seemed to be the
most likely of the three bidders to be able to complete the purchase of their
interest in the Company on an expedited basis. After numerous
discussions, the Wilson Family Shareholders determined that they would accept
FCP’s offer if FCP would increase the price to $7.50 per share. FCP
agreed to the $7.50 per share price, subject to a meeting with the Board of
Trustees
to describe FCP’s strategic plans for the Company following such purchase of the
Wilson Family Shareholders’ shares to gauge the level of support that it would
receive from the Board regarding its plans for the Company.
In
late August 2009, subsequent to the Wilsons’ entering into exclusive
negotiations with FCP, the Company received, on an unsolicited basis, a
non-binding indication of interest from a private real estate investment fund,
which we refer to as Company A, to acquire the Company for a price of $8.00
per share, subject to due diligence and negotiation of definitive
documents.
In
response to FCP’s request to meet with the Board of Trustees, on September 1,
2009, the Board of Trustees met with representatives from FCP. These
representatives from FCP discussed their strategic plans for the Company,
including their interest to acquire the remaining outstanding Common Shares of
the Company following FCP’s purchase of the Wilson Family Shareholders’
shares.
After
meeting with FCP, the Board discussed FCP’s proposal to acquire the Wilson
Family Shareholders’ shares and its strategic plans for the Company and also
considered the unsolicited proposal that it had received from Company A to
acquire the Company for a price of $8.00 per share as described
above. The Board concluded that FCP’s proposal to the Wilson Family
Shareholders was only the first step of a proposed series of related
transactions to ultimately acquire the entire Company and determined to view the
FCP proposal to the Wilson Family Shareholders as a proposal to acquire the
entire Company.
In
light of the Board’s views regarding the Company’s prospects as a standalone
business and FCP’s stated intention to acquire the entire Company, the Board
determined that it would be advisable to engage in discussions with FCP about
acquiring the Company in a single transaction, rather than permitting FCP to
acquire the Wilson Family Shareholders’ shares without a firm commitment or
obligation to purchase the outstanding Common Shares of the minority
shareholders at the same price. The Board also expressed concern
regarding the effect on the minority shareholders if the Company were to Go
Dark.
After
further deliberation, at its September 1, 2009 meeting, the Board asked FBR
to invite FCP to make a proposal to acquire the Company at a price higher than
$7.50 per share and informed FCP that its approval of any acquisition of the
Company by FCP would be conditioned upon being able to conduct a post-signing
market check.
The
FCP representatives returned to meet with the Board of Trustees later in the day
on September 1, 2009, and outlined a proposal to acquire the Company in an
all-cash merger for a price of $7.75 per share, with no financing contingency,
subject to a 21-day “go-shop” arrangement that would commence after execution of
a definitive agreement and, upon the occurrence of certain events, reciprocal
termination fees of $1.75 million. The Board also discussed the
proposal by Company A and the fact that Company A had not performed a meaningful
due diligence investigation of the Company.
On
September 2, 2009, the Board Trustees met to consider FCP’s proposal and to
consider again the proposal from Company A. At that meeting
representatives of the Company’s counsel suggested that the Board consider
forming a Special Committee of independent and disinterested trustees to
evaluate FCP’s proposal and the other strategic alternatives available to the
Company. On September 2, 2009, the Board established a Special
Committee of Trustees, referred to as the “Special Committee,” comprised of the
Company’s five independent and disinterested trustees and the Special Committee
determined to engage a financial advisor and independent counsel.
On
September 3, 2009, the Special Committee met again to discuss the engagement of
a financial advisor and counsel. After extensive discussion, the
Special Committee determined that it would be in the best interests of the
Company to engage FBR as the Special Committee’s financial
advisor. The Special Committee members considered the prior
relationships between FBR and the Company and the then current relationship
between FBR and the Wilson Family Shareholders and the risk that those
relationships would impair FBR’s ability to provide independent financial advice
to the Special Committee. The Special Committee also considered the
extensive experience and knowledge gained by FBR from working with the Company
and the fact that FBR had already assisted the Wilson Family Shareholders in
identifying potential parties that could be interested in acquiring all or a
majority of the outstanding shares owned by the Wilson Family
Shareholders. The Special Committee considered the additional cost
and potential delay that would likely be incurred if the Special Committee
engaged a new financial advisor that would have to spend significant amounts of
time becoming familiar with the Company and the parties most likely to be
interested in acquiring the Company. Following those deliberations,
the Special Committee
concluded
that the interests of the Company and its shareholders, including those
shareholders unaffiliated with the Wilson Family Shareholders, would be best
served if FBR were engaged as the Special Committee’s financial advisor,
provided FBR entered into agreements with (i) members of the Wilson Family
Shareholders terminating the engagement agreement between FBR and the Wilson
Family Shareholders and confirming that FBR would not be entitled to any fees
under the terms of FBR’s engagement by the Wilson Family Shareholders whether or
not any sale transaction occurred after the date of such termination and (ii)
the Company terminating the engagement between FBR and the Company and
confirming that FBR would not be entitled to any additional fees under the terms
of FBR’s engagement by the Company regardless of whether a sale transaction
occurred after the date of such termination. The Special Committee
further determined that Hunton & Williams LLP (“Hunton & Williams”), the
Company’s counsel, should continue to be involved, as company counsel, in the
process relating to the strategic alternatives available to the Company given
its institutional knowledge about the Company and lack of other conflicts, but
that the Special Committee would also need its own independent
counsel. After extensive discussion with representatives from FBR and
Hunton & Williams, the Special Committee engaged FBR as its financial
advisor and determined to engage Venable LLP (“Venable”) as the Special
Committee’s independent counsel, subject to interviewing representatives from
Venable and negotiating the terms of Venable’s engagement.
On
September 4, 2009, the Special Committee met again to discuss
communications received from Ross Levin, one of the Company’s trustees,
regarding the process being undertaken by the Special Committee and Mr. Levin’s
belief that Paul Isaac, Mr. Levin’s employer and the beneficial owner of
approximately 11% of the Company’s outstanding Common Shares at the time, might
have an interest in submitting a proposal to acquire the Company on terms more
favorable than the terms proposed by FCP. Mr. Levin had indicated
that he believed Mr. Isaac may have an interest in acquiring the Company at the
September 1, 2009 Board meeting as well, but when asked whether he had any
specific knowledge that Mr. Isaac was interested in making a proposal to acquire
the Company, Mr. Levin said that he did not, but that he believed the Company
should undertake a more open process to sell the Company rather than first
entering into an agreement in principle with FCP that contained an exclusive
negotiating provision and then undertaking a market check of that transaction
after entering into a definitive agreement with FCP. The Special
Committee also considered the fact that FCP had indicated that it would cease to
engage in further discussions with the Company unless the Company agreed to
negotiate with FCP on an exclusive basis for a reasonable period of time with a
view towards entering into a definitive agreement with an appropriate market
check after execution of a definitive agreement. Although the Special
Committee considered carefully Mr. Levin's recommendations regarding the
Company's review of strategic alternatives, the Special Committee determined
that the Company's shareholders would be best served by negotiating initially on
an exclusive basis with FCP. As a result, on September 13, 2009,
the Special Committee approved and entered into a non-binding term sheet with
FCP that contained a binding agreement to negotiate with FCP on an exclusive
basis until September 23, 2009. This term sheet with FCP
provided for the merger of the Company with FCP for cash consideration of $7.75
per share, a 21-day go-shop arrangement following execution of a definitive
merger agreement and a mutual break-up fee of $1.75 million.
On
September 8, 2009, Mr. Levin resigned as a trustee of the
Company. In his resignation letter, Mr. Levin objected to the
Company’s strategy of pursuing negotiation of a merger on an exclusive basis
with one potential buyer rather than having a more open auction-like
process.
On
September 9, 2009, the Board of Trustees met to discuss Mr. Levin’s resignation
and the Company’s obligation to announce his resignation in a Current Report on
Form 8-K. The Board and its advisors also discussed the need, in
light of Mr. Levin’s resignation, to announce the fact that the Board had formed
the Special Committee to explore strategic alternatives, including a possible
sale of the Company. On September 14, 2009, the Company filed a Current Report
on Form 8-K announcing Mr. Levin’s resignation, the formation of the Special
Committee and the execution of a non-binding indication of interest containing
an exclusive negotiating agreement.
On
September 10, 2009, the Special Committee held a telephonic meeting at which it
reviewed the status of discussions with FCP with the assistance of its legal and
financial advisors.
At
a meeting of the Special Committee held on September 11, 2009, the Special
Committee reviewed the prior processes undertaken by the Company and the Wilson
Family Shareholders, including the strategic alternatives previously considered
by the Company, and the efforts of the Wilson Family Shareholders to solicit the
purchase of all or a significant portion of their Common Shares. In
addition, the Special Committee considered a request from FCP for the Company to
reimburse up to $1 million in FCP’s transaction-related expenses in the event
the Company was to enter into a definitive agreement relating to the acquisition
of 50% or more of the Company’s Common
Shares
or assets with a party other than FCP. The Special Committee directed
its chairman, with the assistance of its legal and financial advisors, to
negotiate terms of a cost reimbursement agreement as well as certain other
proposed terms of a transaction with FCP, including the duration of the go-shop
period, termination fees and the vote required for shareholders to approve the
transaction.
Later
in the evening on September 11, 2009, the Special Committee held another meeting
to discuss the status of negotiations with FCP regarding certain proposed
transaction terms and FCP’s expense reimbursement request. The
Special Committee authorized approval of a cost reimbursement agreement in which
the Company would reimburse FCP up to $300,000 in transaction-related expenses
incurred from September 8, 2009 forward in the event that the Company was to
enter into a definitive agreement relating to the acquisition of 50% or more of
the Company’s Common Shares or assets with a party other than FCP within 180
days from the end of the exclusivity period. On September 25, 2009,
the terms of this cost reimbursement agreement were generally subsumed in the
terms of the Merger Agreement.
At
a meeting of the Special Committee on September 18, 2009, the Special Committee
discussed proposed terms of the Merger Agreement with the assistance of its
legal and financial advisors. In addition, the Special Committee
reviewed how the post-signing market check would work, including the parties
that would be contacted during the go-shop period and the due diligence
materials that would be available to qualified bidders in an online data
room. The Special Committee also discussed a letter sent to the
Company’s trustees from counsel to one of the Company’s shareholders regarding
the scope of the process undertaken by the Company and requesting certain due
diligence materials. The Special Committee directed its legal
advisors to respond by letter to such shareholder’s counsel. In that
response, the Special Committee’s legal advisors informed such shareholder’s
counsel that the Special Committee acknowledged receipt of the letter and would
consider the letter promptly and carefully.
During
the following days, the Special Committee, with the assistance of its
legal and financial advisors and the Company’s outside legal counsel,
continued to negotiate the terms and conditions of the draft Merger Agreement
with FCP and its counsel. In particular, the Special Committee, in an
effort to ensure that the terms of the Merger Agreement would not preclude other
potential bidders from submitting proposals that might be superior during the
go-shop period, negotiated a longer go-shop period of 30 days and a reduced
break-up fee if we terminated the Merger Agreement in favor a superior proposal
(as defined in the Merger Agreement) during the go-shop period or otherwise from
a bidder identified during the go-shop period with whom negotiations or
discussions were continuing at the end of the go-shop period. In
addition, in an effort to ensure that the Company’s minority shareholders have a
meaningful vote with respect to the proposed Merger, the Special Committee
negotiated a super-majority shareholder approval provision, which requires
approval of the holders of two-thirds of the Company’s outstanding Common
Shares, notwithstanding the fact that only a majority vote is required under
Maryland law and the Company’s Declaration of Trust.
On
September 22, 2009, the Special Committee met to discuss the proposed terms of
the draft Merger Agreement and to consider whether to propose extending the
exclusive negotiating period with FCP beyond September 23, 2009. The
Special Committee reserved judgment on the issue of extending the exclusivity
period.
At
a meeting of the Special Committee on September 23, 2009, Venable reviewed the
duties of trustees under applicable law and certain proposed terms of the
transaction with FCP. The Special Committee discussed at length the
strategic review process and the potential effects on the Company’s minority
shareholders in the event that the Wilson Family Shareholders were to sell their
shares to a third party. Later in the evening on September 23, 2009,
the Special Committee held another meeting to review the status of the
negotiations with FCP with the assistance of its legal and financial
advisors. The Special Committee also reviewed the strategic
alternative process previously conducted by the Company, and the efforts of the
Wilson Family Shareholders to solicit the purchase of all or a significant
portion of their Common Shares. The Special Committee approved an
extension of the exclusivity period with FCP until September 30, 2009, in order
to provide the Special Committee further time to consider the proposed terms of
a transaction with FCP and to enable both parties to continue to negotiate
remaining open issues.
On
September 24, 2009, the Company filed a Current Report on Form 8-K announcing an
extension of the exclusive negotiating period with FCP until September 30,
2009.
On
September 25, 2009, the Special Committee met in executive session with Venable,
during which Venable reviewed the duties of trustees under applicable law and
members of the Special Committee reconfirmed
their
independence. At the invitation of the Special Committee,
representatives from FBR and Hunton & Williams participated in a portion of
the meeting, along with Matthew Martin, the Company’s Chief Financial
Officer. Hunton & Williams reviewed in detail the terms of the
proposed Merger Agreement. The Special Committee again reviewed the strategic
alternatives previously considered by the Company, and the efforts of the Wilson
Family Shareholders to solicit the purchase of all or a significant portion of
their Common Shares. At the request of the Special Committee, FBR
then reviewed its financial analysis of the Company and the proposed merger and
delivered its oral opinion to the Special Committee (which was subsequently
confirmed by delivery of FBR’s written opinion dated the same date), to the
effect that, as of September 25, 2009, the per share Merger Consideration of
$7.75 to be received the Unaffiliated Holders in the proposed Merger pursuant to
the Merger Agreement was fair to such Unaffiliated Holders from a financial
point of view. The Special Committee discussed at length the
foregoing matters. The Special Committee then unanimously determined
(i) that the sale of the Company is the best strategic alternative available to
the Company, (ii) that the proposed definitive Merger Agreement with FCP and
Merger Sub and the transactions contemplated thereby and the Declaration of
Trust Amendment are advisable and in the best interests of the Company, (iii) to
recommend that the Board of Trustees determine that the Merger, on the terms set
forth in the Merger Agreement, and the Declaration of Trust Amendment are
advisable and in the best interests of the Company and (iv) to recommend that
the Board of Trustees direct that each of the Merger and the Declaration of
Trust Amendment be submitted to the shareholders of the Company for their
approval and that the Board of Trustees recommend that the shareholders of the
Company approve the Merger and the Declaration of Trust
Amendment.
At
a meeting of the Board of Trustees immediately following the Special Committee
meeting, the chairman of the Special Committee reported to the Board of Trustees
that the Special Committee had unanimously determined to recommend that the
Board of Trustees approve the proposed Merger between the Company and Merger Sub
pursuant to the terms of the Merger Agreement and the Declaration of Trust
Amendment. The Special Committee then recommended that the Board of
Trustees (a) approve the proposed Merger with Merger Sub pursuant to the terms
of the Merger Agreement and the Declaration of Trust Amendment and (b) recommend
to the shareholders of the Company approval of the Merger pursuant to the terms
of the Merger Agreement and the Declaration of Trust Amendment. The
Board of Trustees (other than Messrs. Wilson and Griessel, who abstained from
deliberating or voting), having considered the recommendation of the Special
Committee regarding the proposed Merger with Merger Sub, the terms of the
Merger, alternatives to the Merger and the risks and benefits of the Merger, in
addition to various other factors, including the opinion of FBR, then (i)
determined that the Merger with Merger Sub and the transactions contemplated by
the proposed Merger Agreement with FCP and Merger Sub and the Declaration of
Trust Amendment are in the best interests of the Company, (ii) approved the
Merger with Merger Sub and the transactions contemplated by the proposed Merger
Agreement and the Declaration of Trust Amendment and (iii) resolved to recommend
that the shareholders of the Company vote FOR approval of the Merger and FOR
approval of the Declaration of Trust Amendment at a special meeting of
shareholders to be held for such purposes.
Following
this meeting, the Merger Agreement was finalized and executed on September 25,
2009. On the evening of September 25, 2009, the Company issued a
press release announcing that it had entered into the Merger Agreement with FCP
and Merger Sub. In addition, on September 25, 2009, the Wilson Family
Shareholders entered into a voting agreement with FCP and Merger
Sub. On September 28, 2009, the Company filed a Current Report on
Form 8-K reporting that it had entered into the Merger Agreement and the Wilson
Family Shareholders had entered into a voting agreement with FCP and Merger
Sub.
At
the Special Committee’s request, representatives of FBR promptly began
contacting parties to solicit their interest in acquiring the Company.
Representatives of FBR contacted 57 parties, including public and private real
estate companies, institutional investors and significant minority shareholders
of the Company, in order to determine whether they would be interested in
submitting an acquisition proposal to the Company.
At
the Special Committee’s request, FBR requested that all parties that had
indicated an interest in submitting an acquisition proposal and that had
executed confidentiality agreements with the Company, or were in the process of
negotiating the same, submit written proposals to acquire the Company along with
any proposed revisions to a draft form of merger agreement previously provided
on behalf of the Special Committee by 12:00 pm, Eastern time, on October 23,
2009, in order to provide an opportunity to review and negotiate improvements to
any proposal received prior to the close of the go-shop period. As of
the end of the go-shop period on October 28, 2009, ten potential bidders had
executed confidentiality agreements with the Company and had been provided
access to the data room. As of October 28, 2009, other than FCP, no
potential bidder had submitted an acquisition proposal to acquire the
Company.
On
each of September 30, October 1, October 2 and October 6, 2009, Mr. Isaac filed
a Statement of Changes in Beneficial Ownership on Form 4 disclosing that,
between September 28, 2009 and October 2, 2009, he had acquired, indirectly
through one of his controlled entities, an aggregate of 146,392 of our Common
Shares in open market transactions.
On
October 7, 2009, Mr. Isaac filed an amendment to his Schedule 13D disclosing the
acquisition of an aggregate of 146,392 of our Common Shares in open market
transactions, as previously disclosed on his Statements of Changes in Beneficial
Ownership on Form 4 described above, increasing the total number of our Common
Shares that he beneficially owns to 865,329 shares. In the amendment
to his Schedule 13D, Mr. Isaac disclosed that he was continuing to review the
proposed Merger that we had announced on September 25, 2009 and his alternatives
with respect to his investment in light of the pending Merger.
We
were informed by FCP that, on October 1, 2009, representatives from FCP met with
Mr. Isaac at the request of Mr. Isaac and without any solicitation from, or any
initiation on the part of, FCP or any of its representatives. At this
meeting, Mr. Isaac informed the representatives of FCP that he was considering
his alternatives with respect to his investment in the Company and expressed his
interest in possibly participating in the transaction on the buy-side with
FCP. Representatives of FCP informed Mr. Isaac at this meeting that
they did not wish to take any action that would jeopardize the Merger or
otherwise be viewed as being unfavorable to the shareholders of the Company, but
that they would consider his request.
After
careful consideration by its principals, on October 9, 2009, representatives of
FCP informed Mr. Isaac that it would be willing to consider, on a non-binding
basis, a passive investment by Mr. Isaac and certain of his related and
affiliated persons. Subsequently, the parties and their respective
representatives engaged in a number of follow-up discussions regarding the
viability of such a transaction and the possible terms of such
arrangement. On October 15, 2009, FCP informed the Special Committee
that it was considering a possible arrangement whereby Mr. Isaac and
substantially all of his related persons and affiliates would make a passive
indirect investment in the Surviving Entity.
On
October 16, 2009, the Special Committee met to discuss the possible arrangement
that Mr. Isaac and FCP were discussing and the impact of such an arrangement on
the Company and the Merger.
On
November 10, 2009, FCP entered into a voting agreement and a purchase agreement
pursuant to which Mr. Isaac and substantially all of his related persons and
affiliates would make a cash capital contribution in exchange for a passive
indirect investment in the Surviving Entity. In addition, Mr. Isaac and such
related persons and affiliates have agreed to vote in favor of the Merger and
the Declaration of Trust Amendment. The material terms of such
arrangement are more fully described under “—Voting and Passive Investment
Arrangement with Paul J. Isaac.”
FCP
has informed us that, prior to the meeting on October 1, 2009, which the parties
held at Mr. Isaac’s request, neither it nor any of its affiliates had had any
prior discussions or meetings with Mr. Isaac or any of his related and
affiliated persons, nor had it contemplated or considered initiating any such
discussions or meetings, regarding the Merger, the Declaration of Trust
Amendment or any of the other transactions contemplated by the Merger Agreement,
or any possible investment by Mr. Isaac and any of his related and affiliated
persons in the Surviving Entity. In addition, no discussions
regarding such potential investment were held between FCP, on one hand, and Mr.
Isaac and any of his related and affiliated persons, on the other hand, after
such meeting on October 1, 2009 and prior to October 9, 2009, when FCP informed
Mr. Isaac that it would consider a passive investment by Mr. Isaac and certain
of his related and affiliated persons.
Recommendation
of the Special Committee and Our Board of Trustees
Our Board of Trustees recommends that
holders of our Common Shares vote FOR approval of the Merger, FOR approval of
the Declaration of Trust Amendment and FOR any proposal to adjourn the Special
Meeting to solicit additional proxies if there are insufficient votes at the
time of the special meeting to approve both the Merger and the Declaration of
Trust Amendment. At a
meeting held on September 25, 2009, the Special Committee unanimously
recommended the Board of Trustees determine that the Merger, on the terms set
forth in the Merger Agreement, and the Declaration of Trust Amendment, are
advisable and in the best interests of the Company. The Board of
Trustees, at a meeting held on September 25, 2009, approved the execution
of the Merger Agreement and declared the Merger Agreement and the Declaration of
Trust Amendment advisable and in
the best interests of the Company and further
determined to recommend that our shareholders vote FOR approval of the Merger
and FOR approval of the Declaration of Trust Amendment. The two
members of our Board of Trustees who are not independent and disinterested,
Stephen K. Griessel and J. Michael Wilson, abstained from this
vote. All other members of the Board of Trustees voted in favor of
declaring the Merger Agreement and the Declaration of Trust Amendment advisable
and determining to recommend that our shareholders vote FOR approval the Merger
and FOR approval of the Declaration of Trust Amendment. The approval of our
Board of Trustees was made based on the recommendation of the Special Committee
and after the careful consideration of a variety of business, financial and
other factors and consultation with its advisors.
Reasons
for the Merger
In
deciding to approve the Merger on the terms set forth in the Merger Agreement,
our Board of Trustees and the Special Committee considered a number of factors,
both potentially positive and potentially negative, with respect to the Merger
and the other transactions contemplated by the Merger Agreement.
Some
of the potentially positive factors that our Board of Trustees and the Special
Committee considered include:
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Premium—the Merger
Consideration represents a significant premium over the market price of
our Common Shares prior to the Company’s announcement on September 14,
2009, that it had formed a Special Committee to explore strategic
alternatives, including a possible sale of the Company. The Merger
Consideration represents:
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a
$1.13, or 17%, premium over the closing price of our Common Shares on
September 14, 2009, the last trading day before we announced that we were
considering various strategic alternatives, including a possible sale of
the Company;
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a
$0.90, or 13%, premium over the volume-weighted average closing price of
our Common Shares for the 10-trading day period ending September 14,
2009;
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a
$1.60, or 26%, premium over the volume-weighted average closing price of
our Common Shares for the 30-trading day period ending September 14,
2009;
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a
$1.62, or 26%, premium over the volume-weighted average closing price of
our Common Shares for the 60-trading day period ending September 14,
2009;
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a
$1.21, or 18%, premium over the volume-weighted average closing price of
our Common Shares for the 90-trading day period ending September 14, 2009;
and
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a
$3.39, or 78%, premium over the volume-weighted average closing price of
our Common Shares for the 180-trading day period ending September 14,
2009;
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the
financial analysis reviewed and discussed with the Special Committee by
representatives of FBR, as well as the oral opinion of FBR to the Special
Committee on September 25, 2009 (which was subsequently confirmed by
delivery of FBR’s written opinion dated the same date) with respect to the
fairness, from a financial point of view, to the Unaffiliated Holders of
the per share Merger Consideration to be received by the Unaffiliated
Holders in the proposed Merger pursuant to the Merger
Agreement;
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the
high probability that the Merger would be completed based on, among other
things, the lack of any financing condition and the substantial financial
resources of FCP;
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the
fact that our Common Shares have historically traded with very low volume
on the NYSE Amex and that the Merger will create immediate liquidity for
all of our shareholders. The average daily trading volume of
our Common Shares on the NYSE Amex during the 180-trading day period prior
to our announcement on September 14, 2009, that we had formed a
Special Committee to explore strategic alternatives, including a possible
sale of the Company, was 2,812
shares;
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the
fact that most of the U.S. income-producing multi-family properties have a
low tax basis that would likely result in a large tax liability for the
Company if such assets were sold and that such tax liability would not be
incurred as a result of the Merger;
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knowing
that the Wilson Family Shareholders, who beneficially own 47% of the
Company’s outstanding fully diluted Common Shares, planned to sell their
shares to a third party in a privately negotiated sale transaction, the
Board and Special Committee considered the fact that the Merger would
ensure that our minority shareholders would be treated the same as our
majority shareholders, including sharing in a control premium, whereas a
private sale by the majority shareholders of control to a third party
could lead to a tender offer by such third party for the remaining
minority shares, or another business combination transaction in which the
Company’s minority shareholders would be forced to sell their shares,
possibly at a lower price per share than the price at which the Wilson
Family Shareholders sold their shares or could result in such third party
seeking to delist and deregister our Common Shares in an effort to reduce
our overhead, but with the incidental effect of further reducing the
liquidity of the our Common Shares and the market price of our Common
Shares; and
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the
fact that the Merger would be subject to market checks through the
“go-shop” and “fiduciary out” provisions contained in the Merger
Agreement.
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Reasons
Against the Merger
Some
of the potentially negative factors that our Board of Trustees and the Special
Committee considered include:
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the
fact that the Merger negotiations occurred at a time when the economy was
still in a recessionary phase and the commercial real estate and housing
markets had not yet begun to improve materially relative to the bear real
estate markets witnessed in recent
months;
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the
fact that the Company’s liquidity position had improved recently as a
result of the sale of the Company’s Puerto Rico apartment portfolio and
repayment of a significant amount of Company debt, thus giving the Company
the financial stability to remain solvent and operate independently until
a possible upturn in the real estate
markets;
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the
fact that an all-cash merger results in a taxable
transaction;
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the
Merger would preclude shareholders from participating in the future
performance of the Company;
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the
Merger would create a significant disruption to the operation of the
Company’s business;
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the
significant costs incurred in connection with negotiating and entering
into the Merger Agreement and completing the Merger and the fact that the
Merger would require payment of substantial fees if the Merger is not
consummated under certain
circumstances;
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the
Merger will trigger the vesting of the unvested restricted Common Shares
of our Company held by our Chief Executive Officer and the cash-out of the
SARs held by one of our independent
trustees;
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the
Merger Agreement imposes restrictions on the Company’s conduct of its
business; and
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the
obligation to pay a termination fee could have the effect of dissuading
other potential bidders from submitting an acquisition proposal for the
Company.
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In
view of the wide variety of factors considered by our Board of Trustees and the
Special Committee, our Board of Trustees and the Special Committee did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered. Our Board of Trustees’
recommendation is based on the totality of the information presented to and
considered by it. After taking into consideration the factors set
forth above together with other factors, including those described in “The
Merger—Reasons for the Merger” on
page
30, our Board of Trustees and the Committee determined that the potential
benefits of the Merger substantially outweigh the potential detriments
associated with the Merger.
Opinion
of the Special Committee’s Financial Advisor
On
September 25, 2009, FBR rendered its oral opinion to the Special Committee
(which was subsequently confirmed in writing by delivery of FBR’s written
opinion dated the same date) to the effect that, as of September 25, 2009,
the Per Share Merger Consideration to be received by the Unaffiliated Holders in
the proposed Merger pursuant to the Merger Agreement was fair to such
Unaffiliated Holders from a financial point of view.
FBR’s
opinion was directed to the Special Committee and only addressed the fairness,
from a financial point of view, of the Per Share Merger Consideration to be
received by the Unaffiliated Holders, in the proposed Merger pursuant to the
Merger Agreement, and did not address any other aspect or implication of the
proposed Merger. The summary of FBR’s opinion in this proxy statement is
qualified in its entirety by reference to the full text of its written opinion,
which is included as Exhibit C
to this proxy statement and sets forth the procedures followed, assumptions
made, qualifications and limitations on the review undertaken and other matters
considered by FBR in preparing its opinion. However, neither FBR’s written
opinion nor the summary of its opinion and the related analyses set forth in
this proxy statement are intended to be, and do not constitute advice or a
recommendation to any security holder as to how such security holder should act
or vote with respect to any matter relating to the Merger.
In
arriving at its opinion, FBR:
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reviewed
a draft, dated September 24, 2009, of the Merger Agreement and certain
related documents;
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reviewed
certain publicly available business and financial information relating to
the Company and the industries in which the Company
operates;
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reviewed
certain other business, financial and other information relating to the
Company, including financial forecasts for the Company provided to or
discussed with FBR by the management of the
Company;
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met
with certain members of the management of the Company to discuss the
business and prospects of the Company and the
Merger;
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reviewed
certain financial and share trading data and information for the Company
and compared that data and information with corresponding data and
information for companies with publicly traded securities that FBR deemed
relevant;
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reviewed
certain financial terms of the proposed Merger and compared those terms
with the financial terms of certain other business combinations and other
transactions which have recently been effected or
announced; and
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considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that FBR deemed
relevant.
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In
connection with FBR’s review, FBR did not independently verify any of the
foregoing information and FBR assumed and relied upon such information being
complete and accurate in all material respects. With respect to the financial
forecasts provided or discussed with FBR by the Company that FBR used in its
analyses, management of the Company advised FBR, and FBR assumed, that such
forecasts were reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and FBR expressed no view and
assumed no responsibility for the assumptions, estimates and judgments on which
such forecasts were based. FBR also assumed, with the Special Committee’s
consent, that, in the course of obtaining any regulatory or third party
consents, approvals or agreements in connection with the Merger, no delay,
limitation, restriction or condition will be imposed that would have an adverse
effect on the Company or the contemplated benefits of the Merger and that the
Merger would be consummated in accordance with the terms of the Merger Agreement
without waiver, modification or amendment of
any
material term, condition or agreement thereof. FBR also assumed, with the
Special Committee’s consent, that the Merger Agreement, when executed by the
parties thereto, would conform to the draft reviewed by FBR in all respects
material to FBR’s analyses.
FBR’s
opinion addressed only the fairness, from a financial point of view, to the
Unaffiliated Holders of the Per Share Merger Consideration to be received by the
Unaffiliated Holders in the Merger pursuant to the Merger Agreement and did not
address any other aspect or implication of the Merger or any agreement,
arrangement or understanding entered into in connection with the Merger or
otherwise or the fairness of the amount or nature of, or any other aspect
relating to, any compensation to any officers, trustees, directors or employees
of any party to the Merger, or class of such persons, relative to the Per Share
Merger Consideration or otherwise. The issuance of FBR’s opinion was approved by
an authorized internal committee of FBR.
FBR’s
opinion was necessarily based upon information made available to FBR as of the
date of its opinion and financial, economic, market and other conditions as they
existed and could be evaluated on such date and upon certain assumptions
regarding such financial, economic, market and other conditions which are
currently subject to unusual volatility and which, if different than assumed,
could have a material impact on FBR’s analyses or opinion. FBR’s opinion did not
address the relative merits of the Merger as compared to alternative
transactions or strategies that might be available to the Company or any other
party to the Merger, nor did it address the underlying business decision of the
Special Committee or the Board of Trustees of the Company to proceed with the
Merger. Furthermore, in connection with FBR’s opinion, FBR was not requested to
make, and did not make, any physical inspection or independent appraisal of any
of the assets, properties or liabilities (contingent or otherwise) of the
Company or any other party, nor was FBR provided with any such appraisal. The
Special Committee advised FBR, and for purposes of FBR’s analyses and its
opinion FBR assumed, that the Company does not qualify as a REIT for tax
purposes and that the Company has been unsuccessful in pursuing alternative
transactions that would permit it to qualify as a REIT.
FBR’s
opinion was provided for the information of the Special Committee and the Board
of Trustees of the Company in connection with their consideration of the Merger
and should not be construed as creating any fiduciary duty on the part of FBR to
the Special Committee, the Board of Trustees of the Company, the Company, any
security holder of the Company or any other party. FBR’s opinion does not
constitute advice or a recommendation to any investor or security holder of the
Company or any other person as to how such investor, security holder or other
person should vote or act on any matter relating to the proposed Merger or
otherwise.
In
preparing its opinion to the Special Committee, FBR performed a variety of
analyses, including those described below. The summary of FBR’s valuation
analyses is not a complete description of the analyses underlying FBR’s opinion.
The preparation of a fairness opinion is a complex process involving various
quantitative and qualitative judgments and determinations with respect to the
financial, comparative and other analytic methods employed and the adaptation
and application of those methods to the unique facts and circumstances
presented. As a consequence, neither FBR’s opinion nor the analyses underlying
its opinion are readily susceptible to partial analysis or summary description.
FBR arrived at its opinion based on the results of all analyses undertaken by it
and assessed as a whole and did not draw, in isolation, conclusions from or with
regard to any individual analysis, analytic method or factor. Accordingly, FBR
believes that its analyses must be considered as a whole and that selecting
portions of its analyses, analytic methods and factors, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying its analyses and
opinion.
In
performing its analyses, FBR considered business, economic, industry and market
conditions, financial and otherwise, and other matters as they existed on, and
could be evaluated as of, the date of its opinion. No company, business or asset
used in FBR’s analyses for comparative purposes is identical to the Company, its
business or assets or the proposed transaction. While the results of each
analysis were taken into account in reaching its overall conclusion with respect
to fairness, FBR did not make separate or quantifiable judgments regarding
individual analyses. The implied valuation reference ranges and other valuation
metrics indicated by FBR’s analyses are illustrative and not necessarily
indicative of actual values nor predictive of future results or values, which
may be significantly more or less favorable than those suggested by the
analyses. In addition, any analyses relating to the value of assets, businesses
or securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold, which may depend on a variety of
factors, many of which are beyond the Company’s control and the control of FBR.
Much of the information used in, and accordingly the results of, FBR’s analyses
are inherently subject to substantial uncertainty.
FBR’s
opinion and analyses were provided to the Special Committee and the Board of
Trustees of the Company in connection with their consideration of the proposed
Merger and were among many factors considered by the Special Committee and the
Board of Trustees of the Company in evaluating the proposed Merger. Neither
FBR’s opinion nor its analyses were determinative of the Per Share Merger
Consideration or of the views of the Special Committee or the Board of Trustees
of the Company with respect to the proposed Merger.
The
following is a summary of the material valuation analyses performed in
connection with the preparation of FBR’s opinion rendered to the Special
Committee on September 25, 2009. The analyses summarized below include
information presented in tabular format. The tables alone do not constitute a
complete description of the analyses. Considering the data in the tables below
without considering the full narrative description of the analyses, as well as
the methodologies underlying and the assumptions, qualifications and limitations
affecting each analysis, could create a misleading or incomplete view of FBR’s
analyses.
For
purposes of its analyses, FBR reviewed a number of financial metrics
including:
Enterprise
Value – generally the value as of a
specified date of the relevant company’s outstanding equity securities (taking
into account its restricted units, outstanding options, warrants and other
convertible securities) plus the value of its minority interests plus the amount
of its net debt (the amount of its outstanding indebtedness, preferred stock and
capital lease obligations less the amount of cash on its balance sheet) as of a
specified date.
EBITDA –
generally the amount of the relevant company’s
earnings before interest, taxes, depreciation, and amortization for a specified
time period.
Unless
the context indicates otherwise, common stock prices for the selected companies
used in the Selected Companies Analysis described below were as of September 24,
2009, the last trading day for such shares prior to public announcement of the
proposed Merger.
Enterprise
Level Selected Companies Analysis
FBR
considered certain financial data for the Company and selected multifamily real
estate investment companies with publicly traded equity securities including
Enterprise Value as a multiple of estimated 2010 EBITDA.
The
selected companies were selected because they had publicly traded equity
securities and were deemed to be similar to the Company in one or more respects
including the nature of their business, size, diversification, financial
performance and geographic concentration. No specific numeric or other similar
criteria were used to select the selected companies and all criteria were
evaluated in their entirety without application of definitive qualifications or
limitations to individual criteria. As a result, a significantly larger or
smaller company with substantially similar lines of businesses and business
focus may have been included while a similarly sized company with less similar
lines of business and greater diversification may have been excluded. FBR
identified a sufficient number of companies for purposes of its analysis but may
not have included all companies that might be deemed comparable to the Company.
The selected multifamily real estate investment companies were:
Equity Residential
Apartment Investment and Management
Company
UDR,
Inc.
Home
Properties Inc.
Essex
Property Trust, Inc.
BRE
Properties Inc.
Mid-America Real Estate
Corporation
Associated Estates Realty
Corporation
The
selected companies analysis indicated the following:
|
Multiple Description
|
High
|
Low
|
Median
|
Mean
|
|
|
|
|
|
|
|
Enterprise
Value as a multiple of:
|
|
|
|
|
|
2010E
EBITDA
|
18.2x
|
12.7x
|
17.0x
|
16.3x
|
FBR
applied multiple ranges based on the selected companies analysis to
corresponding financial data for the Company provided by the Company’s
management. The entity level selected companies analysis indicated an
implied valuation reference range per Common Share of $3.53 to $6.33, as
compared to the Per Share Merger Consideration of $7.75.
Asset
Level Analyses
FBR
also separately analyzed the Company’s U.S. income producing assets; Puerto
Rican income producing assets; U.S. non-income producing assets; and Puerto
Rican non-income producing assets.
U.S. Income
Producing Assets. FBR analyzed the Company’s U.S. income
producing multifamily properties (i) using the capitalization rates indicated by
sales of comparable multifamily properties as reported by REIS Inc. and (ii)
based on the range of sales prices for units in comparable properties is as
reported by Reis Inc. FBR’s analysis indicated an implied aggregate
valuation reference range for the Company’s U.S. income producing assets of
approximately ($14.822) million to $5.040 million or ($2.64) to $0.90 per Common
Share. Numbers in parentheses indicate negative amounts. FBR’s
analysis took into account the tax liability likely to be incurred by the
Company as a result of a sale of the U.S. income producing multi-family
properties based on information provided by the Company regarding the Company’s
tax basis in those assets.
Puerto Rican
Income Producing Assets. FBR analyzed the Company’s Puerto
Rican income producing assets based on the projected net operating income and
future distributions expected to be generated by such assets as provided by
management of the Company. FBR’s analysis indicated an implied
aggregate valuation reference range for the Company’s Puerto Rican income
producing assets of approximately $7.174 million to $8.603 million or $1.28 to
$1.53 per Common Share.
U.S. Non-Income
Producing Assets. FBR analyzed the Company’s U.S. non-income
producing assets based on information provided by management of the Company
including bids previously received by the Company with respect to certain of
those assets; an analysis of the cash flows expected to be generated by certain
properties (taking into account the costs to develop and sales rates for such
properties), as well as publicly available information regarding sales of
certain properties. FBR’s analysis indicated an implied aggregate valuation
reference range for the Company’s U.S. non-income producing assets of
approximately $23.225 million to $32.306 million or $4.13 to $5.75 per Common
Share.
Puerto Rican
Non-Income Producing Assets. FBR analyzed the Company’s Puerto
Rican non-income producing assets based on information provided by management of
the Company including information on prior sales of certain properties;
projected costs to develop certain unfinished properties; and market quotes
provided to the Company by local real estate brokers. FBR’s analysis indicated
an implied aggregate valuation reference range for the Company’s Puerto Rican
income producing assets of approximately $3.555 million to $8.149 million or
$0.63 to $1.45 per Common Share.
FBR
calculated an implied aggregate valuation reference range for the Company’s
Common Shares by summing the implied valuation reference ranges per Common Share
for the U.S. income producing assets; the Puerto Rican income producing assets;
the U.S. non-income producing assets; and the Puerto Rican non-income producing
assets based on the foregoing analyses and subtracting corporate adjustments of
($1.89) to ($1.70) per Common Share for general and administrative expenses,
working capital and other costs expected to be incurred in realizing such values
based on estimates and other information provided by management of the
Company. Numbers
in
parentheses indicate costs or amounts to be subtracted. The asset
level analyses indicated an implied valuation reference range per Common Share
of $1.51 to $7.93, as compared to the Per Share Merger Consideration of
$7.75.
Other
Considerations
Implied
Premiums and Premiums Paid
FBR
also noted the implied premium of the Per Share Merger Consideration relative to
historical trading prices of Common Shares was (12%) based on the closing price
of Common Shares one-day prior to September 25, 2009 (the date the proposed
Merger was publicly announced); 41% based on the closing price of Common Shares
thirty trading days prior to September 25, 2009; 17% based on the closing
price of Common Shares on September 14, 2009 (the last trading day before the
Company publicly announced that it was considering various strategic
alternatives); and 34% based on the closing price of Common Shares thirty
trading days prior to September 14, 2009. FBR also noted that the average
premium paid in selected acquisitions of companies in the real estate industry
with publicly traded equity securities was 16% based on the closing price of the
acquired company’s shares one day prior to the public announcement of the
proposed transaction and 17% based on the closing price of the acquired
company’s shares thirty trading days prior to the public announcement of the
proposed transaction. Numbers in parentheses indicate negative
numbers.
Other
Matters
Pursuant
to an engagement letter dated September 4, 2009, the Special Committee retained
FBR as its financial advisor in connection with, among other things, the
proposed Merger. The Special Committee engaged FBR based on FBR’s
qualifications, experience and reputation as an internationally recognized
investment banking and financial advisory firm. FBR will receive a fee for its
services, a significant portion of which is contingent upon the consummation of
the Merger. FBR also became entitled to receive a fee upon the rendering of its
opinion which is not contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify FBR and
certain related parties for certain liabilities and other items arising out of
or related to its engagement.
From
time to time, FBR and its affiliates have in the past provided investment
banking and other financial advice and services to the Company and certain of
its affiliates, including members of the Wilson Family Shareholders and certain
of their affiliates for which FBR and its affiliates have received compensation,
including, during the last two years, having acted as financial advisor to the
Company in connection with a potential reorganization of the Company (which we
refer to as the Company Engagement) and, following the suspension and
modification of that engagement, financial advisor to certain members of the
Wilson Family Shareholders in connection with the potential sale of all or a
material portion of the Common Shares held by the Wilson Family Shareholders
(which we refer to as the Wilson Family Shareholders Engagement). In accordance
with the Merger Agreement, FBR was also requested to solicit third party
indications of interest in acquiring all or any part of the Company for a
prescribed period following the execution of the Merger Agreement. In
addition, FBR and its affiliates may in the future provide investment banking
and financial advice and services to the Company, FCP and certain of their
respective affiliates for which FBR and its affiliates would expect to receive
compensation. FBR is a full service securities firm engaged in securities
trading and brokerage activities as well as providing investment banking and
other financial services. In the ordinary course of business, FBR and its
affiliates may acquire, hold or sell, for FBR’s and its affiliates own accounts
and the accounts of customers, equity, debt and other securities and financial
instruments (including bank loans and other obligations) of the Company, FCP,
affiliates of the Wilson Family Shareholders and certain of their respective
affiliates, as well as provide investment banking and other financial services
to such companies and persons. The Special Committee was aware that FBR had
previously entered into the Company Engagement, which was suspended prior to FBR
entering into the Wilson Family Shareholders Engagement. The Special Committee
was also aware that, prior to being engaged by the Special Committee, FBR
entered into agreements with (i) certain of the Wilson Family Shareholders
terminating the engagement period under the Wilson Family Shareholders
Engagement and confirming that FBR would not be entitled to any fees under the
terms of the Wilson Family Shareholders Engagement whether or not any sale
transaction occurred after the date of such termination and (ii) the Company
terminating the engagement period under the Company Engagement and confirming
that FBR would not be entitled to any additional fees under the terms of the
Company Engagement regardless of whether a sale transaction occurred after the
date of such termination. Pursuant to the terms of FBR’s engagement by the
Special Committee, the fee that became payable by the Company to FBR upon the
rendering of FBR’s opinion and certain fees previously paid by the Company to
FBR
pursuant
to the Company Engagement are creditable against the fee payable by the Company
to FBR upon consummation of the Merger.
Interests
of Our Trustees, Executive Officers and Other Persons in the Merger
In
considering the recommendation of our Board of Trustees in connection with the
Merger, holders of our Common Shares should be aware that, as described below,
each of our executive officers and trustees and certain other persons have
interests in, and will receive benefits from, the Merger that differ from, or
are in addition to, and therefore may conflict with, the interests of our
shareholders generally. These additional interests are described
below, to the extent material. As noted above, two members of our
Board of Trustees who are not independent and disinterested, Stephen K. Griessel
and J. Michael Wilson, abstained from voting on the Merger. In
addition, the number of our Common Shares beneficially owned by our trustees and
executive officers and holders of greater than 5% of our outstanding Common
Shares, as of November 9, 2009, appears below under the section captioned
“Principal and Management Shareholders” on page 66. Our Board of
Trustees was aware of these interests and considered them in approving the
Merger and the other transactions contemplated by the Merger Agreement and the
Declaration of Trust Amendment.
Restricted
Shares. In the Merger, each unvested restricted Common Share
of the Company that, by its terms, vests automatically upon the consummation of
the Merger will fully vest in accordance with its terms and be considered an
outstanding Common Share for all purposes, including the right to receive the
Merger Consideration. The following table sets forth the number of
restricted Common Shares held by our executive officers and our non-management
trustees as of the date of this proxy statement, all of which will be vested and
will be considered an outstanding Common Share for all purposes, including the
right to receive the Merger Consideration, immediately prior to the
Merger. On September 9, 2009, we awarded 363,743 restricted Common
Shares to Stephen K. Griessel, our Chief Executive Officer. This
award was made pursuant to the Amended and Restated Employment Agreement, dated
May 14, 2009, by and among Mr. Griessel, the Company and ARPT. Of the
363,743 restricted Common Shares covered by the award, 72,748 shares vested on
September 30, 2009. In addition, under the award agreement relating
to these restricted shares, any unvested shares will vest upon a change in
control of our Company. As a result, the 290,995 shares that are
currently subject to vesting restrictions will become fully vested prior to the
effective time of the Merger. In addition, our other trustees own an
aggregate of 22,970 restricted shares that will vest prior to the effective time
of the Merger in accordance with the terms of the award agreements relating to
these shares.
|
Trustees
and Executive
Officers:
|
|
Number
of Restricted Shares
|
|
|
Value
of
Restricted
Shares($)
|
|
|
|
|
|
|
|
|
|
|
Stephen
K. Griessel
|
|
|
290,995 |
|
|
$ |
2,255,211 |
|
|
Donald
J. Halldin
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Michael
E. Williamson
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Thomas
E. Green
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Antonio
Ginorio
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Thomas
J. Shafer
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
|
|
|
|
|
|
|
|
|
Agreement with Stephen K.
Griessel. On May 12, 2009, Stephen K. Griessel, our Chief
Executive Officer, executed an agreement with Interstate Business Corporation
(“IBC”), an entity affiliated with J. Michael Wilson, the Chairman of our Board
of Trustees, pursuant to which a total of 185,550 of our Common Shares owned by
IBC will be transferred in annual installments from IBC to a trust established
by IBC for the sole and exclusive benefit of Mr. Griessel. IBC will
retain legal title to all Common Shares held by the trust and the trustee of the
trust will be instructed to vote such Common Shares in the manner IBC votes the
other Common Shares that it owns. IBC also agreed to make payments to
Mr. Griessel in amounts equal to all dividends and distributions made with
respect to the Common Shares held by the trust. On the earlier of
April 30, 2011 or a change of control of our Company, all Common Shares held by
the trust will be transferred to Mr. Griessel and IBC will transfer directly to
Mr. Griessel the amount of Common Shares required to make the total number of
Common Shares transferred to Mr. Griessel pursuant to the agreement equal to
185,550. Upon the consummation of the Merger, a total of 185,550 of
our Common Shares will be transferred from IBC and/or the trust to Mr. Griessel
pursuant to the terms of the agreement and Mr. Griessel will be entitled to
receive the same per share Merger Consideration in exchange for such 185,550
Common Shares as all other holders of our Common Shares under the terms of the
Merger Agreement.
Share Appreciation
Rights. In the Merger, each of the outstanding share
appreciation rights will be cancelled and in lieu thereof, each holder will be
entitled to receive an amount in cash equal to the product of (i) the excess, if
any, of the Merger Consideration over the base price per Common Share underlying
such share appreciation right multiplied by (ii) the number of Common Shares
subject to such share appreciation right. None of our trustees and
executive officers owns any share appreciation rights and only one of our
trustees, Mr. Antonio Ginorio, owns share appreciation rights. The
following table sets forth the number of share appreciation rights held by our
trustees and executive officers as of the date of this proxy statement and the
value to be received for such rights in connection with the
Merger.
|
Trustees
and Executive
Officers:
|
|
Number
of Share Appreciation Rights
|
|
|
Value
of
Share
Appreciation Rights ($)
|
|
|
|
|
|
|
|
|
|
|
Antonio
Ginorio
|
|
|
10,000 |
|
|
$ |
37,500 |
|
Indemnification
and Insurance. The Merger Agreement provides that, following
the Merger, FCP and the Surviving Entity will indemnify and hold harmless any
person who is a trustee or executive officer of our Company or any of our
subsidiaries to the fullest extent allowed by applicable law and advance to such
persons the expenses incurred in connection with claims relating to such
parties’ duties or service as an officer, trustee, director, employee, agent or
fiduciary of our Company and its subsidiaries. The Merger Agreement
further provides that the Surviving Entity will (i) maintain the current
policies of trustees’ and officers’ liability insurance maintained by us or our
subsidiaries for a period of six years following the closing of the Merger and
(ii) maintain for a period of six years after the effective time of the Merger,
provisions in the Surviving Entity’s charter and bylaws regarding (a)
exculpation from liability for money damages for trustees, directors and
officers, (b) indemnification for trustees, directors, officers and employees
and (c) advance of expenses related to claims against such trustees, directors,
officers and employees. For a more complete discussion of these
provisions of the Merger Agreement, see the section captioned “The Merger
Agreement—Indemnification; Trustee and Officer Insurance” on page 56 of this
proxy statement.
Special
Committee Compensation. The trustees who serve on the Special
Committee are entitled to receive a retainer of $25,000 each for their service
on the Special Committee, with the Chairman receiving an additional retainer of
$40,000 for his service as Chairman of the Special Committee and the Vice
Chairman receiving an additional retainer of $20,000 for his service as Vice
Chairman. Such compensation is not conditioned upon the completion of
any transaction, including the Merger.
Voting
by Our Trustees and Executive Officers
As
of the record date, our trustees and executive officers, excluding J. Michael
Wilson, beneficially owned an aggregate of 416,949 Common Shares, representing,
in the aggregate, approximately 7.4% of the voting power of our Common Shares
entitled to vote at the special meeting. Our executive officers and
trustees other than J. Michael Wilson have informed us that they intend to vote
the Common Shares that they beneficially own in favor of the approval of the
Merger and the Declaration of Trust Amendment, and for the approval of any
adjournments of the special meeting for the purpose of soliciting additional
proxies.
Voting
and Passive Investment Arrangement with Paul J. Isaac
We
have been informed by FCP that, subsequent to the announcement of the execution
of the Merger Agreement, representatives of FCP met with Paul J. Isaac, who,
together with certain of his related and affiliated persons (whom we refer to as
the “Isaac Group”), beneficially owns an aggregate of 865,329 of our Common
Shares (which represents 15.4% of our outstanding Common Shares as of the record
date), on October 1, 2009, at the request of Mr. Isaac and without any
solicitation from, or any initiation on the part of, FCP or any of its
representatives. At this meeting, Mr. Isaac informed the
representatives of FCP that he was considering his alternatives with respect to
his investment in the Company and expressed his interest in possibly
participating in the transaction on the buy-side with
FCP. Representatives of FCP informed Mr. Isaac at this meeting that
they did not wish to take any action that would jeopardize the Merger or
otherwise be viewed as being unfavorable to the shareholders of the Company, but
that they would consider his request.
Mr.
Ross Levin, an employee of one of the entities that is controlled by Mr. Isaac,
had been one of our trustees until his resignation on September 8, 2009, as more
fully described in this proxy statement under the section entitled “—Background
of the Merger.” On October 7, 2009, Mr. Isaac filed an amendment to
his Schedule 13D pursuant to which he disclosed that one of the entities
controlled by him had purchased an aggregate of 146,392 common shares in open
market transactions between September 28, 2009 and October 2,
2009.
After
careful consideration by its principals, on October 9, 2009, representatives of
FCP informed Mr. Isaac that it would be willing to consider, on a non-binding
basis, a passive investment by Mr. Isaac and the Isaac
Group. Subsequently, the parties and their respective representatives
engaged in a number of follow-up discussions regarding the viability of such a
transaction and the possible terms of such arrangement. We have been
informed by FCP that, on November 10, 2009, FCP, Mr. Isaac and substantially all
of the members of the Isaac Group entered into a purchase agreement and a voting
agreement in connection with such passive investment by Mr. Isaac and such
members of the Isaac Group in the Surviving Entity, the material terms of which
are described below.
FCP
has informed us that, prior to the meeting on October 1, 2009 that the parties
held at Mr. Isaac’s request, neither it nor any of its affiliates had had any
prior discussions or meetings with Mr. Isaac or any member of the Isaac Group,
nor had it contemplated or considered initiating any such discussions or
meetings, regarding the Merger, the Declaration of Trust Amendment or any of the
other transactions contemplated by the Merger Agreement, or any possible
investment by Mr. Isaac and the Isaac Group in the Surviving
Entity. In addition, no discussions regarding such potential
investment were held between FCP, on one hand, and Mr. Isaac and the Isaac
Group, on the other hand, after such meeting on October 1, 2009 and prior to
October 9, 2009, when FCP informed Mr. Isaac that it would consider a passive
investment by Mr. Isaac and the Isaac Group.
Mr. Isaac’s Investment
Pursuant to the terms of a purchase agreement
entered into on November 10, 2009 by and among FCP, Mr. Isaac and substantially
all, but not all, of the members of the Isaac Group that own an aggregate of
829,529 of our Common Shares (which represents 14.8% of our outstanding common
shares as of the record date) (the “Interested Isaac Group”), immediately
after the effective time of the Merger, Mr. Isaac and the Interested Isaac Group
would make, through a newly formed entity, a capital contribution in cash of an
amount equal to 27.5% of the sum of the aggregate Merger Consideration that FCP
has agreed to pay to our common shareholders pursuant to the Merger Agreement
and all transaction and closing costs, fees and expenses to be incurred by FCP
in connection with the Merger. In exchange for such capital
contribution, the newly formed investment vehicle controlled by Mr. Isaac and
the Interested Isaac Group would receive a 27.8% passive, limited partnership
interest in a limited partnership to be formed through which FCP intends to own
substantially all of its interest in the Surviving Entity. FCP would
own the remaining 72.2% interest in the new limited partnership as the sole
general partner with sole and exclusive control over the management of such
limited partnership and the Surviving Entity. Mr. Isaac would not be
entitled to appoint or designate any members of the Board of Trustees of the
Surviving Entity or have any control or involvement in the management of the
business and affairs of the newly formed limited partnership or the Surviving
Entity. Instead, the investment vehicle through which Mr. Isaac and
the Interested Isaac Group would make their investment in the newly formed
limited partnership would be a passive investor with certain limited rights that
are intended to protect its investment. As a limited partner, the
Isaac Group investment vehicle would receive cash distributions to the extent
that FCP, as the general partner, determines that amounts are available for
distributions.
We
understand that the consummation of the investment transaction described above
by Mr. Isaac and the Interested Isaac Group is conditioned on, among other
things, the consummation of the Merger and other customary closing
conditions. In addition, we have been informed that, in the event the
purchase agreement related to such arrangement is terminated in accordance with
its terms, Mr. Isaac and the Interested Isaac Group would be obligated to
refrain from supporting, initiating or being involved in a competing acquisition
proposal for a period of 60 calendar days from the date of such
termination.
We
also understand that the proposed transaction would not affect the rights of Mr.
Isaac and the Interested Isaac Group to receive the Merger Consideration at the
time of the Merger with all other common shareholders, and that all of our
Common Shares that are owned by Mr. Isaac and the Interested Isaac Group would
be cashed-out along with all other outstanding Common Shares at the effective
time of the Merger.
Isaac Voting Agreement
In
addition to the purchase agreement related to the investment transaction
described above, we have been informed that, on November 10, 2009, FCP, Merger
Sub, Mr. Isaac and the Interested Isaac Group entered into a voting
agreement. Pursuant to the voting agreement, Mr. Isaac and the
Interested Isaac Group have agreed to vote in favor of the Merger and each
transaction contemplated by the Merger Agreement, including the Declaration of
Trust Amendment. In addition, Mr. Isaac and the Interested Isaac
Group have agreed to vote against certain matters that would impact our ability
to timely complete the Merger. We also understand that Mr. Isaac and
the Interested Isaac Group will continue to be bound by the voting agreement for
60 calendar days following the termination of the Merger Agreement by us to
enter into a definitive agreement with respect to a superior proposal in
accordance with the terms of the Merger Agreement, as well as 60 calendar days
following the termination of the purchase agreement described
above.
Regulatory
Approvals
No
material federal or state regulatory approvals are required to be obtained by us
or other parties to the Merger Agreement in connection with the
Merger. To effect the Merger, however, articles of merger must be
filed by Merger Sub and us with the SDAT and must be accepted for record by the
SDAT.
Litigation
Related to the Merger
On
October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder,
filed a class action complaint in the Circuit Court for Charles County,
Maryland, against the Company, our Board of Trustees and FCP. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The complaint further alleges that FCP
aided and abetted those breaches of fiduciary duties. The complaint
seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a
class action complaint in the Circuit Court for Charles County, Maryland,
against the Company, our Board of Trustees, FCP and Merger Sub. The complaint
alleges that our trustees breached their fiduciary duties in connection with the
Merger. The complaint further alleges that FCP and Merger Sub aided
and abetted those breaches of fiduciary duties. The complaint seeks
to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On November 13, 2009, the parties
submitted to the Court an agreed stipulation and proposed order consolidating
these two actions. This order has not yet been entered. On
November 19, 2009, the plaintiffs filed in each action a consolidated
complaint. The consolidated complaint names the same defendants named
in the two initial complaints and asserts the same claims for breach of
fiduciary duties. The consolidated complaint alleges further that the
defendants breached fiduciary duties in connection with the disclosures
contained in the Company's preliminary proxy statement.
We
intend to defend these actions vigorously. However, even if these
lawsuits are determined to be without merit, they may potentially delay or, if
the delay is substantial enough, prevent the consummation of the Merger by March
31, 2010, potentially prevent the closing of the Merger.
Delisting
and Deregistration of our Common Shares
If
the Merger is completed, our Common Shares will no longer be listed on the NYSE
Amex and will be deregistered under the Exchange Act.
Fees
and Expenses
We
estimate that our Company will incur, and will be responsible for paying,
transaction-related fees and expenses, consisting primarily of filing fees, fees
and expenses of investment bankers, attorneys and accountants and other related
charges, totaling approximately $3.7 million, including loan assumption fees and
assuming the Merger and the other transactions contemplated by the Merger
Agreement are completed. In the event the Merger and the other
transactions contemplated by the Merger Agreement are completed, the Surviving
Entity will assume these fees and expenses, to the extent they have not been
paid. In the event the Merger is not completed, we will
be
responsible
for payment of these fees and expenses, other than the fees payable to the
financial advisor to the Special Committee and loan assumption fees, which are
both contingent on closing of the Merger.
THE MERGER AGREEMENT
The
following is a summary of selected material provisions of the Merger Agreement.
This summary is qualified in its entirety by reference to the complete text of
the Merger Agreement, which is incorporated by reference in its entirety and
attached to this proxy statement as Exhibit A. We urge you to read
carefully the Merger Agreement in its entirety as the rights and obligations of
the parties are governed by the express terms of the Merger Agreement and not by
this summary or any other information contained in this proxy
statement.
The
Merger Agreement has been attached to this proxy statement to provide you with
information regarding its terms. It is not intended to provide any other factual
information about American Community Properties Trust or the other parties to
the Merger Agreement. Information about our Company can be found
elsewhere in this proxy statement and in the other public filings we make with
the SEC, which are available without charge at http://www.sec.gov.
The
Merger Agreement contains representations and warranties made by and to the
parties to the Merger Agreement as of specific dates. The statements embodied in
those representations and warranties were made solely for purposes of the
contract between FCP, Merger Sub and us and may be subject to important
qualifications and limitations agreed to by FCP, Merger Sub and us in connection
with negotiating its terms. In addition, certain representations and warranties
are subject to contractual standards of materiality that may be different from
what may be viewed as material to shareholders. The representations and
warranties may have been used for the purpose of allocating risk between the
parties rather than establishing matters as facts. For the foregoing reasons,
you should not rely on the representations and warranties as statements of
factual information.
The
Merger
If
the Merger is approved by our shareholders and all other conditions to the
Merger are satisfied or waived, Merger Sub, an indirect subsidiary of FCP, will
be merged with and into us, and we will continue as the Surviving Entity
following the Merger.
The
closing date of the Merger will be no later than the second (or in certain
limited circumstances, the fifth) business day after all of the closing
conditions set forth in the Merger Agreement are satisfied or waived by our
Company, FCP or Merger Sub, as applicable. The Merger will become
effective when the articles of merger have been accepted by the SDAT in
accordance with Maryland law, or such later time (not to exceed 30 days from the
date the articles of merger are accepted for record by the SDAT) as the parties
to the Merger Agreement may agree and designate in the articles of
Merger.
We
and FCP are working to complete the Merger as quickly as possible. Because
completion of the Merger is subject to certain conditions that are beyond the
control of FCP and us, we cannot predict the exact timing of the closing. At
this time, we expect that the Merger will close either late in the fourth
quarter of 2009 or early in the first quarter of 2010 if, at the special meeting
of our shareholders, our shareholders approve the Merger and the Declaration of
Trust Amendment, and all other conditions are either satisfied or
waived.
Organizational
Documents
In
connection with the Merger, at the effective time, the Declaration of Trust of
our Company will be amended and restated in its entirety in accordance with a
form provided by FCP as a schedule to the Merger Agreement, and such amended and
restated Declaration of Trust will be the Declaration of Trust of the Surviving
Entity. The bylaws of Merger Sub, as in effect immediately prior to
the effective time of the Merger, will be adopted by the Surviving Entity as the
bylaws of the Surviving Entity following the Merger. If both the
proposal to approve the Merger and the proposal to approve the Declaration of
Trust Amendment are approved by our common shareholders, we will amend our
Declaration of Trust to give effect to the Declaration of Trust Amendment prior
to the effective time. In the unlikely event that the Declaration of
Trust Amendment is approved, but the Merger is not approved, our Board of
Trustees may elect not to file the Declaration of Trust Amendment with the
SDAT.
Effective
Time and Closing
The
Merger will become effective upon the acceptance of the articles of merger for
record by SDAT or such later time agreed to by us and the other parties and
designated in the articles of merger, not to exceed 30 days from the date the
articles of merger are accepted for record by SDAT. Such time is
referred to in this proxy statement as the “effective time of the Merger” or
“effective time.”
Unless
the Merger Agreement is terminated in accordance with its terms, the closing of
the Merger will take place as promptly as practicable, but in no event later
than the second business day (or, in the event the last condition of the Merger
to be satisfied is the condition that relates to a certain matter related to our
subsidiary, ARPT, as more fully discussed in this proxy statement, no later than
the fifth business day) after all of the conditions of the closing of the Merger
are satisfied or appropriately waived.
Trustees
and Officers
The
directors of Merger Sub immediately prior to the effective time will be the
trustees of the Surviving Entity. The officers of the Surviving
Entity immediately after effective time will be those individuals who are
designated by FCP prior to the effective time.
Merger
Consideration to be Received by Holders of Our Common Shares, Restricted Common
Shares and SARs
Each
of our Common Shares (other than shares owned by us or our subsidiaries or FCP,
Merger Sub or any of their subsidiaries) issued and outstanding immediately
prior to the effective time will be converted into the right to receive $7.75 in
cash, without interest. In the event that, after September 25,
2009 but prior to the effective time of the Merger, the number of Common Shares
issued and outstanding changes due to a stock dividend, subdivision, stock
split, reclassification, recapitalization combination, or share exchange, an
appropriate adjustment to the Merger Consideration will be
made. However, such transactions are prohibited by the Merger
Agreement without the written consent of FCP. In addition, the Merger
Consideration is subject to adjustment for certain dividend payments, if
any. At this time, we do not expect to make any dividends or other
distributions that would impact the Merger Consideration and such payments are
prohibited by the Merger Agreement without the written consent of
FCP.
In
the Merger, each unvested restricted Common Share of our Company that, by its
terms, vests automatically upon the consummation of the Merger will fully vest
in accordance with its terms and be considered an outstanding Common Share for
all purposes, including the right to receive the Merger Consideration of $7.75
per Common Share. Each of our unvested restricted Common Shares that,
by its terms, does not vest in connection with a change of control, such as the
Merger, shall be cancelled and retired for no additional
consideration. Additionally, in the Merger, each of the outstanding
share appreciation rights will be cancelled and in lieu thereof, each holder
will receive an amount in cash equal to the product of (i) the
excess, if any, of the Merger Consideration over the base price per Common Share
underlying such share appreciation right multiplied by (ii) the number of Common
Shares subject to such share appreciation right.
Payment
Procedures
At
or prior to the effective time of the Merger, FCP will deposit cash with an
exchange agent in the amount of the aggregate Merger Consideration payable to
holders of our Common Shares, restricted shares and share appreciation
rights. As soon as practicable after the effective time of the
Merger, a letter of transmittal will be sent to each of our shareholders as of
the record date that will include instructions on how our shareholders may
exchange their shares for the cash consideration they will receive in the
Merger. The exchange agent will pay our former
shareholders, upon receiving the surrender of a shareholder’s share certificate,
if applicable, and upon delivery of a properly completed letter of transmittal,
the Merger Consideration they are entitled to receive, net of any applicable
withholding tax. No interest will be paid or accrue on any cash
payable upon surrender of any share
certificate. The exchange agent will also pay the holders
of the share appreciation rights the share appreciation right consideration
described above after the effective time of the Merger.
Available
Funds
FCP
has represented to us in the Merger Agreement that it currently has and will
have, on the closing date, cash sufficient to pay the Merger Consideration and
to satisfy the obligations of FCP and Merger Sub in connection with the Merger
and any other transaction contemplated by the Merger Agreement and any and all
fees and expenses in connection with the Merger.
Our
Representations and Warranties
We
have made certain customary representations and warranties to FCP and Merger
Sub, subject to the exceptions disclosed in the Merger Agreement and the
disclosure letter in connection with the Merger Agreement and subject to
customary qualifications for materiality. These representations and
warranties terminate at the effective time of the Merger and relate to, among
other things:
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corporate
and partnership matters, including due organization and qualification and
good standing;
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our
current capitalization and debt and outstanding restricted stock and share
appreciation rights;
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authority
of the Company to execute and deliver the Merger
Agreement;
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the
determination, approval and recommendation of the Special Committee and
the Board of Trustees;
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absence
of conflicts with, or violations of, organizational documents, applicable
laws or other obligations or agreements as a result of the Merger and
governmental filings, and consents necessary to complete the
Merger;
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compliance
with applicable law and possession of applicable
permits;
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the
timely filing and accuracy of SEC reports and financial statements and
compliance with the Sarbanes-Oxley Act of 2002, the Exchange Act and NYSE
Amex requirements;
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the
absence of certain changes and events that have resulted or would
reasonably be expected to result in a material adverse effect with respect
to us;
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the
absence of litigation or orders against
us;
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our
employee benefit plans;
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labor
matters affecting us and our
employees;
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the
accuracy of information contained in this proxy statement regarding
us;
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our
properties, leases and related title insurance
matters;
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our
intellectual property;
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tax
matters affecting us and our subsidiaries and
properties;
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environmental
matters affecting us and our subsidiaries and
properties;
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our
material contracts;
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related
party transactions involving us and our
subsidiaries;
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the
applicability of certain takeover and business combination statutes to
us;
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broker’s
fees payable in connection with the
Merger;
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the
opinion of our financial advisor;
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our
and our subsidiaries’ status as an investment company under the Investment
Company Act of 1940, as amended;
and
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accounting
and disclosure controls.
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Representations
and Warranties of the Other Parties to the Merger Agreement
FCP and Merger Sub have made certain representations
and warranties to us that terminate at the effective time of the
Merger. These representations and warranties relate to, among other
things:
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corporate
and partnership matters, including due organization and qualification and
good standing;
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authority
of FCP and Merger Sub to execute and deliver the Merger
Agreement;
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absence
of conflicts with, or violations of, organizational documents, applicable
laws or other obligations or agreements as a result of the Merger and
governmental filings, and consents necessary to complete the
Merger;
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available
funds sufficient to pay the Merger Consideration and to satisfy other
obligations in connection with the Merger and the other transactions
contemplated by the Merger
Agreement;
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ownership,
prior activities and the sole purpose of Merger
Sub;
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ownership
of our Common Shares; and
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accuracy
of information contained in this proxy statement regarding FCP and Merger
Sub.
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Covenants
Regarding Conduct of Our Business
During
the period from September 25, 2009 to the earlier of the closing date of the
Merger or termination of the Merger Agreement, we have agreed that we and each
of our subsidiaries will not, except (i) as set forth in our disclosure letter
given to FCP by us in connection with the Merger Agreement, (ii) as consented to
in writing by FCP, which consent is not to be unreasonably withheld, or (iii) as
expressly contemplated or permitted by the Merger Agreement:
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conduct
our business other than in the ordinary course consistent with past
practice or fail to use our commercially reasonable efforts to
preserve our business organization, maintain our status as a
partnership for tax purposes, maintain our current regulatory
authorizations, permits and licenses, keep available the services of our
officers, managers and employees and preserve our current
relationships with lessees and other persons with which we have
significant business relations;.
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authorize,
issue, sell, repurchase or redeem our subsidiaries or our
securities;
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pay
or declare dividends, except for dividends required by our Declaration of
Trust (in which case the Merger Consideration will be reduced dollar for
dollar by the amount of such dividends) and dividends from our
subsidiaries to us or our subsidiaries, or adjust, split, combine, redeem,
reclassify or purchase any of our equity interests or those of our
subsidiaries;
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except
as required by one of our benefit plans, increase the compensation or
benefits payable to any of our trustees, employees, consultants, directors
or officers (other than reasonable increases in accordance with past
practice, including increases resulting from the annual performance
reviews of Matthew M. Martin and Stephen K. Griessel), grant any new
severance rights, enter into any new employment agreements, establish,
adopt or enter into any compensation plan, amend or waive any performance
or vesting criteria or accelerate vesting, exercisability or funding under
any of our benefit plans;
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acquire
all or any portion of the assets, business, properties or shares of stock
or other securities of any entity or
person;;
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create,
incur or assume any indebtedness or assume, guarantee or endorse the
obligations of any person or entity, except (i) in the ordinary course
pursuant to our existing credit facilities, not to exceed $1 million
in the aggregate, and (ii) the indebtedness listed on the disclosure
letter delivered to FCP in connection with the Merger
Agreement;
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pre-pay
any long-term indebtedness, except in the ordinary course of business
consistent with past practice and in accordance with the its
terms;
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pay,
discharge or satisfy any claims, liabilities or obligations, except in the
ordinary course of business consistent with past practice and in
accordance with their terms;
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make
or authorize any capital expenditures, in excess of $250,000 individually
or $500,000 in the aggregate, except for (i) expenditures disclosed in our
disclosure letter or (ii) expenditures in the ordinary course of
business in order to own, maintain and operate our properties in working
order;
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amend
any provision of any organizational document of the Company or our
subsidiaries;
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materially
change any of the accounting principles or practices, subject to certain
limited exceptions;
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enter
into or terminate any material contract, or modify, amend, fail to comply
with or waive compliance with or breaches under, in any material respect,
a material contract, except as listed on our disclosure
letter;
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waive,
release, assign, settle or compromise any material claim or litigation,
except those involving only the payment of monetary damages not exceeding
$100,000 individually or $250,000 in the
aggregate;
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make
any tax election or settle or compromise any liability for taxes in excess
of $25,000, except as required by law or necessary to maintain our status
as a partnership for tax purposes;
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fail
to comply in any material respect with applicable laws, including the
filing of SEC reports;
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enter
into any new material line of business or change our material operating
policies, except as required by law, or form or dissolve any entity or
commence or cease the operation of any material
business;
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enter
into any new lease (including renewals) for in excess of 10,000 square
feet at any of our properties, except in connection with a right of a
tenant under an existing tenant lease or as disclosed in our disclosure
letter;
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terminate
or materially modify or amend any tenant lease that relates to in excess
of 10,000 square feet, except in connection with a right of a tenant under
an existing tenant lease;
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amend
any term of any of our securities or the securities of our
subsidiaries;
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sell
or otherwise dispose of, or subject to any lien, any of our properties,
except for pending sales disclosed to FCP or as otherwise set forth in our
disclosure letter;
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sell,
lease, mortgage, subject to a lien or otherwise dispose of any of our
personal or intangible property in excess of $100,000 individually or
$250,000 in the aggregate;
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except
as set forth in our disclosure letter, enter into or otherwise modify any
agreement or arrangement with our employees, officers, trustees, partners,
directors and affiliates;
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fail
to use commercially reasonable efforts to comply or remain in compliance
with all material terms of any agreement relating to any of our or our
subsidiaries indebtedness;
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adopt
a plan of complete or partial liquidation or dissolution or adopt
resolutions providing for or authorizing such liquidation or
dissolution;
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fail
to maintain or replace existing insurance policies for us and each of our
subsidiaries and our properties, assets and
businesses;
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authorize,
enter into any agreement or commit to do any of the
foregoing;
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take
any action that would interfere with or delay the consummation of the
Merger; or
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take
any action that is intended or reasonably likely to result in (i) any
of the representations and warranties set forth in the Merger Agreement
becoming untrue in any material respect, or (ii) any of the
conditions to the Merger not being
satisfied.
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Other
Covenants
We
and the other parties to the Merger Agreement have agreed to various covenants
regarding general matters. Some of these covenants are mutual, while
others have been made either only by us or only by FCP and/or Merger
Sub.
The
mutual covenants regarding general matters include, but are not limited
to:
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cooperating
to prepare and file this proxy
statement;
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using
commercially reasonable efforts to take all action necessary to effect the
Merger, and to cooperate to obtain any necessary permits, consents and
approvals from third parties, and to defend against any litigation or
judicial action brought in conjunction with the Merger
Agreement;
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cooperating
with respect to any press releases or announcements concerning the
transactions contemplated by the Merger
Agreement;
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using
commercially reasonable efforts to cause our Common Shares to be delisted
from the NYSE Amex and deregistered under the Exchange Act;
and
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cooperating
in the preparation, execution and filing of all transfer tax related
documentation.
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The
covenants regarding general matters that we have made include, but are not
limited to:
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preparing
and filing this proxy statement with the SEC and all other required
filings and to use our reasonable efforts to have this proxy statement
cleared by the SEC;
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holding
a meeting of our shareholders to vote on the Merger and the Declaration of
Trust Amendment;
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including
the recommendation of our Board of Trustees that holders of our Common
Shares approve the Merger, the amendment to our Declaration of Trust and
the other transactions contemplated by the Merger Agreement at the meeting
of our shareholders and using all other reasonable efforts to obtain
shareholder approval;
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obtaining
and delivering to FCP at the closing of the Merger the resignations of our
and our subsidiaries trustees and directors, as applicable, as designated
by FCP
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providing
FCP and its representatives with reasonable access to our and our
subsidiaries’ facilities, offices, properties, books, records, contracts,
commitments, officers, employees, accountants, counsel and other
representatives and providing copies of all SEC reports and all other
information concerning our business as may be reasonably
requested;
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operating
in such a manner as to permit us to continue to qualify as a partnership
for U.S. federal income tax purposes until the effective
time;
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preparing
and timely filing all tax returns for taxes in excess of $25,000 in a
manner consistent with past practice and in accordance with applicable
laws;
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fully
and timely paying all taxes due and payable by
us;
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properly
reserving for all taxes payable by us and our subsidiaries that accrue
prior to the effective time of the
Merger;
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delivering
to FCP within 30 days of the execution of the Merger Agreement, but not
later than 20 days prior to the effective time, a written determination of
the accumulated, as well as estimated current, earnings and profits of
ARPT and causing ARPT to distribute at least five business days prior to
the effective time certain inter-company receivables to us (but only after
we have obtained the approval of our shareholders for the Merger and the
Declaration of Trust Amendment and certain third party
consents);
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promptly
notifying FCP of (i) any communication from a third party alleging that
the consent of such third party is required in connection with the
transactions contemplated by the Merger Agreement, (ii) any communication
from a governmental authority in connection with the transactions
contemplated by the Merger Agreement, (iii) any material actions
threatened or commenced against or otherwise affecting us that are related
to the transactions contemplated by the Merger Agreement or (iv) any
effect, event, development or change that causes or is reasonably likely
to cause a condition to closing not to be satisfied;
and
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providing
all relevant information and access to our tax advisors necessary for
FCP’s tax advisors to determine whether there is a substantial risk that
we have not qualified as a partnership for tax purposes for any period
commencing with our taxable year ended December 31,
1998.
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The
covenants regarding general matters that FCP and/or Merger Sub have made
include, but are not limited to:
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promptly
notifying us of (i) any communication from a third party alleging that the
consent of such third party is required in connection with the
transactions contemplated by the Merger Agreement, (ii) any communication
from a governmental authority in connection with the transactions
contemplated by the Merger Agreement, (iii) any material actions
threatened or commenced against or otherwise affecting FCP or Merger Sub
that are related to the transactions contemplated by the Merger Agreement
or (iv) any effect, event, development or change that causes or is
reasonably likely to cause a condition to closing not to be
satisfied.
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Solicitation
of Other Offers
From
the date of the Merger Agreement (September 25, 2009) until 11:59 p.m., Eastern
Standard Time, on October 28, 2009 (which we refer to as the “go-shop period”),
we were permitted to initiate, solicit and encourage acquisition proposals
(including by way of providing access to non-public information pursuant to
confidentiality agreements), and participate in discussions or negotiations with
respect to acquisition proposals or otherwise cooperate with or assist or
participate in, or facilitate any such discussions or
negotiations. We were required to have promptly provided to FCP and
Merger Sub any material non-public information concerning us or our
subsidiaries
that was provided to any person given such access which had not been previously
provided to FCP or Merger Sub.
Within
two business days after receiving an acquisition proposal during the go-shop
period that our Board of Trustees or the Special Committee believed in good
faith, after consultation with outside legal counsel and our financial advisor,
constituted or was reasonably likely to lead to a superior proposal, we were
required to notify FCP in writing of the identity of each person who had made
such an acquisition proposal. We were also required to provide FCP a
written summary of each such acquisition proposal within two business
days.
After
the end of the go-shop period, we have agreed not to:
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initiate,
solicit or encourage any inquiries or the making of any proposal or offer
that constitutes, or could reasonably be expected to lead to, any
acquisition proposal;
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initiate,
enter into, engage in, continue, or otherwise participate in any
discussions or negotiations regarding, or provide any non-public
information or data to any person relating to, any acquisition
proposal;
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withdraw
the recommendation of the Board of
Trustees;
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approve,
endorse or recommend, or publicly propose to approve, endorse or
recommend, any acquisition
proposal;
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enter
into any agreement in principle, arrangement, understanding, contract or
agreement providing for, or relating to, an acquisition proposal or enter
into any agreement or agreement in principle requiring the Company to
abandon, terminate or fail to consummate the Merger or any of the
transactions contemplated by the Merger
Agreement;
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exempt
any person from the restrictions contained in any state “business
combination,” takeover or similar laws or otherwise cause such
restrictions not to apply to any Person or to any Acquisition
Proposal;
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exempt
any person from the ownership limitations and restrictions contained in
Article IV of the Company’s Declaration of Trust or cause such limitations
and restrictions not to apply; or
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release
any person from or fail to enforce any standstill agreement or similar
obligation to the Company and its subsidiaries other than the automatic
termination of standstill obligations pursuant to the terms of agreements
as in effect as of the date hereof, by virtue of the execution and
announcement of the Merger
Agreement.
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Notwithstanding
these restrictions, after the go-shop period, we are permitted to continue
discussions and provide non-public information to any party that made a bona
fide written acquisition proposal prior to the end of the go-shop period, that
our Board of Trustees or the Special Committee determines, as of the end of the
go-shop period, in good faith, after consultation with outside legal counsel and
our financial advisor, constitutes or is reasonably likely to lead to a superior
proposal.
However,
we must otherwise immediately cease or cause to be terminated discussions except
as permitted below and cause any confidential information provided or made
available to be returned or destroyed. At any time after the date of
the Merger Agreement and prior to the approval of the Merger Agreement by our
shareholders, we are permitted to furnish information with respect to the
Company and our subsidiaries to any person making an acquisition proposal and to
participate in discussions or negotiations with the person making the
acquisition proposal, so long as, in the case of a person with whom we did not
have ongoing negotiations or discussions at the end of the go-shop period, such
acquisition proposal was a written bona fide acquisition proposal that was not
solicited, encouraged, facilitated by us or otherwise obtained in violation of
the Merger Agreement. In addition, our Board of Trustees or the
Special Committee must determine in good faith, after consultation with outside
legal counsel and our financial advisor, that such acquisition proposal
constitutes or is reasonably likely to lead to a superior proposal or that
failure to take such action, in light of the acquisition proposal and the terms
of this Merger Agreement, would be inconsistent with the trustees’ duties under
applicable law.
From
and after October 28, 2009, we must notify FCP in writing within 48 hours
if we receive any acquisition proposal, including in such notice the material
terms of the acquisition proposal, and shall keep FCP apprised as to the status
and any material developments concerning the same on a current basis (and in any
event no later than 36 hours after the occurrence of such
developments). In addition, from and after October 28, 2009, we must
notify FCP orally and in writing if we determine to begin providing information
or to engage in negotiations concerning an acquisition proposal not later than
24 hours after making such determination.
An
“acquisition proposal” means any proposal or offer for, whether in one
transaction or a series of related transactions, any (i) Merger,
consolidation, share exchange, business combination or similar transaction
involving us or any of our significant subsidiaries, (ii) sale or other
disposition, directly or indirectly, by Merger, consolidation, share exchange,
business combination or any similar transaction, of any of our assets or our
subsidiaries’ assets representing 20% or more of our consolidated assets,
(iii) issue, sale or other disposition by us or any of our subsidiaries of
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 20% or more of the votes
associated with our outstanding voting securities, (iv) tender offer or
exchange offer in which any person or group shall acquire beneficial ownership,
or the right to acquire beneficial ownership, of 20% or more of the votes
associated with our Common Shares, (v) recapitalization, restructuring,
liquidation, dissolution or other similar type of transaction with respect to
us, or (vi) transaction which is similar in form, substance or purpose to
any of the foregoing transactions.
A
“superior proposal” means any bona fide written acquisition proposal that we did
not solicit in violation of the Merger Agreement (i) that relates to more
than 60% of the voting power of our Common Shares or our assets and our
subsidiaries’ assets, taken as a whole, (ii) which our Board of Trustees or
the Special Committee determines in its good faith judgment (after consultation
with its financial advisor and after taking into account all of the terms and
conditions of the acquisition proposal) to be more favorable to our shareholders
(in their capacities as shareholders) than the Merger, (iii) the
material conditions to the consummation of which are all reasonably capable of
being satisfied in the judgment of our Board of Trustees or the Special
Committee, and (iv) for which financing, to the extent required, is then
committed or, in the judgment of our Board of Trustees or the Special Committee,
is reasonably likely to be available.
Recommendation
Withdrawal / Termination in Connection with a Superior Proposal
The
Merger Agreement requires us to call, give notice of, convene and hold a meeting
of our shareholders to approve the Merger and the Declaration of Trust
Amendment. In this regard, our Board of Trustees resolved to recommend that our
shareholders approve the Merger and the Declaration of Trust Amendment. However,
if our Board of Trustees or the Special Committee determines in good faith,
after consultation with outside legal counsel, that failure to take such action
would be inconsistent with the trustees’ duties under applicable law, the Board
of Trustees or the Special Committee may, at any time prior to the approval of
the Merger Agreement by our shareholders:
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withhold,
withdraw, modify, change or qualify in a manner adverse to FCP in any
material respect, or publicly propose to withdraw, its recommendation;
or
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fail
to include its recommendation in this proxy statement;
or
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knowingly
take any other action or knowingly make any other public statement that is
inconsistent in any material respect with such recommendation;
or
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terminate
the Merger Agreement and enter into a definitive agreement with respect to
an acquisition proposal that constitutes a superior proposal, after giving
effect to all of the adjustments which may be offered by FCP; provided,
that we are not entitled to terminate the Merger Agreement in accordance
with this bullet unless we have concurrently paid to FCP the applicable
termination fee and expenses as described in further detail in “—
Termination Payments and Expenses” beginning on page
55.
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In
the event that a superior proposal has been made (or any material revision of a
superior proposal has been made), we are not allowed to take any of the actions
in bullets 1-4 above unless:
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we
shall have provided prior written notice to FCP and Merger Sub, at least
three (3) business days in advance, of our intention to take any of the
actions in bullets 1-4 above with respect to such superior proposal, which
notice shall specify the material terms and conditions of such superior
proposal (including the identity of the party making such superior
proposal); and
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prior
to effecting any of the actions in bullets 1-4 above, we shall have, and
shall have caused our financial and legal advisors to, during the
requisite 3-business day period, negotiate with FCP and Merger Sub in good
faith (to the extent FCP and Merger Sub desire to negotiate) to make such
adjustments in the terms and conditions of the Merger Agreement so that
the transactions contemplated thereby are more favorable to our
shareholders than the superior
proposal.
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To
the extent our Board of Trustees or the Special Committee proposes to take the
foregoing actions with regard to its recommendation, it may only do so if we
have not intentionally or materially breached our obligations under certain
solicitation provisions of the Merger Agreement.
We
are not prohibited by the Merger Agreement from complying with our disclosure
obligations under U.S. federal or state law with regard to an acquisition
proposal, including taking and disclosing to our shareholders a position
contemplated by Rule 14d-9 and Rule 14e-2(a) under the Exchange
Act.
Employee
Benefits
Each
of our employees who are employees immediately prior to the effective time of
the Merger will continue to be an employee of the Surviving Entity immediately
after the effective time of the Merger. To the extent that the
Surviving Entity or any affiliate thereof maintains any health, welfare,
retirement or paid-time-off benefit plan in which any employee of the Surviving
Entity participates after the effective time of the Merger, the Surviving Entity
shall cause such plan to recognize the prior service of each such employee with
us and our affiliates prior to the effective time as employment with the
Surviving Entity and its affiliates for purposes of eligibility and benefit
entitlement (and, in the case of severance or paid time off benefits, benefit
accrual) under such plans of the Surviving Entity. In addition, FCP
has agreed to waive pre-existing condition exclusions, waiting periods and
certain other requirements and to provide credit for co-payments and deductibles
paid in the plan year immediately preceding the effective time of the
Merger.
Conditions
to the Merger
The
Merger will be completed only if the conditions specified in the Merger
Agreement are either satisfied or waived. Some of the conditions are
mutual, meaning that if the condition is not satisfied, none of the parties
would be obligated to close the Merger. Those conditions that are not
mutual are in favor of either FCP or Merger Sub, on the one hand, or our
Company, on the other hand, meaning that, if the condition is not satisfied, the
party could waive the condition, to the extent legally permissible, and the
other party would remain obligated to close.
The
mutual conditions for completion of the Merger are:
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approval
of both the Merger and the Declaration of Trust Amendment by our
shareholders; and
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absence
of any action by any governmental authority in the United States that
would make the Merger illegal or otherwise restrict, prevent or prohibit
consummation of the Merger.
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Our
obligation to effect the Merger is subject to the satisfaction or waiver of
various conditions that include the following:
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the
representations and warranties of FCP and Merger Sub being true and
correct as of the date of the Merger Agreement and as of the closing date
of the Merger (except to the extent the representation or warranty is
expressly limited by its terms to another date), except where the failure
of such representations and warranties to be true and correct, without
giving effect to any materiality or material adverse effect qualifier,
does not or would not have, individually or in the aggregate, an FCP
material adverse effect;
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each
of FCP and Merger Sub having performed in all material respects all
obligations or complied with, in all material respects, all agreements and
covenants required to be performed by it under the Merger Agreement on or
prior to the closing time of the Merger;
and
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delivery
by FCP of an executed officer certificate as to the satisfaction of these
conditions.
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FCP’s
and Merger Sub’s obligation to effect the Merger is subject to the satisfaction
or waiver of various conditions that include the following:
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the
representations and warranties of our Company being true and correct as of
the date of the Merger Agreement and as of the closing date of the Merger
(except to the extent the representation or warranty is expressly limited
by its terms to another date), except where the failure of such
representations and warranties to be true and correct, without giving
effect to any materiality or material adverse effect qualifier, does not
or would not reasonably be likely to have, individually or in the
aggregate, a material adverse
effect;
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the
representations and warranties of our Company concerning capitalization,
debt and authority relative to the Merger Agreement being true and correct
in all material respects;
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the
representations and warranties of our Company concerning the operation of
our business in the ordinary course, the absence of a material adverse
effect and the validity of our status since our taxable year ended
December 31, 1998 as a partnership for tax purposes being true and correct
in all respects as of the date of the Merger Agreement and as of the
closing date of the Merger;
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our
Company having performed in all material respects all obligations or
complied with, in all material respects, all agreements and covenants
required to be performed by it under the Merger Agreement on or prior to
the closing time of the Merger;
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delivery
by us of an executed officer certificate as to the satisfaction of these
conditions;
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our
compliance in all respects with our covenants regarding the earnings and
profits of ARPT, including the distribution by ARPT of inter-company
obligations in accordance with the Merger
Agreement;
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if
FCP’s tax advisors determine that, in their judgment, there is a greater
than 25% possibility that we have not qualified to be taxed as a
partnership for tax purposes for any taxable period commencing with the
taxable year ended December 31, 1998 and deliver a notice describing the
technical issue leading to such determination, the delivery within 10 days
of receiving such notice of a tax opinion addressed to us from legal
counsel satisfactory to FCP to the effect that the technical issues raised
by FCP should not have caused us to be treated as an association taxable
as a corporation under the Internal Revenue Code for the taxable years
commencing with our taxable year ended December 31,
1998;
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the
receipt of certain third party consents;
and
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the
absence of a material adverse effect to our
Company.
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Certain
of the above conditions, such as the requirement for shareholder approval,
cannot be waived under applicable law. We, FCP and Merger Sub reserve
the right to waive other conditions to the Merger. We cannot be
certain when (or if) the conditions to the Merger will be satisfied or waived or
that the Merger will be completed. We expect to complete the Merger
as promptly as practicable after all the conditions have been satisfied or
waived.
Definition
of Material Adverse Effect
Under
the Merger Agreement, “material adverse effect,” as it applies to our Company,
means any event, fact, development, circumstance, change or effect that
individually or in the aggregate is or is reasonably likely to be materially
adverse to the assets, business, prospects, condition (financial or otherwise)
or results of operations of our Company and our subsidiaries, taken as a whole;
provided,
however, that none of the following shall be deemed to constitute a
“material adverse effect”:
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any
event, fact, development, circumstance, change or effect arising out of or
resulting from changes in the United States or global economy or capital,
financial or securities markets generally, including changes in interest
or exchange rates (except to the extent such event, fact, development,
circumstance, change or effect affects us and our subsidiaries in a
disproportionate manner as compared to other persons or participants in
the industries in which we and our subsidiaries conduct our
business);
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the
commencement or escalation of a war or armed hostilities or the occurrence
of acts of terrorism or sabotage;
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any
changes in general economic, legal, regulatory or political conditions in
the geographic regions in which we and our subsidiaries operate (except to
the extent such event, fact, development, circumstance, change or effect
affects us and our subsidiaries in a disproportionate manner as compared
to other persons or participants in the industries in which we and our
subsidiaries conduct our business and that operate in the geographic
regions affected by such event, fact, development, circumstance, change or
effect);
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the
consummation or anticipation of the Merger or the announcement of the
execution of the Merger Agreement;
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the
compliance with the terms of, or the taking of any action required by, the
Merger Agreement;
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earthquakes,
hurricanes or other natural
disasters;
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any
failure of us to complete the sale of all or any of our properties located
in Baltimore, Maryland; or
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changes
in law or accounting principles generally accepted in the United States of
America.
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We
have agreed that, with respect to our representations regarding the absence of
conflicts with, or violations of, organizational documents, applicable laws or
other obligations or agreements as a result of the Merger and governmental
filings and consents necessary to complete the Merger, the exceptions in bullets
4 and 5 above shall not apply.
We
and FCP have agreed that the mere fact of a decrease in the market price of our
Common Shares shall not, in and of itself, be considered a material adverse
effect, but any event, fact, development or circumstance relating to the assets,
business, prospects, condition or results of operations of the Company and its
subsidiaries that causes such decrease shall be considered in determining
whether there has been a material adverse effect..
Under
the Merger Agreement, “FCP material adverse effect,” means any event, fact,
development, circumstance, change or effect that would reasonably be expected to
prevent, or materially hinder, FCP and the Merger Sub from being able to
consummate the Merger.
Termination
The
Merger Agreement may be terminated prior to the Merger effective
time:
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by
mutual written consent of FCP and
us;
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by
either FCP or us, if:
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our
shareholders do not approve the Merger or the Declaration of Trust
Amendment;
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any
governmental authority with authority over such matters takes any action
that is final and non-appealable that permanently restrains, enjoins or
otherwise prohibits the consummation of the Merger, provided that the
terminating party uses reasonable best efforts oppose such action or to
have the action vacated or made inapplicable to the Merger;
or
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the
Merger is not completed on or before March 31, 2010, unless the failure to
complete the Merger by this date is the result of any action or inaction
under the Merger Agreement by the terminating
party;
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prior
to the special meeting of our shareholders to approve the Merger and the
Declaration of Trust Amendment, our Board of Trustees or the Special
Committee:
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withholds,
withdraws, modifies, changes or qualifies in a manner adverse to FCP in
any material respect, or publicly propose to withdraw, its
recommendation;
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fails
to include its recommendation in this proxy
statement;
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knowingly
takes any other action or knowingly makes any other public statement that
is inconsistent in any material respect with such
recommendation;
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publicly
proposes to effect any of the
foregoing;
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our
Board of Trustees or the Special Committee approves or recommends (or
resolves to approve or recommend) an acquisition proposal other than the
Merger to our shareholders;
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we
breach any representation or warranty or fail to perform any covenant or
agreement contained in the Merger Agreement that prevents satisfaction of
the conditions to FCP’s obligation to close the Merger, and the breach or
failure is incapable of being cured by March 31, 2010 or, if capable of
being cured by such date, we have not commenced to cure the breach or
failure within 10 business days of receiving written notice of the breach
or failure from FCP and have not diligently pursued such cure to
completion thereafter; provided, however, that
FCP is not then also in material breach of its representations,
warranties, covenants or agreements such as would cause a condition to
closing to not be satisfied.
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FCP
breaches any representation or warranty or fails to perform any covenant
or agreement contained in the Merger Agreement that prevents satisfaction
of the conditions to our obligation to close the Merger, and the breach or
failure is incapable of being cured by March 31, 2010 or, if capable of
being cured by such date, FCP has not commenced to cure the breach or
failure within 10 business days of receiving written notice of the breach
or failure from us and has not diligently pursued such cure to completion
thereafter; provided,
however, that we are not then also in material breach of our
representations, warranties, covenants or agreements such as would cause a
condition to closing to not be
satisfied.
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prior
to approval of the Merger by our shareholders, our Board of Trustees has
withdrawn its recommendation and/or approved and authorized us to enter
into a definitive agreement with respect to a superior proposal, but only
if (i) we have not materially breached any of our obligations under
the solicitation provisions of the Merger Agreement, (ii) our Board
of Trustees or the Special Committee has determined in good faith that the
definitive agreement constitutes a superior proposal and has determined in
good faith, after consultation with outside legal counsel,
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that
failure to enter into the competing agreement would be inconsistent with
the trustees’ duties under applicable law, (iii) we have provided FCP
written notice of our intention to enter the competing agreement, (iv) we
have complied with the other requirements for approving a superior
proposal as discussed above under the caption “¾Recommendation
Withdrawal / Termination in Connection with a Superior Proposal” beginning
on page 50; and (v) concurrently with such termination, we have paid FCP
the applicable termination fee and certain of its Merger expenses as
described under the caption “¾ Termination
Payments and Expenses” beginning on page
55.
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Termination
Payments and Expenses
The
Merger Agreement provides that we are obligated to pay FCP an amount equal to
$1.75 million as a termination payment and up to $300,000 of its Merger expenses
incurred since September 3, 2009 if the Merger Agreement is terminated by FCP,
if, except as set forth below:
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prior
to the special meeting of our shareholders to approve the Merger and the
Declaration of Trust Amendment, our Board of Trustees or the Special
Committee:
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withholds,
withdraws, modifies, changes or qualifies in a manner adverse to FCP in
any material respect, or publicly propose to withdraw, its
recommendation;
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fails
to include its recommendation in this proxy
statement;
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knowingly
takes any other action or knowingly makes any other public statement that
is inconsistent in any material respect with such
recommendation;
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publicly
proposes to effect any of the
foregoing;
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our
Board of Trustees or the Special Committee approves or recommends (or
resolves to approve or recommend) an acquisition proposal other than the
Merger to our shareholders; or
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we
breach any representation or warranty or fail to perform any covenant or
agreement contained in the Merger Agreement that prevents satisfaction of
the conditions to FCP’s obligation to close the Merger, and the breach or
failure is incapable of being cured by March 31, 2010 or, if capable of
being cured by such date, we have not commenced to cure the breach or
failure within 10 business days of receiving written notice of the breach
or failure from FCP and have not diligently pursued such cure to
completion thereafter; provided, however, that
FCP is not then also in material breach of its representations,
warranties, covenants or agreements such as would cause a condition to
closing to not be satisfied.
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In
addition, we are obligated to pay FCP an amount equal to $1.75 million as a
termination payment and up to $300,000 of its Merger expenses incurred since
September 3, 2009 if the Merger Agreement is terminated by us because our Board
of Trustees has approved and authorized us to enter into a definitive agreement
with respect to a superior proposal subject to the conditions described in, and
in accordance with, the Merger Agreement.
Notwithstanding
the above, the Merger Agreement provides that we are obligated to pay FCP an
amount equal to $1.45 million as a termination payment and up to $300,000 of its
Merger expenses incurred since September 3, 2009 if the Merger Agreement is
terminated by us because our Board of Trustees or the Special Committee has
approved and authorized us to enter into a definitive agreement with respect to
a superior proposal during the go-shop period or otherwise from a party
identified during the go-shop period and who submitted, during the go-shop
period, an acquisition proposal that our Board of Trustees or the Special
Committee determined, as of the end of the go-shop period, in good faith, after
consultation with outside legal counsel and the Special Committee’s financial
advisor, constituted or was reasonably likely to lead to a superior
proposal.
The
Merger Agreement provides that we are obligated to reimburse FCP for up to
$600,000 of its expenses incurred since September 3, 2009 if the Merger
Agreement is terminated by either FCP or us in the event that our shareholders
vote to not approve the Merger or the amendment to our Declaration of Trust at
the special shareholder meeting. In addition,
if: (a) prior to the special meeting of shareholders, an
acquisition proposal shall have been
publicly
announced or made known and not otherwise withdrawn, and (b) concurrently
with such termination or within 12 months thereafter, we enter into an agreement
with respect to an acquisition proposal or any acquisition proposal is
consummated, whether or not on the same terms originally proposed, we would be
obligated to pay FCP a fee upon the consummation of such acquisition proposal
equal to $1.45 million in addition to the expense reimbursement described in the
preceding sentence.
FCP
has agreed to pay us an amount equal to $1.45 million as a termination payment
and up to $300,000 of our Merger expenses incurred since September 3, 2009 if
the Merger Agreement is terminated by us in the event that FCP breaches any
representation or warranty or fails to perform any covenant or agreement
contained in the Merger Agreement that prevents satisfaction of the conditions
to our obligation to close the Merger, and the breach or failure is incapable of
being cured by March 31, 2010 or, if capable of being cured by such date, FCP
has not commenced to cure the breach or failure within 10 business days of
receiving written notice of the breach or failure from us and has not diligently
pursued such cure to completion thereafter; provided, however, that we are not
then also in material breach of our representations, warranties, covenants or
agreements such as would cause a condition to closing to not be
satisfied. Notwithstanding the foregoing, if we terminate the Merger
Agreement for any such breach by FCP or Merger Sub within 5 business days prior
to the effective time of the Merger, then FCP would be required to pay to us a
$5 million termination payment and up to $300,000 of our Merger expenses
incurred since September 3, 2009.
Our
right to receive payment of the fees and expenses described in this section from
FCP shall be our sole and exclusive remedy against FCP, Merger Sub and any of
their respective former, current, or future general or limited partners,
stockholders, managers, members, directors, officers, affiliates or agents for
the loss suffered as a result of the failure of the Merger to be consummated,
and upon payment of such amounts, none of FCP, Merger Sub or any of their
respective former, current, or future general or limited partners, stockholders,
managers, members, directors, officers, affiliates or agents shall have any
further liability or obligation relating to or arising out of the Merger
Agreement or the transactions thereby. FCP’s right to receive payment
of the fees and expenses described in this section from us shall be the sole and
exclusive remedy of FCP and Merger Sub against us and our subsidiaries and any
of our respective former, current, or future general or limited partners,
shareholders, managers, members, directors, officers, affiliates or agents for
the loss suffered as a result of the failure of the Merger to be consummated,
and upon payment of such amounts, none of the us or our subsidiaries or any of
our respective former, current, or future general or limited partners,
shareholders, managers, members, directors, officers, affiliates or agents shall
have any further liability or obligation relating to or arising out of the
Merger Agreement or the transactions contemplated thereby. Neither us
nor FCP is expressly entitled to seek specific performance of the other’s
obligations under the Merger Agreement.
Amendment
of the Merger Agreement
The
parties may amend the Merger Agreement, but after our shareholders have approved
the Merger, no such amendment will be made that by law or pursuant to the rules
of the NYSE Amex requires further approval by our shareholders without obtaining
such approval.
Indemnification;
Trustee and Officer Insurance
Our
Company will be the Surviving Entity in the Merger and, along with FCP, will
provide exculpation and indemnification to the fullest extent authorized or
permitted by applicable law for each person who as of the date of the Merger
Agreement or during the period from the date of the Merger Agreement through the
closing date of the Merger, served as an executive officer, trustee, director or
fiduciary of our Company or any of our subsidiaries (referred to in this proxy
statement as the “indemnified parties”) in connection with any claims and any
judgments, fines, penalties and amounts paid in settlement resulting
therefrom. In addition, FCP and the Surviving Entity will promptly
pay on behalf of or, within 30 days after any request for advancement, advance
to each indemnified party, to the fullest extent permitted by applicable law,
any expenses incurred in defending, serving as a witness with respect to or
otherwise participating in any claim in advance of the final disposition of such
claim. The indemnification and advancement obligations of FCP and the
Surviving Entity pursuant to the Merger Agreement will extend to acts or
omissions occurring at or before the closing time and any claim relating
thereto, and all rights to indemnification and advancement contained in the
Merger Agreement shall continue with respect to an indemnified party even after
such indemnified party ceases to be a trustee, director, executive officer or
fiduciary of us or our subsidiaries.
The
Merger Agreement provides that all rights to indemnification and exculpation
existing in favor of the present and former trustees, directors, officers,
employees or fiduciaries of our Company and our subsidiaries provided for in our
and our subsidiaries’ organizational documents will continue in full force and
effect for a period of six (6) years from the closing date of the
Merger. The Merger Agreement also requires that the Surviving Entity
maintain in effect, for a period of six years after the effective time of the
Merger, our current directors’ and officers’ liability policies; provided,
however, that the Surviving Entity may instead substitute policies of at least
the same amounts and containing other terms and conditions which are, in the
aggregate, not less advantageous to the insured persons. This
requirement is subject to a maximum cost per year of coverage of 300% of the
annual premiums we paid for such insurance prior to the date we signed the
Merger Agreement. If the cost per year of insurance coverage exceeds
such maximum amount, the Surviving Entity must obtain as much comparable
insurance as possible for an annual premium equal to 300% of the annual premiums
we paid prior to the date we signed the Merger Agreement.
The
obligations described above regarding trustees’, directors’ and officers’
indemnification and exculpation and directors’ and officers’ insurance must be
assumed by any successor entity to the Surviving Entity.
Litigation
Relating to the Merger
On
October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder,
filed a class action complaint in the Circuit Court for Charles County,
Maryland, against the Company, our Board of Trustees and FCP. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The complaint further alleges that FCP
aided and abetted those breaches of fiduciary duties. The complaint
seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a
class action complaint in the Circuit Court for Charles County, Maryland,
against the Company, our Board of Trustees, FCP and Merger Sub. The complaint
alleges that our trustees breached their fiduciary duties in connection with the
Merger. The complaint further alleges that FCP and Merger Sub aided
and abetted those breaches of fiduciary duties. The complaint seeks
to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
November 13, 2009, the parties submitted to the Court an agreed stipulation and
proposed order consolidating these two actions. This order has not
yet been entered. On November 19, 2009, the plaintiffs filed in each
action a consolidated complaint. The consolidated complaint names the
same defendants named in the two initial complaints and asserts the same claims
for breach of fiduciary duties. The consolidated complaint alleges
further that the defendants breached fiduciary duties in connection with the
disclosures contained in the Company's preliminary proxy statement.
We
intend to defend these actions vigorously. However, even if these
lawsuits are determined to be without merit, they may potentially delay or, if
the delay is substantial enough, prevent the consummation of the Merger by March
31, 2010, potentially prevent the closing of the Merger.
MATERIAL UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES
The
following is a summary of the material U.S. federal income tax consequences to
holders of our Common Shares of:
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the
E&P Distribution; and
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This
summary is based on current law and is for general information
only. This summary is based on the Internal Revenue Code of 1986, as
amended (the “Code”), applicable Treasury Regulations, and administrative and
judicial interpretations thereof, each as in effect as of the date hereof, all
of which are subject to change, possibly with retroactive effect. We
have not requested, and do not plan to request, any rulings from the Internal
Revenue Service (the “IRS”) concerning the tax consequences of the E&P
Distribution and the Merger, and the statements in this proxy statement are not
binding on the IRS or any court. We can provide no assurance that the
tax consequences described in this discussion will not be challenged by the IRS,
or if challenged, will be sustained by a court.
This
summary assumes that our Common Shares are held as a capital asset within the
meaning of Code Section 1221 and does not address all tax consequences that
may be relevant to particular holders in light of their personal investment or
tax circumstances or to persons that are subject to special tax
rules. In addition, except as noted below, this summary does not
address the tax consequences for special classes of holders of our Common
Shares, including, for example:
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banks
and other financial institutions;
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regulated
investment companies;
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subchapter
S corporations;
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dealers
in securities or currencies;
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traders
in securities that elect to use a mark-to-market method of accounting for
their securities holdings;
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·
|
persons
whose functional currency is not the U.S.
dollar;
|
|
·
|
persons
holding our Common Shares as part of a hedging or conversion transaction,
as part of a “straddle” or a constructive sale, or otherwise part of any
integrated transaction for U.S. federal income tax
purposes;
|
|
·
|
certain
U.S. expatriates;
|
|
·
|
persons
subject to the alternative minimum
tax;
|
|
·
|
persons
who acquired our Common Shares through the exercise of employee stock
options or warrants or otherwise as
compensation;
|
|
·
|
persons
that are properly classified as a partnership or otherwise as a
pass-through entity under the Code;
and
|
|
·
|
non-U.S.
holders, as defined below.
|
This
summary also does not discuss any state, local, foreign tax considerations, or
other any tax considerations other than U.S. federal income tax
considerations.
If
any entity that is treated as a partnership for U.S. federal tax purposes holds
our Common Shares, the tax treatment of its partners or members generally will
depend upon the status of the partner or member and the activities of the
entity. If you are a partner of a partnership or a member of a
limited liability company or other entity classified as a partnership for U.S.
federal tax purposes and that entity holds our Common Shares, you should consult
your tax advisor.
As
noted above, this discussion does not address any tax consequences to persons
that are non-U.S. holders. However, special tax considerations with
respect to the E&P Distribution and the merger may apply to a holder of our
Common Shares that itself is a U.S. partnership, limited liability company, or
other entity which is treated as a partnership for U.S. federal income tax
purposes, but which has non-U.S. persons as partners or
members. Accordingly, any shareholder that is treated as a
partnership for U.S. federal income tax purposes, and whose partners or members
include non-U.S. persons, should consult with its own tax advisor regarding any
special U.S. tax consequences to it and its partners or members that may result
from the E&P Distribution and the Merger.
Consequences
of the Merger and the E&P Distribution to U.S. Holders of Our Common
Shares
This
summary does not address any tax consequences to any person (including their
affiliates, subsidiaries, and related parties) that acquires or holds any
interest in the Company or its subsidiaries (whether directly or indirectly)
following the effective time of the Merger. Such persons should
consult their own respective tax advisors regarding any U.S. federal income and
other tax consequences to them that may result from the E&P Distribution and
the Merger in their specific circumstances.
For
purposes of this section, a “U.S. holder” means a beneficial owner of our Common
Shares that is for U.S. federal income tax purposes one of the
following:
|
·
|
a
citizen or resident of the United
States;
|
|
·
|
a
corporation or other entity treated as a corporation for U.S. federal
income tax purposes created or organized in or under the laws of the
United States, any state thereof, or the District of
Columbia;
|
|
·
|
a
trust (A) the administration of which is subject to the primary
supervision of a United States court, if one or more United States persons
have the authority to control all substantial decisions of the trust, or
(B) that was in existence on August 20, 1996, was treated as a
United States person on the previous day, and elected to continue to be so
treated; or
|
|
·
|
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source.
|
As
used in this section, a “non-U.S. holder” means a beneficial owner of our Common
Shares that is not a U.S. holder as described in the bullets above or a
partnership for U.S. federal income tax purposes.
We
have elected to be taxed as a partnership for U.S. federal income tax purposes
and believe that we have qualified and been taxable as a partnership since our
date of formation. Specifically, we believe that we are classified as
a “publicly traded partnership” or “PTP” under Code Section 7704. A
PTP is taxable as a corporation unless it satisfies a special “90% qualifying
income exception” under Code Section 7704(c). Under that exception, a
PTP is not subject to corporate-level tax if 90% or more of its gross income
each year has consisted of dividends, interest, “rents from real property” (as
that term is defined for purposes of the U.S. federal income tax rules governing
REITs, with certain modifications), gain from the sale or other disposition of
real property, and certain other types of income. This entire
discussion assumes that we are treated as a PTP that is taxable as a partnership
(and not a corporation) for U.S. federal income tax purposes. If we
have failed to satisfy the 90% qualifying income exception and are, as a result,
treated as a corporation, the U.S. federal income tax consequences of the
E&P Distribution and the Merger to U.S. holders likely would be
substantially different from that described herein. In the event that
we are treated as a corporation for U.S. federal income tax purposes, it is,
however, unlikely that the consequences would be less favorable to U.S.
holders.
Consequences of the E&P
Distribution to U.S. Holders of Our Common Shares
U.S.
holders will be required to take into account as dividend income their
distributive share of that portion of the E&P Distribution that constitutes
a dividend for U.S. federal income tax purposes. The E&P
Distribution generally will constitute a dividend for U.S. federal income tax
purposes to the extent it does not exceed ARPT’s current and accumulated
earnings and profits (as determined for U.S. federal income tax
purposes). We estimate that ARPT’s current and accumulated earnings
and profits will be approximately $1.97 per share. There is
substantial uncertainty under current law regarding whether the dividend portion
of the E&P Distribution will be treated as “qualified dividend
income.” We intend to report the dividend portion of the E&P
Distribution as “qualified dividend income,” but no assurance can be provided
that the IRS will not successfully challenge that
treatment. Qualified dividend income allocated to a U.S. holder,
taxed at individual rates, generally will be subject to taxation at the 15%
maximum rate applicable to long-term capital gain. If the dividend
portion of the E&P Distribution is not qualified dividend income, it will be
treated as ordinary income for U.S. holders taxed at individual
rates. U.S. holders should consult their tax advisors regarding the
treatment of the dividend portion of the E&P Distribution as qualified
dividend income.
To
the extent that the E&P Distribution exceeds ARPT’s current and accumulated
earnings and profits, the E&P Distribution will first reduce our adjusted
basis in the stock of ARPT, and will thereafter be treated as gain from the sale
of our interest in ARPT. Because our adjusted tax basis in the stock
of ARPT is very small or zero, the E&P Distribution, to the extent it
exceeds ARPT’s current and accumulated earnings and profits, generally will be
treated as gain from the sale of our interest in ARPT. Any such gain
generally will be treated as long-term capital gain. As a general
matter, the maximum U.S. federal income tax rate on net long-term capital gain
applicable to U.S. holders, taxed at individual rates, currently is
15%.
We
estimate that the E&P Distribution will be $3.56 per share, approximately
$1.97 per share of which will be dividend income and approximately $1.59 per
share of which will be long term capital gain.
Consequences
of the Merger to U.S. Holders of Our Common Shares
For
U.S. federal income tax purposes, the Merger will be treated, with respect to
each U.S. holder, as a sale of Common Shares. Each such holder
generally will recognize gain or loss equal to the difference between the amount
realized on the disposition and such holder’s adjusted tax basis in its Common
Shares. For these purposes, the amount realized by a U.S. holder in
connection with the Merger generally will the sum of:
|
·
|
the
Merger Consideration (i.e., the cash
received, including any amount withheld under applicable tax law);
and
|
|
·
|
the
amount of our liabilities allocated to the Common Shares
sold.
|
For
purposes of this calculation, a U.S. holder’s adjusted tax basis in its Common
Shares will be increased by any income allocated by us to such holder in
connection with the E&P Distribution. We do not have any
significant liabilities.
Generally,
any gain or loss recognized by a U.S. holder on the disposition of the Common
Shares in connection with the Merger will be capital gain or
loss. However, any portion of a U.S. holder’s amount realized on the
disposition that is attributable to our “unrealized receivables,” or “inventory
items,” in each case as defined in Code Section 751, generally will give rise to
ordinary income or loss. “Unrealized receivables” include stock in
our Puerto Rico subsidiary to the extent of the lower of the appreciation of
value of that stock and the amount of earnings and profits accumulated by our
Puerto Rico subsidiary which have not been previously subject to U.S.
tax. The amount of unrealized receivables (and thus ordinary income)
recognized by a U.S. holder will depend upon how long it has held our Common
Shares. For U.S. holders that have held our Common Shares since our
formation in 1998, we estimate that the amount of “unrealized receivables” that
will give rise to income will be between $1.91 and $2.98 per
share. However, it is possible that the actual numbers could differ
from these estimates. The amount of ordinary income may exceed the
net taxable gain, if any, that a U.S. holder otherwise would realize on the
disposition of our Common Shares in connection with the Merger. This
ordinary income will be recognized in any event. Thus, a U.S. holder
may recognize both ordinary income and a capital loss on the disposition of our
Common Shares in connection with the Merger.
For
U.S. holders taxed at individual rates, net capital gain from the sale of an
asset held one year or less is subject to tax at the applicable rate for
ordinary income. For these types of U.S. holders, the maximum rate of
tax on the net capital gain from a sale or exchange or a capital asset held for
more than one year generally is 15%. Capital losses may be used to
offset ordinary income only to a limited extent.
In
addition to the possibility of recognizing ordinary income under Code Section
751, a portion of any long-term gain recognized by a U.S. holder taxed at
individual rates in connection with its disposition of our Common Shares in the
Merger may be characterized as unrecaptured Code Section 1250 gain and subject
to an increased capital gain tax rate of 25%. Our assets do not
currently have unrecaptured Section 1250 gain associated with them, so that a
U.S. holder should not expect to recognize Section 1250 capital gain in
connection with the Merger. The amount of a U.S.
holder’s long-term capital gain (after the application of Code Section 751 as
described above) that is not taxed at the increased rate for Section 1250
capital gain will be taxed at regular long-term capital gain rates.
Accordingly, any gain on the sale of Common Shares
held for more than one year could be treated partly as gain from the sale of a
long-term capital assets subject to a 15% tax rate and partly as ordinary income
to the extent attributable to “unrealized receivables.” Each U.S.
holder should consult with its own tax advisor regarding the application of the
ordinary income tax rates to a sale of our Common Shares.
FIRPTA
Withholding
To
prevent U.S. federal income tax withholding under the Foreign Investment in Real
Property Tax Act of 1980 (“FIRPTA”), currently at a rate of 10%, each U.S.
holder is required to complete a FIRPTA affidavit stating that it is not a
non-U.S. holder. Non-U.S. holders generally are subject to U.S.
federal income tax (including withholding) under FIRPTA. U.S. federal
income tax withheld under FIRPTA does not constitute a tax in addition to tax
otherwise applicable, either under FIRPTA or otherwise, but rather generally is
creditable against a holder’s underlying U.S. federal income tax
liability. The application of FIRPTA is complicated, and non-U.S.
holders are urged to consult their tax advisors regarding the application of
FIRPTA (including withholding) in each holder’s circumstances in connection with
the Merger.
Reportable
Transactions
If
a holder of our Common Shares recognizes a loss as a result of a transaction
with respect to our Common Shares (including in connection with the Merger) of
at least (i) $2,000,000 or more in a single taxable year or $4,000,000 or more
in a combination of taxable years, for a holder that is an individual,
S corporation, trust, or a partnership with at least one noncorporate
partner, or (ii) $10,000,000 or more in a single taxable year or $20,000,000 or
more in a combination of taxable years, for a holder that is either a
corporation or a partnership with only corporate partners, such holder may be
required to file a disclosure statement with the IRS on
Form 8886. The fact that a loss is reportable under these
Treasury Regulations does not affect the legal determination of whether the
taxpayer’s treatment of the loss is proper. Holders should consult their tax
advisors to determine the applicability of these Treasury Regulations in light
of their individual circumstances.
Information
Reporting and Backup Withholding
Backup
withholding, presently at a rate of 28%, and information reporting may apply to
the Merger Consideration received pursuant to the exchange of our Common Shares
in the merger. Backup withholding generally will not apply, however,
to a holder who:
|
·
|
in
the case of a U.S. holder, furnishes a correct taxpayer identification
number and certifies that it is not subject to backup withholding on IRS
Form W-9;
|
|
·
|
in
the case of a non-U.S. holder, furnishes an applicable IRS Form W-8;
or
|
|
·
|
is
otherwise exempt from backup withholding and complies with other
applicable rules and certification
requirements.
|
Backup
withholding is not an additional tax. It generally may be credited
against the holder’s U.S. federal income tax liability and may entitle the
holder to a refund if required information is properly and timely
furnished to the IRS.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE E&P
DISTRIBUTION AND THE MERGER. THEREFORE, HOLDERS OF OUR COMMON SHARES ARE
STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
TO THEM OF THE E&P DISTRIBUTION AND THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS IN THEIR
PARTICULAR CIRCUMSTANCES.
Recommendation
of Our Board of Trustees
Our
Board of Trustees recommends that holders of our Common Shares vote FOR approval
of the Merger.
DECLARATION OF TRUST AMENDMENT—PROPOSAL
2
Proposed
Amendment
You
are also being asked to consider and vote upon an amendment to our Declaration
of Trust to cause Section 5.3.3 to be of no operation or effect. This
amendment would suspend the requirement that we make a minimum distribution to
our shareholders in connection with distributions of net taxable
income. The amendment would render such section inapplicable for the
fiscal year ending December 31, 2009 and subsequent thereto, unless the
Merger Agreement is terminated and our Board of Trustees makes a public
announcement that Section 5.3.3 will thereafter be operative and in
effect. Our Board of Trustees approved the Declaration of Trust
Amendment and is recommending that our common shareholders vote to approve
Proposal 2 because the Merger Consideration to which we, FCP and Merger Sub
agreed under the Merger Agreement was premised on the mutual understanding that
no distributions of any kind would be made by us with respect to our Common
Shares in the future so long as the Merger Agreement remains in
effect. The Merger Agreement provides that if we make any
distributions with respect to our Common Shares, the Merger Consideration will
be reduced accordingly. We urge you to read carefully the Declaration
of Trust Amendment, which is incorporated by reference in its entirety and
attached to this proxy statement as Exhibit
B. If the special meeting occurs prior to December 31, 2009,
and if both the Merger and the Declaration of Trust Amendment are approved by
our shareholders, we expect to file the Declaration of Trust Amendment with the
SDAT as soon as practicable after such approval, and on or prior to December 31,
2009, even if the closing of the Merger does not occur until after December 31,
2009. In the unlikely event that the Declaration of Trust Amendment
is approved, but the Merger is not approved, our Board of Trustees may elect not
to file the Declaration of Trust Amendment with the SDAT.
In order for us to consummate the Merger,
both the Merger and the Declaration of Trust Amendment must be approved by our
common shareholders. If the Merger is approved but the
Declaration of Trust Amendment is not approved, then we will not be able to
complete the Merger.
Vote
Required
Approval of the Declaration of Trust Amendment
requires the affirmative vote of the holders of two-thirds of our Common Shares
that are issued and outstanding on the record date.
Recommendation
of Our Board of Trustees
Our Board of Trustees recommends that
holders of our Common Shares vote FOR approval of the Declaration of Trust
Amendment.
ADJOURNMENTS AND POSTPONEMENTS OF THE
SPECIAL MEETING
Proposal
for Adjournments—Proposal 3
We
are asking our common shareholders to vote on a proposal to approve any
adjournments of the special meeting for the purpose of soliciting additional
proxies if there are not sufficient votes at the special meeting to approve the
Merger or the Declaration of Trust Amendment. Under Maryland law and
our Bylaws, the affirmative vote of a majority of the votes cast at the special
meeting is required to adjourn the special meeting. The special
meeting may be adjourned from time to time to a date not more than 120 days
after the original record date without notice other than announcement at such
meeting. For purposes of the vote to approve any adjournment of the
special meeting, abstentions and broker non-votes, if any, will not be counted
as votes cast and will have no effect on the result of the vote, although they
will be considered present for the purpose of determining the presence of a
quorum.
Recommendation
of our Board of Trustees
Our Board of Trustees recommends that
holders of our Common Shares vote “FOR” the approval of any adjournments of the
special meeting for the purpose of soliciting additional proxies if there are
not sufficient votes at the special meeting to approve the Merger or the
Declaration of Trust Amendment.
Postponements
At
any time prior to convening the special meeting, our Board of Trustees may
postpone the special meeting for any reason without the approval of our
shareholders. If the special meeting is postponed, we will provide at least ten
days’ notice of the new date of the special meeting.
MARKET PRICE OF OUR COMMON
SHARES
Our
Common Shares of beneficial interest, par value $0.01 per share, are traded on
the NYSE AMEX under the symbol “APO.” As of the close of business on
November 27, 2009, which is the record date for the special meeting, there were
134 common shareholders of record. The following table sets forth the
high and low closing prices of our Common Shares as reported on the NYSE AMEX
(rounded to the nearest cent) and the dividends paid per Common Share for each
quarterly period for the past two years and for the first, second, third and
fourth quarterly periods (through November 30, 2009) of the fiscal year ending
December 31, 2009.
|
|
|
|
Price
Range of ACPT Shares
|
|
|
Dividends
|
|
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
Fourth
|
|
$ |
8.55 |
|
|
$ |
7.35 |
|
|
$ |
- |
|
|
|
Third
|
|
|
8.77 |
|
|
|
5.50 |
|
|
|
- |
|
|
|
Second
|
|
|
9.09 |
|
|
|
5.20 |
|
|
|
- |
|
|
|
First
|
|
|
5.39 |
|
|
|
3.41 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
Fourth
|
|
$ |
10.20 |
|
|
$ |
3.10 |
|
|
$ |
0.10 |
|
|
|
Third
|
|
|
14.25 |
|
|
|
10.20 |
|
|
|
- |
|
|
|
Second
|
|
|
19.01 |
|
|
|
13.45 |
|
|
|
- |
|
|
|
First
|
|
|
20.00 |
|
|
|
14.50 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
Fourth
|
|
$ |
25.75 |
|
|
$ |
17.50 |
|
|
$ |
- |
|
|
|
Third
|
|
|
27.59 |
|
|
|
19.22 |
|
|
|
0.10 |
|
|
|
Second
|
|
|
20.33 |
|
|
|
18.58 |
|
|
|
0.10 |
|
|
|
First
|
|
|
19.47 |
|
|
|
17.64 |
|
|
|
0.10 |
|
On
September 14, 2009, the last trading day before we announced that we were
considering various strategic alternatives, including a possible sale of the
Company, the closing price of our Common Shares on the NYSE Amex was
$6.62 per share. On November 9, 2009, the closing price of our
Common Shares on the NYSE Amex was $7.40 per share. You are
encouraged to obtain current market quotations for our Common
Shares.
PRINCIPAL AND MANAGEMENT
SHAREHOLDERS
As
of November 27, 2009, there were 5,622,660 of our Common Shares
outstanding.
The
following table sets forth information, as of November 27, 2009, regarding our
Common Shares owned of record or known by us to be owned beneficially
by:
|
·
|
each
person beneficially owning 5% or more of our outstanding Common
Shares;
|
|
·
|
each
trustee of our Company;
|
|
·
|
our
Chief Executive Officer and each of the four other most highly paid
executive officers of our Company;
and
|
|
·
|
the
trustees and executive officers of our Company as a
group.
|
The
number of our Common Shares “beneficially owned” by each shareholder is
determined under rules of the SEC regarding the beneficial ownership of
securities. Under the SEC rules, beneficial ownership of our Common Shares
includes any shares as to which the person or entity has sole or shared voting
power or investment power.
Unless
otherwise indicated in the footnotes, all such interests are owned directly, and
the indicated person or entity has sole voting and investment
power. The address for each of our trustees and executive officers
listed below is: c/o American Community Properties Trust, 222
Smallwood Village Center, St. Charles, Maryland, 20602.
|
|
Shares Beneficially Owned
|
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership(1)
|
|
|
|
|
5%
Holders:
|
|
|
|
|
|
The
Wilson Group (1)
222
Smallwood Village Center
St.
Charles, MD 20602
|
2,650,720
|
|
47.1
|
%
|
|
Interstate
Business Corporation (1)(2)(3)
222
Smallwood Village Center
St.
Charles, MD 20602
|
1,549,976
|
|
27.6
|
%
|
|
Wilson
Securities Corporation (1)(2)(3)
222
Smallwood Village Center
St.
Charles, MD 20602
|
586,101
|
|
10.4
|
%
|
|
Paul
J. Isaac (4)
75
Prospect Avenue
Larchmont,
New York 10538
|
865,329
|
|
15.4
|
%
|
|
Leeward
Capital, L.P. (5)
One
California Street, Suite 300
San
Francisco, CA 94111
|
288,000
|
|
5.1
|
%
|
|
Trustees
and Executive Officers:
|
|
|
|
|
|
J.
Michael Wilson (1)(3)(6)
|
107,747
|
|
1.9
|
%
|
|
Stephen
K. Griessel
|
363,743
|
|
6.5
|
%
|
|
Thomas
J. Shafer
|
18,841
|
|
*
|
|
|
Antonio
Ginorio
|
14,841
|
|
*
|
|
|
Donald
J. Halldin
|
6,508
|
|
*
|
|
|
Michael
Williamson
|
6,508
|
|
*
|
|
|
Thomas
E. Green
|
6,508
|
|
*
|
|
|
Matthew
M. Martin
|
--
|
|
--
|
|
|
Jorge
Garcia
|
--
|
|
--
|
|
|
Mark
MacFarland
|
--
|
|
--
|
|
|
Harry
Chalstrom
|
100
|
|
*
|
|
|
All
trustees and executive officers as a group
(11 persons)(6)
|
524,796
|
|
9.3
|
%
|
*Less
than one percent.
|
(1)
|
As
reported in a Schedule 13D/A filed April 15, 2008, the Wilson Group is
comprised of James J. Wilson and his wife, Barbara A. Wilson; their six
children, J. Michael Wilson (Chairman of ACPT), Thomas B. Wilson, Kevin J.
Wilson, Elizabeth W. Weber, Mary P. Wilson and Brian J. Wilson; Interstate
Business Corporation; Wilson Securities Corporation; and Wilson Family
Limited Partnership. The Wilson Group, collectively, has voting
and dispositive control through direct and indirect ownership of 47.1% of
ACPT's outstanding shares as reflected in the Wilson Group's Schedule
13D. The members of the group periodically meet to discuss
matters relating to their ownership of ACPT and may from time to time act
together with respect to the voting or disposition of Common
Shares. However, there is no formal arrangement among the
members of the group in regard to their voting and dispositive voting
rights and, accordingly, the group members may not always act together
with respect to the Common Shares.
|
|
(2)
|
Interstate
Business Corporation and Wilson Securities Corporation are owned by the
Wilson Family Shareholders, including J. Michael
Wilson
|
|
(3)
|
These
persons are members of the Wilson Group and their shares are also included
with the Wilson Group.
|
|
(4)
|
Based
on a Schedule 13D/A filed October 7, 2009, Paul J. Isaac directly owns
73,450 shares and has beneficial ownership of 791,879 shares that are
directly owned by: (i) Isaac Brothers L.L.C. (220,200 shares), (ii)
Arbiter Partners L.P. (484,329 shares), (iii) Karen Isaac (wife) and 4
grandchildren (70,100), (iv) Isaac Grandchildren’s Trust (12,250 shares),
(v) Marjorie S. Isaac u/w/o Irving H. Isaac Marital Trust (5,000
shares).
|
|
(5)
|
Based
on a Schedule 13D filed on December 2, 2008, Leeward Capital, L.P. has
beneficial ownership of 288,000
shares.
|
|
(6)
|
Includes
21,350 shares attributable to ACPT shares held by the Wilson Family
Limited Partnership. J. Michael Wilson is a General Partner of
the Wilson Family Limited Partnership. The management and
control of the business and affairs of the partnership are vested jointly
in the General Partners, thus J. Michael Wilson shares voting and
dispositive power over Common Shares owned by the Wilson Family Limited
Partnership.
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DISSENTERS’ RIGHTS OF
APPRAISAL
We are organized as a real estate investment trust
under Maryland law. Under the Maryland REIT Law, because our Common Shares were
listed on the NYSE Amex on the record date for determining shareholders entitled
to vote at the special meeting, our common shareholders who object to the Merger
do not have any appraisal rights or dissenters' rights in connection with the
Merger.
We
currently know of no other business that will be presented for consideration at
the special meeting. Nevertheless, the enclosed proxy card confers discretionary
authority to vote with respect to matters described in Rule 14a-4(c) under
the Exchange Act, including matters that our Board of Trustees does not know of
at this time, if such matters are presented within a reasonable time before
proxy solicitation. If any of these matters are presented at the special
meeting, then the proxy agents named in the enclosed proxy card will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion.
SHAREHOLDER
PROPOSALS
If
we complete the Merger, the Company will not have public shareholders and there
will be no public participation in any future meeting of
shareholders. If we do not complete the Merger when currently
anticipated, we intend to hold our next annual meeting in June 2010 or shortly
thereafter. If the Merger is not completed for any reason, under SEC
rules, shareholders intending to submit proposals for presentation at our 2010
Annual Meeting of Shareholders must have submitted their proposals in writing,
and we must have received these proposals at our executive offices on or before
February 3, 2010 for inclusion in our proxy statement and the form of proxy
relating to our 2010 Annual Meeting.
Although
shareholder proposals received by us after February 3, 2010 will not be included
in our proxy statement or proxy card for the 2010 Annual Meeting of
Shareholders, shareholder proposals may be included in the agenda for the 2010
Annual Meeting of Shareholders if properly submitted in accordance with our
Bylaws. Our Bylaws currently provide that in order for a shareholder to nominate
a candidate for election as a director at an annual meeting of shareholders or
propose business for consideration at such meeting, notice must be given in
writing to our Secretary not later than the close of business on the
90th day prior to the first anniversary of the date of the preceding year’s
annual meeting nor earlier than the 60th day prior to the first anniversary
of the date the preceding year’s annual meeting. As a result, any notice given
by or on behalf of a shareholder pursuant to the provisions of the Bylaws must
be delivered in writing via personal delivery or United States certified mail,
postage prepaid to our Secretary c/o American Community Properties Trust, 222
Smallwood Village Center, St. Charles, Maryland, 20602, Attn: Secretary, not
earlier than March 5, 2010, and not later than April 4, 2010.
WHERE YOU CAN FIND ADDITIONAL
INFORMATION
We
file annual and quarterly reports, proxy statements and other information with
the SEC under the Exchange Act. You may read and obtain copies of
this information in person or by mail from the Public Reference Section of the
SEC, 100 F Street N.E., Room 1580, Washington, DC 20549, at prescribed
rates. You may obtain information on the operation of the public
reference room by calling the SEC at (800) SEC-0330.
The
SEC also maintains an Internet website that contains annual, quarterly and
current reports, proxy statements and other information about issuers like our
Company, which file electronically with the SEC. The address of that
site is http://www.sec.gov. You may also retrieve this information
from our website at www.acptrust.com. Information contained on our
website is not incorporated in or made a part of this proxy
statement.
This
proxy statement does not constitute the solicitation of a proxy in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such proxy solicitation in such jurisdiction. You should rely only on
the information in this document. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement. The information contained in
this
document speaks only as of the date of this document, unless the information
specifically indicates that another date applies.