AGREEMENT AND PLAN OF MERGER
among
EQUITY OFFICE PROPERTIES TRUST,
EOP OPERATING LIMITED PARTNERSHIP,
CORNERSTONE PROPERTIES INC.
and
CORNERSTONE PROPERTIES LIMITED PARTNERSHIP
Dated as of February 11, 2000
TABLE OF CONTENTS
Page
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ARTICLE 1 THE MERGERS...............................................................................3
1.1 Election by Limited Partners in Cornerstone Partnership to Exercise the
Redemption Right; The Partnership Merger..............................................3
1.2 The Merger............................................................................5
1.3 Closing...............................................................................5
1.4 Effective Time........................................................................5
1.5 Effect of Partnership Mergers on Agreement of Limited Partnership.....................6
1.6 Effect of Merger on Declaration of Trust and Bylaws...................................6
1.7 Trustees of EOP.......................................................................6
1.8 Effect on Shares......................................................................7
1.9 Effect on Partnership Interests.......................................................7
1.10 Exchange Ratios and Other Merger Consideration........................................7
1.11 Election by Holders of Cornerstone Common Stock to Receive EOP Common Shares or Cash..9
1.12 Proration.............................................................................11
1.13 Partner Approval......................................................................13
1.14 No Appraisal Rights...................................................................13
1.15 Exchange of Certificates; Pre-Closing Dividends; Fractional Shares....................13
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF CORNERSTONE AND CORNERSTONE PARTNERSHIP.................18
2.1 Organization, Standing and Power......................................................18
2.2 Cornerstone Subsidiaries..............................................................18
2.3 Capital Structure.....................................................................20
2.4 Other Interests.......................................................................22
2.5 Authority; Noncontravention; Consents.................................................22
2.6 SEC Documents; Financial Statements; Undisclosed Liabilities..........................24
2.7 Absence of Certain Changes or Events..................................................25
2.8 Litigation............................................................................26
2.9 Properties............................................................................27
2.10 Environmental Matters.................................................................29
2.11 Related Party Transactions............................................................31
2.12 Employee Benefits.....................................................................31
2.13 Employee Policies.....................................................................33
2.14 Taxes.................................................................................33
2.15 No Payments to Employees, Officers or Directors.......................................35
2.16 Broker; Schedule of Fees and Expenses.................................................36
2.17 Compliance with Laws..................................................................36
2.18 Contracts; Debt Instruments...........................................................36
2.19 Opinion of Financial Advisor..........................................................39
2.20 State Takeover Statutes...............................................................39
2.21 Investment Company Act of 1940........................................................39
2.22 Definition of Knowledge of Cornerstone................................................39
2.23 Required Stockholder Approvals and Partner Approvals..................................39
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EOP AND EOP PARTNERSHIP.................................40
3.1 Organization, Standing and Power of EOP...............................................40
3.2 EOP Subsidiaries......................................................................40
3.3 Capital Structure.....................................................................41
3.4 Other Interests.......................................................................43
3.5 Authority; Noncontravention; Consents.................................................43
3.6 SEC Documents; Financial Statements; Undisclosed Liabilities..........................45
3.7 Absence of Certain Changes or Events..................................................46
3.8 Litigation............................................................................46
3.9 Properties............................................................................47
3.10 Environmental Matters.................................................................48
3.11 Taxes.................................................................................49
3.12 Brokers; Schedule of Fees and Expenses................................................51
3.13 Compliance with Laws..................................................................51
3.14 Contracts; Debt Instruments...........................................................51
3.15 Opinion of Financial Advisor..........................................................51
3.16 State Takeover Statutes...............................................................52
3.17 Investment Company Act of 1940........................................................52
3.18 Definition of Knowledge of EOP........................................................52
3.19 Required Shareholder Approvals and Partner Approvals..................................52
ARTICLE 4 COVENANTS.................................................................................52
4.1 Conduct of Cornerstone's and Cornerstone Partnership's Business Pending Merger........52
4.2 Conduct of EOP's and EOP Partnership's Business Pending Merger........................56
4.3 No Solicitation.......................................................................58
4.4 Affiliates............................................................................61
4.5 Other Actions.........................................................................62
ARTICLE 5 ADDITIONAL COVENANTS......................................................................62
5.1 Preparation of the Form S-4 and the Proxy Statement; Cornerstone Stockholders
Meeting, Cornerstone Unitholders Consent Solicitation and EOP Shareholders Meeting....62
5.2 Access to Information; Confidentiality................................................65
5.3 Commercially Reasonable Efforts; Notification.........................................66
5.4 Tax Matters...........................................................................67
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5.5 Public Announcements..................................................................69
5.6 Listing...............................................................................69
5.7 Transfer and Gains Taxes..............................................................69
5.8 Benefit Plans and Other Employee Arrangements.........................................70
5.9 Indemnification.......................................................................72
5.10 Declaration of Dividends and Distributions............................................75
5.11 Transfer of Non-Controlled Subsidiary Voting Shares...................................76
5.12 Notices...............................................................................76
5.13 Resignations..........................................................................76
5.14 Assumption of Existing Tax Protection Agreements......................................76
5.15 EOP Partnership Agreement.............................................................76
5.16 Registration Rights Agreements........................................................77
5.17 Cornerstone Convertible Promissory Note...............................................77
ARTICLE 6 CONDITIONS................................................................................77
6.1 Conditions to Each Party's Obligation to Effect the Mergers...........................77
6.2 Conditions to Obligations of EOP and EOP Partnership..................................78
6.3 Conditions to Obligations of Cornerstone and Cornerstone Partnership..................79
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER.........................................................82
7.1 Termination...........................................................................82
7.2 Certain Fees and Expenses.............................................................83
7.3 Effect of Termination.................................................................86
7.4 Amendment.............................................................................86
7.5 Extension; Waiver.....................................................................86
ARTICLE 8 GENERAL PROVISIONS........................................................................87
8.1 Nonsurvival of Representations and Warranties.........................................87
8.2 Notices...............................................................................87
8.3 Interpretation........................................................................88
8.4 Counterparts..........................................................................88
8.5 Entire Agreement; No Third-Party Beneficiaries........................................88
8.6 Governing Law.........................................................................88
8.7 Assignment............................................................................89
8.8 Enforcement...........................................................................89
8.9 Severability..........................................................................89
8.10 Exculpation...........................................................................89
8.11 Joint and Several Obligations.........................................................89
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EXHIBITS
Exhibit "A" - Form of Certificate of Merger
Exhibit "B" - Form of Maryland Articles of Merger
Exhibit "C" - Form of Nevada Articles of Merger
Exhibit "D" - Form of Proposed EOP Charter Amendment Relating to
Certain Voting Requirements
Exhibit "E" - Form of Proposed EOP Charter Amendment Relating to
Domestically Controlled REIT Status
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Index of Defined Terms
AICPA Statement......................................5.1(b)
Acquisition Proposal.................................4.3(a)(i)
Affiliate............................................2.11
Agreement............................................Preamble
Base Amount..........................................7.2
BeaMet...............................................3.11(b)
Break-Up Fee.........................................7.2
Break-Up Fee Tax Opinion.............................7.2
Break-Up Expenses....................................7.2
Cash Election........................................1.11(a)
Cash Election Shares.................................1.12(a)
Cash Fraction........................................1.12(b)
CERCLA...............................................2.10(a)
Certificate of Merger ...............................C
Certificate..........................................1.10(b)(iv)
Closing..............................................1.3
Closing Date.........................................1.3
Cornerstone.......................................... Preamble
Cornerstone Acquisition Agreement....................7.2
Cornerstone Articles.................................2.1
Cornerstone Bylaws...................................2.1
Cornerstone Common Stock.............................1.10(b)(i)
Cornerstone Convertible Promissory Note..............2.3(c)
Cornerstone Disclosure Letter........................Art. 2
Cornerstone Financial Statement Date.................2.7
Cornerstone Material Adverse Change..................2.7
Cornerstone Material Adverse Effect..................2.1
Cornerstone Non-controlled Subsidiary................J
Cornerstone OP Unit..................................1.1(a)
Cornerstone Other Interests..........................2.4
Cornerstone Partner Approvals........................1.13
Cornerstone Partnership..............................Preamble
Cornerstone Partnership Agreement....................1.5
Cornerstone Preferred OP Unit........................1.10(a)(ii)
Cornerstone Properties...............................2.9(a)
Cornerstone Rent Roll................................2.9(e)
Cornerstone SEC Documents............................2.6
Cornerstone 7% Preferred Stock.......................1.10(b)(iii)
Cornerstone Stockholder Approvals....................2.5(a)
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Cornerstone Stockholders Meeting.....................5.1(d)
Cornerstone Space Lease..............................2.9(e)
Cornerstone Stock Options............................2.3(b)
Cornerstone Stock Rights.............................2.3(b)
Cornerstone Subsidiaries.............................2.2(a)
Cornerstone Voting Agreement ........................K
Code.................................................F
Commitment...........................................4.1(i)
Common Stock Exchange Ratio..........................1.10(b)(ii)
Confidentiality Agreement............................2.18(k)
Controlled Group Member..............................2.12
Department...........................................1.4
DRULPA...............................................1.1(b)
Effective Time.......................................1.4
Electing Cornerstone OP Units........................1.11
Election.............................................1.11(a)
Election Date........................................1.11(d)
Employee Plan........................................2.12
Encumbrances.........................................2.9(a)
Environmental Law....................................2.10(a)
Environmental Permits................................2.10(b)(iv)
EOP.................................................. Preamble
EOP Bylaws...........................................1.6
EOP Common Share.....................................1.10(b)(ii)
EOP Counter Proposal.................................4.3(c)
EOP Declaration of Trust.............................1.6
EOP Disclosure Letter................................Art. 3
EOP Financial Statement Date.........................3.7
EOP Material Adverse Change..........................3.7
EOP Material Adverse Effect..........................3.1
EOP NCS Sub..........................................J
EOP Options..........................................3.3(b)
EOP OP Unit..........................................1.10(a)(i)
EOP Other Interests..................................3.4
EOP Partner Approvals................................1.13
EOP Partnership......................................Preamble
EOP Partnership Agreement............................1.5
EOP Preferred OP Unit................................1.10(a)(ii)
EOP Preferred Units..................................3.3(e)
EOP Preferred Shares.................................3.3(a)
EOP Properties.......................................3.9(a)
EOP Rent Roll........................................3.9(g)
EOP SEC Documents....................................3.6
EOP Shareholder Approvals............................3.5(a)
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EOP Shareholders Meeting.............................5.1(c)
EOP Space Lease......................................3.9(g)
EOP Subsidiaries.....................................3.1
ERISA................................................2.12
Exchange Act.........................................2.6
Exchange Agent.......................................1.15(a)
Exchange Fund........................................1.15(b)
Exercise.............................................1.1(a)(i)
Final Company Dividend...............................1.15(d)(i)
Form of Election.....................................1.11(b)
Form S-4.............................................5.1(a)
Former Cornerstone Properties........................2.10(b)(ii)
GAAP.................................................2.6
Governmental Entity..................................2.5(c)
Hazardous Materials..................................2.10
HSR Act..............................................2.5(c)
Indebtedness.........................................2.18(b)
Indemnification Parties..............................5.9(b)
Indemnified Parties..................................5.9(a)
Indemnifying Parties.................................5.9(a)
Joint Proxy Statement................................5.1(a)
Knowledge of Cornerstone.............................2.22
Knowledge of EOP.....................................3.18
Laws.................................................2.5(c)
Liens................................................2.2(b)
Maryland Articles of Merger..........................D
Maximum Amount.......................................7.2
Merger...............................................A
Mergers..............................................B
Merger Consideration.................................1.10(b)
Nevada Articles of Merger............................E
Non-Electing Shares..................................1.12(e)
NRS..................................................1.2
NYSE.................................................1.15(g)(ii)
Partner Approvals....................................1.13
Partnership Merger ..................................B
Payor................................................7.2
Pension Plan.........................................2.12
Permitted Title Exceptions...........................2.9(a)
Person...............................................2.2(a)
PGGM.................................................6.3(h)
Prohibited Transaction...............................2.12(c)
Property Restrictions................................2.9(a)
Proposed EOP Charter Amendment Relating to
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Domestically Controlled REIT Status.............4.2(h)
Proposed EOP Charter Amendment Relating to Certain
Voting Requirements.............................4.2(h)
Proposed EOP Charter Amendments......................4.2(h)
Qualifying Income....................................7.2
Recipient............................................7.2
REIT.................................................2.14(b)
REIT Requirements....................................7.2
Release..............................................2.10(a)
Rule 145 Affiliates..................................4.4
SEC..................................................2.5(c)
Section 704(c) values................................5.4(b)
Securities Act.......................................2.3(g)
Share Election.......................................1.11(a)
Shareholder Approvals................................3.5(a)
Stock Election Shares................................1.12(a)
Stock Fraction.......................................1.12(c)
Stock Purchase Agreement.............................J
Subsidiary...........................................2.2(a)
Substituted Option...................................5.8(c)
Superior Acquisition Proposal........................4.3(d)
Surviving Trust......................................1.2
Takeover Statute.....................................2.20
Taxes................................................2.14(a)
Tax Protection Agreements............................2.18(j)
Title 3..............................................1.2
Title 8..............................................1.2
Transfer and Gains Taxes.............................5.7
Welfare Plan.........................................2.12
1940 Act.............................................2.21
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
February 11, 2000, by and among EQUITY OFFICE PROPERTIES TRUST, a Maryland real
estate investment trust ("EOP"), EOP OPERATING LIMITED PARTNERSHIP, a Delaware
limited partnership ("EOP Partnership"), CORNERSTONE PROPERTIES INC., a Nevada
corporation ("Cornerstone"), and CORNERSTONE PROPERTIES LIMITED PARTNERSHIP, a
Delaware limited partnership ("Cornerstone Partnership").
R E C I T A L S:
A. The Board of Trustees of EOP and the Board of Directors of
Cornerstone deem it advisable and in the best interests of their respective
shareholders and stockholders, upon the terms and subject to the conditions
contained herein, that Cornerstone shall merge with and into EOP (the "Merger").
B. EOP, as the managing general partner of EOP Partnership, and
Cornerstone, as the sole general partner of Cornerstone Partnership, deem it
advisable and in the best interests of their respective limited partners,
subject to the conditions and other provisions contained herein, that,
immediately prior to the Merger, Cornerstone Partnership shall merge with and
into EOP Partnership, with the holders of partnership interests in Cornerstone
Partnership at the time of the Partnership Merger receiving in any event units
of limited partnership interest in EOP Partnership, as set forth herein (the
"Partnership Merger" and, together with the Merger, the "Mergers"). As an
alternative to receiving units of limited partnership interest in EOP
Partnership in connection with the Partnership Merger, limited partners in
Cornerstone Partnership (other than Cornerstone) shall have the right to elect,
effective immediately prior to the Partnership Merger, to exercise their
redemption right under the Cornerstone Partnership Agreement (as defined
herein), regardless of whether or not they would otherwise be entitled to
exercise that redemption right under the Cornerstone Partnership Agreement, and
Cornerstone shall issue shares of Cornerstone Common Stock (as defined herein)
in satisfaction of that right, thereby allowing former limited partners in
Cornerstone Partnership (other than Cornerstone) to participate in the Merger as
holders of Cornerstone Common Stock.
C. Upon the terms and subject to the conditions set forth herein,
immediately prior to the Merger, EOP Partnership and Cornerstone Partnership
shall execute a Certificate of Merger (the "Certificate of Merger") in
substantially the form attached hereto as EXHIBIT A and shall file such
Certificate of Merger in accordance with Delaware law to effectuate the
Partnership Merger.
D. Upon the terms and subject to the conditions set forth herein,
immediately following the effectiveness of the Partnership Merger, EOP and
Cornerstone shall execute Articles of Merger (the "Maryland Articles of Merger")
in
substantially the form attached hereto as EXHIBIT B and shall file such Maryland
Articles of Merger in accordance with Maryland law to effectuate the Merger.
E. Upon the terms and subject to the conditions set forth herein,
immediately following the effectiveness of the Partnership Merger, EOP and
Cornerstone shall execute Articles of Merger (the "Nevada Articles of Merger")
in substantially the form attached hereto as EXHIBIT C and concurrently with the
filing of the Maryland Articles of Merger, shall file such Nevada Articles of
Merger in accordance with Nevada law to effectuate the Merger.
F. For federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement shall constitute
a plan of reorganization under Section 368(a) of the Code.
G. For federal income tax purposes, it is intended that the Partnership
Merger, regardless of form, be treated as a contribution by Cornerstone
Partnership of all of its assets to EOP Partnership in exchange for partnership
interests in EOP Partnership, as provided for herein, under Section 721 of the
Code, and a distribution of such partnership interests by Cornerstone
Partnership to its partners under Section 731 of the Code.
H. EOP and Cornerstone have each received a fairness opinion relating
to the transactions contemplated hereby as more fully described herein.
I. EOP, EOP Partnership, Cornerstone and Cornerstone Partnership desire
to make certain representations, warranties and agreements in connection with
the Mergers.
J. Concurrently with the execution of this Agreement and as an
inducement to EOP and EOP Partnership to enter into this Agreement, William
Wilson III and John S. Moody, as the owners of 99% of the voting capital stock
of WCP Services, Inc., a Delaware corporation (the "Cornerstone Non-controlled
Subsidiary"), have entered into a Stock Purchase Agreement, dated as of the date
hereof, relating to the voting capital stock of the Cornerstone Non-controlled
Subsidiary (the "Stock Purchase Agreement"), providing for the sale of all of
the outstanding voting capital stock of the Cornerstone Non-controlled
Subsidiary to EOP Office Properties Management Corporation ("EOP NCS Sub") or
its assigns.
K. As an inducement to EOP to enter into this Agreement, (a) Stichting
Pensioenfonds voor de Gezondheid, Geestelijke en Maatschappelijke Belangen, a
stichting formed according to the laws of the Kingdom of The Netherlands, each
of the directors and certain executive officers of Cornerstone (and the spouses
of certain of the foregoing) and certain entities controlled by any of the
foregoing have entered into a voting agreement (each, a "Cornerstone Voting
Agreement"), pursuant to which such person or entity has agreed, among other
things, to vote his
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or its shares of Cornerstone Common Stock and Cornerstone OP Units (as defined
herein) to approve this Agreement, the respective Mergers and any other matter
which requires his or its vote in connection with the transactions contemplated
by this Agreement and (b) the holders of the outstanding Cornerstone 7%
Preferred Stock (as defined herein) have entered into a stock option agreement,
pursuant to which such holders have granted Cornerstone and EOP an option to
acquire, among other things, all of their Cornerstone 7% Preferred Stock at any
time prior to the Effective Time (as defined herein) of the Merger at a per
share purchase price of $18.00, together with accrued and unpaid dividends to
the Effective Time, in cash (subject to adjustment).
L. As an inducement to Cornerstone to enter into this Agreement, each
of the trustees and certain executive officers of EOP (and the spouses of
certain of the foregoing) and certain entities controlled by any of the
foregoing have entered into a voting agreement pursuant to which such person or
entity has agreed, among other things, to vote his or its EOP Common Shares (as
defined herein) to approve this Agreement, the Merger and any other matter which
requires his or its vote in connection with the transactions contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein,
the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGERS
1.1 ELECTION BY LIMITED PARTNERS IN CORNERSTONE PARTNERSHIP TO
EXERCISE THE REDEMPTION RIGHT; THE PARTNERSHIP MERGER.
(a) Notwithstanding any limitation or
restriction contained in the Cornerstone Partnership Agreement with respect to
the ability of a Limited Partner (as defined in the Cornerstone Partnership
Agreement) to exercise the Redemption Right (as defined in the Cornerstone
Partnership Agreement) (including, without limitation, any limitation or
restriction contained in Section 8.6A of the Cornerstone Partnership Agreement),
every Limited Partner shall have the right to exercise the Redemption Right by
submitting to Cornerstone Partnership (with a copy to Cornerstone) during the
period between the mailing date of the Joint Proxy Statement (as defined herein)
for the Cornerstone Stockholders Meeting (as defined herein) and 5:00 p.m.,
Eastern time, on the second business day prior to the date of the Cornerstone
Stockholders Meeting a Notice of Redemption (as defined in the Cornerstone
Partnership Agreement) specifying the number of Class A Partnership Common Units
(as defined in the Cornerstone Partnership Agreement) of Cornerstone Partnership
(the "Cornerstone OP Units") which such Limited Partner desires to have redeemed
pursuant to Section 8.6A of the Cornerstone Partnership Agreement (as modified
by this Section 1.1(a)), which
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Notice of Redemption shall be conditioned upon the closing of the Partnership
Merger and can be conditional as set forth in clause (v) below; PROVIDED, THAT,
(i) with respect to each Notice of Redemption (a copy
of the form of which shall accompany or form a part of the Form of
Election (as defined herein)) properly submitted by a Limited Partner
in accordance with this Section 1.1(a) (an "Exercise"), Cornerstone
shall elect in accordance with Section 8.6B of the Cornerstone
Partnership Agreement to purchase the Cornerstone OP Units relating to
such Exercise by paying the REIT Shares Amount (as defined in the
Cornerstone Partnership Agreement) and not the Cash Amount (as defined
in the Cornerstone Partnership Agreement);
(ii) notwithstanding the provisions of Section 8.6B
of the Cornerstone Partnership Agreement, Cornerstone shall not be
required to notify the Redeeming Partner (as defined in the Cornerstone
Partnership Agreement) of Cornerstone's election to purchase the
Cornerstone OP Units as described in the foregoing clause (i);
(iii) the Specified Redemption Date (as defined in
the Cornerstone Partnership Agreement) shall be the Closing Date (as
defined herein) at a time prior to the consummation of the Partnership
Merger;
(iv) each Redeeming Partner shall be treated as an
owner of the shares of Cornerstone Common Stock issued pursuant to this
Agreement at the Effective Time (as defined herein) of the Merger and
shall have the same right as each of the other holders of shares of
Cornerstone Common Stock to make an Election (as defined herein)
pursuant to Section 1.11 as to the form of consideration to be received
in the Merger with respect to such shares of Cornerstone Common Stock;
and
(v) a Redeeming Partner shall have the option, in its
discretion, to make its Notice of Redemption conditional upon part or
all of the shares of Cornerstone Common Stock that would be issued
pursuant thereto being converted solely into the right to receive cash
in the Merger pursuant to Section 1.10(b)(i) and the procedures set
forth in Sections 1.11 and 1.12, in which event the Notice of
Redemption shall not be effective with respect to any Cornerstone OP
Units for which the shares of Cornerstone Common Stock that would be
received therefor would not be converted entirely into the right to
receive cash in the Merger (and any Cornerstone OP Units not redeemed
as a result thereof would be converted into EOP OP Units (as defined
herein) in the Partnership Merger as set forth in Section 1.10(a)(i)).
(b) Upon the terms and subject to the conditions of
this Agreement, and in accordance with Title 6, Chapter 17 of the Delaware Code
Annotated, as amended (the "DRULPA"), immediately prior to the consummation of
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the Merger, Cornerstone Partnership shall be merged with and into EOP
Partnership, with EOP Partnership as the surviving limited partnership or
limited liability company, and with the holders of partnership interests in
Cornerstone Partnership receiving in any event units of partnership interest in
EOP Partnership, as set forth in Section 1.10.
1.2 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Title 3 of the Corporations
and Associations Article of the Annotated Code of Maryland, as amended ("Title
3"), Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended ("Title 8"), and Chapter 92A of Title 7 of the Nevada
Revised Statutes Annotated (the "NRS"), immediately following the effectiveness
of the Partnership Merger, Cornerstone shall be merged with and into EOP, with
EOP surviving as a real estate investment trust (the "Surviving Trust").
1.3 CLOSING. The closing of the Mergers (the "Closing") will
take place commencing at 9:00 a.m., local time, on the date to be specified by
the parties, which (subject to satisfaction or waiver of the conditions set
forth in Article 6) shall be no later than the third business day after
satisfaction or waiver of the conditions set forth in Section 6.1(a) (the
"Closing Date"), at the offices of Hogan & Hartson L.L.P., 555 Thirteenth
Street, N.W., Washington, D.C. 20004, unless another date or place is agreed to
in writing by the parties.
1.4 EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article 6, (i) EOP
Partnership and Cornerstone Partnership shall execute and file the Certificate
of Merger, executed in accordance with the DRULPA, with the Office of the
Secretary of State of the State of Delaware, and (ii) EOP and Cornerstone shall
then execute and file the Maryland Articles of Merger, executed in accordance
with Title 3 and Title 8, with the State Department of Assessments and Taxation
of Maryland (the "Department"), and the Nevada Articles of Merger, executed in
accordance with Title 7 of the NRS with the Secretary of State of the State of
Nevada, and shall make all other filings and recordings required, with respect
to the Partnership Merger, under the DRULPA or, with respect to the Merger,
under Title 3, Title 8 and the NRS. The Mergers shall become effective (each an
"Effective Time" and collectively the "Effective Times") at such times as EOP
and Cornerstone shall agree should be specified in the Certificate of Merger,
the Maryland Articles of Merger and the Nevada Articles of Merger (not to exceed
thirty (30) days after the Maryland Articles of Merger are accepted for record
by the Department). Unless otherwise agreed, the parties shall cause the
Effective Times to occur on the Closing Date, with not less than one hour
between the Effective Time of the Partnership Merger and the Effective Time of
the Merger.
1.5 EFFECT OF PARTNERSHIP MERGER ON AGREEMENTS OF LIMITED
PARTNERSHIP. The Agreement of Limited Partnership, as amended, of EOP
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Partnership, as in effect immediately prior to the Effective Time of the
Partnership Merger (the "EOP Partnership Agreement"), shall continue in full
force and effect after the Partnership Merger until further amended in
accordance with applicable Delaware law. The Agreement of Limited Partnership,
as amended, of Cornerstone Partnership, as in effect immediately prior to the
Effective Time of the Partnership Merger (the "Cornerstone Partnership
Agreement") shall terminate at the Effective Time of Partnership Merger.
1.6 EFFECT OF MERGER ON DECLARATION OF TRUST AND BYLAWS. The
Articles of Amendment and Restatement of Declaration of Trust, as amended, of
EOP (the "EOP Declaration of Trust") and the Bylaws of EOP (the "EOP Bylaws"),
as in effect immediately prior to the Effective Time of the Merger and, if
approved by the EOP shareholders, as amended by the Proposed EOP Charter
Amendment Relating to Domestically Controlled REIT Status (as defined herein)
and the Proposed EOP Charter Amendment Relating to Certain Voting Requirements
(as defined herein), shall continue in full force and effect after the Merger
and, until further amended in accordance with applicable Maryland law and, if
approved by the EOP shareholders, as amended by the Proposed EOP Charter
Amendment Relating to Domestically Controlled REIT Status (as defined herein)
and the Proposed EOP Charter Amendment Relating to Certain Voting Requirements
(as defined herein).
1.7 TRUSTEES OF EOP. The trustees of EOP following the Merger
shall consist of the trustees of EOP immediately prior to the Effective Time of
the Merger, who shall continue to serve for the balance of their unexpired terms
or their earlier death, resignation or removal, together with John S. Moody,
William Wilson III and Jan van der Vlist, each of whom shall, no later than the
third business day after the Effective Time of the Merger, become a trustee with
terms expiring in 2002, 2003 and 2003, respectively. Upon the expiration of the
terms of Mr. van der Vlist in 2003 and 2006, so long as PGGM and its Affiliates
continue to own in the aggregate 21,000,000 (as adjusted for stock splits,
reverse stock splits, stock dividends and similar actions) or more of the issued
and outstanding EOP Common Shares at all times up to the meeting of shareholders
at which trustees are being elected in such years, EOP shall take all action
necessary to nominate Mr. van der Vlist for re-election as a trustee of EOP for
an additional three-year term at any special or annual meeting of shareholders
at which trustees are being elected (or in connection with a written consent in
lieu of a meeting pursuant to which trustees are proposed to be elected). In the
event that Mr. Van der Vlist shall fail to stand for re-election as aforesaid
for any reason in either 2003 or 2006 or in the event of his earlier death or
resignation, and so long as PGGM and its Affiliates continue to own in the
aggregate 21,000,000 (as adjusted for stock splits, reverse stock splits, stock
dividends and similar actions) or more of the issued and outstanding EOP Common
Shares at such time, EOP shall take all action necessary to nominate a
replacement designated by PGGM, which replacement shall be subject to the
approval of EOP if such replacement is not an officer, director or employee of
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PGGM, for election or re-election as a trustee of EOP for an additional
three-year term at any special or annual meeting of shareholders at which
trustees are being elected (or in connection with a written consent in lieu of a
meeting pursuant to which trustees are proposed to be elected) or, in the case
of a vacancy, at a meeting of the Board of Trustees called for such purpose.
Except as expressly provided above in this Section 1.7, following their election
as trustees, such persons shall serve for their designated terms, subject to
their earlier death, resignation or removal.
1.8 EFFECT ON SHARES. The effect of the Merger on the shares
of capital stock of Cornerstone shall be as provided in the Articles of Merger
and in Section 1.10 hereof. The Merger shall not change the shares of beneficial
interest of EOP outstanding immediately prior to the Merger.
1.9 EFFECT ON PARTNERSHIP INTERESTS. The effect of the
Partnership Merger on the partnership interests of Cornerstone Partnership shall
be as provided in the Certificate of Merger and in Section 1.10 hereof. The
Partnership Merger shall not change the partnership interests of EOP Partnership
outstanding immediately prior to the Merger.
1.10 EXCHANGE RATIOS AND OTHER MERGER CONSIDERATION.
(a) (i) The exchange ratio relating to the
Partnership Merger shall be 0.7009 of a Class A Unit (as defined in the EOP
Partnership Agreement) of EOP Partnership ("EOP OP Unit"), for each Cornerstone
OP Unit outstanding immediately prior to the Effective Time of the Partnership
Merger. The holders of the EOP OP Units issued in the Partnership Merger (other
than Cornerstone and Subsidiaries (as defined herein) of Cornerstone) shall be
entitled to redeem such EOP OP Units immediately following the consummation of
the Partnership Merger (and thereafter) pursuant to the terms of the EOP
Partnership Agreement, except that for purposes of the exchange provisions
thereof such EOP OP Units shall be deemed to have been issued as of the date the
related Cornerstone OP Units were issued by Cornerstone Partnership (or if
earlier, one year prior to the Effective Time of the Partnership Merger), and
shall be entitled to the same rights and privileges as the holders of EOP OP
Units outstanding on the date hereof.
(ii) The exchange ratio relating to the Partnership
Merger shall be one Class D Preferred Unit (as defined in the EOP Partnership
Agreement), designated a Class D 7.0% Cumulative Convertible Preferred Unit, of
EOP Partnership ("EOP Preferred OP Units"), for each Class A Partnership
Preferred Unit (as defined in the Cornerstone Partnership Agreement), designated
a Class A 7% Cumulative Convertible Preferred Unit of Cornerstone Partnership
("Cornerstone Preferred OP Unit") outstanding immediately prior to the Effective
Time of the Partnership Merger. EOP, as the holder of the EOP Preferred OP Units
issued in the Partnership Merger, shall be entitled to the same rights and
privileges
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as Cornerstone, as the holder of the Cornerstone Preferred Units outstanding on
the date hereof.
(b) The merger consideration to be paid to holders of capital
stock of Cornerstone in the Merger (collectively, the "Merger Consideration") is
as follows:
(i) Each share of common stock with no par value of
Cornerstone ("Cornerstone Common Stock") issued and outstanding
immediately prior to the Effective Time of the Merger, which under the
terms of Section 1.12 is to be converted into cash, shall be converted
into the right to receive $18.00 in cash, without interest;
(ii) Except as otherwise provided in Sections
1.10(b)(i) and 1.12, and subject to Section 1.15(g), each share of
Cornerstone Common Stock issued and outstanding immediately prior to
the Effective Time of the Merger (other than shares to be converted
into the right to receive cash pursuant to Sections 1.10(b)(i) and
1.12) shall be converted into the right to receive 0.7009 of a validly
issued, fully paid and nonassessable common share of beneficial
interest, par value $.01 per share, of EOP (an "EOP Common Share") (the
"Common Stock Exchange Ratio");
(iii) Each share of 7.0% Cumulative Convertible
Preferred Stock with no par value of Cornerstone ("Cornerstone 7%
Preferred Stock") outstanding immediately prior to the Effective Time
of the Merger shall be converted into the right to receive $18.00,
together with accrued and unpaid dividends to the Effective Time of the
Merger, in cash, without interest; and
(iv) All such shares of Cornerstone Common Stock,
when so converted as provided in Section 1.10(b)(i) or (ii), and all
such shares of Cornerstone 7% Preferred Stock, when so converted as
provided in Section 1.10(b)(iii), shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist,
and each holder of a certificate (a "Certificate") theretofore
representing any such shares shall cease to have any rights with
respect thereto, except the right to receive, upon the surrender of
such Certificate in accordance with Section 1.15(c), as applicable, (A)
any dividends and other distributions in accordance with Section
1.15(d), (B) certificates representing the EOP Common Shares into which
such shares of Cornerstone Common Stock are converted pursuant to
Section 1.10(c)(ii) (if any), (C) cash into which such shares of
Cornerstone Common Stock are converted pursuant to Section 1.10(c)(i),
(D) cash into which such shares of Cornerstone 7% Preferred Stock are
converted pursuant to Section 1.10(b)(iii), and (E) any cash, without
interest, in lieu of fractional EOP Common Shares to be issued or paid
in consideration for Cornerstone Common Stock upon the surrender of
such Certificate in accordance with Sections 1.15(c) and 1.15(g).
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1.11 ELECTION BY HOLDERS OF CORNERSTONE COMMON STOCK TO
RECEIVE EOP COMMON SHARES OR CASH. Each holder of shares of Cornerstone Common
Stock (including, without limitation, Limited Partners of Cornerstone
Partnership who elect to exercise, on a conditional or unconditional basis, the
Redemption Right with respect to all or a portion of their Cornerstone OP Units
held by such Limited Partners pursuant to Section 1.1(a) (with the Cornerstone
OP Units with respect to which such Exercise is made referred to as "Electing
Cornerstone OP Units")) shall have the right to submit a Form of Election
specifying the number of shares of Cornerstone Common Stock which such holder
desires to have converted into the right to receive EOP Common Shares in the
Merger pursuant to Section 1.10(a)(ii) and the number which such holder desires
to have converted into the right to receive cash pursuant to Section 1.10(a)(i)
in accordance with the following procedures:
(a) Each holder of shares of Cornerstone Common Stock
and each holder of Electing Cornerstone OP Units may specify in a request made
in accordance with the provisions of this Section 1.11 (an "Election") (i) the
number of such shares which such holder desires to have converted into the right
to receive cash in the Merger pursuant to Section 1.10(a)(i) (a "Cash Election")
and (ii) the number of such shares which such holder desires to have converted
into the right to receive EOP Common Shares in the Merger pursuant to Section
1.10(a)(ii) (a "Share Election").
(b) EOP and Cornerstone shall prepare, for use by
stockholders of Cornerstone (and each holder of Electing Cornerstone OP Units)
in surrendering Certificates representing shares of Cornerstone Common Stock, a
form of election (the "Form of Election") pursuant to which each holder of
Cornerstone Common Stock and each holder of Electing Cornerstone OP Units may
make Elections. The Form of Election shall be mailed to stockholders of record
of Cornerstone as of the record date for the Cornerstone Stockholders Meeting
(as defined herein) and to each holder of Cornerstone OP Units and shall
accompany the Joint Proxy Statement (as defined herein).
(c) Cornerstone shall use commercially reasonable
efforts to make the Form of Election available to all persons who become
stockholders of record of Cornerstone and to all Limited Partners of Cornerstone
Partnership during the period between such record date and the second business
day prior to the date of the Cornerstone Stockholders Meeting, provided that
only a Limited Partner of Cornerstone Partnership who is a holder of Electing
Cornerstone OP Units may submit a Form of Election and such Form of Election
shall apply only with respect to shares of Cornerstone Common Stock issued to
such Limited Partner prior to the Effective Time of the Partnership Merger
pursuant to the Redemption Right as set forth in Section 1.1(a).
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(d) An Election shall have been properly made only if
the Exchange Agent (as defined herein) shall have received, by 5:00 p.m.,
Eastern Standard Time, on the second business day (such time on such day being
referred to herein as the "Election Date") preceding the date of the Cornerstone
Stockholders Meeting, a Form of Election properly completed and signed (and not
revoked) and accompanied (in the case of holders of shares of Cornerstone Common
Stock) by the Certificate or Certificates representing the shares of Cornerstone
Common Stock to which such Form of Election relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of Cornerstone (or by an
appropriate guarantee of delivery of such Certificate or Certificates as set
forth in such Form of Election from a member of any registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, provided such Certificate or Certificates are in fact delivered
by the time set forth in such guarantee of delivery).
(e) Any holder of record of shares of Cornerstone
Common Stock (and any holder of Electing Cornerstone OP Units) may at any time
prior to the Election Date change such holder's Election by written notice
received by the Exchange Agent at or prior to the Election Date accompanied by a
properly completed Form of Election. EOP and Cornerstone shall have the right in
their sole discretion and by mutual agreement to permit changes in Elections
after the Election Date.
(f) Any holder of record of shares of Cornerstone
Common Stock (and any holder of Electing Cornerstone OP Units) may at any time
prior to the Election Date revoke such holder's Election by written notice
received by the Exchange Agent at or prior to the Election Date or by withdrawal
prior to the Election Date of such holder's Certificates previously deposited
with the Exchange Agent. Any revocation of an Election may be withdrawn by
notice of such withdrawal delivered at or prior to the Election Date. Any such
holder who shall have deposited Certificates with the Exchange Agent shall have
the right to withdraw such Certificates by written notice received by the
Exchange Agent and thereby revoke such holder's Election as of the Election Date
at any time after the expiration of the period of 60 days following the Election
Date if the Merger shall not have been consummated prior thereto. EOP shall
obtain from the Exchange Agent an agreement to return all Forms of Election and
accompanying Certificates to the stockholders submitting the same in the event
this Agreement shall be terminated in accordance with its terms.
(g) EOP and Cornerstone by mutual agreement shall
have the right to make rules, not inconsistent with the terms of this Agreement,
governing the validity of Forms of Election, the manner and extent to which
Elections are to be taken into account in making the determinations prescribed
by Section 1.12, the issuance and delivery of certificates for EOP Common Shares
into which shares of Cornerstone Common Stock are converted in the Merger and
the
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payment for shares of Cornerstone Common Stock converted into the right to
receive cash in the Merger.
1.12 PRORATION. The determination of whether shares of
Cornerstone Common Stock shall be converted in the Merger into EOP Common Shares
in accordance with the Common Stock Exchange Ratio or the right to receive
$18.00 in cash shall be made as set forth in this Section 1.12.
(a) As is more fully set forth below, 58,551,525
shares of Cornerstone Common Stock shall be converted in the Merger into the
right to receive $18.00 per share in cash (which shares of Cornerstone Common
Stock are referred to as the "Cash Election Shares"), and all shares of
Cornerstone Common Stock issued and outstanding immediately prior to the
Effective Time of the Merger in excess of 58,551,525 shares shall be converted
in the Merger into the right to receive EOP Common Shares in accordance with the
Common Stock Exchange Ratio (which shares of Cornerstone Common Stock are
referred to as the "Stock Election Shares").
(b) If Cash Elections are received for a number of
shares of Cornerstone Common Stock which is greater than 58,551,525 shares of
Cornerstone Common Stock, each Non-Electing Share (as defined herein) and each
share of Cornerstone Common Stock for which a Share Election has been received
shall be converted in the Merger into EOP Common Shares in accordance with the
Common Stock Exchange Ratio, and the shares of Cornerstone Common Stock for
which Cash Elections have been received shall be converted in the Merger into
the right to receive cash and EOP Common Shares in accordance with the Common
Stock Exchange Ratio in the following manner:
each share of Cornerstone Common Stock covered by a
Cash Election shall be converted into the right to
receive (i) an amount in cash, without interest,
equal to the product of (x) $18.00 and (y) a fraction
(the "Cash Fraction") the numerator of which shall be
58,551,525 and the denominator of which shall be the
aggregate number of shares of Cornerstone Common
Stock covered by all Cash Elections, and (ii) a
number of EOP Common Shares equal to the product of
(x) the Common Stock Exchange Ratio and (y) a
fraction equal to one minus the Cash Fraction.
(c) If Share Elections are received for a number of
shares of Cornerstone Common Stock which is greater than the total number of
Stock Election Shares issued and outstanding immediately prior to the Effective
Time of the Merger, each Non-Electing Share and each share of Cornerstone Common
Stock for which a Cash Election has been received shall be converted in the
Merger into the right to receive $18.00 in cash, without interest, and the
shares of Cornerstone
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Common Stock for which Share Elections have been received shall be converted in
the Merger into EOP Shares in accordance with the Common Stock Exchange Ratio
and the right to receive cash in the following manner:
each share of Cornerstone Common Stock covered by a
Share Election shall be converted into the right to
receive (i) a number of EOP Common Shares equal to
the product of (x) the Common Stock Exchange Ratio
and (y) a fraction (the "Stock Fraction"), the
numerator of which shall be a number equal to the
total number of Stock Election Shares issued and
outstanding immediately prior to the Effective Time
of the Merger and the denominator of which shall be
the aggregate number of shares of Cornerstone Common
Stock covered by all Share Elections, and (ii) an
amount in cash, without interest, equal to the
product of (x) $18.00 and (y) a fraction equal to one
minus the Stock Fraction.
(d) If Non-Electing Shares (as defined herein) are
not converted under either Section 1.12(b) or Section 1.12(c), then each
Non-Electing Share shall be converted into the right to receive EOP Common
Shares and the right to receive cash on a proportionate basis, relative to all
other Non-Electing Shares, so that the aggregate number of shares of Cornerstone
Common Stock converted into the right to receive EOP Common Shares equals, as
closely as possible, the number of Stock Election Shares, and the aggregate
number of shares of Cornerstone Common Stock converted into the right to receive
cash equals, as closely as possible, the number of Cash Election Shares.
(e) For purposes of this Section 1.12, outstanding
shares of Cornerstone as to which an election is not in effect at the Election
Date and shares as to which an Election has been withdrawn after the 60-day
period following the Election Date and prior to the Effective Time of the Merger
shall be called "Non-Electing Shares." If EOP and Cornerstone shall determine
for any reason that any Election was not properly made with respect to shares of
Cornerstone Common Stock, such Election shall be deemed ineffective and shares
of Cornerstone Common Stock covered by such Election shall, for purposes hereof,
be deemed to be Non-Electing Shares.
1.13 PARTNER APPROVAL. Cornerstone shall seek the requisite
approval of the partners of Cornerstone Partnership of the Merger, the
withdrawal of Cornerstone as general partner and the Partnership Merger to the
extent required by the Cornerstone Partnership Agreement to effectuate the
transactions contemplated by this Agreement (collectively, the "Cornerstone
Partner Approvals"). EOP shall seek the requisite approval of the partners of
EOP Partnership of the Merger and the Partnership Merger to the extent required
by the EOP Partnership Agreement to effectuate the transactions contemplated by
this
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Agreement (collectively, the "EOP Partner Approvals," and together with the
Cornerstone Partner Approvals, the "Partner Approvals").
1.14 NO APPRAISAL RIGHTS. The holders of Cornerstone Common
Stock, Cornerstone OP Units, EOP Common Shares and EOP OP Units are not entitled
under applicable law to appraisal or similar rights as a result of the Mergers
and, in the case of the holders of the Cornerstone 7% Preferred Stock, such
holders irrevocably have waived all such rights.
1.15 EXCHANGE OF CERTIFICATES; PRE-CLOSING DIVIDENDS;
FRACTIONAL SHARES.
(a) EXCHANGE AGENT. Prior to the Effective Time, EOP
shall appoint Equiserve LLC as the exchange agent, or another bank or trust
company reasonably acceptable to Cornerstone, to act as exchange agent (the
"Exchange Agent") for the exchange of the Merger Consideration upon surrender of
certificates representing issued and outstanding shares of Cornerstone Common
Stock and Cornerstone 7% Preferred Stock.
(b) EOP TO PROVIDE MERGER CONSIDERATION. EOP shall
provide to the Exchange Agent on or before the Effective Time of the Merger, for
the benefit of the holders of Cornerstone Common Stock and Cornerstone 7%
Preferred Stock, the Merger Consideration issuable in exchange for the issued
and outstanding Cornerstone Common Stock and Cornerstone 7% Preferred Stock
pursuant to Section 1.10, together with any cash required to make payments in
lieu of any fractional shares pursuant to Section 1.15(g) (the "Exchange Fund").
The Exchange Agent shall invest any cash included in the Exchange Fund as
directed by EOP, on a daily basis. Any interest or other income resulting from
such investments shall be paid to EOP. Cornerstone shall provide to the Exchange
Agent not later than one business day prior to the Effective Time of the Merger,
for the benefit of the holders of Cornerstone Common Stock, cash payable in
respect of any dividends required pursuant to Section 1.15(d)(i) or (ii). Such
cash shall be invested in accordance with written directions delivered by
Cornerstone to the Exchange Agent not later than one business day prior to the
Effective Time of the Merger, with any cash earned on such investments to be
paid to EOP as the successor to Cornerstone in the Merger. EOP shall use
commercially reasonable efforts to cause the Exchange Agent to mail the Merger
Consideration to the holders of Cornerstone Common Stock (including to holders
of Electing Cornerstone OP Units who made an unconditional Exercise of the
Redemption Right or who made a conditional exercise thereof and who will receive
cash in the Merger, in each case who have properly submitted a Form of Election
prior to the Election Date) and Cornerstone 7% Preferred Stock not later than
five business days after the Effective Time of the Merger.
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(c) EXCHANGE PROCEDURE. As soon as reasonably
practicable after the Effective Time, EOP shall use commercially reasonable
efforts to cause the Exchange Agent to mail to each holder of record of a
Certificate or Certificates which immediately prior to the Effective Time
represented outstanding shares of Cornerstone Common Stock (other than to
holders of Cornerstone Common Stock who previously surrendered with their Forms
of Election their Certificates for Cornerstone Common Stock) or Cornerstone 7%
Preferred Stock Certificate whose shares were converted into the right to
receive the Merger Consideration pursuant to Section 1.10, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in a form and have such other
provisions as EOP may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. To the extent not previously surrendered with a Form of Election,
upon surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by EOP, together with such letter
of transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration into which the shares
of Cornerstone Common Stock or Cornerstone 7% Preferred Stock, as applicable,
theretofore represented by such Certificate shall have been converted pursuant
to Section 1.10, together with any dividends or other distributions to which
such holder is entitled pursuant to Section 1.15(d) and cash, if any, payable in
lieu of fractional shares pursuant to Section 1.15(g), to be mailed (or made
available for collection by hand if so elected by the surrendering holder)
within five business days of receipt thereof, and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of Cornerstone Common Stock or Cornerstone 7% Preferred Stock which is not
registered in the transfer records of Cornerstone, payment may be made to a
person other than the person in whose name the Certificate so surrendered is
registered if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment either shall pay
any transfer or other taxes required by reason of such payment being made to a
person other than the registered holder of such Certificate or establish to the
satisfaction of EOP that such tax or taxes have been paid or are not applicable.
Until surrendered as contemplated by this Section 1.15, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without interest, into
which the shares of Cornerstone Common Stock or Cornerstone 7% Preferred Stock
heretofore represented by such Certificate shall have been converted pursuant to
Section 1.10, and any dividends or other distributions to which such holder is
entitled pursuant to Section 1.15(d). No interest will be paid or will accrue on
the Merger Consideration upon the surrender of any Certificate or on any cash
payable pursuant to Section 1.15(d) or Section 1.15(g). EOP or the Exchange
Agent, as applicable, shall be entitled, in its sole and absolute discretion, to
deduct and withhold from the cash or EOP Common Shares, or any combination
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thereof, that otherwise is payable pursuant to this Agreement to any holder of
shares of Cornerstone Common Stock or Cornerstone 7% Preferred Stock such
amounts as EOP or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code or under any provision of
state, local or foreign tax law, PROVIDED THAT in determining whether
withholding under Section 1445 of the Code is required, EOP shall take into
account (and shall request the Exchange Agent to take into account) Section
1445(b)(6) of the Code and Treasury Regulations Section 1.1445-2(c)(2). For this
purpose, any EOP Common Shares deducted and withheld by EOP shall be valued at
the last trading price of the EOP Common Shares on the New York Stock Exchange
on the Effective Date of the Merger. To the extent that amounts are so withheld
by EOP or the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Cornerstone Common Stock or Cornerstone 7% Preferred Stock, as applicable, in
respect of which such deduction and withholding was made by EOP or the Exchange
Agent.
(d) RECORD DATES FOR FINAL DIVIDENDS; DISTRIBUTIONS
WITH RESPECT TO UNEXCHANGED SHARES.
(i) To the extent necessary to satisfy the
requirements of Section 857(a)(1) of the Code for the taxable year of
Cornerstone ending at the Effective Time of the Merger (and avoid the payment of
tax with respect to undistributed income), Cornerstone shall declare a dividend
(the "Final Company Dividend") to holders of shares of Cornerstone Common Stock
and Cornerstone 7% Preferred Stock, the record date for which shall be the close
of business on the last business day prior to the Effective Time of the Merger,
in an amount equal to the minimum dividend sufficient to permit Cornerstone to
satisfy such requirements. If Cornerstone determines it is necessary to declare
the Final Company Dividend, it shall notify EOP at least 10 days prior to the
date for the Cornerstone Stockholders Meeting, and EOP shall declare a dividend
per share to holders of shares of EOP Common Shares, the record date for which
shall be the close of business on the last business day prior to the Effective
Time, in an amount per EOP Common Share equal to the quotient obtained by
dividing (x) the Final Company Dividend paid by Cornerstone with respect to each
share of Cornerstone Common Stock by (y) the Common Stock Exchange Ratio. The
dividends payable hereunder to holders of Cornerstone Common Stock and
Cornerstone 7% Preferred Stock shall be paid on the last business day
immediately preceding the Closing Date.
(ii) No dividends or other distributions
with respect to EOP Common Shares with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of EOP Common Shares represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.15(g),
in each case until the surrender of such Certificate in accordance with this
Section 1.15. Subject to the effect of applicable escheat laws, following
surrender of any such Certificate
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there shall be paid to the holder of such Certificate, without interest, (i) at
the time of such surrender, the amount of any cash payable pursuant to Section
1.10 and/or in lieu of any fractional EOP Common Shares to which such holder is
entitled pursuant to Section 1.15(g) and (ii) if such Certificate is
exchangeable for one or more whole EOP Common Shares, (x) at the time of such
surrender the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole EOP Common
Shares and (y) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and with a payment date subsequent to such surrender payable with
respect to such whole EOP Common Shares.
(e) NO FURTHER OWNERSHIP RIGHTS IN CORNERSTONE COMMON
STOCK AND CORNERSTONE 7% PREFERRED STOCK. All Merger Consideration paid upon the
surrender of Certificates in accordance with the terms of this Section 1.15
(including any cash paid pursuant to Section 1.15(g)) shall be deemed to have
been paid in full satisfaction of all rights pertaining to the Cornerstone
Common Stock and Cornerstone 7% Preferred Stock, as applicable, theretofore
represented by such Certificates; PROVIDED, HOWEVER, that Cornerstone shall
transfer to the Exchange Agent cash sufficient to pay any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by Cornerstone on such Cornerstone Common Stock or
Cornerstone 7% Preferred Stock in accordance with the terms of this Agreement or
prior to the date of this Agreement and which remain unpaid at the Effective
Time and have not been paid prior to such surrender, and there shall be no
further registration of transfers on the stock transfer books of Cornerstone of
the Cornerstone Common Stock or Cornerstone 7% Preferred Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to EOP for any reason, they shall be canceled
and exchanged as provided in this Section 1.15.
(f) NO LIABILITY. None of Cornerstone, EOP or the
Exchange Agent shall be liable to any person in respect of any Merger
Consideration or dividends delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any portion of the
Exchange Fund delivered to the Exchange Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective Time shall be redelivered by
the Exchange Agent to EOP, upon demand, and any holders of Certificates who have
not theretofore complied with Section 1.15(c) shall thereafter look only to EOP
for delivery of the Merger Consideration and any unpaid dividends, subject to
applicable escheat and other similar laws.
(g) NO FRACTIONAL SHARES
(i) No certificates or scrip representing
fractional EOP Common Shares shall be issued upon the surrender for exchange of
Certificates,
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and such fractional share interests will not entitle the owner thereof to vote,
to receive dividends or to any other rights of a shareholder of EOP.
(ii) No fractional EOP Common Shares shall
be issued pursuant to this Agreement. In lieu of the issuance of any fractional
EOP Common Shares pursuant to this Agreement, each holder of Cornerstone Common
Stock upon surrender of a Certificate for exchange shall be paid an amount in
cash (without interest), rounded to the nearest cent, determined by multiplying
(i) the average closing price of one EOP Common Share on the New York Stock
Exchange on the five trading days immediately preceding the Closing Date by (ii)
the fractional amount of 0.7009 of an EOP Common Share which such holder would
otherwise be entitled to receive under this Section 1.15.
(h) LOST CERTIFICATES. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by EOP or the Exchange Agent, the posting by such person of a bond in
such reasonable amount as EOP or the Exchange Agent may direct (but consistent
with the practices EOP applies to its own shareholders) as indemnity against any
claim that may be made against them with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the EOP Common Shares or cash to which the holders thereof are
entitled pursuant to Section 1.10, any cash payable pursuant to Section 1.15(g)
to which the holders thereof are entitled and any dividends or other
distributions to which the holders thereof are entitled pursuant to Section
1.15(d).
(i) APPLICABILITY TO PARTNERSHIP MERGER. Except for
the provisions relating to the Exchange Agent, certificates and the exchange
procedure (which shall not be applicable), all other provisions of this Section
1.15 shall apply to Cornerstone Partnership, EOP Partnership, the Cornerstone OP
Units and the Cornerstone OP Preferred Units with respect to the Partnership
Merger.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CORNERSTONE AND
CORNERSTONE PARTNERSHIP
Except as set forth in the Cornerstone SEC Documents (as
defined herein) or in the letter of even date herewith signed by the President
and Chief Executive Officer or the Chief Operating Officer of Cornerstone and
delivered to EOP prior to the execution hereof (the "Cornerstone Disclosure
Letter"), Cornerstone and Cornerstone Partnership represent and warrant to EOP
and EOP Partnership as follows:
2.1 ORGANIZATION, STANDING AND POWER. Cornerstone has been
duly organized and is validly existing and in good standing under the laws of
the State of
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Nevada. Cornerstone has all requisite corporate power and authority to own,
operate, lease and encumber its properties and carry on its business as now
being conducted. The Cornerstone Restated Articles of Incorporation, as amended
(the "Cornerstone Articles") are in effect, and no dissolution, revocation or
forfeiture proceedings regarding Cornerstone have been commenced. Cornerstone is
duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a material adverse
effect on the business, properties, assets, financial condition or results of
operations of Cornerstone, Cornerstone Partnership and the Cornerstone
Subsidiaries (as defined herein), taken as a whole (a "Cornerstone Material
Adverse Effect"). Cornerstone has delivered to EOP complete and correct copies
of the Cornerstone Articles and Cornerstone's Amended and Restated Bylaws (the
"Cornerstone Bylaws"), in each case, as amended or supplemented to the date of
this Agreement.
2.2 CORNERSTONE SUBSIDIARIES.
(a) SCHEDULE 2.2 to the Cornerstone Disclosure Letter
sets forth (i) each Subsidiary (as defined herein) of Cornerstone (the
"Cornerstone Subsidiaries") and the Cornerstone Non-controlled Subsidiary (which
Cornerstone Non-controlled Subsidiary constitutes the only entity in which
Cornerstone owns a non-voting equity interest and has no right to control except
as set forth on Schedule 2.4 of the Cornerstone Disclosure Letter), (ii) the
ownership interest therein of Cornerstone, (iii) if not, directly or indirectly,
wholly owned by Cornerstone, the identity and ownership interest of each of the
other owners of such Cornerstone Subsidiary or Cornerstone Non-controlled
Subsidiary, as applicable, (iv) each office property and other commercial
property owned by such Cornerstone Subsidiary or Cornerstone Non-controlled
Subsidiary, as applicable, and (v) if not wholly owned by such Cornerstone
Subsidiary or Cornerstone Non-controlled Subsidiary, as applicable, the identity
and ownership interest of each of the other owners of such property. As used in
this Agreement, "Subsidiary" of any Person (as defined herein) means any
corporation, partnership, limited liability company, joint venture, trust or
other legal entity of which such Person owns (either directly or through or
together with another Subsidiary of such Person) either (i) a general partner,
managing member or other similar interest, or (ii)(A) 10% or more of the voting
power of the voting capital stock or other equity interests, or (B) 10% or more
of the outstanding voting capital stock or other voting equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity. As used herein, "Person" means an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity. SCHEDULE 2.4 of the Cornerstone
Disclosure Letter sets forth a true and complete list of the equity securities
owned by Cornerstone, directly or indirectly, in any corporation, partnership,
limited liability company, joint
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venture or other legal entity, excluding Cornerstone Subsidiaries and the
Cornerstone Non-controlled Subsidiary.
(b) Except as set forth in SCHEDULE 2.2 to the
Cornerstone Disclosure Letter, (i) all of the outstanding shares of capital
stock of each Cornerstone Subsidiary and Cornerstone Non-controlled Subsidiary
that is a corporation have been duly authorized, validly issued and are (A)
fully paid and nonassessable and not subject to preemptive rights, (B) owned by
Cornerstone or by another Cornerstone Subsidiary or Cornerstone Non-controlled
Subsidiary and (C) owned free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") and (ii) all equity interests in each Cornerstone
Subsidiary that is a partnership, joint venture, limited liability company or
trust which are owned by Cornerstone, by another Cornerstone Subsidiary or
Cornerstone Non-controlled Subsidiary or by Cornerstone and another Cornerstone
Subsidiary or Cornerstone Non-controlled Subsidiary are owned free and clear of
all Liens other than pledges, if any, contained in organizational documents of
such Cornerstone Subsidiary and given to secure performance thereunder. Each
Cornerstone Subsidiary and Cornerstone Non-controlled Subsidiary that is a
corporation is duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the requisite corporate
power and authority to own, operate, lease and encumber its properties and carry
on its business as now being conducted, and each Cornerstone Subsidiary that is
a partnership, limited liability company or trust is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has the requisite power and authority to own, operate, lease and encumber
its properties and carry on its business as now being conducted. Each
Cornerstone Subsidiary and Cornerstone Non-controlled Subsidiary is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not reasonably be expected to have a
Cornerstone Material Adverse Effect. Complete and correct copies of the Articles
of Incorporation, Bylaws, organization documents and partnership, joint venture
and operating agreements of each Cornerstone Subsidiary and Cornerstone
Non-controlled Subsidiary, as amended to the date of this Agreement, have been
previously delivered or made available to EOP. No effective amendment has been
made to the Cornerstone Partnership Agreement since January 21, 2000.
2.3 CAPITAL STRUCTURE.
(a) The authorized shares of capital stock of
Cornerstone consist of 250,000,000 shares of Cornerstone Common Stock,
129,638,245 of which are issued and 129,280,012 of which are outstanding on the
date of this Agreement, and 65,000,000 shares of preferred stock with no par
value, of which 3,030,303
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shares of Cornerstone 7% Preferred Stock are issued and outstanding and 344,828
shares of Redeemable Preferred Stock are designated with none outstanding on the
date of this Agreement.
(b) Set forth in SCHEDULE 2.3(B) to the Cornerstone
Disclosure Letter is a true and complete list of the following: (i) each
qualified or nonqualified option to purchase shares of Common Stock granted
under Cornerstone's 1998 Long-Term Incentive Plan or any other formal or
informal arrangement (collectively, the "Cornerstone Stock Options"); and (ii)
all other warrants or other rights to acquire Cornerstone Common Stock, all
stock appreciation rights, restricted stock, dividend equivalents, deferred
compensation accounts, performance awards, restricted stock unit awards and
other awards which are outstanding on the date of this Agreement ("Cornerstone
Stock Rights"). SCHEDULE 2.3(B) to the Cornerstone Disclosure Letter sets forth
for each Cornerstone Stock Option and Cornerstone Stock Right the name of the
grantee, the date of the grant, the number of shares of Cornerstone Common Stock
subject to each option or other award, and the exercise price per share. On the
date of this Agreement, except as set forth in this Section 2.3 or in SCHEDULE
2.3(B) to the Cornerstone Disclosure Letter, no shares of Cornerstone Common
Stock were outstanding or reserved for issuance.
(c) All outstanding shares of Cornerstone Common
Stock are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness of Cornerstone having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of Cornerstone may vote, except for the Cornerstone convertible
promissory note dated as of January 1, 1996 which does not have voting rights
but is convertible into Cornerstone Common Stock (the "Cornerstone Convertible
Promissory Note").
(d) Other than (i) as set forth in this Section 2.3
or in SCHEDULE 2.3(B), 2.3(C), or 2.3(D) to the Cornerstone Disclosure Letter,
(ii) Cornerstone OP Units, which may be redeemed for cash or, at the option of
Cornerstone, Cornerstone Common Stock at a rate of one share of Cornerstone
Common Stock for each Cornerstone OP Unit, (iii) shares of Cornerstone Common
Stock issuable upon the conversion of Cornerstone 7% Preferred Stock, and (iv)
shares of Cornerstone Common Stock issuable pursuant to the Cornerstone
Convertible Promissory Note, as of the date of this Agreement, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Cornerstone or any
Cornerstone Subsidiary or Cornerstone Non-controlled Subsidiary is a party or by
which such entity is bound, obligating Cornerstone or any Cornerstone Subsidiary
or Cornerstone Non-controlled Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock, voting
securities or other ownership interests of Cornerstone or any Cornerstone
Subsidiary or Cornerstone Non-controlled Subsidiary or obligating Cornerstone or
any
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Cornerstone Subsidiary or Cornerstone Non-controlled Subsidiary to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking (other than to Cornerstone or
a Cornerstone Subsidiary or a Cornerstone Non-controlled Subsidiary).
(e) As of the date of this Agreement, 148,735,829
Cornerstone OP Units are validly issued and outstanding, fully paid and
nonassessable and not subject to preemptive rights, of which 129,638,245 are
owned by Cornerstone and 3,030,303 Cornerstone Preferred OP Units are validly
issued and outstanding, fully paid and nonassessable and not subject to
preemptive rights, all of which are owned by Cornerstone. SCHEDULE 2.3(E) to the
Cornerstone Disclosure Schedule sets forth the name of each holder of
Cornerstone OP Units and the number of Cornerstone OP Units owned by each such
holder as of the date of this Agreement. Except as provided in the Cornerstone
Partnership Agreement or as set forth on SCHEDULE 2.3(D), Cornerstone
Partnership has not issued or granted and is not a party to any outstanding
commitments of any kind relating to, or any presently effective agreements or
understandings with respect to, the issuance or sale of interests in Cornerstone
Partnership, whether issued or unissued, or securities convertible or
exchangeable into interests in Cornerstone Partnership.
(f) Except for the distribution of $0.31 per share of
Cornerstone Common Stock and per Cornerstone OP Unit declared on January 20,
2000, and payable on February 29, 2000, to holders of record on January 31,
2000, of shares of Cornerstone Common Stock and Cornerstone OP Units, all
dividends on Cornerstone Common Stock and Cornerstone 7% Preferred Stock and all
distributions on Cornerstone OP Units, which have been declared prior to the
date of this Agreement, have been paid in full.
(g) Set forth on SCHEDULE 2.3(G) to the Cornerstone
Disclosure Letter is a list of each registration rights agreement or other
agreement between Cornerstone and/or Cornerstone Partnership, on the one hand,
and one or more other parties, on the other hand, which sets forth the rights of
any such other party or parties to cause the registration of any securities of
Cornerstone and/or Cornerstone Partnership pursuant to the Securities Act of
1933, as amended (the "Securities Act").
2.4 OTHER INTERESTS. Except for interests in the Cornerstone
Subsidiaries, the Cornerstone Non-controlled Subsidiary and certain other
entities as set forth in SCHEDULE 2.4 to the Cornerstone Disclosure Letter (the
"Cornerstone Other Interests"), none of Cornerstone, Cornerstone Partnership,
any Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust, limited liability
company or other entity (other than investments in short-term investment
securities). With respect to the Cornerstone Other Interests, Cornerstone
Partnership owns such interests free and clear of all
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Liens other than pledges, if any, contained in organizational documents of such
Cornerstone Other Interests and given to secure performance thereunder. None of
Cornerstone, Cornerstone Partnership, any Cornerstone Subsidiary or the
Cornerstone Non-controlled Subsidiary is in material breach of any provision of
any agreement, document or contract which is of a material nature governing its
rights in or to the Cornerstone Other Interests, all of which agreements,
documents and contracts are (a) listed in Schedule 2.4 to the Cornerstone
Disclosure Letter, (b) unmodified except as described therein and (c) in full
force and effect. To the Knowledge of Cornerstone (as defined herein), the other
parties to any such agreement, document or contract which is of a material
nature are not in material breach of any of their respective obligations under
such agreements, documents or contracts.
2.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) Cornerstone has the requisite corporate power and
authority to enter into this Agreement and, subject to the requisite Cornerstone
stockholder approval of the Merger Agreement and the Merger and any other
matters reasonably and timely requested by any other party to effectuate the
transactions contemplated by this Agreement (collectively, the "Cornerstone
Stockholder Approvals"), to consummate the transactions contemplated by this
Agreement to which Cornerstone is a party. The execution and delivery of this
Agreement by Cornerstone and the consummation by Cornerstone of the transactions
contemplated by this Agreement to which Cornerstone is a party have been duly
authorized by all necessary action on the part of Cornerstone, except for and
subject to the Cornerstone Stockholder Approvals and the Cornerstone Partner
Approvals. This Agreement has been duly executed and delivered by Cornerstone
and constitutes a valid and binding obligation of Cornerstone, enforceable
against Cornerstone in accordance with and subject to its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
(b) Cornerstone Partnership has the requisite
partnership power and authority to enter into this Agreement and, subject to the
requisite Cornerstone Partner Approvals, to consummate the transactions
contemplated by this Agreement to which Cornerstone Partnership is a party. The
execution and delivery of this Agreement by Cornerstone Partnership and the
consummation by Cornerstone Partnership of the transactions contemplated by this
Agreement to which Cornerstone Partnership is a party have been duly authorized
by all necessary action on the part of Cornerstone Partnership, except for and
subject to the Cornerstone Stockholder Approvals and the Cornerstone Partner
Approvals. This Agreement has been duly executed and delivered by Cornerstone
Partnership and constitutes a valid and binding obligation of Cornerstone
Partnership, enforceable against Cornerstone Partnership in accordance with and
subject to its
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terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
(c) Except as set forth in SCHEDULE 2.5(C)(1) to the
Cornerstone Disclosure Letter, the execution and delivery of this Agreement by
Cornerstone do not, and the consummation of the transactions contemplated by
this Agreement to which Cornerstone is a party and compliance by Cornerstone
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or to material loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Cornerstone or any
Cornerstone Subsidiary under, (i) the Cornerstone Articles or Cornerstone Bylaws
or the comparable charter or organizational documents or partnership, operating,
or similar agreement (as the case may be) of any Cornerstone Subsidiary or
Cornerstone Non-controlled Subsidiary, each as amended or supplemented, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, merger or other
acquisition agreement, reciprocal easement agreement, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Cornerstone
or any Cornerstone Subsidiary or Cornerstone Non-controlled Subsidiary or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation (collectively, "Laws")
applicable to Cornerstone or any Cornerstone Subsidiary or Cornerstone
Non-controlled Subsidiary, or their respective properties or assets, other than,
in the case of clause (ii) or (iii), any such conflicts, violations, defaults,
rights, loss or Liens that individually or in the aggregate would not (x) have a
Cornerstone Material Adverse Effect or (y) prevent the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to Cornerstone or any
Cornerstone Subsidiary or Cornerstone Non-controlled Subsidiary in connection
with the execution and delivery of this Agreement by Cornerstone or the
consummation by Cornerstone of the transactions contemplated by this Agreement,
except for (i) the filing with the Securities and Exchange Commission (the
"SEC") of the Joint Proxy Statement (as defined herein), (ii) the acceptance for
record of the Maryland Articles of Merger by the Department, (iii) the filing of
the Nevada Articles of Merger with the Secretary of State of the State of
Nevada, (iv) the filing of the Certificate of Merger with the Office of the
Secretary of State of the State of Delaware and (v) such other consents,
approvals, orders, authorizations, registrations, declarations and filings (A)
as are set forth in SCHEDULE 2.5(C)(2) to the Cornerstone Disclosure Letter, (B)
as may be required under (w) the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (x) laws requiring transfer, recordation or
gains tax filings, (y) federal, state or local environmental laws or (z)
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the "blue sky" laws of various states, to the extent applicable or (C) which, if
not obtained or made, would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent Cornerstone from performing its obligations under this
Agreement in any material respect or reasonably be expected to have,
individually or in the aggregate, a Cornerstone Material Adverse Effect.
2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES. Cornerstone has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1997 through the
date hereof (the "Cornerstone SEC Documents"). SCHEDULE 2.6(A) to the
Cornerstone Disclosure Letter contains a complete list of all Cornerstone SEC
Documents filed by Cornerstone with the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), between January 1, 1997 and the date of
this Agreement. All of the Cornerstone SEC Documents (other than preliminary
material), as of their respective filing dates, complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act and, in each case, the rules and regulations promulgated thereunder
applicable to such Cornerstone SEC Documents. None of the Cornerstone SEC
Documents at the time of filing contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except to the extent such statements
have been modified or superseded by later Cornerstone SEC Documents filed and
publicly available prior to the date of this Agreement. The consolidated
financial statements of Cornerstone included in the Cornerstone SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as permitted
by the applicable rules and regulations of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly presented in all material respects, in accordance with the
applicable requirements of GAAP and the applicable rules and regulations of the
SEC, the consolidated financial position of Cornerstone and its Subsidiaries
taken as a whole, as of the dates thereof and the consolidated results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set forth
in SCHEDULE 2.6(B) to the Cornerstone Disclosure Letter, Cornerstone has no
Subsidiaries which are not consolidated for accounting purposes. Except for
liabilities and obligations set forth in the Cornerstone SEC Documents or in
SCHEDULE 2.6(C) to the Cornerstone Disclosure Letter, none of Cornerstone, any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by GAAP to be set forth on a consolidated balance sheet
of
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Cornerstone or in the notes thereto and which, individually or in the aggregate,
would have a Cornerstone Material Adverse Effect.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Cornerstone SEC Documents or in SCHEDULE 2.7 to the Cornerstone
Disclosure Letter, since the date of the most recent audited financial
statements included in Cornerstone SEC Documents (the "Cornerstone Financial
Statement Date"), Cornerstone, its Subsidiaries and the Cornerstone
Non-controlled Subsidiary have conducted their business only in the ordinary
course (taking into account prior practices, including the acquisition and
disposition of properties and issuance of securities) and there has not been (a)
any material adverse change in the business, financial condition or results of
operations of Cornerstone and its Subsidiaries taken as a whole (a "Cornerstone
Material Adverse Change"), nor has there been any occurrence or circumstance
that with the passage of time would reasonably be expected to result in a
Cornerstone Material Adverse Change, (b) except for regular quarterly
distributions not in excess of $0.31 per share of Cornerstone Common Stock or
Cornerstone OP Unit and except for regular annual distributions not in excess of
$1.155 per share of Cornerstone 7% Preferred Stock (or, in each case, with
respect to the period commencing on the date hereof and ending on the Closing
Date, distributions as necessary to maintain REIT (as defined herein) status),
in each case with customary record and payment dates, any authorization,
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the Cornerstone Common
Stock, the Cornerstone OP Units or the Cornerstone 7% Preferred Stock, (c) any
split, combination or reclassification of the Cornerstone Common Stock, the
Cornerstone OP Units or the Cornerstone 7% Preferred Stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, or giving the right to acquire by exchange or
exercise, shares of stock of Cornerstone or partnership interests in Cornerstone
Partnership or any issuance of an ownership interest in, any Cornerstone
Subsidiary or the Cornerstone Non-controlled Subsidiary, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
a Cornerstone Material Adverse Effect, (e) any change in accounting methods,
principles or practices by Cornerstone or any Cornerstone Subsidiary or the
Cornerstone Non-controlled Subsidiary materially affecting its assets,
liabilities or business, except insofar as may have been disclosed in
Cornerstone SEC Documents or required by a change in GAAP, or (f) any amendment
of any employment, consulting, severance, retention or any other agreement
between Cornerstone and any officer or director of Cornerstone.
2.8 LITIGATION. Except as disclosed in the Cornerstone SEC
Documents or in SCHEDULE 2.8 to the Cornerstone Disclosure Letter, and other
than personal injury and other routine tort litigation arising from the ordinary
course of operations of Cornerstone, the Cornerstone Subsidiaries and the
Cornerstone Non-controlled Subsidiary (a) which are covered by adequate
insurance subject to a
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reasonable deductible or retention limit or (b) for which all material costs and
liabilities arising therefrom are reimbursable pursuant to common area
maintenance or similar agreements, there is no suit, action or proceeding
pending (in which service of process has been received by an employee of
Cornerstone, a Cornerstone Subsidiary or a Cornerstone Non-controlled
Subsidiary) or, to the Knowledge of Cornerstone (as hereinafter defined),
threatened in writing against or affecting Cornerstone, or any Cornerstone
Subsidiary or Cornerstone Non-controlled Subsidiary that, individually or in the
aggregate, would reasonably be expected to (i) have a Cornerstone Material
Adverse Effect or (ii) prevent the consummation of any of the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any court or Governmental Entity or arbitrator outstanding
against Cornerstone, any Cornerstone Subsidiary or the Cornerstone
Non-controlled Subsidiary having, or which, insofar as reasonably can be
foreseen, in the future would have, any such effect. Notwithstanding the
foregoing, (y) SCHEDULE 2.8 to the Cornerstone Disclosure Letter sets forth each
and every material uninsured claim, equal employment opportunity claim and claim
relating to sexual harassment and/or discrimination pending or, to the Knowledge
of Cornerstone, threatened as of the date hereof, and (z) no claim has been made
under any directors' and officers' liability insurance policy maintained at any
time by Cornerstone, any of the Cornerstone Subsidiaries or the Cornerstone
Non-controlled Subsidiary.
2.9 PROPERTIES.
(a) Except as provided in SCHEDULE 2.2 or SCHEDULE
2.9(A) to the Cornerstone Disclosure Letter, Cornerstone or the Cornerstone
Subsidiary or Cornerstone Non-controlled Subsidiary set forth on SCHEDULE 2.2 to
the Cornerstone Disclosure Letter owns fee simple title to or holds a leasehold
interest in each of the real properties identified in SCHEDULE 2.2 to the
Cornerstone Disclosure Letter (the "Cornerstone Properties"), which are all of
the real estate properties owned by them, in each case (except for the Permitted
Title Exceptions (as defined herein)) free and clear of liens, mortgages or
deeds of trust, claims against title, charges which are liens, security
interests or other encumbrances on title ("Encumbrances"). SCHEDULE 2.2 to the
Cornerstone Disclosure Letter further identifies which of the Cornerstone
Properties are owned in fee simple by Cornerstone or the Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary and which of the Cornerstone
Properties are subject to a ground lease. Except as set forth in SCHEDULE 2.2 to
the Cornerstone Disclosure Letter, no other Person has any ownership interest in
any of the Cornerstone Properties, and any such ownership interest so scheduled
does not materially detract from the value of the Cornerstone Subsidiary's or
Cornerstone Non-controlled Subsidiary's (as the case may be) interest in, or
materially interfere with the present use of, any of the Cornerstone Properties
subject thereto or affected thereby. Except as set forth in SCHEDULE 2.9(A) to
the Cornerstone Disclosure Letter, none of the Cornerstone Properties is subject
to any restriction on the sale or other disposition thereof or on the financing
or
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release of financing thereon. The Cornerstone Properties are not subject to any
rights of way, written agreements, laws, ordinances and regulations affecting
building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions") or Encumbrances, except for the
following (collectively, the "Permitted Title Exceptions") (i) Property
Restrictions and Encumbrances set forth in the Cornerstone Disclosure Letter,
(ii) Property Restrictions imposed or promulgated by law or any governmental
body or authority with respect to real property, including zoning regulations,
which do not materially adversely affect the current use of any Cornerstone
Property, (iii) Property Restrictions and Encumbrances disclosed on existing
title reports or policies or existing surveys or subsequently granted by
Cornerstone or the Cornerstone Subsidiary or Cornerstone Non-controlled
Subsidiary, which Property Restrictions and Encumbrances, in any event, do not
materially detract from the value of, or materially interfere with the present
use of, any of the Cornerstone Properties subject thereto or affected thereby
and (iv) liens for real estate taxes not yet due and payable, mechanics',
carriers', workmen's, repairmen's liens and other Encumbrances and Property
Restrictions, if any, which, individually or in the aggregate, do not materially
detract from the value of or materially interfere with the present use of any of
the Cornerstone Properties subject thereto or affected thereby. SCHEDULE 2.9(A)
to the Cornerstone Disclosure Letter lists each of the Cornerstone Properties
which are under development as of the date of this Agreement and describes the
status of such development as of the date hereof.
(b) Except as provided in SCHEDULE 2.2 or SCHEDULE
2.9(B) to the Cornerstone Disclosure Letter, valid policies of title insurance
or fully-paid and enforceable commitments therefor have been issued insuring the
applicable Cornerstone Subsidiary's or Cornerstone Non-controlled Subsidiary's
(as the case may be) fee simple title or leasehold estate, as the case may be,
to the Cornerstone Properties owned by it in amounts approximately equal to the
purchase price therefor paid by such Cornerstone Subsidiary or Cornerstone
Non-controlled Subsidiary, subject only to the matters disclosed above and in
the Cornerstone Disclosure Letter. Such policies are, at the date hereof, in
full force and effect. No claim has been made against any such policy.
(c) Except as provided in SCHEDULE 2.9(C) to the
Cornerstone Disclosure Letter, Cornerstone has no Knowledge (i) that, any
certificate, permit or license from any governmental authority having
jurisdiction over any of the Cornerstone Properties or any agreement, easement
or other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the Cornerstone Properties or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of egress and ingress to and from any of the Cornerstone Properties
has not been obtained and is not in full force and effect, or of any pending
threat of modification or cancellation of any of the same which would have a
material adverse effect on such Cornerstone Property, (ii) of any written notice
of any violation of any federal, state or municipal law,
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ordinance, order, regulation or requirement affecting any of the Cornerstone
Properties issued by any governmental authority which would have a material
adverse effect on such Cornerstone Property, (iii) of any structural defects
relating to any Cornerstone Property which would have a material adverse effect
on such Cornerstone Property, (iv) of any Cornerstone Property whose building
systems are not in working order so as to have a material adverse effect on such
Cornerstone Property, or (v) of any physical damage to any Cornerstone Property
which would have a material adverse effect on such Cornerstone Property for
which there is no insurance in effect covering the cost of the restoration.
(d) None of Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary has received any written or
published notice to the effect that (i) any condemnation or rezoning proceedings
are pending or threatened with respect to any of the Cornerstone Properties or
(ii) any zoning, building or similar law, code, ordinance, order or regulation
is or will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of the Cornerstone Properties or by the
continued maintenance, operation or use of the parking areas which would have a
material adverse effect on such Cornerstone Property. Except as set forth in
SCHEDULE 2.9(D) to the Cornerstone Disclosure Letter, all work required to be
performed, payments required to be made and actions required to be taken prior
to the date hereof pursuant to any agreement entered into with a governmental
body or authority in connection with a site approval, zoning reclassification or
other similar action relating to any Cornerstone Properties (E.G., Local
Improvement District, Road Improvement District, Environmental Mitigation) have
been performed, paid or taken, as the case may be, and Cornerstone has no
Knowledge of any planned or proposed work, payments or actions that may be
required after the date hereof pursuant to such agreements, except as set forth
in development or operating budgets for such Cornerstone Properties delivered to
EOP and EOP Partnership prior to the date hereof and other than those which
would not reasonably be expected to have a material adverse effect on any of
Cornerstone or the Cornerstone Subsidiaries or the Cornerstone Non-controlled
Subsidiary.
(e) The rent rolls previously provided by Cornerstone
to EOP (the "Cornerstone Rent Roll") list each Cornerstone Space Lease (as
defined herein) in effect as of the dates set forth therein, none of which are
earlier than December 31, 1999. "Cornerstone Space Lease" means each lease or
other right of occupancy affecting or relating to a property in which
Cornerstone Partnership (or an entity in which it directly or indirectly has an
interest) is the landlord, either pursuant to the terms of the lease agreement
or as successor to any prior landlord, but excluding any ground lease.
Cornerstone has made available to EOP true, correct and complete copies of all
Cornerstone Space Leases, including all amendments, modifications, supplements,
renewals, extensions and guarantees related thereto, as of the date hereof.
Except for discrepancies that, either individually or in the aggregate, would
not reasonably be expected to have a
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Cornerstone Material Adverse Effect, all information set forth in the
Cornerstone Rent Roll is true, correct and complete as of the date thereof.
Except as set forth in a delinquency report made available to EOP, none of
Cornerstone, any Cornerstone Subsidiary or the Cornerstone Non-controlled
Subsidiary, on the one hand, nor, to the knowledge of Cornerstone or Cornerstone
Partnership, any other party, on the other hand, is in monetary default under
any Cornerstone Space Lease, except for such defaults that would not reasonably
be expected to have a Cornerstone Material Adverse Effect.
2.10 ENVIRONMENTAL MATTERS.
(a) "Environmental Law" shall mean all applicable Laws
relating to the protection of human health or safety and natural resources or
the environment, including, without limitation, Laws relating to the use,
manufacturing, generation, recycling, reuse, sale, storage, handling, transport,
treatment or disposal of any Hazardous Materials (including the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
ss 9601 et seq. ("CERCLA")). "Hazardous Materials" shall mean substances, wastes
or materials listed, regulated or defined under any Environmental Law, and shall
include "hazardous wastes," "hazardous substances," "hazardous materials,"
petroleum or any fraction thereof, asbestos, lead-paint, urea-formaldehyde, and
polychlorinated biphenyls. "Release" shall have the meaning set forth in Section
101 of CERCLA, without regard to the exclusions set forth therein.
(b) Except as disclosed in the Cornerstone SEC Documents or in
SCHEDULE 2.10(A) to the Cornerstone Disclosure Letter,
(i) none of Cornerstone, any of the Cornerstone
Subsidiaries or the Cornerstone Non-controlled Subsidiary or, to Cornerstone's
Knowledge, any other Person has caused or permitted the presence of any
Hazardous Materials at, on or under any of the Cornerstone Properties and none
of Cornerstone, any of the Cornerstone Subsidiaries or the Cornerstone
Non-controlled Subsidiary has any knowledge of the presence of any Hazardous
Materials at, on or under any of the Cornerstone Properties, in each of the
foregoing cases, such that the presence of such Hazardous Materials (including
the presence of asbestos in any buildings or improvements at the Cornerstone
Properties) would, individually or in the aggregate, reasonably be expected to
have a Cornerstone Material Adverse Effect;
(ii) except in accordance with the Environmental
Permits (as defined herein) there have been no Releases of Hazardous Materials
at, on, under or from (A) the Cornerstone Properties or (B) any real property
previously owned, operated or leased by Cornerstone, the Cornerstone
Subsidiaries, or the Cornerstone Non-controlled Subsidiary (the "Former
Cornerstone Properties") during the period of such ownership, operation or
tenancy, and none of Cornerstone, any of the Cornerstone Subsidiaries or the
Cornerstone Non-controlled Subsidiary
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has any knowledge of any Releases of Hazardous Materials having occurred or
presently occurring at, on, under or from the Cornerstone Properties or the
Former Cornerstone Properties, which would, individually or in the aggregate,
reasonably be expected to have a Cornerstone Material Adverse Effect;
(iii) Cornerstone, the Cornerstone Subsidiaries and
the Cornerstone Non-controlled Subsidiary have not failed to comply with all
Environmental Laws, and none of Cornerstone, any of the Cornerstone Subsidiaries
or the Cornerstone Non-controlled Subsidiary has any liability under the
Environmental Laws, except to the extent that any such failure to comply or any
such liability, individually or in the aggregate, would not reasonably be
expected to have a Cornerstone Material Adverse Effect; and
(iv) Cornerstone, the Cornerstone Subsidiaries and
the Cornerstone Non-controlled Subsidiary have been duly issued, and currently
have and will maintain through the Closing Date, all permits, licenses,
certificates and approvals required under any Environmental Law (collectively,
the "Environmental Permits") necessary to operate their businesses as currently
operated except where the failure to obtain and maintain such Environmental
Permit would not have a material adverse effect on the Cornerstone Property.
Cornerstone, the Cornerstone Subsidiaries and the Cornerstone Non-controlled
Subsidiary have timely filed applications for all Environmental Permits. All of
the Environmental Permits are transferable and none require consent,
notification or other action to remain in full force and effect following
consummation of the transactions contemplated hereby.
(c) Cornerstone has previously delivered or made available to
EOP complete copies of all material information, documents and reports,
including, without limitation, environmental investigations and testing or
analysis that are in the possession or control of any of Cornerstone, the
Cornerstone Subsidiaries and the Cornerstone Non-controlled Subsidiary and which
relate to compliance with Environmental Laws by any of them or to the past or
current environmental condition of the Cornerstone Properties.
2.11 RELATED PARTY TRANSACTIONS. Set forth in SCHEDULE 2.11 to
the Cornerstone Disclosure Letter is a list of all material arrangements,
agreements and contracts entered into by Cornerstone, any Cornerstone Subsidiary
and the Cornerstone Non-controlled Subsidiary with (a) any investment banker or
financial advisor, (b) any person who is an officer, director or Affiliate (as
defined herein) of Cornerstone or any Subsidiary or the Cornerstone
Non-controlled Subsidiary, any relative of any of the foregoing or any entity of
which any of the foregoing is an Affiliate or (c) any person who acquired
Cornerstone Common Stock, Cornerstone OP Units or Cornerstone 7% Preferred Stock
in a private placement, in each case which remain in effect and are not
otherwise disclosed in the SEC Documents. Such documents, copies of all of which
have previously been delivered or made available to EOP, are listed in SCHEDULE
2.11 to the Cornerstone Disclosure Letter.
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As used in this Agreement, the term "Affiliate" shall have the same meaning as
such term is defined in Rule 405 promulgated under the Securities Act.
2.12 EMPLOYEE BENEFITS. As used herein, the term "Employee
Plan" includes any pension, retirement, savings, disability, medical, dental,
health, life, death benefit, group insurance, profit sharing, deferred
compensation, stock option, bonus, incentive, vacation pay, tuition
reimbursement, severance pay, or other employee benefit plan, trust, agreement,
contract, agreement, policy or commitment (including, without limitation, any
pension plan, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA") ("Pension Plan"), and any welfare plan as defined in
Section 3(1) of ERISA ("Welfare Plan")), whether any of the foregoing is funded,
insured or self-funded, written or oral, (i) sponsored or maintained by
Cornerstone, any Cornerstone Subsidiary or the Cornerstone Non-controlled
Subsidiary (each, a "Controlled Group Member") and covering any Controlled Group
Member's active or former employees (or their beneficiaries), (ii) to which any
Controlled Group Member is a party or by which any Controlled Group Member (or
any of the rights, properties or assets thereof) is bound or (iii) with respect
to which any current Controlled Group Member may otherwise have any material
liability (whether or not such Controlled Group Member still maintains such
Employee Plan). Each Employee Plan is listed on SCHEDULE 2.12 to the Cornerstone
Disclosure Letter. Except as disclosed in SCHEDULE 2.12 to the Cornerstone
Disclosure Letter, with respect to the Employee Plans:
(a) No Controlled Group Member has any continuing
liability under any Welfare Plan which provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after such
participant's termination of employment, except as may be required by Section
4980B of the Code or Section 601 (et seq.) of ERISA, or under any applicable
state law, and at the expense of the participant or the beneficiary of the
participant.
(b) Each Employee Plan complies in all material
respects with the applicable requirements of ERISA and any other applicable law
governing such Employee Plan, and, to the Knowledge of Cornerstone, each
Employee Plan has at all times been properly administered in all material
respects in accordance with all such requirements of law, and in accordance with
its terms and the terms of any applicable collective bargaining agreement to the
extent consistent with all such requirements of law. Each Pension Plan which is
intended to be qualified is qualified under Section 401(a) of the Code, has
received a favorable determination letter from the IRS stating that such Plan
meets the requirements of Section 401(a) of the Code and that the trust
associated with such Plan is tax-exempt under Section 501(a) of the Code and, to
the Knowledge of Cornerstone, no event has occurred which would jeopardize the
qualified status of any such plan or the tax exempt status of any such trust
under Sections 401(a) and Section 501(a) of the Code, respectively. No lawsuits,
claims (other than routine claims for benefits) or
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complaints to, or by, any person or governmental entity have been filed, are
pending or, to the Knowledge of Cornerstone, threatened with respect to any
Employee Plan and, to the Knowledge of Cornerstone, there is no fact or
contemplated event which would be expected to give rise to any such lawsuit,
claim (other than routine claims for benefits) or complaint with respect to any
Pension Plan. Without limiting the foregoing, the following are true with
respect to each Employee Plan:
(i) all Controlled Group Members have complied in all
material respects with the reporting and disclosure
requirements of ERISA, the Code, or both, with respect to each
Employee Plan and no Controlled Group Member has incurred any
material liability in connection with such reporting or
disclosure;
(ii) all contributions and payments with respect to
Employee Plans that are required to be made by a Controlled
Group Member with respect to periods ending on or before the
Closing Date (including periods from the first day of the
current plan or policy year to the Closing Date) have been, or
will be, made or accrued before the Closing Date in accordance
with the appropriate plan document, actuarial report,
collective bargaining agreements or insurance contracts or
arrangements or as otherwise required by ERISA or the Code;
and
(iii) with respect to each such Employee Plan, to the
extent applicable, Cornerstone has delivered to or has made
available to EOP true and complete copies of (A) plan
documents, or any and all other documents that establish the
existence of the plan, trust, arrangement, contract, policy or
commitment and all amendments thereto, (B) the most recent
determination letter, if any, received from the IRS, (C) the
three most recent Form 5500 Annual Reports (and all schedules
and reports relating thereto) and actuarial reports and (D)
all related trust agreements, insurance contract or other
funding agreements that implement each such Employee Plan.
(c) With respect to each Employee Plan, to the
Knowledge of Cornerstone, there has not occurred, and no person or entity is
contractually bound to enter into, any "prohibited transaction" within the
meaning of Section 4975(c) of the Code or Section 406 of ERISA, which
transaction is not exempt under Section 4975(d) of the Code or Section 408 of
ERISA and which could subject Cornerstone or any Controlled Group Member to
material liability.
(d) No Controlled Group Member has maintained or been
obligated to contribute to any Employee Plan subject to Code Section 412 or
Title IV of ERISA. No Employee Plan subject to Code Section 412 or Title IV of
ERISA has been terminated.
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(e) With respect to each Pension Plan maintained by
any Controlled Group Member, such Plan provides the Plan Sponsor the authority
to amend or terminate the Plan at any time, subject to applicable requirements
of ERISA and the Code.
2.13 EMPLOYEE POLICIES. The employee handbooks of Cornerstone,
the Cornerstone Subsidiaries and the Cornerstone Non-controlled Subsidiary
currently in effect are attached as SCHEDULE 2.13 to the Cornerstone Disclosure
Letter and fairly and accurately summarize all material employee policies,
vacation policies and payroll policies.
2.14 TAXES.
(a) Each of Cornerstone, the Cornerstone Subsidiaries
and the Cornerstone Non-controlled Subsidiary (A) has filed all Tax returns and
reports required to be filed by it (after giving effect to any filing extension
properly granted by a Governmental Entity having authority to do so) and all
such returns and reports are accurate and complete in all material respects, (B)
has paid (or Cornerstone has paid on its behalf) all Taxes (as defined herein)
shown on such returns and reports as required to be paid by it, and (C) has
complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441, 1442, 1445, 3121,
and 3402 of the Code or similar provisions under any foreign laws) and has,
within the time period prescribed by law, withheld and paid over to the proper
governmental entities all amounts required to be so withheld and paid over under
applicable laws and regulations, except, with respect to all of the foregoing,
where the failure to file such tax returns and reports or failure to pay such
Taxes or failure to comply with such withholding requirements would not
reasonably be expected to have a Cornerstone Material Adverse Effect. The most
recent audited financial statements contained in the Cornerstone SEC Documents
reflect an adequate reserve for all material Taxes payable by Cornerstone, the
Cornerstone Subsidiaries and the Cornerstone Non-controlled Subsidiary for all
taxable periods and portions thereof through the date of such financial
statements. Since the Cornerstone Financial Statement Date, Cornerstone has
incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and none of Cornerstone, any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary has incurred
any material liability for Taxes other than in the ordinary course of business.
No event has occurred, and no condition or circumstance exists, which presents a
material risk that any material Tax described in the preceding sentences will be
imposed upon Cornerstone, any Cornerstone Subsidiary, or the Cornerstone
Non-controlled Subsidiary. None of Cornerstone, any Cornerstone Subsidiary or
the Cornerstone Non-controlled Subsidiary is the subject of any audit,
examination, or other proceeding in respect of federal income Taxes, and to
Cornerstone's
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Knowledge, no audit, examination or other proceeding in respect of federal
income Taxes involving any of Cornerstone, any Cornerstone Subsidiary, or the
Cornerstone Non-controlled Subsidiary is being considered by any Tax authority.
To the Knowledge of Cornerstone, no deficiencies for any Taxes have been
proposed, asserted or assessed against Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary, and no requests for waivers of the
time to assess any such Taxes are pending. As used in this Agreement, "Taxes"
shall include all taxes, charges, fees, levies and other assessments, including,
without limitation, income, gross receipts, excise, property, sales, withholding
(including, without limitation, dividend withholding and withholding required
pursuant to Sections 1445 and 1446 of the Code), social security, occupation,
use, service, license, payroll, franchise, transfer and recording taxes, fees
and charges, including estimated taxes, imposed by the United States or any
taxing authority (domestic or foreign), whether computed on a separate,
consolidated, unitary, combined or any other basis, and any interest, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to any such taxes, charges, fees, levies or other assessments.
(b) Cornerstone (i) for all taxable years for which
the Internal Revenue Service could assert a tax liability, has been subject to
taxation as a real estate investment trust (a "REIT") within the meaning of
Section 856 of the Code and has satisfied all requirements to qualify as a REIT
for all such years, (ii) has operated since December 31, 1999 to the date of
this representation, and intends to continue to operate, in such a manner as to
qualify as a REIT for the taxable year ending on the earlier of December 31,
2000 or the Closing Date and, if later, for the taxable year of Cornerstone
ending on the Closing Date, and (iii) has not taken or omitted to take any
action which would reasonably be expected to result in a challenge to its status
as a REIT and, to Cornerstone's Knowledge, no such challenge is pending or
threatened. Each Cornerstone Subsidiary which is a partnership, joint venture or
limited liability company (i) has been since its formation and continues to be
treated for federal income tax purposes as a partnership and not as a
corporation or an association taxable as a corporation and (ii) has not since
the later of its formation or the acquisition by Cornerstone of a direct or
indirect interest therein, owned any assets (including, without limitation,
securities) that would cause Cornerstone to violate Section 856(c)(4) of the
Code. Cornerstone Partnership is not a publicly traded partnership within the
meaning of Section 7704(b) of the Code that is taxable as a corporation pursuant
to Section 7704(a) of the Code. Each Cornerstone Subsidiary which is a
corporation has been since its formation a qualified REIT subsidiary under
Section 856(i) of the Code. Neither Cornerstone nor any Cornerstone Subsidiary
holds any asset (x) the disposition of which would be subject to rules similar
to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or
Temporary Treas. Reg. ss.1.337(d)-5T or (y) which is subject to a consent filed
pursuant to Section 341(f) of the Code and the regulations thereunder.
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2.15 NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. SCHEDULE
2.15 to the Cornerstone Disclosure Letter contains a true and complete list of
all arrangements, agreements or plans pursuant to which cash and non-cash
payments which will become payable (and the maximum aggregate amount which may
be payable thereunder) to each employee, officer or director of Cornerstone, any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary as a result
of the Merger or a termination of service subsequent to the consummation of the
Merger. Except as described in SCHEDULE 2.15 to the Cornerstone Disclosure
Letter, or as otherwise provided for in this Agreement, there is no employment
or severance contract, or other agreement requiring payments, cancellation of
indebtedness or other obligation to be made on a change of control or otherwise
as a result of the consummation of any of the transactions contemplated by this
Agreement or as a result of a termination of service subsequent to the
consummation of any of the transactions contemplated by this Agreement, with
respect to any employee, officer or director of Cornerstone, any Cornerstone
Subsidiary or the Cornerstone Non-controlled Subsidiary. There is no agreement
or arrangement with any employee, officer or other service provider under which
Cornerstone, any Cornerstone Subsidiary or any Cornerstone Non-controlled
Subsidiary has agreed to pay any tax that might be owed under Section 4999 of
the Code with respect to payments to such individuals.
2.16 BROKER; SCHEDULE OF FEES AND EXPENSES. No broker,
investment banker, financial advisor or other person, other than Lazard Freres & Co. L.L.C. the fees and expenses of which are described in the engagement letter
dated January 28, 2000, between Lazard Freres & Co. L.L.C. and Cornerstone, a
true, correct and complete copy of which has previously been given to EOP, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Cornerstone or any Cornerstone Subsidiary.
2.17 COMPLIANCE WITH LAWS. None of Cornerstone, any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary has violated
or failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity applicable to its business,
properties or operations, except to the extent that such violation or failure
would not reasonably be expected to have a Cornerstone Material Adverse Effect.
2.18 CONTRACTS; DEBT INSTRUMENTS.
(a) None of Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary has received a written notice that
it is in violation of or in default under (nor to the Knowledge of Cornerstone
does there exist any condition which upon the passage of time or the giving of
notice or both would cause such a violation of or default under) any material
loan or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise,
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license or any other material contract, agreement, arrangement or understanding,
to which it is a party or by which it or any of its properties or assets is
bound, nor to the Knowledge of Cornerstone does such a violation or default
exist, except to the extent that such violation or default, individually or in
the aggregate, would not reasonably be expected to have a Cornerstone Material
Adverse Effect.
(b) Except for any of the following expressly
identified in Cornerstone SEC Documents, SCHEDULE 2.18(B) to the Cornerstone
Disclosure Letter sets forth a list of each material loan or credit agreement,
note, bond, mortgage, indenture and any other agreement or instrument pursuant
to which any Indebtedness (as defined herein) of Cornerstone, the Cornerstone
Subsidiaries and the Cornerstone Non-controlled Subsidiary, other than
Indebtedness payable to Cornerstone, a Cornerstone Subsidiary or a Cornerstone
Non-controlled Subsidiary, is outstanding or may be incurred. For purposes of
this Section 2.18, "Indebtedness" shall mean (i) indebtedness for borrowed
money, whether secured or unsecured, (ii) obligations under conditional sale or
other title retention agreements relating to property purchased by such person,
(iii) capitalized lease obligations, (iv) obligations under interest rate cap,
swap, collar or similar transaction or currency hedging transactions (valued at
the termination value thereof) and (v) guarantees of any such indebtedness of
any other person.
(c) To the extent not set forth in response to the
requirements of Section 2.18(b), SCHEDULE 2.18(C) to the Cornerstone Disclosure
Letter sets forth each interest rate cap, interest rate collar, interest rate
swap, currency hedging transaction, and any other agreement relating to a
similar transaction to which Cornerstone, any Cornerstone Subsidiary or the
Cornerstone Non-controlled Subsidiary is a party or an obligor with respect
thereto.
(d) Except as set forth in SCHEDULE 2.18(D) of the
Cornerstone Disclosure Letter, none of Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary is a party to any agreement which
would restrict any of them from prepaying any of their Indebtedness without
penalty or premium at any time or which requires any of them to maintain any
amount of Indebtedness with respect to any of the Cornerstone Properties.
(e) Except as set forth in SCHEDULE 2.18(E) to the
Cornerstone Disclosure Letter, none of Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary is a party to any agreement
relating to the management of any Cornerstone Property by any Person other than
Cornerstone, a Cornerstone Subsidiary or a Cornerstone Non-controlled
Subsidiary.
(f) None of Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary is a party to any agreement
pursuant to which Cornerstone, any Cornerstone Subsidiary or the Cornerstone
Non-controlled Subsidiary manages or provides services with respect to any real
properties other
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than Cornerstone Properties, except for the agreements described in SCHEDULE
2.18(F) to the Cornerstone Disclosure Letter.
(g) Cornerstone has delivered to EOP prior to the
date of this Agreement a true and complete capital budget for the year 2000
relating to budgeted capital improvements and development. SCHEDULE 2.18(G) to
the Cornerstone Disclosure Letter lists all material agreements entered into by
Cornerstone, each of the Cornerstone Subsidiaries and the Cornerstone
Non-controlled Subsidiary relating to the development or construction of, or
additions or expansions to, any Cornerstone Real Properties (or any properties
with respect to which Cornerstone has executed as of the date of this Agreement
a purchase agreement or other similar agreement) which are currently in effect
and under which Cornerstone or any of the Cornerstone Subsidiaries or the
Cornerstone Non-controlled Subsidiary currently has, or expects to incur, an
obligation in excess of $250,000 in the aggregate. True, correct and complete
copies of such agreements have previously been delivered or made available to
EOP.
(h) SCHEDULE 2.18(H) to the Cornerstone Disclosure
Letter lists all agreements entered into by Cornerstone, any Cornerstone
Subsidiary or the Cornerstone Non-controlled Subsidiary providing for the sale
of, or option to sell, any Cornerstone Properties or the purchase of, or option
to purchase, by Cornerstone, any Cornerstone Subsidiary or the Cornerstone
Non-controlled Subsidiary, on the one hand, or the other party thereto, on the
other hand, any real estate which are currently in effect.
(i) Except as set forth in SCHEDULE 2.18(I) to the
Cornerstone Disclosure Letter, none of Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary has any material continuing
contractual liability (A) for indemnification or otherwise under any agreement
relating to the sale of real estate previously owned, whether directly or
indirectly, by Cornerstone, any Cornerstone Subsidiary or Cornerstone
Non-controlled Subsidiary or (B) to pay any additional purchase price for any of
the Cornerstone Properties.
(j) Except as set forth in SCHEDULE 2.18(J) to the
Cornerstone Disclosure Letter, none of Cornerstone, any Cornerstone Subsidiary
or the Cornerstone Non-controlled Subsidiary has entered into or is subject,
directly or indirectly, to any "Tax Protection Agreements." As used herein, a
Tax Protection Agreement is an agreement, oral or written, (A) that has as one
of its purposes to permit a person or entity to take the position that such
person or entity could defer federal taxable income that otherwise might have
been recognized upon a transfer of property to the Cornerstone Partnership or
any other Cornerstone Subsidiary that is treated as a partnership for federal
income tax purposes, and that (i) prohibits or restricts in any manner the
disposition of any assets of Cornerstone, any Cornerstone Subsidiary or the
Cornerstone Non-controlled Subsidiary, (ii) requires that Cornerstone, any
Cornerstone Subsidiary or the Cornerstone Non-
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controlled Subsidiary maintain, or put in place, or replace, indebtedness,
whether or not secured by one or more of the Cornerstone Properties, or (iii)
requires that Cornerstone, any Cornerstone Subsidiary or the Cornerstone
Non-controlled Subsidiary offer to any person or entity at any time the
opportunity to guarantee or otherwise assume, directly or indirectly (including,
without limitation, through a "deficit restoration obligation," indemnification
agreement or other similar arrangement), the risk of loss for federal income tax
purposes for indebtedness or other liabilities of Cornerstone, any Cornerstone
Subsidiary or the Cornerstone Non-controlled Subsidiary, (B) that specifies or
relates to a method of taking into account book-tax disparities under Section
704(c) of the Code with respect to one or more assets of Cornerstone or a
Cornerstone Subsidiary, or (C) that requires a particular method for allocating
one or more liabilities of Cornerstone or any Cornerstone Subsidiary under
Section 752 of the Code. None of Cornerstone, any Cornerstone Subsidiary or the
Cornerstone Non-controlled Subsidiary is in violation of or in default under any
Tax Protection Agreement.
(k) Except as set forth in SCHEDULE 2.18(K) to the
Cornerstone Disclosure Letter and for the Confidentiality Agreement, dated
January 13, 2000 between Cornerstone and EOP (the "Confidentiality Agreement")
and other confidentiality agreements entered into in the ordinary course of
business, neither Cornerstone nor any Cornerstone Subsidiary or the Cornerstone
Non-controlled Subsidiary is a party to any confidentiality, standstill, lock-up
or voting agreement.
2.19 OPINION OF FINANCIAL ADVISOR. Cornerstone has received
the written opinion of Lazard Freres & Co. L.L.C. Cornerstone's financial
advisor, to the effect that the proposed consideration to be received by the
holders of Cornerstone Common Stock is fair to such holders from a financial
point of view.
2.20 STATE TAKEOVER STATUTES. Cornerstone has taken all action
necessary to exempt the transactions contemplated by this Agreement between EOP
and Cornerstone and its Affiliates from the operation of any "fair price,"
"moratorium," "control share acquisition" or any other anti-takeover statute or
similar statute enacted under the laws of the State of Nevada and the State of
Delaware or federal laws of the United States or similar statute or regulation
(a "Takeover Statute").
2.21 INVESTMENT COMPANY ACT OF 1940. None of Cornerstone, any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary is, or at
the Effective Time will be, required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
2.22 DEFINITION OF "KNOWLEDGE OF CORNERSTONE". As used in this
Agreement, the phrase "Knowledge of Cornerstone" (or words of similar import)
means the actual knowledge of those individuals identified in SCHEDULE 2.22 to
the Cornerstone Disclosure Letter.
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2.23 REQUIRED STOCKHOLDER APPROVALS AND PARTNER APPROVALS. The
affirmative vote of the holders of at least a majority of the outstanding
Cornerstone Common Stock and the holders of at least a majority of the
outstanding Cornerstone 7% Preferred Stock are the only votes of the holders of
any class or series of Cornerstone capital stock necessary or required under
this Agreement or under applicable law to approve the Merger and this Agreement.
The approval of Cornerstone and the affirmative vote of at least a majority of
all Cornerstone limited partner interests entitled to be cast, voting in
accordance with the Cornerstone Partnership Agreement, is the only vote of the
holders of any class or series of Cornerstone Partnership's partnership
interests necessary or required under this Agreement or under applicable law to
approve the Merger, the withdrawal of Cornerstone as general partner and the
Partnership Merger.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EOP AND EOP
PARTNERSHIP
Except as set forth in the EOP SEC Documents (as defined
herein) or in the letter of even date herewith signed by the President or an
Executive Vice President of EOP and delivered to Cornerstone prior to the
execution hereof (the "EOP Disclosure Letter"), EOP and EOP Partnership
represent and warrant to Cornerstone and Cornerstone Partnership as follows:
3.1 ORGANIZATION, STANDING AND POWER OF EOP. EOP is a real
estate investment trust duly organized, validly existing and in good standing
under the laws of Maryland and has all requisite power and authority to own,
operate, lease and encumber its properties and carry on its business as now
being conducted. EOP is duly qualified or licensed to do business as a foreign
trust and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, would not reasonably
be expected to have a material adverse effect on the business, properties,
assets, financial condition or results of operations of EOP and the Subsidiaries
of EOP (collectively, "EOP Subsidiaries"), taken as a whole (an "EOP Material
Adverse Effect"). EOP has delivered to Cornerstone complete and correct copies
of the EOP Declaration of Trust (as the same is proposed to be modified by each
of the Proposed EOP Charter Amendments (as defined herein)) and the EOP Bylaws,
as amended or supplemented to the date of this Agreement.
3.2 EOP SUBSIDIARIES.
(a) SCHEDULE 3.2(A) to the EOP Disclosure Letter sets
forth (i) each EOP Subsidiary and each entity in which EOP holds non-voting
equity
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securities (but no voting equity securities) (collectively, the "EOP
Non-controlled Subsidiaries"), (ii) the ownership interest therein of EOP, (iii)
if not wholly owned by EOP, the identity and ownership interest of each of the
other owners of such EOP Subsidiary, (iv) each office property and other
commercial property owned by such Subsidiary, and (v) if not wholly owned by
such Subsidiary, the identity and ownership interest of each of the other owners
of such property.
(b) Except as set forth in SCHEDULE 3.2(B) to the EOP
Disclosure Letter, (i) all the outstanding shares of capital stock of each EOP
Subsidiary and each EOP Non-controlled Subsidiary that is a corporation have
been duly authorized, validly issued and are (A) fully paid and nonassessable
and not subject to preemptive rights, (B) owned by EOP or by another EOP
Subsidiary and (C) owned free and clear of all Liens and (ii) all equity
interests in each EOP Subsidiary that is a partnership, joint venture, limited
liability company or trust which are owned by EOP, by another EOP Subsidiary or
by EOP and another EOP Subsidiary are owned free and clear of all Liens other
than pledges, if any, contained in organizational documents of such EOP
Subsidiary and given to secure performance thereunder. Each EOP Subsidiary that
is a corporation is duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the requisite
corporate power and authority to own, operate, lease and encumber its properties
and carry on its business as now being conducted, and each EOP Subsidiary that
is a partnership, limited liability company or trust is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has the requisite power and authority to own, operate, lease and encumber
its properties and carry on its business as now being conducted. Each EOP
Subsidiary is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not reasonably be expected to have an
EOP Material Adverse Effect. Complete and correct copies of the Articles of
Incorporation, Bylaws, organization documents and partnership, joint venture and
operating agreements of each EOP Subsidiary, as amended to the date of this
Agreement, have been previously delivered or made available to Cornerstone. No
effective amendment has been made to the EOP Partnership Agreement since January
31, 2000.
3.3 CAPITAL STRUCTURE.
(a) The authorized shares of beneficial interest of
EOP consist of 750,000,000 EOP Common Shares, 248,812,828 of which were issued
and outstanding as of January 31, 2000, and 100,000,000 preferred shares of
beneficial interest, 18,562,900 of which were issued or outstanding as of
January 31, 2000 (collectively, the "EOP Preferred Shares").
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(b) Set forth in SCHEDULE 3.3(B) to the EOP
Disclosure Letter is a true and complete list of the following: (i) each
qualified or nonqualified option to purchase EOP's shares of beneficial interest
granted under the Employee Share Option and Restricted Share Plan or any other
formal or informal arrangement (collectively, the "EOP Options"); and (ii) all
other warrants or other rights to acquire EOP's shares of beneficial interest,
all share appreciation rights, phantom shares, dividend equivalents, performance
units and performance shares which are outstanding on the date of this
Agreement. SCHEDULE 3.3(B) to the EOP Disclosure Letter sets forth the EOP
Options granted to EOP's Chief Executive Officer and four other most highly
compensated officers, the date of each grant, the status of each EOP Option as
qualified or nonqualified under Section 422 of the Code, the number of EOP
Common Shares subject to each EOP Option, the number and type of EOP's Common
Shares subject to EOP Options that are currently exercisable, the exercise price
per share, and the number and type of such shares subject to share appreciation
rights. On the date of this Agreement, except as set forth in this Section 3.3
or in SCHEDULE 3.3(B) to the EOP Disclosure Letter, no shares of beneficial
interest of EOP were outstanding or reserved for issuance (except for EOP Common
Shares reserved for issuance upon redemption of EOP OP Units).
(c) All outstanding shares of beneficial interest of
EOP are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness of EOP having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of EOP may vote.
(d) Except (i) as set forth in this Section 3.3 or in
SCHEDULE 3.3(D) to the EOP Disclosure Letter and (ii) EOP OP Units, which may be
redeemed for EOP Common Shares, as of the date of this Agreement, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which EOP or any EOP
Subsidiary is a party or by which such entity is bound, obligating EOP or any
EOP Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of beneficial interest, voting securities or other
ownership interests of EOP or any EOP Subsidiary or obligating EOP or any EOP
Subsidiary to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking (other
than to EOP or an EOP Subsidiary).
(e) As of January 31, 2000, 282,476,889 EOP OP Units,
8,000,000 8.98% Series A Preferred Units of Limited Partnership Interest,
6,000,000 5.25% Series B Preferred Units of Limited Partnership Interest, and
4,562,900 8 5/8% Series C Preferred Units of Limited Partnership Interest
(collectively, the "EOP Preferred Units") are validly issued and outstanding,
fully paid and nonassessable and not subject to preemptive rights, of which
248,812,828 EOP OP Units and all of the EOP Preferred Units are owned by EOP and
EOP Subsidiaries. SCHEDULE 3.3(E) to the EOP Disclosure Schedule sets forth the
name of
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each holder of EOP OP Units and the number of EOP OP Units owned by each such
holder as of the date of this Agreement. The EOP OP Units and EOP Preferred
Units are subject to no restrictions except as set forth in the EOP Partnership
Agreement. EOP Partnership has not issued or granted and is not a party to any
outstanding commitments of any kind relating to, or any presently effective
agreements or understandings with respect to, interests in EOP Partnership,
whether issued or unissued, or securities convertible or exchangeable into
interests in EOP Partnership.
(f) All dividends on EOP Common Shares and all
distributions on EOP OP Units and EOP Preferred Units, which have been declared
prior to the date of this Agreement have been paid in full, except that the
dividends payable on EOP Common Shares (along with the corresponding
distributions payable on EOP OP Units) which were declared on February 1, 2000
and are payable on April 14, 2000 have not yet been paid.
(g) The EOP Common Shares and the EOP Preferred
Shares to be issued by EOP, and the EOP OP Units to be issued by the EOP
Partnership pursuant to this Agreement have been duly authorized for issuance,
and upon issuance will be duly and validly issued, fully paid and nonassessable.
3.4 OTHER INTERESTS. Except for interests in the EOP
Subsidiaries and certain other entities as set forth in SCHEDULE 3.2(A), 3.2(B)
OR 3.4(A) to the EOP Disclosure Letter (the "EOP Other Interests"), neither EOP
nor any of its Subsidiaries owns directly or indirectly any interest or
investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or other entity (other than investments in short-term
investment securities). With respect to such other interests, EOP or EOP
Partnership is a partner or shareholder in good standing, and owns such
interests free and clear of all Liens other than pledges, if any, contained in
organizational documents of such EOP Other Interests and given to secure
performance. Neither EOP nor any of the EOP Subsidiaries is in breach of any
provision of any agreement, document or contract governing its rights in or to
the interests owned or held by it, all of which agreements, documents and
contracts are (a) listed in SCHEDULE 3.4(B) to the EOP Disclosure Letter (or
disclosed in the EOP SEC Documents (as defined herein)), (b) unmodified except
as described therein and (c) in full force and effect. To the Knowledge of EOP
(as defined herein), the other parties to any such agreement, document or
contract which is of a material nature are not in breach of any of their
respective obligations under such agreements, documents or contracts.
3.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) EOP has the requisite power and authority to
enter into this Agreement and, subject to the requisite shareholder approval of
the Merger (the "EOP Shareholder Approvals" and, together with the Cornerstone
Stockholder
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Approvals, the "Shareholder Approvals"), to consummate the transactions
contemplated by this Agreement to which EOP is a party. The execution and
delivery of this Agreement by EOP and the consummation by EOP of the
transactions contemplated by this Agreement to which EOP is a party have been
duly authorized by all necessary action on the part of EOP, except for and
subject to the EOP Shareholder Approvals and the requisite approval, if any is
required, of the partners of EOP Partnership. This Agreement has been duly
executed and delivered by EOP and constitutes a valid and binding obligation of
EOP, enforceable against EOP in accordance with and subject to its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
(b) EOP Partnership has the requisite partnership
power and, subject to the requisite partner approval of the Partnership Merger
(if any), authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement to which EOP Partnership is a party.
The execution and delivery of this Agreement by EOP Partnership and the
consummation by EOP Partnership of the transactions contemplated by this
Agreement to which EOP Partnership is a party have been duly authorized by all
necessary action on the part of EOP Partnership, except for and subject to the
EOP Partnership Approvals. This Agreement has been duly executed and delivered
by EOP Partnership and constitutes a valid and binding obligation of EOP
Partnership, enforceable against EOP Partnership in accordance with and subject
to its terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
(c) Except as set forth in SCHEDULE 3.5(C)(1) to the
EOP Disclosure Letter, the execution and delivery of this Agreement by EOP and
EOP Partnership do not, and the consummation of the transactions contemplated by
this Agreement to which EOP or EOP Partnership is a party and compliance by EOP
or EOP Partnership with the provisions of this Agreement will not, conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
EOP or any EOP Subsidiary under, (i) the EOP Declaration of Trust or the EOP
Bylaws or the comparable charter or organizational documents or partnership,
operating or similar agreement (as the case may be) of any other EOP Subsidiary,
each as amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession, franchise
or license applicable to EOP or any EOP Subsidiary or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any Laws applicable to EOP or any
EOP Subsidiary or their respective properties or assets, other than, in the case
of clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss
or Liens that
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individually or in the aggregate would not (x) reasonably be expected to have an
EOP Material Adverse Effect or (y) prevent the consummation of the transactions
contemplated by this Agreement. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is required
by or with respect to EOP or any EOP Subsidiary in connection with the execution
and delivery of this Agreement or the consummation by EOP of any of the
transactions contemplated by this Agreement, except for (i) the filing with the
SEC of (x) the Form S-4 (as defined herein) and (y) such reports under Section
13 (a) of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (ii) the acceptance for
record of the Articles of Merger by the Department, (iii) the filing of the
Certificate of Merger with the Office of the Secretary of State of the State of
Delaware, (iv) such filings as may be required in connection with the payment of
any transfer and gains taxes and (v) such other consents, approvals, orders,
authorizations, registrations, declarations and filings (A) as are set forth in
SCHEDULE 3.5(C)(2) to the EOP Disclosure Letter or (B) as may be required under
(x) federal, state or local environmental laws or (y) the "blue sky" laws of
various states, to the extent applicable, or (C) which, if not obtained or made,
would not prevent or delay in any material respect the consummation of any of
the transactions contemplated by this Agreement or otherwise prevent EOP from
performing its obligations under this Agreement in any material respect or
reasonably be expected to have, individually or in the aggregate, an EOP
Material Adverse Effect.
3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES. EOP and EOP Partnership have filed all required reports, schedules,
forms, statements and other documents with the SEC since July 8, 1997 and
November 19, 1997, respectively, through the date hereof (the "EOP SEC
Documents"). SCHEDULE 3.6(A) to the EOP Disclosure Letter contains a complete
list of all EOP SEC Documents filed by EOP and EOP Partnership with the SEC
under the Exchange Act on or prior to the date of this Agreement. All of the EOP
SEC Documents (other than preliminary material), as of their respective filing
dates, complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and, in each case, the rules and regulations
promulgated thereunder applicable to such EOP SEC Documents. None of the EOP SEC
Documents at the time of filing contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except to the extent such statements
have been modified or superseded by later EOP SEC Documents filed and publicly
available prior to the date of this Agreement. The consolidated financial
statements of EOP and the EOP Subsidiaries included in the EOP SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by the applicable rules and regulations of
the SEC) applied on a consistent basis
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during the periods involved (except as may be indicated in the notes thereto)
and fairly presented in all material respects, in accordance with the applicable
requirements of GAAP and the applicable rules and regulations of the SEC, the
consolidated financial position of EOP and the EOP Subsidiaries, taken as a
whole, as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except for liabilities and
obligations set forth in the EOP SEC Documents or in SCHEDULE 3.6(B) to the EOP
Disclosure Letter, neither EOP nor any EOP Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth on a consolidated balance sheet of EOP or in
the notes thereto and which, individually or in the aggregate, would reasonably
be expected to have an EOP Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the EOP SEC Documents or in SCHEDULE 3.7 to the EOP Disclosure Letter, since
the date of the most recent audited financial statements included in the EOP SEC
Documents (the "EOP Financial Statement Date"), EOP and the EOP Subsidiaries
have conducted their business only in the ordinary course (taking into account
prior practices, including the acquisition of properties and issuance of
securities) and there has not been (a) any material adverse change in the
business, financial condition or results of operations of EOP and the EOP
Subsidiaries taken as a whole (a "EOP Material Adverse Change"), nor has there
been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in an EOP Material Adverse Change, (b) except
for regular quarterly distributions not in excess of $0.42 per EOP Common Share
or EOP OP Unit or the stated distribution rate for each EOP Preferred Share or
EOP Preferred Unit, subject to rounding adjustments as necessary and with
customary record and payment dates, any authorization, declaration, setting
aside or payment of any dividend or other distribution (whether in cash, shares
or property) with respect to EOP Common Shares, EOP OP Units, EOP Preferred
Shares or EOP Preferred Units, (c) any split, combination or reclassification of
any of EOP's shares of beneficial interest, (d) any damage, destruction or loss,
whether or not covered by insurance, that has or would reasonably be expected to
have an EOP Material Adverse Effect or (e) any change made prior to the date of
this Agreement in accounting methods, principles or practices by EOP or any EOP
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the EOP SEC Documents or required by a
change in GAAP.
3.8 LITIGATION. Except as disclosed in the EOP SEC Documents
or in SCHEDULE 3.8 to the EOP Disclosure Letter, and other than personal injury
and other routine tort litigation arising from the ordinary course of operations
of EOP and the EOP Subsidiaries (a) which are covered by adequate insurance
subject to a reasonable deductible or retention limit or (b) for which all
material costs and liabilities arising therefrom are reimbursable pursuant to
common area
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maintenance or similar agreements, there is no suit, action or proceeding
pending (in which service of process has been received by an employee of EOP or
an EOP Subsidiary) or, to the Knowledge of EOP (as defined herein), threatened
in writing against or affecting EOP or any EOP Subsidiary that, individually or
in the aggregate, would reasonably be expected to (i) have an EOP Material
Adverse Effect or (ii) prevent the consummation of any of the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against EOP
or any EOP Subsidiary having, or which, insofar as reasonably can be foreseen,
in the future would have, any such effect.
3.9 PROPERTIES.
(a) Except as set forth in SCHEDULE 3.9(A) to the EOP
Disclosure Letter, EOP or one of the EOP Subsidiaries owns fee simple title to
each of the real properties listed in the EOP SEC Filings as owned by it (the
"EOP Properties"), except where the failure to own such title would not have an
EOP Material Adverse Effect.
(b) The EOP Properties are not subject to any
Encumbrances or Property Restrictions which reasonably could be expected to
cause an EOP Material Adverse Effect.
(c) Valid policies of title insurance or fully-paid
and enforceable commitments therefor have been issued insuring EOP's or the
applicable EOP Subsidiary's fee simple title or leasehold estate, as the case
may be, to the EOP Properties in amounts which are, except in the case of San
Felipe Plaza, at least equal to the purchase price thereof paid by EOP or the
applicable EOP Subsidiaries therefor, except where the failure to obtain such
title insurance would not reasonably be expected to have an EOP Material Adverse
Effect.
(d) EOP has no Knowledge (i) that it has failed to
obtain a certificate, permit or license from any governmental authority having
jurisdiction over any of the EOP Properties where such failure would reasonably
be expected to have an EOP Material Adverse Effect or of any pending threat of
modification or cancellation of any of the same which would reasonably be
expected to have an EOP Material Adverse Effect, (ii) of any written notice of
any violation of any federal, state or municipal law, ordinance, order, rule,
regulation or requirement affecting any of the EOP Properties issued by any
governmental authorities which would reasonably be expected to have an EOP
Material Adverse Effect or (iii) of any structural defects relating to EOP
Properties, EOP Properties whose building systems are not in working order,
physical damage to any EOP Property for which there is no insurance in effect
covering the cost of restoration, any current renovation or uninsured
restoration, except such structural defects, building systems not in working
order, physical damage, renovation and restoration which,
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in the aggregate, would not reasonably be expected to have an EOP Material
Adverse Effect.
(e) Except as set forth in SCHEDULE 3.9(E) to the EOP
Disclosure Letter, neither EOP nor any of the EOP Subsidiaries has received any
written or published notice to the effect that (i) any condemnation or rezoning
proceedings are pending or threatened with respect to any of the EOP Properties
or (ii) any zoning, building or similar law, code, ordinance, order or
regulation is or will be violated by the continued maintenance, operation or use
of any buildings or other improvements on any of the EOP Properties or by the
continued maintenance, operation or use of the parking areas, other than such
notices which, in the aggregate, would not reasonably be expected to have an EOP
Material Adverse Effect.
(f) Except as set forth on SCHEDULE 3.9(F) to the EOP
Disclosure Letter, all work to be performed, payments to be made and actions to
be taken by EOP or the EOP Subsidiaries prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection with
a site approval, zoning reclassification or similar action relating to any EOP
Properties (E.G., Local Improvement District, Road Improvement District,
Environmental Mitigation), has been performed, paid or taken, as the case may
be, except where the failure to do so would, in the aggregate, not reasonably be
expected to have an EOP Material Adverse Effect, and EOP has no Knowledge of any
planned or proposed work, payments or actions that may be required after the
date hereof pursuant to such agreements.
(g) The rent roll previously provided by EOP to
Cornerstone (the "EOP Rent Roll") lists each EOP Space Lease (as defined herein)
in effect as of the respective dates indicated in the EOP Rent Roll. "EOP Space
Lease" means each lease or other right of occupancy affecting or relating to a
property in which EOP Partnership (or an entity in which it directly or
indirectly has an interest) is the landlord, either pursuant to the terms of the
lease agreement or as successor to any prior landlord, but excluding any ground
lease. EOP has made available to Cornerstone true, correct and complete copies
of all EOP Space Leases, including all amendments, modifications, supplements,
renewals, extensions and guarantees related thereto, as of the date hereof.
Except for discrepancies that, either individually or in the aggregate, would
not reasonably be expected to have an EOP Material Adverse Effect, all
information set forth in the EOP Rent Roll is true, correct, and complete as of
the date thereof. Except as set forth in a delinquency report made available to
Cornerstone, neither EOP nor any EOP Subsidiary, on the one hand, nor, to the
Knowledge of EOP or EOP Partnership, any other party, on the other hand, is in
monetary default under any EOP Space Lease, except for such defaults that would
not reasonably be expected to have an EOP Material Adverse Effect.
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3.10 ENVIRONMENTAL MATTERS.
Except as disclosed in the EOP SEC Documents,
(i) none of EOP, any of the EOP Subsidiaries or, to
EOP's Knowledge, any other Person has caused or permitted the presence of any
Hazardous Materials at, on or under any of the EOP Properties, such that the
presence of such Hazardous Materials (including the presence of asbestos in any
buildings or improvements at the EOP Properties) would, individually or in the
aggregate, reasonably be expected to have an EOP Material Adverse Effect;
(ii) except in accordance with the Environmental
Permits, there have been no Releases of Hazardous Materials at, on, under or
from (A) the EOP Properties, or (B) any real property formerly owned, operated
or leased by EOP or the EOP Subsidiaries during the period of such ownership,
operation or tenancy, which would, individually or in the aggregate, reasonably
be expected to have an EOP Material Adverse Effect;
(iii) EOP and the EOP Subsidiaries have not failed to
comply in any material respect with all Environmental Laws, and neither EOP nor
any of the EOP Subsidiaries has any liability under the Environmental Laws,
except to the extent such failure to comply or any such liability, individually
or in the aggregate, would not reasonably be expected to have an EOP Material
Adverse Effect; and
(iv) EOP and the EOP Subsidiaries have been duly
issued, and currently have and will maintain through the Closing Date, all
Environmental Permits except where the failure to obtain and maintain such
Environmental Permits would not have a material adverse effect on the EOP
Property necessary to operate their businesses as currently operated. EOP and
the EOP Subsidiaries have timely filed applications for all Environmental
Permits.
3.11 TAXES.
(a) Each of EOP and the EOP Subsidiaries (i) has
filed all Tax returns and reports required to be filed by it (after giving
effect to any filing extension properly granted by a Governmental Entity having
authority to do so), and all such returns and reports are accurate and complete
in all material respects, (ii) has paid (or EOP has paid on its behalf) all
Taxes shown on such returns and reports as required to be paid by it and (iii)
has complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441, 1442, 1445, 3121,
and 3402 of the Code or similar provisions under any foreign laws) and has,
within the time period prescribed by law, withheld and paid over to the proper
governmental entities all amounts required to be so withheld and paid over under
applicable laws and regulations, except, with respect
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to all of the foregoing, where the failure to file such tax returns or reports
or failure to pay such Taxes or failure to comply with such requirements would
not reasonably be expected to have an EOP Material Adverse Effect. The most
recent audited financial statements contained in the EOP SEC Documents reflect
an adequate reserve for all material Taxes payable by EOP and the EOP
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements. Since the EOP Financial Statement Date, EOP has
incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither EOP nor any EOP
Subsidiary has incurred any material liability for Taxes other than in the
ordinary course of business. No event has occurred, and no condition or
circumstance exists, which presents a material risk that any material Tax
described in the preceding sentence will be imposed upon EOP or any EOP
Subsidiary. Neither EOP nor any EOP Subsidiary is the subject of any audit,
examination, or other proceeding in respect of federal income Taxes, and to
EOP's Knowledge, no audit, examination or other proceeding in respect of federal
income Taxes involving any of EOP or any EOP Subsidiary is being considered by
any Tax authority. To the Knowledge of EOP, no deficiencies for any Taxes have
been proposed, asserted or assessed against EOP or any of the EOP Subsidiaries,
and no requests for waivers of the time to assess any such Taxes are pending.
(b) EOP (i) for all taxable years commencing with
1997, which is the first year of EOP's existence for federal income tax
purposes, through December 31, 1999, has been subject to taxation as a REIT
within the meaning of Section 856 of the Code and has qualified as a REIT for
all such years, (ii) has operated since December 31, 1999 to the date of this
representation, and intends to continue to operate, in such a manner as to
qualify as a REIT for the taxable year that includes the Closing Date and (iii)
has not taken or omitted to take any action which would reasonably be expected
to result in a challenge to its status as a REIT and, to EOP's Knowledge, no
such challenge is pending or threatened. BeaMetFed, Inc. ("BeaMet") (i) for all
taxable years commencing with 1997 through December 31, 1999 has been subject to
taxation as a REIT within the meaning of Section 856 of the Code and has
qualified as a REIT for all such years, (ii) has operated since December 31,
1999 to the date of this representation, and intends to continue to operate, in
such a manner as to qualify as a REIT for the taxable year that includes the
Closing Date and (iii) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT and, to
EOP's Knowledge, no such challenge is pending or threatened. Each EOP Subsidiary
which is a partnership, joint venture or limited liability company (i) has been
treated since its formation and continues to be treated for federal income tax
purposes as a partnership and not as a corporation or as an association taxable
as a corporation and (ii) has not since the later of its formation or the
acquisition by EOP of a direct or indirect interest therein, owned any assets
(including, without limitation, securities) that would cause EOP to violate
Section 856(c)(4) of the Code. EOP Partnership is not a publicly traded
partnership within the meaning of Section
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7704(b) of the Code that is taxable as a corporation pursuant to Section 7704(a)
of the Code. Each EOP Subsidiary which is a corporation has been since its
formation a qualified REIT subsidiary under Section 856(i) of the Code. Except
as set forth in SCHEDULE 3.11 to the EOP Disclosure Letter, neither EOP nor any
EOP Subsidiary holds any asset (x) the disposition of which would be subject to
rules similar to Section 1374 of the Code as a result of an election under IRS
Notice 88-19 or Temporary Treas. Reg. ss.1.337(d)-5T or (y) which is subject to
a consent filed pursuant to Section 341(f) of the Code and the regulations
thereunder.
(c) To EOP's knowledge, as of the date hereof, EOP is
a "domestically-controlled REIT" within the meaning of Section 897(h)(4)(B) of
the Code.
3.12 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker,
investment banker, financial advisor or other person, other than J.P. Morgan & Co. Incorporated, the fees and expenses of which will be paid by EOP and are
described in the engagement letters between J.P. Morgan & Co. Incorporated and
EOP, a true, correct and complete copy of which has previously been given to
Cornerstone, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of EOP or any EOP
Subsidiary.
3.13 COMPLIANCE WITH LAWS. Neither EOP nor any of the EOP
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business, properties or operations, except to the extent that
such violation or failure would not reasonably be expected to have an EOP
Material Adverse Effect.
3.14 CONTRACTS; DEBT INSTRUMENTS. Neither EOP nor any EOP
Subsidiary has received a written notice that EOP or any EOP Subsidiary is in
violation of or in default under (nor to the Knowledge of EOP does there exist
any condition which upon the passage of time or the giving of notice or both
would cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, nor to the Knowledge of EOP does such a violation or default
exist, except to the extent such violation or default, individually or in the
aggregate, would not reasonably be expected to have an EOP Material Adverse
Effect, except as set forth in the EOP SEC Documents or in SCHEDULE 3.14 to the
EOP Disclosure Letter.
3.15 OPINION OF FINANCIAL ADVISOR. EOP has received the
opinion of J.P. Morgan & Co. Incorporated, EOP's financial advisor, to the
effect that the consideration to be paid by EOP in connection with the Merger is
fair, from a financial point of view, to EOP.
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3.16 STATE TAKEOVER STATUTES. EOP has taken all action
necessary to exempt transactions between EOP and Cornerstone and its Affiliates
from the operation of Takeover Statutes.
3.17 INVESTMENT COMPANY ACT OF 1940. Neither EOP nor any of
the EOP Subsidiaries is, or at the Effective Time will be, required to be
registered under the 1940 Act.
3.18 DEFINITION OF "KNOWLEDGE OF EOP". As used in this
Agreement, the phrase "Knowledge of EOP" (or words of similar import) means the
actual knowledge of those individuals identified in SCHEDULE 3.19 to the EOP
Disclosure Letter.
3.19 REQUIRED SHAREHOLDER APPROVALS AND PARTNER APPROVALS. The
affirmative vote of the holders of not less than a majority of all votes
entitled to be cast by holders of EOP Common Shares, and the affirmative vote of
the partners of EOP Partnership holding at least a majority of the outstanding
EOP Partnership interests (including partnership interests held by EOP), are the
only votes of the holders of any class or series of EOP capital shares necessary
or required under this Agreement or under applicable law to approve the Merger
and this Agreement. The approval of the Partnership Merger by EOP is the only
vote necessary or required under this Agreement or under applicable law to
approve the Partnership Merger and this Agreement.
ARTICLE 4
COVENANTS
4.1 CONDUCT OF CORNERSTONE'S AND CORNERSTONE
PARTNERSHIP'S BUSINESS PENDING Merger. During the period from the date of this
Agreement to the Effective Times, except as consented to in writing by EOP or as
expressly provided for in this Agreement, Cornerstone and Cornerstone
Partnership shall, and shall cause (or, in the case of Cornerstone Subsidiaries
and the Cornerstone Non-controlled Subsidiary that Cornerstone or Cornerstone
Partnership do not control, shall use commercially reasonable efforts to cause)
each of the Cornerstone Subsidiaries and Cornerstone Non-controlled Subsidiary
to:
(a) conduct its business only in the usual, regular
and ordinary course and in substantially the same manner as heretofore
conducted;
(b) preserve intact its business organizations and
goodwill and use commercially reasonable efforts to keep available the services
of its officers and employees;
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(c) confer on a regular basis with one or more
representatives of EOP to report operational matters of materiality and, subject
to Section 4.3, any proposals to engage in material transactions;
(d) promptly notify EOP of any material emergency or
other material change in the condition (financial or otherwise), business,
properties, assets, liabilities or the normal course of its businesses or in the
operation of its properties, or of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated);
(e) promptly deliver to EOP true and correct copies
of any report, statement or schedule filed with the SEC subsequent to the date
of this Agreement;
(f) maintain its books and records in accordance with
GAAP consistently applied and not change in any material manner any of its
methods, principles or practices of accounting in effect at the Cornerstone
Financial Statement Date, except as may be required by the SEC, applicable law
or GAAP;
(g) duly and timely file all reports, tax returns and
other documents required to be filed with federal, state, local and other
authorities, subject to extensions permitted by law, provided Cornerstone
notifies EOP that it is availing itself of such extensions and provided such
extensions do not adversely affect Cornerstone's status as a qualified REIT
under the Code;
(h) not make or rescind any express or deemed
election relative to Taxes (unless required by law or necessary to preserve
Cornerstone's status as a REIT or the status of any Cornerstone Subsidiary as a
partnership for federal income tax purposes or as a qualified REIT subsidiary
under Section 856(i) of the Code, as the case may be);
(i) not (A) acquire, enter into any option to
acquire, or exercise an option or other right or election or enter into any
other commitment or contractual obligation (each, a "Commitment") for the
acquisition of any real property or, except as permitted in a budget approved in
writing by EOP, other transaction (other than Commitments referred to in
SCHEDULE 4.1(I) to the Cornerstone Disclosure Letter) involving in excess of
$100,000, encumber assets or commence construction of, or enter into any
Commitment to develop or construct other real estate projects, except in the
ordinary course of its office property business, including leasing activities
pursuant to EOP-approved guidelines (B) incur or enter into any Commitment to
incur additional indebtedness (secured or unsecured) except for working capital
under its revolving line(s) of credit and Commitments for indebtedness described
on SCHEDULE 4.1(I) to the Cornerstone Disclosure Letter or (C) modify, amend or
terminate, or enter into any Commitment to modify, amend or terminate, any
indebtedness (secured or unsecured) in existence as of the date hereof;
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(j) not amend the Cornerstone Articles or the
Cornerstone Bylaws, or the articles or certificate of incorporation, bylaws,
code of regulations, partnership agreement, operating agreement or joint venture
agreement or comparable charter or organization document of any Cornerstone
Subsidiary or Cornerstone Non-controlled Subsidiary;
(k) make no change in the number of shares of capital
stock or units of limited partnership interest issued and outstanding, other
than pursuant to (i) the exercise of options disclosed in SCHEDULE 2.3 to the
Cornerstone Disclosure Letter, (ii) the conversion of the Cornerstone 7%
Preferred Stock or the Cornerstone Convertible Promissory Note if required by
their terms, (iii) the redemption of Cornerstone OP Units under existing
contracts described on SCHEDULE 2.18, (iv) the redemption of Cornerstone OP
Units pursuant to Section 1.1 of this Agreement, (v) the redemption of
Cornerstone OP Units under the Cornerstone Partnership Agreement solely for
shares of Cornerstone Common Stock, or (vi) Cornerstone OP Units issuable upon
the exercise of the First and Howard option;
(l) grant no options or other right or commitment
relating to its shares of capital stock or units of limited partnership interest
or any security convertible into its shares of capital stock or units of limited
partnership interest, or any security the value of which is measured by shares
of beneficial interest, or any security subordinated to the claim of its general
creditors and, other than or pursuant to Section 5.8(c) or (d) of this
Agreement, not amend or waive any rights under any of the Cornerstone Stock
Options or Cornerstone Stock Rights;
(m) except as provided in Section 5.10 and in
connection with the use of Cornerstone Common Stock to pay the exercise price or
tax withholding in connection with equity-based employee benefit plans by the
participants therein, not (i) authorize, declare, set aside or pay any dividend
or make any other distribution or payment with respect to any Cornerstone Common
Stock, Cornerstone 7% Preferred Stock or Cornerstone OP Units or (ii) directly
or indirectly redeem, purchase or otherwise acquire any shares of capital stock
or units of partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of capital stock or units of partnership
interest of Cornerstone, except for (A) deemed transfers of Cornerstone excess
shares required under Article 8 of the Cornerstone Articles in order to preserve
the status of Cornerstone as a REIT under the Code or Article 9 of the
Cornerstone Articles, and (B) redemptions of Cornerstone OP Units, whether or
not outstanding on the date of this Agreement, under the Cornerstone Partnership
Agreement in which solely Cornerstone Common Stock is utilized;
(n) not sell, lease, mortgage, subject to Lien or
otherwise dispose of any of the Cornerstone Properties, except in connection
with a transaction that is permitted by Section 4.1(i), that is made in the
ordinary course of business and is the subject of a binding contract in
existence on the date of this
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Agreement and disclosed in SCHEDULE 2.18 to the Cornerstone Disclosure Letter or
in connection with a transaction that is permitted by the leasing guidelines set
forth on SCHEDULE 4.1(N) to the Cornerstone Disclosure Letter;
(o) not sell, lease, mortgage, subject to Lien or
otherwise dispose of any of its personal property or intangible property, except
in the ordinary course of business and is not material, individually or in the
aggregate;
(p) not make any loans, advances or capital
contributions to, or investments in, any other Person, other than loans,
advances and capital contributions to Cornerstone Subsidiaries or the
Cornerstone Non-controlled Subsidiary in existence on the date hereof and
ordinary course expense advances to employees and except in connection with a
transaction permitted by Section 4.1(i), and not enter into any new, or amend or
supplement any existing, contract, lease or other agreement with the Cornerstone
Non-controlled Subsidiary;
(q) not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) furnished to EOP or incurred in the ordinary course of business
consistent with past practice;
(r) not guarantee the indebtedness of another Person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having the
economic effect of any of the foregoing;
(s) except as disclosed in Schedule 4.1(s) of the
Cornerstone Disclosure Letter, not enter into any Commitment with any officer,
director or Affiliate of Cornerstone or any of the Cornerstone Subsidiaries or
the Cornerstone Non-controlled Subsidiary or any material Commitment with any
consultant;
(t) except as disclosed in SCHEDULE 4.1(T) of the
Cornerstone Disclosure Letter, not increase any compensation or enter into or
amend any employment agreement described in SCHEDULE 2.18 to the Cornerstone
Disclosure Letter with any of its officers, directors or employees earning more
than $100,000 per annum, other than as required by any contract or Plan or in
accordance with waivers by employees of benefits under such agreements;
(u) not adopt any new employee benefit plan or amend
any existing plans or rights;
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(v) not settle any stockholder derivative or class
action claims arising out of or in connection with any of the transactions
contemplated by this Agreement;
(w) not change the ownership of any of its
Subsidiaries or the Cornerstone Non-controlled Subsidiary, except changes which
arise as a result of the acquisition of Cornerstone OP Units in exchange for
Cornerstone Common Stock pursuant to exercise of the Cornerstone OP Unit
redemption right under Section 8.6 of the Cornerstone Partnership Agreement;
(x) not accept a promissory note in payment of the
exercise price payable under any option to purchase shares of Cornerstone Common
Stock;
(y) not enter into any Tax Protection Agreement;
(z) not settle or compromise any material federal,
state, local or foreign tax liability; and
(aa) not authorize, recommend, propose or announce an
intention to do any of the foregoing prohibited actions, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing
prohibited actions.
4.2 CONDUCT OF EOP'S AND EOP PARTNERSHIP'S BUSINESS PENDING
MERGER. During the period from the date of this Agreement to the Effective
Times, except as consented to in writing by Cornerstone or as expressly provided
for in this Agreement, EOP and EOP Partnership shall, and shall cause (or, in
the case of Cornerstone Subsidiaries that Cornerstone or Cornerstone Partnership
do not control, shall use commercially reasonable efforts to cause) each of the
EOP Subsidiaries to:
(a) preserve intact its business organizations and
goodwill and use commercially reasonable efforts to keep available the services
of its officers and employees;
(b) confer on a regular basis with one or more
representatives of Cornerstone to report operational matters of materiality
which would reasonably be expected to have an EOP Material Adverse Effect;
(c) promptly notify Cornerstone of any material
emergency or other material change in the condition (financial or otherwise),
business, properties, assets, liabilities, prospects or the normal course of its
businesses or in the operation of its properties, or of any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated);
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(d) promptly deliver to Cornerstone true and correct
copies of any report, statement or schedule filed with the SEC subsequent to the
date of this Agreement;
(e) maintain its books and records in accordance with
GAAP consistently applied and not change in any material manner any of its
methods, principles or practices of accounting in effect at the EOP Financial
Statement Date, except as may be required by the SEC, applicable law or GAAP;
(f) duly and timely file all reports, tax returns and
other documents required to be filed with federal, state, local and other
authorities, subject to extensions permitted by law, provided such extensions do
not adversely affect EOP's status as a qualified REIT under the Code;
(g) not make or rescind any express or deemed
election relative to Taxes (unless required by law or necessary to preserve
EOP's status as a REIT or the status of any EOP Subsidiary as a partnership for
federal income tax purposes or as a qualified REIT subsidiary under Section
856(i) of the Code, as the case may be);
(h) not amend the EOP Declaration of Trust, the EOP
Bylaws or the EOP Partnership Agreement (except for the Proposed EOP Charter
Relating to Voting Requirements, the Proposed EOP Charter Amendment Relating to
Domestically Controlled REIT Status (as defined herein), the proposed amendment
to Section 7.4 of the EOP Partnership Agreement, the amendments to the EOP
Partnership Agreement described in Section 5.4(c), the filing of Articles
Supplementary to elect to be subject to the provisions of Section 3-804(c) of
the Maryland General Corporation Law and to the extent necessary to reflect the
admission of additional limited partners and other amendments in connection
therewith that can be made by EOP without a vote of limited partners and that
will not, individually or in the aggregate, materially adversely affect the
rights or obligations of holders of EOP OP Units); as used herein, (i) "Proposed
EOP Charter Amendment Relating to Certain Voting Requirements" means the
proposed amendment to EOP's Declaration of Trust, substantially the form
attached hereto as EXHIBIT D, which has been approved by the Board of Trustees
of EOP and is proposed to be submitted to a vote of the shareholders of EOP,
(ii) "Proposed EOP Charter Amendment Relating to Domestically Controlled REIT
Status" means the proposed amendment to EOP's Declaration of Trust,
substantially the form attached hereto as EXHIBIT E, which has been approved by
the Board of Trustees of EOP and is proposed to be submitted to a vote of the
shareholders of EOP at the EOP Shareholders Meeting (as defined below) and (iii)
"Proposed EOP Charter Amendments" means, collectively, the Proposed EOP Charter
Relating to Voting Requirements and the Proposed EOP Charter Amendment Relating
to Domestically Controlled REIT Status;
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(i) except as provided in Section 5.10 hereof and in
connection with the use of EOP Common Shares to pay the exercise price or tax
withholding in connection with equity-based employee benefit plans by the
participants therein, not (i) authorize, declare, set aside or pay any dividend
or make any other distribution or payment with respect to any EOP Common Shares
or EOP OP Units or (ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock, membership interests or units of
partnership interest or any option, warrant or right to acquire, or security
convertible into, shares of capital stock, membership interests, or units of
partnership interest of EOP, except for (A) redemptions of EOP Common Shares
required under Section 7.3.6 of the EOP Declaration of Trust in order to
preserve the status of EOP as a REIT under the Code, (B) redemptions of EOP OP
Units, whether or not outstanding on the date of this Agreement, under the EOP
Partnership Agreement in which EOP Common Shares are utilized, and (C)
repurchases of EOP Common Shares pursuant to its publicly announced share
repurchase program;
(j) not (A) enter into or agree to effect any merger,
acquisition, consolidation, reorganization or other business combination with
any third party in which EOP is not the surviving party thereto or (B) enter
into or agree to effect any merger, acquisition, exchange offer or other
business combination with a third party in which EOP is the surviving party that
would result in the issuance of equity securities representing in excess of 20%
of the outstanding EOP Common Shares on the date any such business combination
is entered into or agreed to unless, in either such case, such business
combination is approved by Cornerstone, which approval shall not be unreasonably
withheld or delayed, or the business combination agreement provides that the
required vote of EOP shareholders for approval of such business combination is
no less than the affirmative vote of holders of EOP Common Shares representing
more than 50% of the sum of (x) the number of EOP Common Shares outstanding at
the time of such approval plus (y) 50,000,000; and
(k) not authorize, recommend, propose or announce an
intention to do any of the foregoing prohibited actions, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing
prohibited actions.
4.3 NO SOLICITATION.
(a) Prior to the Effective Time of the Merger,
Cornerstone agrees, for itself and in its capacity as the sole general partner
of the Cornerstone Partnership, that:
(i) none of it, Cornerstone Partnership, any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary shall
invite, initiate, solicit or encourage, directly or indirectly, any inquiries,
proposals, discussions or
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negotiations or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) with
respect to a merger, acquisition, tender offer, exchange offer, transaction
resulting in the issuance of securities representing 10% or more of the
outstanding equity securities of Cornerstone or Cornerstone Partnership,
consolidation, business combination, recapitalization, liquidation, dissolution,
share exchange, business combination, sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 10% or more of the assets or equity securities
(including, without limitation, partnership interests and units) of Cornerstone
or Cornerstone Partnership, other than the Mergers (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal"), or engage in any
discussions or negotiations with or provide any confidential or non-public
information or data to, any person relating to, or that may reasonably be
expected to lead to, an Acquisition Proposal, or enter into any letter of
intent, agreement in principle or agreement relating to an Acquisition Proposal,
or propose publicly to agree to do any of the foregoing, or otherwise facilitate
any effort or attempt to make or implement an Acquisition Proposal;
(ii) none of it, Cornerstone Partnership, any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary will permit
any officer, director, employee, affiliate, agent, investment banker, financial
advisor, attorney, accountant, broker, finder, consultant or other agent or
representative of Cornerstone to engage in any of the activities described in
Section 4.3(a);
(iii) it, Cornerstone Partnership and the Cornerstone
Subsidiaries and Cornerstone Non-controlled Subsidiary will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing and
will take the necessary steps to inform the individuals or entities referred to
in Section 4.3(b) of the obligations undertaken in this Section 4.3; and
(iv) it will notify EOP promptly (but in any event
within 24 hours) if Cornerstone, Cornerstone Partnership, any Cornerstone
Subsidiary, the Cornerstone Non-controlled Subsidiary or any individual or
entity referred to in Section 4.3(b) receives any such inquiries or proposals,
or any requests for such information, or if any such negotiations or discussions
are sought to be initiated or continued with it, and include in such notice the
identity of the Person making such inquiry, proposal or request, the material
terms of such inquiry, proposal or request and, if in writing, shall promptly
deliver to EOP a copy of such inquiry, proposal or request along with all other
related documentation and correspondence;
(b) Notwithstanding Section 4.3(a), the Board of
Directors of Cornerstone (including with respect to Cornerstone's capacity as
the sole general partner of Cornerstone Partnership) shall not be prohibited
from furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited bona fide written
Acquisition Proposal, if, and only
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to the extent that (i) a majority of the Board of Directors of Cornerstone
determines in good faith, after consultation with its outside counsel, that such
action is required for the Board of Directors of Cornerstone to comply with its
fiduciary duties to stockholders imposed by applicable law, (ii) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Cornerstone provides written notice to EOP to the
effect that it is furnishing information to, or entering into discussions with
such person or entity and (iii) Cornerstone enters into a confidentiality
agreement with such Person on terms in the aggregate not more favorable to such
Person than the terms of the Confidentiality Agreement.
(c) Notwithstanding anything to the contrary set
forth in Section 4.3(a) or 4.3(b), in the event that an Acquisition Proposal
constitutes a Superior Acquisition Proposal (as defined herein), nothing
contained in this Section 4.3 shall prohibit the Board of Directors of
Cornerstone from withdrawing, modifying, amending or qualifying its
recommendation of this Agreement and the Merger as required under Section 5.1(d)
hereof and recommending such Superior Acquisition Proposal to its stockholders:
(i) if but only if, Cornerstone: (A) complies fully with this Section 4.3 and
(B) provides EOP with at least three (3) business days' prior written notice of
its intent to withdraw, modify, amend or qualify its recommendation of this
Merger Agreement and the Merger, (ii) if, in the event that during such three
(3) business days EOP makes a counter proposal to such Superior Acquisition
Proposal (any such counter proposal being referred to in this Agreement as the
"EOP Counter Proposal"), Cornerstone's Board of Directors in good faith, taking
into account the advice of its outside financial advisors of nationally
recognized reputation, determines (A) that the EOP Counter Proposal is not at
least as favorable to Cornerstone's stockholders as the Superior Acquisition
Proposal, from a financial point of view, and (B) the EOP Counter Proposal is
not at least as favorable generally to Cornerstone's stockholders (taking into
account all financial and strategic considerations and other relevant factors,
including relevant legal, financial, regulatory and other aspects of such
proposals, and the conditions, prospects and time required for completion of
such proposal), and (iii) Cornerstone shall have terminated this Agreement in
accordance with Section 7.1(h).
(d) For all purposes of this Agreement, "Superior
Acquisition Proposal" means a bona fide written proposal made by a third party
to acquire, directly or indirectly, Cornerstone and/or Cornerstone Partnership
pursuant to a tender or exchange offer, merger, share exchange, consolidation or
sale of all or substantially all of the assets of Cornerstone, Cornerstone
Partnership, and the Cornerstone Subsidiaries or otherwise (i) on terms which a
majority of the Board of Directors of Cornerstone determines in good faith, (A)
taking into account the advice of Cornerstone's financial advisors of nationally
recognized reputation, are superior, from a financial point of view, to
Cornerstone's stockholders to those provided for in the Merger and (B) to be
more favorable generally to Cornerstone's stockholders (taking into account all
financial and strategic considerations and
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other relevant factors, including relevant legal, financial, regulatory and
other aspects of such proposals, and the conditions, prospects and time required
for completion of such proposal), (ii) for which financing, to the extent
required, is then fully committed and capable of being obtained and (iii) which
the Board of Directors of Cornerstone determines in good faith is reasonably
capable of being consummated.
(e) Any disclosure that the Board of Directors of
Cornerstone may be compelled to make with respect to the receipt of an
Acquisition Proposal in order to comply with its duties to shareholders imposed
by applicable law or Rule 14d-9 or 14e-2 of the Exchange Act will not constitute
a violation of this Section 4.3.
(f) Nothing in this Section 4.3 shall (i) permit
Cornerstone to terminate this Agreement (except as expressly provided in Article
7) or (ii) affect any other obligations of Cornerstone under this Agreement.
4.4 AFFILIATES. Prior to the Effective Time of the Merger,
Cornerstone shall cause to be prepared and delivered to EOP a list (reasonably
satisfactory to counsel for EOP) identifying all persons who, at the time of the
Cornerstone Stockholders Meeting and the EOP Shareholders Meeting, may be deemed
to be "affiliates" of Cornerstone or Cornerstone Partnership as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Rule
145 Affiliates"). Cornerstone shall use its commercially reasonable efforts to
cause each person who is identified as a Rule 145 Affiliate in such list to
deliver to EOP on or prior to the Effective Time a written agreement, in the
form previously approved by the parties hereto, that such Rule 145 Affiliate
will not sell, pledge, transfer or otherwise dispose of any EOP Common Shares
and EOP OP Units issued to such Rule 145 Affiliate pursuant to the Merger,
except pursuant to an effective registration statement under the Securities Act
or in compliance with paragraph (d) of Rule 145 or as otherwise permitted by the
Securities Act. EOP shall be entitled to place legends as specified in such
written agreements on the certificates representing any EOP Common Shares to be
received pursuant to the terms of this Agreement by such Rule 145 Affiliates who
have executed such agreements and to issue appropriate stop transfer
instructions to the transfer agent for the EOP Common Shares and EOP OP Units
issued to such Rule 145 Affiliates, consistent with the terms of such
agreements. EOP and EOP OP shall timely file the reports required to be filed by
it under the Exchange Act and the rules and regulations adopted by the SEC
thereunder, and it will take such further action as any Rule 145 Affiliate of
Cornerstone or EOP may reasonably request, all to the extent required from time
to time to enable such Rule 145 Affiliate to sell shares of beneficial interest
of EOP received by such Rule 145 Affiliate in the Merger without registration
under the Securities Act pursuant to (i) Rule 145(d)(1) under the Securities
Act, as such rule may be amended from to time, or (ii) any successor rule or
regulation hereafter adopted by the SEC.
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4.5 OTHER ACTIONS. Each of Cornerstone and Cornerstone
Partnership, on the one hand, and EOP and EOP Partnership, on the other hand,
shall not take, and shall use commercially reasonable efforts to cause their
respective Subsidiaries not to take, any action that would result in (i) any of
the representations and warranties of such party (without giving effect to any
"knowledge" qualification) set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
(without giving effect to any "knowledge" qualification) that are not so
qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 4.3, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 PREPARATION OF THE FORM S-4 AND THE PROXY STATEMENT;
CORNERSTONE STOCKHOLDERS MEETING, CORNERSTONE UNITHOLDERS CONSENT SOLICITATION
AND EOP SHAREHOLDERS MEETING.
(a) As promptly as practicable after execution of
this Agreement, (i) each of Cornerstone and EOP shall prepare and file with the
SEC (with appropriate requests for confidential treatment, unless the parties
hereto otherwise agree) under the Exchange Act, one or more joint proxy
statements/prospectuses, forms of proxies and information statements (such joint
proxy statement(s)/prospectus(es) and information statements together with any
amendments to supplements thereto, the "Joint Proxy Statement") relating to the
stockholder meeting of Cornerstone and the shareholder meeting of EOP, the vote
of the stockholders of Cornerstone with respect to this Agreement and the
shareholders of EOP with respect to the Merger and the Proposed EOP Charter
Amendment Relating to Domestically Controlled REIT Status, and the consent, if
any, of partners of Cornerstone Partnership and EOP Partnership in connection
with any required Partner Approvals and (ii) in connection with the clearance by
the SEC of the Joint Proxy Statement, EOP and Cornerstone, if applicable, shall
prepare and file with the SEC under the Securities Act one or more registration
statements on Form S-4 (such registration statements, together with any
amendments or supplements thereto, the "Form S-4"), in which the Joint Proxy
Statement will be included, as one or more prospectuses in connection with the
registration under the Securities Act of the EOP Common Shares and EOP OP Units
to be distributed to the holders of Cornerstone Common Stock and Cornerstone OP
Units in the Mergers. The respective parties will cause the Proxy Statement and
the Form S-4 to comply as to form in all material respects with the applicable
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder. Each of Cornerstone, Cornerstone Partnership, EOP and
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EOP Partnership shall furnish all information about itself and its business and
operations and all necessary financial information to the other as the other may
reasonably request in connection with the preparation of the Joint Proxy
Statement and the Form S-4. EOP and Cornerstone, if applicable, shall use its
commercially reasonable efforts, and Cornerstone will cooperate with it, to have
the Form S-4 declared effective by the SEC as promptly as practicable (including
clearing the Proxy Statement with the SEC. Each of Cornerstone and Cornerstone
Partnership, on the one hand, and EOP and EOP Partnership, on the other hand,
agree promptly to correct any information provided by it for use in the Joint
Proxy Statement and the Form S-4 if and to the extent that such information
shall have become false or misleading in any material respect, and each of the
parties hereto further agrees to take all steps necessary to amend or supplement
the Joint Proxy Statement and the Form S-4 and to cause the Joint Proxy
Statement and the Form S-4 as amended or supplemented to be filed with the SEC
and to be disseminated to their respective stockholders and shareholders and
partners, in each case as and to the extent required by applicable federal and
state securities laws. Each of Cornerstone, Cornerstone Partnership, EOP and EOP
Partnership agrees that the information provided by it for inclusion in the
Joint Proxy Statement or the Form S-4 and each amendment or supplement thereto,
at the time of mailing thereof and at the time of the respective meetings of
stockholders and shareholders of Cornerstone and EOP and at the time of the
respective taking of consents, if any, of partners of Cornerstone Partnership
and EOP Partnership, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. EOP will advise and deliver copies (if any) to
Cornerstone, promptly after it receives notice thereof, of any request by the
SEC for amendment of the Joint Proxy Statement or the Form S-4 or comments
thereon and responses thereto or requests by the SEC for additional information
(regardless of whether such requests relate to EOP or EOP Partnership, on the
one hand, and Cornerstone or Cornerstone Partnership, on the other hand), and
EOP shall promptly notify Cornerstone, and Cornerstone shall promptly notify
EOP, if applicable, of (i) the time when the Form S-4 has become effective, (ii)
the filing of any supplement or amendment thereto, (iii) the issuance of any
stop order, and (iv) the suspension of the qualification and registration of the
EOP Common Shares and EOP OP Units issuable in connection with the Mergers.
(b) Each of Cornerstone, Cornerstone Partnership, EOP
and EOP Partnership shall use its commercially reasonable efforts to timely mail
the joint proxy statement/prospectus contained in the Form S-4 to its
stockholders or shareholders. It shall be a condition to the mailing of the
joint proxy statement/prospectus that (i) EOP and EOP Partnership shall have
received a "comfort" letter from PricewaterhouseCoopers LLP, independent public
accountants for Cornerstone and Cornerstone Partnership, of the kind
contemplated by the Statement of Auditing Standards with respect to Letters to
Underwriters promulgated by the American Institute of Certified Public
Accountants (the "AICPA
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Statement"), dated as of the date on which the Form S-4 shall become effective
and as of the Effective Time, addressed to EOP and EOP Partnership, in form and
substance reasonably satisfactory to EOP and EOP Partnership, concerning the
procedures undertaken by PricewaterhouseCoopers LLP with respect to the
financial statements and information of Cornerstone and Cornerstone Partnership
and their subsidiaries and the Cornerstone Non-controlled Subsidiary contained
in the Form S-4 and the other matters contemplated by the AICPA Statement and
otherwise customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement and (ii) Cornerstone shall have received a "comfort" letter from
Ernst & Young LLP, independent public accountants for EOP and EOP Partnership,
of the kind contemplated by the AICPA Statement, dated as of the date on which
the Form S-4 shall become effective and as of the Effective Time, addressed to
Cornerstone and Cornerstone Partnership, in form and substance reasonably
satisfactory to Cornerstone, concerning the procedures undertaken by Ernst & Young LLP with respect to the financial statements and information of EOP, EOP
Partnership and their subsidiaries contained in the Form S-4 and the other
matters contemplated by the AICPA Statement and otherwise customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
(c) EOP will duly call and give notice of and, as
soon as practicable following the date of this Agreement (but in no event sooner
than 20 business days following the date the Joint Proxy Statement is mailed to
the shareholders of EOP), convene and hold a meeting of its shareholders (the
"EOP Shareholders Meeting") for the purpose of obtaining the EOP Shareholder
Approvals. EOP shall, through its Board of Trustees, recommend to its
shareholders approval of this Agreement, the Merger and the transactions
contemplated by this Agreement.
(d) Cornerstone will duly call and give notice of
and, as soon as practicable following the date of this Agreement (but in no
event sooner than 20 business days following the date the Joint Proxy Statement
is mailed to the stockholders of Cornerstone), convene and hold a meeting of its
stockholders (the "Cornerstone Stockholders Meeting") for the purpose of
obtaining the Cornerstone Stockholder Approvals. Cornerstone shall, through its
Board of Directors, recommend to its stockholders approval of this Agreement,
the Merger and the transactions contemplated by this Agreement and include such
recommendation in the Proxy Statement; PROVIDED, HOWEVER, that prior to the
Cornerstone Stockholders Meeting, such recommendation may be withdrawn,
modified, amended or qualified if and only to the extent permitted by Section
4.3(c) hereof.
(e) EOP and Cornerstone shall use their commercially
reasonable efforts to convene their respective shareholder and stockholder
meetings on the same day, which day, subject to the provisions of Sections
5.1(c), 5.1(d) and
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5.3, shall be a day not later than 60 days after the date the Joint Proxy
Statement is mailed.
(f) If on the date for the EOP Shareholders Meeting
and Cornerstone Stockholders Meeting established pursuant to Section 5.1(e) of
this Agreement, either EOP or Cornerstone has not received duly executed proxies
for a sufficient number of votes to approve the Merger, then both parties shall
recommend the adjournment of their respective shareholders and stockholders
meetings until one or more dates not later than the date 10 days after the
originally scheduled date of the shareholders meetings.
(g) Cornerstone shall request written consents for
approval by the limited partners of Cornerstone Partnership of each of the
matters described in the definition of Cornerstone Partner Approvals.
Cornerstone hereby agrees to vote in favor of or consent to, as applicable, the
Partnership Merger, to the extent approval thereof is required by the
Cornerstone Partnership Agreement. Cornerstone shall recommend to the limited
partners of Cornerstone Partnership that they approve such matters. EOP shall
request written consents, if any is required, by the limited partners, of EOP
Partnership of each of the matters described in the definition of EOP Partner
Approvals. EOP hereby agrees to vote, if any is required, in favor of such
matters and to recommend to the limited partners of EOP Partnership that they
approve such matters.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the
requirements of confidentiality agreements with third parties in existence on
the date hereof, each of the parties shall, and shall cause each of its
Subsidiaries (and, in the case of Cornerstone, the Cornerstone Non-controlled
Subsidiary) to, afford to the other parties and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such other
parties, reasonable access during normal business hours prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of the parties shall, and
shall cause each of its Subsidiaries (and, in the case of Cornerstone, the
Cornerstone Non-controlled Subsidiary) to, furnish promptly to the other parties
(a) a copy of each report, schedule, registration statement and other document
filed by it during such period pursuant to the requirements of federal or state
securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request. Each of the
parties shall, and shall cause its Subsidiaries (and in the case of Cornerstone,
the Cornerstone Non-controlled Subsidiary) to, use commercially reasonable
efforts to cause its officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to, hold any nonpublic
information in confidence in accordance with the Confidentiality Agreement,
which shall remain in full force and effect pursuant to the terms thereof,
notwithstanding the execution and delivery of this Agreement or the termination
hereof.
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5.3 COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION.
(a) Subject to the terms and conditions herein
provided, each of the parties shall: (i) use commercially reasonable efforts to
cooperate with one another in (A) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, and the consummation of the transactions
contemplated hereby, including, without limitation, any filing under the HSR
Act, and (B) timely making all such filings and timely seeking all such
consents, approvals, permits and authorizations; (ii) use commercially
reasonable efforts (other than the payment of money which is not contractually
required to be paid) to obtain in writing any consents required from third
parties to effectuate the Mergers, such consents to be in form reasonably
satisfactory to each of the parties (including, without limitation, taking the
actions contemplated under Schedule 5.3(a)(ii)); and (iii) use commercially
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Effective Time any further action is necessary or
desirable to carry out the purpose of this Agreement, each party shall take all
such necessary action.
(b) Cornerstone and Cornerstone Partnership shall use
commercially reasonable efforts to obtain from PricewaterhouseCoopers LLP access
to all work papers relating to audits of Cornerstone and Cornerstone Partnership
performed by PricewaterhouseCoopers LLP, and the continued cooperation of
PricewaterhouseCoopers LLP with regard to the preparation of consolidated
financial statements for the Surviving Trust.
(c) Cornerstone and Cornerstone Partnership shall
give prompt notice to EOP and EOP Partnership, and EOP and EOP Partnership shall
give prompt notice to Cornerstone and Cornerstone Partnership, (i) if any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becomes untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becomes untrue or
inaccurate in any material respect or (ii) of the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; PROVIDED, HOWEVER, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
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5.4 TAX MATTERS.
(a) Each of EOP and Cornerstone shall use its commercially
reasonable efforts before and after the Effective Time to cause the Merger to
qualify as a reorganization under the provisions of Sections 368(a) of the Code
and to obtain the opinions of counsel referred to in Sections 6.2(e) and 6.3(e).
(b) Unless, and only to the extent, expressly provided
otherwise in the Tax Protection Agreements described in Schedule 2.18(j) to the
Cornerstone Disclosure Letter to be assumed by EOP pursuant to Section 5.14, EOP
Partnership and its Subsidiaries shall use the "traditional method" under
Treasury Regulations Section 1.704-3(b) for purposes of making allocations under
Section 704(c) of the Code with respect to the properties of Cornerstone
Partnership and its Subsidiaries acquired in the Partnership Merger to take into
account differences as of the Effective Time of the Partnership Merger between
the adjusted tax bases of such properties and their respective fair market
values (referred to as the "Section 704(c) values"), with no curative
allocations to offset the effect of the "ceiling rule." EOP Partnership and
Cornerstone Partnership shall negotiate in good faith to agree upon the "Section
704(c) values" of the properties of Cornerstone Partnership and its Subsidiaries
as of the Effective Time of the Partnership Merger. Unless, and only to the
extent, expressly provided otherwise in the Tax Protection Agreements described
in Schedule 2.18(j) to the Cornerstone Disclosure Letter to be assumed by EOP
pursuant to Section 5.14, EOP Partnership and its Subsidiaries shall determine
in their reasonable discretion the method to be used for allocating "excess
nonrecourse liabilities" of EOP Partnership pursuant to Treasury Regulations
Section 1.752-3(a)(3) following the Closing Date, PROVIDED THAT (i) EOP
Partnership shall not use with respect to the former limited partners in
Cornerstone Partnership a method that is less favorable than the method used by
EOP Partnership with respect to the other limited partners of EOP Partnership
who are not parties to an express agreement specifying a particular method to be
used for such purposes, and (ii) in the case of a Cornerstone Partner who, prior
to the Partnership Merger, had been specially allocated a portion of a
Cornerstone Partnership nonrecourse liability secured by a property with respect
to which such Cornerstone Partner has a built-in gain under Section 704(c) of
the Code to take into account such Cornerstone Partner's share of such built-in
gain that was not taken into account in making the allocation of such liability
under Treasury Regulation Section 1.752-3(a)(2), EOP Partnership shall continue
such method of allocating such liability following the Merger.
(c) EOP Partnership shall amend the EOP Partnership Agreement
at or prior to the Effective Time of the Partnership Merger to incorporate
provisions relating to the restoration of deficit capital accounts that will
permit each limited partner of Cornerstone Partnership who has entered into an
agreement with Cornerstone Partnership prior to the Partnership Merger relating
to the restoration of deficit capital accounts to continue to be obligated to
restore any deficit in its
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capital account in EOP Partnership in an amount that is not less than the
maximum potential amount that such limited partner was obligated to restore to
Cornerstone Partnership immediately prior to the Effective Time of the
Partnership Merger. Such deficit capital account restoration provisions to be
incorporated in the EOP Partnership Agreement shall be in substantially the form
of the deficit capital account restoration provisions incorporated in the
Cornerstone Partnership Agreement pursuant to the Fourth Amendment of Agreement
of Limited Partnership of Cornerstone Properties Limited Partnership, with such
changes thereto as shall be approved by Cornerstone Partnership, PROVIDED,
HOWEVER, that except as set forth in the next sentence below or in the Tax
Protection Agreements listed on SCHEDULE 2.18(J) to the Cornerstone Disclosure
Letter, no Cornerstone Partner shall have the right to increase the amount of
its deficit restoration obligation following the Partnership Merger to an amount
in excess of the maximum potential amount that such limited partner was
obligated to restore to Cornerstone Partnership immediately prior to the
Effective Time of the Partnership Merger. Notwithstanding the PROVISO in the
immediately preceding sentence, the Cornerstone Partners as a group shall have
the right, at any time following the Merger and without the consent of EOP, to
increase their maximum potential deficit restoration obligations as a group (as
determined immediately prior to the Merger) by an aggregate amount of up to $50
million, reduced by the amount of any increase therein that shall occur under
the Cornerstone Partnership Agreement during the period commencing on the date
hereof and ending immediately prior to the Effective Time of the Partnership
Merger. Any election to increase or to take on a deficit restoration obligation
election permitted under a Tax Protection Agreement listed on SCHEDULE 2.18(J)
to the Cornerstone Disclosure Letter shall not be taken into account in applying
the foregoing $50 million limitation. Notwithstanding any the foregoing, EOP
Partnership shall not be obligated to maintain any level of partnership recourse
debt in excess of the amounts otherwise specifically required to be maintained
under the Tax Protection Agreements listed on SCHEDULE 2.18(J) to the
Cornerstone Disclosure Letter. In addition, the amendment to the EOP Partnership
Agreement will contain a provision to the effect that (i) EOP Partnership will
consider in good faith a request from a former Cornerstone Partner to increase
the amount of its deficit restoration obligation from time to time after the
Partnership Merger if the former Cornerstone Partner shall provide information
from its professional tax advisor satisfactory to EOP Partnership showing that,
in the absence of such an increase, such former Cornerstone Partner would not
likely be allocated from EOP Partnership sufficient indebtedness under Section
752 of the Code and the at-risk provisions under Section 465 of the Code to
avoid the recognition of gain (other than gain required to be recognized by
reason of actual cash distributions from EOP Partnership following the
Partnership Merger); (ii) EOP Partnership and its professional tax advisors will
cooperate in good faith with the former Cornerstone Partner and its professional
tax advisor to provide such information regarding the allocation of the EOP
Partnership liabilities and the nature of such liabilities as is reasonably
necessary in order to determine the former Cornerstone Partner's adjusted tax
basis in its EOP OP Units
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and at-risk amount; (iii) in deciding whether or not to grant such request, EOP
Partnership shall be entitled to take into account all factors related to EOP
Partnership, including, without limitation, the existing and anticipated debt
structure of EOP Partnership, the tax situations of other holders of EOP OP
Units and the effect that such a deficit restoration commitment might have on
their tax situation, and the anticipated term long term business needs of EOP;
(iv) in no event shall EOP Partnership be required to incur additional
indebtedness that would be considered a "recourse liability" for purposes of
Section 752 of the Code to facilitate such additional deficit capital account
restoration commitments; and (v) EOP Partnership's only obligation shall be to
act in good faith, and a former Cornerstone Partner's exclusive remedy under
such provision would be an action for specific performance, with no entitlement
to monetary damages.
5.5 PUBLIC ANNOUNCEMENTS. Each party will consult with each
other party before issuing, and provide each other the opportunity to review and
comment upon, any press release or other written public statements, including,
without limitation, any press release or other written public statement which
address in any manner the transactions contemplated by this Agreement, and shall
not issue any such press release or make any such written public statement prior
to such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement will be in the form
agreed to by the parties prior to the execution of this Agreement.
5.6 LISTING. EOP shall use commercially reasonable efforts to
cause the EOP Common Shares to be issued in the Merger, and the EOP Common
Shares reserved for issuance upon redemption of EOP OP Units issued in the
Partnership Merger, to be approved for listing on the NYSE, subject to official
notice of issuance, prior to the Effective Time.
5.7 TRANSFER AND GAINS TAXES. Each party shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the transactions contemplated by this Agreement
(together with any related interests, penalties or additions to tax, "Transfer
and Gains Taxes"). From and after the Effective Time, EOP shall pay or cause EOP
Operating Partnership, as appropriate, to pay or cause to be paid, without
deduction or withholding from any amounts payable to the holders of EOP Common
Shares or EOP OP Units, as applicable, all Transfer and Gains Taxes (which term
shall not in any event be construed to include for these purposes any Tax
imposed under the Code).
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5.8 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. After the Effective Time, all
employees of Cornerstone who are employed by the Surviving Trust shall, at the
option of the Surviving Trust, either continue to be eligible to participate in
an "employee benefit plan", as defined in Section 3(3) of ERISA, of Cornerstone
which is, at the option of the Surviving Trust, continued by the Surviving
Trust, or alternatively shall be eligible to participate in the same manner as
other similarly situated employees of the Surviving Trust who were formerly
employees of EOP in any "employee benefit plan," as defined in Section 3(3) of
ERISA, sponsored or maintained by the Surviving Trust after the Effective Time.
With respect to each such employee benefit plan, service with Cornerstone or any
Cornerstone Subsidiary (as applicable) and the predecessor of any of them shall
be included for purposes of determining eligibility to participate, vesting (if
applicable) and determination of the level of entitlement to, benefits under
such employee benefit plan. EOP shall, or shall cause the Surviving Trust and
its Subsidiaries to, (i) waive all limitations, as to preexisting conditions
exclusions and waiting periods with respect to participation and coverage
requirements applicable to all employees of Cornerstone who are employed by the
Surviving Trust under any welfare plan that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees and that have
not been satisfied as of the Effective Time under any welfare plan maintained
for such employees immediately prior to the Effective Time, and (ii) provide
each such employee of Cornerstone who is employed by the Surviving Trust with
credit for any co-payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such employees are eligible to participate in after the
Effective Time.
(b) STOCK OPTION AND RESTRICTED STOCK PLANS. The
stock option plans or programs of Cornerstone and the restricted stock plans or
programs of Cornerstone shall be discontinued.
(c) CORNERSTONE STOCK OPTIONS. As of the Effective
Time, each outstanding Cornerstone Stock Option shall, whether or not then
vested or exercisable, effective as of the Effective Time, become fully
exercisable and vested and each such Cornerstone Stock Option shall be
automatically converted at the Effective Time into an option (a "Substituted
Option") to purchase a number of shares of EOP Common Shares equal to the number
of shares of Cornerstone Common Stock that could have been purchased (assuming
full vesting) under such Cornerstone Stock Option multiplied by 0.7009 (rounded
down to the nearest whole number of shares of Cornerstone Common Stock) at an
exercise price per share of EOP Common Shares equal to the per-share option
exercise price specified in the Cornerstone Stock Option divided by 0.7009
(rounded up to the nearest whole cent). Such Substituted Option shall otherwise
be subject to the same terms and
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conditions as such Cornerstone Stock Option. For purposes of expiration and
otherwise, the date of grant of the Substituted Option shall be the date on
which the corresponding Cornerstone Stock Option was granted. If the holder of
such Cornerstone Stock Option surrenders such option after the Effective Time
and prior to 11:59 p.m., Eastern Time, on the second business day immediately
following the Effective Time, EOP shall, subject to reduction for required
withholding taxes, pay to each such holder of Cornerstone Stock Options an
amount in cash in respect thereof equal to the product of (i) the excess, if
any, of $18.00 over the exercise price of such Cornerstone Stock Option and (ii)
the number of shares of Cornerstone Common Stock subject thereto. At the
Effective Time, (i) all references in the related stock option agreements to
Cornerstone shall be deemed to refer to EOP and (ii) EOP shall assume all of
Cornerstone's obligations with respect to Cornerstone Stock Options as so
amended. As promptly as reasonably practicable after the Effective Time, EOP
shall issue to each holder of an outstanding Cornerstone Stock Option a document
evidencing the foregoing assumption by EOP.
In respect of each Cornerstone Stock Option assumed by EOP and
converted into a Substituted Option, and the EOP Common Shares underlying such
Substituted Option, EOP shall, as soon as practicable after the Effective Time,
file and keep current a Registration Statement on Form S-8 or other appropriate
registration statement for as long as Substituted Options remain outstanding.
(d) RESTRICTED STOCK. All unvested shares of
restricted stock of Cornerstone set forth in SCHEDULE 5.8(D) of the Cornerstone
Disclosure Schedule, shall, by virtue of this Agreement and without further
action of Cornerstone, EOP or the holder of such shares of restricted stock, to
the extent required in the plan, agreement or instrument pursuant to which such
shares of restricted stock were granted, vest and become free of all
restrictions immediately prior to the Effective Time and shall be converted into
the Merger Consideration pursuant to Section 1.10.
(e) RETENTION AGREEMENTS AND RETENTION PLAN. From and
after the Effective Time, EOP or EOP Partnership shall assume the obligations of
Cornerstone under the Retention Agreements and the Cornerstone retention plan
set forth on SCHEDULE 5.9(E) of the Cornerstone Disclosure Letter. The
transactions contemplated by this Agreement shall be deemed a "Change in
Control" for purposes of such agreements, and EOP shall perform the obligations
of Cornerstone under such agreements and plan in accordance with the terms
thereof.
(f) WITHHOLDING. To the extent required by applicable
law, Cornerstone shall require each employee who exercises a Cornerstone Stock
Option or who receives Cornerstone Common Stock pursuant to any existing
commitment to pay to Cornerstone in cash or Cornerstone Common Stock an amount
sufficient to satisfy in full Cornerstone's obligation to withhold Taxes
incurred by reason of such
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exercise or issuance (unless and to the extent such withholding is satisfied
pursuant to the provision regarding withholding in Section 1.15(c)).
5.9 INDEMNIFICATION.
(a) From and after the Effective Time, EOP and EOP
Partnership (collectively, the "Indemnifying Parties") shall provide exculpation
and indemnification for each person who is now or has been at any time prior to
the date hereof or who becomes prior to the Effective Time of the Merger, an
officer or director of Cornerstone or any Cornerstone Subsidiary (the
"Indemnified Parties") which is the same as the exculpation and indemnification
provided to the Indemnified Parties by Cornerstone and the Cornerstone
Subsidiaries immediately prior to the Effective Time of the Merger in its
charter, Bylaws or in its partnership, operating or similar agreement, as in
effect on the date hereof.
(b) In addition to the rights provided in Section
5.9(a) above, in the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any action by or on behalf of any or all security
holders of Cornerstone or EOP, or any Cornerstone Subsidiary or EOP Subsidiary,
or by or in the right of Cornerstone or EOP, or any Cornerstone Subsidiary or
EOP Subsidiary, or any claim, action, suit, proceeding or investigation in which
any person who is now, or has been, at any time prior to the date hereof, or who
becomes prior to the Effective Time of the Merger, an officer, employee or
director of Cornerstone or any Cornerstone Subsidiary (the "Indemnification
Parties") is, or is threatened to be, made a party based in whole or in part on,
or arising in whole or in part out of, or pertaining to (i) the fact that he is
or was an officer, employee or director of Cornerstone or any of the Cornerstone
Subsidiaries or any action or omission by such person in his capacity as a
director, or (ii) this Agreement or the transactions contemplated by this
Agreement, whether in any case asserted or arising before or after the Effective
Time of the Merger, the Indemnifying Parties shall, from and after the Effective
Time of the Merger, indemnify and hold harmless, as and to the full extent
permitted by applicable law, each Indemnification Party against any losses,
claims, liabilities, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in accordance
herewith in connection with any such threatened or actual claim, action, suit,
proceeding or investigation. Any Indemnification Party proposing to assert the
right to be indemnified under this Section 5.9(b) shall, promptly after receipt
of notice of commencement of any action against such Indemnification Party in
respect of which a claim is to be made under this Section 5.9(b) against the
Indemnifying Parties, notify the Indemnifying Parties of the commencement of
such action, enclosing a copy of all papers served; PROVIDED, HOWEVER, that the
failure to provide such notice shall not affect the obligations of the
Indemnifying Parties except to the extent such failure to notify materially
prejudices the Indemnifying Parties' ability to defend such claim, action, suit,
proceeding or investigation; and PROVIDED, FURTHER, HOWEVER,
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that, in the case of any action pending at the Effective Time of the Merger,
notification pursuant to this Section 5.9(b) shall be received by EOP prior to
such Effective Time. If any such action is brought against any of the
Indemnification Parties and such Indemnification Parties notify the Indemnifying
Parties of its commencement, the Indemnifying Parties will be entitled to
participate in and, to the extent that they elect by delivering written notice
to such Indemnification Parties promptly after receiving notice of the
commencement of the action from the Indemnification Parties, to assume the
defense of the action and after notice from the Indemnifying Parties to the
Indemnification Parties of their election to assume the defense, the
Indemnifying Parties will not be liable to the Indemnification Parties for any
legal or other expenses except as provided below. If the Indemnifying Parties
assume the defense, the Indemnifying Parties shall have the right to settle such
action without the consent of the Indemnification Parties; PROVIDED, HOWEVER,
that the Indemnifying Parties shall be required to obtain such consent (which
consent shall not be unreasonably withheld) if the settlement includes any
admission of wrongdoing on the part of the Indemnification Parties or any decree
or restriction on the Indemnification Parties; PROVIDED, FURTHER, that no
Indemnifying Parties, in the defense of any such action shall, except with the
consent of the Indemnification Parties (which consent shall not be unreasonably
withheld), consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnification Parties of a release from all liability with
respect to such action. The Indemnification Parties will have the right to
employ their own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such Indemnification Parties
unless (i) the employment of counsel by the Indemnification Parties has been
authorized in writing by the Indemnifying Parties, (ii) the Indemnification
Parties have reasonably concluded (based on written advice of counsel to the
Indemnification Parties) that there may be legal defenses available to them that
are different from or in addition to and inconsistent with those available to
the Indemnifying Parties, (iii) a conflict or potential conflict exists (based
on written advice of counsel to the Indemnification Parties) between the
Indemnification Parties and the Indemnifying Parties (in which case the
Indemnifying Parties will not have the right to direct the defense of such
action on behalf of the Indemnification Parties) or (iv) the Indemnifying
Parties have not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action from the Indemnification Parties, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of the
Indemnifying Parties and shall promptly be paid by each Indemnifying Party as
they become due and payable in advance of the final disposition of the claim,
action, suit, proceeding or investigation to the fullest extent and in the
manner permitted by law; PROVIDED, HOWEVER, that in no event shall any
contingent fee arrangement be considered reasonable. Notwithstanding the
foregoing, the Indemnifying Parties shall not be obligated to advance any
expenses or costs prior to receipt of an undertaking by or on behalf of the
Indemnification Party to repay any expenses advanced if it shall ultimately be
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determined that the Indemnification Party is not entitled to be indemnified
against such expense. It is understood that the Indemnifying Parties shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and other charges
of more than one separate firm admitted to practice in such jurisdiction at any
one time for all such Indemnification Parties unless (a) the employment of more
than one counsel has been authorized in writing by the Indemnifying Parties, (b)
any of the Indemnification Parties have reasonably concluded (based on written
advice of counsel to the Indemnification Parties) that there may be legal
defenses available to them that are different from or in addition to and
inconsistent with those available to other Indemnification Parties or (c) a
conflict or potential conflict exists (based on written advice of counsel to the
Indemnification Parties) between any of the Indemnification Parties and the
other Indemnification Parties, in each case of which the Indemnifying Parties
shall be obligated to pay the reasonable fees and expenses of such additional
counsel or counsels. Notwithstanding anything to the contrary set forth in this
Agreement, the Indemnifying Parties (i) shall not be liable for any settlement
effected without their prior written consent and (ii) shall not have any
obligation hereunder to any Indemnification Party to the extent that a court of
competent jurisdiction shall determine in a final and non-appealable order that
such indemnification is prohibited by applicable law. In the event of a final
and non-appealable determination by a court that any payment of expenses is
prohibited by applicable law, the Indemnification Parties shall promptly refund
to the Indemnifying Parties the amount of all such expenses theretofore advanced
pursuant hereto.
(c) At or prior to the Effective Time of the Merger,
EOP shall purchase directors' and officers' liability insurance covering acts or
omissions occurring prior to the Effective Time of the Merger for a period of
six years with respect to those persons who are currently covered by
Cornerstone's directors' and officers' liability insurance policy on terms with
respect to such coverage and amount no less favorable to Cornerstone's directors
and officers currently covered by such insurance than those of such policy in
effect on the date hereof.
(d) This Section 5.9 is intended for the irrevocable
benefit of, and to grant third-party rights to, the Indemnified Parties, the
Indemnification Parties and their successors, assigns and heirs and shall be
binding on all successors and assigns of EOP and EOP Operating Partnership. Each
of the Indemnified Parties and the Indemnification Parties shall be entitled to
enforce the covenants contained in this Section 5.9 and EOP and EOP Partnership
acknowledge and agree that each Indemnified Party and Indemnification Party
would suffer irreparable harm and that no adequate remedy at law exists for a
breach of such covenants and such Indemnified Party or such Indemnification
Party shall be entitled to injunctive relief and specific performance in the
event of any breach of any provision in this Section 5.9.
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(e) If EOP or EOP Partnership or any of its
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case the successors
and assigns of such entity shall assume the obligations set forth in this
Section 5.9, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer covered
hereby.
5.10 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and
after the date of this Agreement, neither Cornerstone nor EOP shall make any
dividend or distribution to its respective stockholders or shareholders without
the prior written consent of the other party; PROVIDED, HOWEVER, the written
consent of the other party shall not be required for the authorization and
payment of (a) distributions at their respective stated dividend or distribution
rates with respect to EOP Preferred Shares or Cornerstone 7% Preferred Stock,
(b) quarterly distribution with respect to the Cornerstone Common Stock of up to
$0.24 per share for the quarter ending March 31, 2000 and up to $0.31 per share
thereafter and (c) quarterly distributions with respect to the EOP Common Share
of up to $0.42 per share for the quarter ending March 31, 2000 and for each
quarter thereafter; PROVIDED, HOWEVER, except for the record date previously set
on January 31, 2000, the record date for each distribution with respect to the
Cornerstone Common Stock shall be the same date as the record date for the
quarterly distribution for the EOP Common Shares, as provided to Cornerstone by
notice not less than twenty (20) business days prior to the record date for any
quarterly EOP distribution. From and after the date of this Agreement,
Cornerstone Partnership shall not make any distribution to the holders of
Cornerstone OP Units except a distribution per Cornerstone OP Unit in the same
amount as a dividend per share of Cornerstone Common Stock permitted pursuant to
this Section 5.10, with the same record and payment dates as such dividend on
the Cornerstone Common Stock. The foregoing restrictions shall not apply,
however, to the extent a distribution (or an increase in a distribution) by
Cornerstone or EOP is necessary for Cornerstone or EOP, as applicable, to
maintain REIT status, avoid the incurrence of any taxes under Section 857 of the
Code, avoid the imposition of any excise taxes under Section 4981 of the Code,
or avoid the need to make one or more extraordinary or disproportionately larger
distributions to meet any of the three preceding objectives.
5.11 TRANSFER OF NON-CONTROLLED SUBSIDIARY VOTING SHARES. At
the Closing and pursuant to the Stock Purchase Agreement, each of the holders of
voting capital stock of the Cornerstone Non-controlled Subsidiary (other than
Cornerstone Partnership, to the extent it owns any such voting capital stock)
shall transfer to EOP NCS Sub or such person or persons as EOP NCS Sub shall
designate by written notice delivered to them prior to the Closing, all of the
shares of each such Company owned by them, constituting all the outstanding
shares of such companies which are not owned by Cornerstone Partnership, for an
aggregate
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consideration in an amount equal to the purchase price set forth in the Stock
Purchase Agreement. EOP shall use commercially reasonable efforts to cause EOP
NCS Sub to perform its obligations under the Stock Purchase Agreement
5.12 NOTICES. EOP shall provide such notice to its preferred
shareholders of the Merger as is required under Maryland law or the EOP
Declaration of Trust.
5.13 RESIGNATIONS. On the Closing Date, Cornerstone shall
cause the directors and officers of Cornerstone and of each of the Cornerstone
Subsidiaries to submit their resignations from such positions, effective as of
the Effective Time of the Merger.
5.14 ASSUMPTION OF EXISTING TAX PROTECTION AGREEMENTS.
Effective as of the Effective Time of the Partnership Merger, EOP and EOP
Partnership shall assume the obligations of Cornerstone, Cornerstone Partnership
and/or the applicable Cornerstone Subsidiary, as the case may be, under the Tax
Protection Agreements as described in SCHEDULE 2.18(J) to the Cornerstone
Disclosure Letter. Immediately prior to the Effective Time of the Partnership
Merger, EOP and EOP Partnership shall enter into agreements with Cornerstone and
Cornerstone Partnership, for the benefit of and enforceable by the individuals
and entities who are intended to be protected by the provisions of the Tax
Protection Agreements, confirming such assumption effective as of the Effective
Time of the Partnership Merger.
5.15 EOP PARTNERSHIP AGREEMENT. At the Closing, EOP
Partnership shall assume and perform any obligations that Cornerstone
Partnership or any Cornerstone Subsidiary has immediately prior to the Effective
Time to issue securities in accordance with the terms of any partnership or
other agreement to which Cornerstone Partnership or such Cornerstone Subsidiary
is a party and that are described on SCHEDULE 5.15, in the same manner and to
the same extent that Cornerstone Partnership or such Cornerstone Subsidiary
would be required to perform such obligation if no Merger had been consummated.
5.16 REGISTRATION RIGHTS AGREEMENTS. At the Closing, (a)
Cornerstone shall assign and EOP shall assume by appropriate instrument the
Registration Rights Agreements described on SCHEDULE 5.16 to the Cornerstone
Disclosure Letter, and (b) Cornerstone shall assign and EOP shall assume the
obligations of Cornerstone under the Amended and Restated Registration Rights
and Voting Agreement dated December 16, 1998 between Cornerstone, PGGM and Dutch
Institutional Holding Company, Inc., as and to the extent set forth in PGGM's
Cornerstone Voting Agreement.
5.17 CORNERSTONE CONVERTIBLE PROMISSORY NOTE. Following the
Effective Time of the Mergers, the holders of the Cornerstone Convertible
Promissory Note shall have the right to obtain upon the exercise of its
conversion
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rights pursuant to such Cornerstone Convertible Promissory Note, in lieu of each
share of Cornerstone Common Stock theretofor issuable upon exercise of such
conversion rights, EOP Common Shares that it would have owned immediately after
the Merger if it had converted the Cornerstone Convertible Promissory Note
immediately before the Effective Time of the Merger.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The obligations of each party to effect the Mergers and to consummate
the other transactions contemplated by this Agreement to occur on the Closing
Date shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) SHAREHOLDER AND PARTNER APPROVALS. The
Cornerstone Stockholder Approvals, the EOP Shareholder Approvals and the Partner
Approvals shall have been obtained.
(b) HSR ACT. The waiting period (and any extension
thereof) applicable to the Partnership Merger, the Merger or the transactions
contemplated by the Stock Purchase Agreement under the HSR Act, if applicable to
the Partnership Merger, the Merger or and the transactions contemplated by the
Stock Purchase Agreement, shall have expired or been terminated.
(c) LISTING OF SHARES. The NYSE shall have approved
for listing the EOP Common Shares to be issued in the Merger and the EOP Common
Shares reserved for issuance upon redemption of EOP OP Units issued in the
Partnership Merger, subject to official notice of issuance.
(d) FORM S-4. The Form S-4 shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers or any of the other transactions
contemplated hereby shall be in effect.
(f) BLUE SKY LAWS. EOP and EOP Partnership shall have
received all state securities or "blue sky" permits and other authorizations
necessary to issue the EOP Common Shares and EOP OP Units issuable in the
Mergers.
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6.2 CONDITIONS TO OBLIGATIONS OF EOP AND EOP PARTNERSHIP. The
obligations of EOP and EOP Partnership to effect the Mergers and to consummate
the other transactions contemplated to occur on the Closing Date are further
subject to the following conditions, any one or more of which may be waived by
EOP:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Cornerstone and Cornerstone Partnership set
forth in this Agreement, disregarding all qualifications and exceptions
contained therein relating to materiality or Cornerstone Material Adverse
Effect, shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the extent
that such representations and warranties are expressly limited by their terms to
another date, in which case such representations and warranties shall be true
and correct as of such other date), except where the failure of such
representations and warranties to be true and correct would not, individually or
in the aggregate, reasonably be expected to have a Cornerstone Material Adverse
Effect; and EOP shall have received a certificate (which certificate may be
qualified by Knowledge to the same extent as the representations and warranties
of Cornerstone and Cornerstone Partnership contained herein are so qualified)
signed on behalf of Cornerstone by the chief executive officer or the chief
financial officer of Cornerstone, in such capacity, to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF CORNERSTONE AND
CORNERSTONE PARTNERSHIP. Cornerstone and Cornerstone Partnership shall have
performed in all material respects all obligations required to be performed by
them under this Agreement at or prior to the Effective Time, and EOP shall have
received a certificate signed on behalf of Cornerstone by the chief executive
officer or the chief operating officer of Cornerstone, in such capacity, to such
effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, there shall have been no Cornerstone Material Adverse Change and EOP
shall have received a certificate of the chief executive officer or chief
operating officer of Cornerstone, in such capacity, certifying to such effect.
(d) TAX OPINIONS RELATING TO REIT STATUS AND
PARTNERSHIP STATUS. EOP shall have received (i) an opinion of King & Spalding or
other counsel to Cornerstone reasonably satisfactory to EOP, dated as of the
Closing Date, to the effect that, commencing with its taxable year ended
December 31, 1997, (x) Cornerstone was organized and has operated in conformity
with the requirements for qualification as a REIT under the Code, and (y)
Cornerstone Partnership has been during and since December 23, 1997, and
continues to be, treated for federal income tax purposes as a partnership and
not as a corporation or association taxable as a corporation (with customary
exceptions, assumptions and qualifications and based upon customary
representations) and (ii) an opinion of Hogan & Hartson L.L.P. or other counsel
to EOP reasonably satisfactory to
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Cornerstone, dated as of the Closing Date, to the effect that, commencing with
its taxable year ended December 31, 1997, EOP was organized and has operated in
conformity with the requirements for qualification as a REIT under the Code and
that, after giving effect to the Merger, EOP's proposed method of operation will
enable it to continue to meet the requirements for qualification and taxation as
a REIT under the Code (with customary exceptions, assumptions and qualifications
and based upon customary representations and based upon and subject to the
opinion of counsel to Cornerstone described in clause (i) above).
(e) TAX OPINION RELATING TO THE MERGER. EOP shall
have received an opinion dated the Closing Date from Hogan & Hartson L.L.P. or
other counsel reasonably satisfactory to EOP, based upon customary certificates
and letters, which letters and certificates are to be in a form to be agreed
upon by the parties and dated the Closing Date, to the effect that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Code.
(f) "COMFORT" LETTER. EOP and EOP Partnership shall
have received a "comfort" letter from PricewaterhouseCoopers LLP, as described
in Section 5.1(b).
(g) NONCOMPETITION AGREEMENTS. Each of William Wilson
III and John S. Moody shall have entered into noncompetition and confidentiality
agreements substantially in the forms set forth in SCHEDULE 6.2(G) hereto.
6.3 CONDITIONS TO OBLIGATIONS OF CORNERSTONE AND CORNERSTONE
PARTNERSHIP. The obligations of Cornerstone and Cornerstone Partnership to
effect the Mergers and to consummate the other transactions contemplated to
occur on the Closing Date is further subject to the following conditions, any
one or more of which may be waived by Cornerstone:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of EOP and EOP Partnership set forth in this
Agreement, disregarding all qualifications and exceptions contained therein
relating to materiality or EOP Material Adverse Effect, shall be true and
correct as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date (except to the extent that such
representations and warranties are expressly limited by their terms to another
date, in which case such representations and warranties shall be true and
correct as of such other date), except where the failure of such representations
and warranties to be true and correct would not, individually or in the
aggregate, reasonably be expected to have a EOP Material Adverse Effect; and
Cornerstone shall have received a certificate (which certificate may be
qualified by Knowledge to the same extent as the representations and warranties
of EOP and EOP Partnership contained herein are so qualified) signed on behalf
of EOP by the chief executive officer or the chief financial officer of EOP, in
such capacity, to such effect.
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(b) PERFORMANCE OF OBLIGATIONS OF EOP AND EOP
PARTNERSHIP. EOP and EOP Partnership shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Effective Time, and Cornerstone shall have received a
certificate of EOP signed on behalf of EOP by a duly authorized executive
officer of EOP, in such capacity, to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, there shall have been no EOP Material Adverse Change and Cornerstone
shall have received a certificate of a duly authorized executive officer of EOP,
in such capacity, certifying to such effect.
(d) TAX OPINIONS RELATING TO REIT STATUS AND
PARTNERSHIP STATUS. Cornerstone shall have received the opinion of Hogan & Hartson L.L.P. or other counsel to EOP reasonably satisfactory to Cornerstone,
dated as of the Closing Date, that, commencing with its taxable year ended
December 31, 1997, (i) EOP was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code and that, after giving
effect to the Merger, EOP's proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code (with customary exceptions, assumptions and qualifications and based
upon customary representations and based upon and subject to the opinion of
counsel to Cornerstone described in Section 6.2(d) of this Agreement), (ii)
BeaMet was organized and has operated in conformity with the requirements for
qualification as a REIT under the Code (with customary exceptions, assumptions
and qualifications and based upon customary representations), and (iii) EOP
Partnership has been during and since 1997, and continues to be, treated for
federal income tax purposes as a partnership and not as a corporation or
association taxable as a corporation (with customary exceptions, assumptions and
qualifications and based upon customary representations).
(e) TAX OPINION RELATING TO THE MERGER. Cornerstone
shall have received an opinion dated the Closing Date from King & Spalding or
other counsel reasonably satisfactory to Cornerstone, based upon customary
certificates and letters, which letters and certificates are to be in a form to
be agreed upon by the parties and dated the Closing Date, to the effect that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Code.
(f) PROPOSED EOP CHARTER AMENDMENT RELATING TO
DOMESTICALLY CONTROLLED REIT Status. The EOP Shareholders shall have approved
the Proposed EOP Charter Amendment Relating to Domestically Controlled REIT
Status at the EOP Shareholders Meeting.
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(g) "COMFORT" LETTER. Cornerstone and Cornerstone
Partnership shall have received a "comfort" letter from Ernst & Young LLP, as
described in Section 5.1(b).
(h) CERTIFICATE REGARDING "DOMESTICALLY CONTROLLED
REIT" STATUS TO PGGM. EOP shall have delivered to Stichting Pensioenfonds voor
de Gezondheid, Geestelijke en Maatschappelijke Belangen ("PGGM") a certification
dated within fifteen (15) days of the Closing Date that to EOP's knowledge,
after reasonable inquiry, EOP is a "domestically controlled REIT" within the
meaning of Section 897(h)(4)(B) of the Code as of the date thereof. For purposes
of such certification, reasonable inquiry shall include (but not necessarily be
limited to) review of all Schedule 13D and 13G filings made under the Exchange
Act with the SEC with respect to EOP, all IRS Form 1042 filings made by or on
behalf of EOP, the list of EOP's registered shareholders as of a date within 60
days of such certificate (and to the extent reasonably available, as of a date
within 60 days of the end of each of 1997, 1998, and 1999), a list of
"non-objecting beneficial owners" of shares of EOP obtained as of a date within
60 days of such certificate (and to the extent reasonably available, as of a
date within 60 days of the end of each of 1997, 1998, and 1999), and a report of
a shareholder tracking service obtained within 60 days of such certificate
(together with such other reports as are in the possession of EOP). Such
certificate shall be accompanied by copies of information that has been obtained
or relied upon by EOP for purposes of such certificate, provided that PGGM shall
have executed an agreement with EOP to treat such information as confidential
and to use such information solely for the purposes of evaluating the accuracy
of such certification.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time of the Partnership Merger, whether such action
occurs before or after any of the Cornerstone Stockholder Approvals, the EOP
Shareholder Approvals or either of the Cornerstone Partner Approvals are
obtained:
(a) by mutual written consent duly authorized by the
Board of Trustees of EOP and the Board of Directors of Cornerstone;
(b) by EOP, upon a breach of or failure to perform
any representation, warranty, covenant, obligation or agreement on the part of
Cornerstone or Cornerstone Partnership set forth in this Agreement, or if any
representation or warranty of Cornerstone or Cornerstone Partnership shall
become untrue, in either case such that the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would be incapable of being
satisfied by December 31, 2000 (or as otherwise extended);
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(c) by Cornerstone, upon a breach of any
representation, warranty, covenant obligation or agreement on the part of EOP or
EOP Partnership set forth in this Agreement, or if any representation or
warranty of EOP or EOP Partnership shall become untrue, in either case such that
the conditions set forth in Section 6.3(a) or Section 6.3(b), as the case may
be, would be incapable of being satisfied by December 31, 2000 (or as otherwise
extended);
(d) by either EOP or Cornerstone, if any judgment,
injunction, order, decree or action by any Governmental Entity of competent
authority preventing the consummation of either of the Mergers shall have become
final and non-appealable;
(e) by either EOP or Cornerstone, if the Mergers
shall not have been consummated before December 31, 2000; PROVIDED, HOWEVER,
that a party may not terminate pursuant to this clause (e) if the terminating
party shall have breached in any material respect its obligations under this
Agreement in any manner that shall have caused either of the Mergers not to have
been consummated by such date;
(f) by either EOP or Cornerstone (unless Cornerstone
or Cornerstone Partnership is in breach in any material respect of its
obligations under Section 5.1) if, upon a vote at a duly held Cornerstone
Stockholders Meeting or any adjournment thereof, the Cornerstone Stockholder
Approvals shall not have been obtained as contemplated by Section 5.1 or if the
Cornerstone Partner Approvals have not been obtained as contemplated by Section
5.1;
(g) by either Cornerstone or EOP (unless EOP or EOP
Partnership is in breach in any material respect of its obligations under
Section 5.1 if, upon a vote at a duly held EOP Shareholders Meeting or any
adjournment thereof, the EOP Shareholder Approvals shall not have been obtained
as contemplated by Section 5.1 or if the EOP Partner Approvals have not been
obtained as contemplated by Section 5.1;
(h) by Cornerstone (i) if the Board of Directors of
Cornerstone shall have withdrawn, modified, amended or qualified in any manner
adverse to EOP its approval or recommendation of either of the Merger or this
Agreement in connection with, or approved or recommended, any Superior
Acquisition Proposal, or, (ii) in order to enter into a binding written
agreement with respect to a Superior Acquisition Proposal, provided that, in
each case, Cornerstone shall have complied with the terms of Section 4.3 and,
prior to terminating pursuant to this Section 7.1(h), has paid to EOP
Partnership the Break-Up Fee (as defined herein) as provided by Section 7.2
hereof; and
(i) by EOP, if (1) the Board of Directors of
Cornerstone shall have failed to recommend or withdrawn, modified, amended or
qualified, or proposed publicly not to recommend or to withdraw, modify, amend
or qualify, in
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any manner adverse to EOP its approval or recommendation of either of the
Mergers or this Agreement or approved or recommended any Superior Acquisition
Proposal, (2) following the announcement or receipt of an Acquisition Proposal,
Cornerstone shall have failed to call the Cornerstone Stockholders Meeting in
accordance with Section 5.1(a) or failed to prepare and mail to its stockholders
the Joint Proxy Statement in accordance with Section 5.1(a) or 5.1(b), or (3)
the Board of Directors of Cornerstone or any committee thereof shall have
resolved to do any of the foregoing.
7.2 CERTAIN FEES AND EXPENSES. If this Agreement shall be
terminated (i) pursuant to Section 7.1(h), 7.1(i)(1) or 7.1(i)(3), then
Cornerstone and Cornerstone Partnership thereupon shall pay to EOP Partnership a
fee equal to the Break-Up Fee (as defined herein), and (ii) pursuant to Section
7.1(b) or 7.1(f), then Cornerstone and Cornerstone Partnership shall pay to EOP
Partnership (provided that Cornerstone was not entitled to terminate this
Agreement pursuant to Section 7.1(c) at the time of such termination) an amount
equal to the Break-Up Expenses (as defined herein). If this Agreement shall be
terminated pursuant to Section 7.1(c) or 7.1(g), then EOP and EOP Partnership
shall pay to Cornerstone Partnership (provided that EOP was not entitled to
terminate this Agreement pursuant to Section 7.1(b) at the time of such
termination) an amount equal to the Break-Up Expenses. If this Agreement shall
be terminated pursuant to Section 7.1(b), 7.1(d) (if primarily resulting from
any action or inaction of Cornerstone, Cornerstone Partnership or any
Cornerstone Subsidiary or the Cornerstone Non-controlled Subsidiary), 7.1(e),
7.1(f), 7.1(i)(2) and prior to the time of such termination an Acquisition
Proposal has been received by Cornerstone or Cornerstone Partnership, and either
prior to the termination of this Agreement or within twelve (12) months
thereafter, Cornerstone or Cornerstone Partnership enters into any written
agreement to consummate a transaction or series of transactions which, had such
agreement been proposed or negotiated during the term of this Agreement, would
have constituted an Acquisition Proposal pursuant to Section 4.3 (each, a
"Cornerstone Acquisition Agreement"), which is subsequently consummated (whether
or not any Cornerstone Acquisition Agreement relates to the same Acquisition
Proposal which had been received at the time of the termination of this
Agreement), then Cornerstone and Cornerstone Partnership shall pay the Break-Up
Fee to EOP Partnership.
The payment of the Break-Up Fee shall be compensation for the
loss suffered by EOP and EOP Partnership as a result of the failure of the
Mergers to be consummated (including, without limitation, opportunity costs and
out-of-pocket costs and expenses) and to avoid the difficulty of determining
damages under the circumstances. The Break-Up Fee shall be paid by Cornerstone
and Cornerstone Partnership to EOP Partnership, or the Break-Up Expenses shall
be paid by Cornerstone and Cornerstone Partnership to EOP Partnership or EOP
Partnership to Cornerstone Partnership (as applicable), in immediately available
funds within two (2) business days after the date the event giving rise to the
obligation to make
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such payment occurred (except as otherwise provided in Section 7.1(h) or
7.1(i)). Cornerstone acknowledges that the agreements contained in this Section
7.2 are integral parts of this Agreement; accordingly, if Cornerstone and
Cornerstone Partnership fail to promptly pay the Break-Up Fee or Break-Up
Expenses due pursuant to this Section 7.2 and, in order to obtain payment, EOP
commences a suit which results in a judgment against Cornerstone or Cornerstone
Partnership for any amounts owed pursuant to this Section 7.2, Cornerstone and
Cornerstone Partnership shall pay to EOP its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount owed at the rate on six-month U.S. Treasury obligations
in effect on the date such payment was required to be made plus 300 basis
points.
As used in this Agreement, "Break-Up Fee" shall be an amount
equal to the lesser of (i) $100,000,000 less Break-Up Expenses paid or payable
under this Section 7.2 (the "Base Amount") and (ii) the sum of (A) the maximum
amount that can be paid to EOP Partnership without causing EOP to fail to meet
the requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants to EOP, and (B) in the event EOP receives
a letter from outside counsel (the "Break-Up Fee Tax Opinion") indicating that
EOP has received a ruling from the IRS holding that EOP Partnership's receipt of
the Base Amount would either constitute Qualifying Income or would be excluded
from gross income of EOP within the meaning of Sections 856(c)(2) and (3) of the
Code (the "REIT Requirements") or that the receipt by EOP Partnership of the
remaining balance of the Base Amount following the receipt of and pursuant to
such ruling would not be deemed constructively received prior thereto, the Base
Amount less the amount payable under clause (A) above. Cornerstone's and
Cornerstone Partnership's obligation to pay any unpaid portion of the Break-Up
Fee shall terminate three years from the date of this Agreement. In the event
that EOP Partnership is not able to receive the full Base Amount, Cornerstone
and Cornerstone Partnership shall place the unpaid amount in escrow and shall
not release any portion thereof to EOP Partnership unless and until Cornerstone
receives either one of the following: (i) a letter from EOP's independent
accountants indicating the maximum amount that can be paid at that time to EOP
Partnership without causing EOP to fail to meet the REIT Requirements or (ii) a
Break-Up Fee Tax Opinion, in either of which events Cornerstone and Cornerstone
Partnership shall pay to EOP Partnership the lesser of the unpaid Base Amount or
the maximum amount stated in the letter referred to in (i) above.
The "Break-Up Expenses" payable to EOP Partnership or
Cornerstone Partnership, as the case may be (the "Recipient"), shall be an
amount equal to the lesser of (i) $7,500,000 or (ii) the Recipient's
out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, all attorneys',
accountants' and investment bankers'
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fees and expenses). If the Break-Up Expenses payable to the Recipient exceed the
maximum amount that can be paid to the Recipient without causing the Recipient
to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
determined as if the payment of such amount did not constitute Qualifying
Income, as determined by independent accountants to the Recipient (the "Maximum
Amount"), the amount initially payable to the Recipient shall be limited to the
Maximum Amount. If, however, within the three-year period commencing on the date
of this Agreement, the Recipient receives a Break-Up Fee Tax Opinion indicating
that it has received a ruling from the IRS holding that the Recipient's receipt
of the Break-Up Expenses would either constitute Qualifying Income or would be
excluded from gross income of the Recipient within the meaning of the REIT
Requirements or that receipt by the Recipient of the balance of the Break-Up
Expenses above the Maximum Amount following the receipt of and pursuant to such
ruling would not be deemed constructively received prior thereto, the Recipient
shall be entitled to have payable to it the full amount of the Break-Up
Expenses. The obligation of EOP and EOP Partnership or Cornerstone and
Cornerstone Partnership, as applicable ("Payor"), to pay any unpaid portion of
the Break-Up Expenses shall terminate three years from the date of this
Agreement. In the event that the Recipient is not able to receive the full
Break-Up Expenses, the Payor shall place the unpaid amount in escrow and shall
not release any portion thereof to the Recipient unless and until the Payor
receives either one of the following: (i) a letter from the independent
accountants of EOP or Cornerstone, as the case may be, indicating the maximum
amount that can be paid at that time to the Recipient without causing it to fail
to meet the REIT Requirements or (ii) a Break-Up Expense Tax Opinion, in either
of which events the Payor shall pay to the Recipient the lesser of the unpaid
Break-Up Expenses or the maximum amount stated in the letter referred to in (i)
above.
7.3 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Cornerstone or EOP as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of EOP, EOP Partnership, Cornerstone or Cornerstone
Partnership, other than the last sentence of Section 5.2, Section 7.2, this
Section 7.3 and Article 8, and except to the extent that such termination
results from a material breach by any party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
7.4 AMENDMENT. This Agreement may be amended by the parties in
writing by action of the respective Board of Trustees or Board of Directors of
EOP and Cornerstone at any time before or after any Shareholder Approvals are
obtained and prior to the filing of the Articles of Merger with the Department;
provided, HOWEVER, that, after the Shareholder Approvals and Partner Approvals
are obtained, no such amendment, modification or supplement shall be made which
by law requires the further approval of shareholders or partners without
obtaining such further approval. The parties agree to amend this Agreement in
the manner
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provided in the immediately preceding sentence to the extent required to (a)
continue the status of each party as a REIT or (b) preserve the Merger as a
reorganization under Section 368(a) of the Code.
7.5 EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.4, waive compliance with any of the agreements or
conditions of the other party contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE 8
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement shall survive the Effective Time. This Section 8.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
(a) if to EOP or EOP Partnership, to:
Equity Office Properties Trust
Two North Riverside Plaza, 22nd Floor
Chicago, Illinois 60606
Attention: Timothy H. Callahan, President
Stanley M. Stevens, Chief Counsel
Fax No.: (312) 559-5021
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with a copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Attention: J. Warren Gorrell, Jr., Esq.
George P. Barsness, Esq.
Fax No.: (202) 637-5910
(b) if to Cornerstone or Cornerstone Partnership, to:
Cornerstone Properties Inc.
Tower 56
126 East 56th Street, 6th Floor
New York, New York 10022
Attention: John S. Moody, President
Fax No.: (212) 605-7199
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, GA 30303-1763
Attention: William B. Fryer, Esq.
Fax No.: (404) 572-5100
All notices shall be deemed given only when actually received.
8.3 INTERPRETATION. When a reference is made in this Agreement
to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party.
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Cornerstone Disclosure Letter, the EOP Disclosure Letter, the
Confidentiality Agreement, the Voting Agreements and the other agreements
entered into in connection with the Mergers (a) constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral
between the parties with respect to the subject matter of this Agreement and (b)
except as
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provided in Section 5.9 ("Third Party Provisions"), are not intended to confer
upon any person other than the parties hereto any rights or remedies.
8.6 GOVERNING LAW. THE PARTNERSHIP MERGER SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICT OF LAWS THEREOF. EXCEPT AS PROVIDED IN THE IMMEDIATELY PRECEDING
SENTENCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
8.8 ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in
Maryland or in any state court located in Maryland this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself (without making such
submission exclusive) to the personal jurisdiction of any federal court located
in Maryland or any state court located in Maryland in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
8.9 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
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8.10 EXCULPATION. This Agreement shall not impose any personal
liability on any shareholder, trustee, trust manager, officer, employee or agent
of EOP or Cornerstone, and all Persons shall look solely to the property of EOP
or Cornerstone for the payment of any claim hereunder or for the performance of
this Agreement.
8.11 JOINT AND SEVERAL OBLIGATIONS. In each case where both
Cornerstone and Cornerstone Partnership, on the one hand, or EOP and EOP
Partnership, on the other hand, are obligated to perform the same obligation
hereunder, such obligation shall be joint and several.
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IN WITNESS WHEREOF, EOP, EOP Partnership, Cornerstone and
Cornerstone Partnership have caused this Agreement to be signed by their
respective officers (or general partners) thereunto duly authorized all as of
the date first written above.
EQUITY OFFICE PROPERTIES TRUST
By: /s/ Timothy H. Callahan
---------------------------
Name: Timothy H. Callahan
Title: President and Chief
Executive Officer
EOP OPERATING LIMITED PARTNERSHIP
By: Equity Office Properties Trust, its
managing general partner
By: /s/ Timothy H. Callahan
---------------------------
Name: Timothy H. Callahan
Title: President and Chief
Executive Officer
CORNERSTONE PROPERTIES INC.
By: /s/ John S. Moody
---------------------------
Name: John S. Moody
Title: President and Chief
Executive Officer
CORNERSTONE PROPERTIES LIMITED PARTNERSHIP
By: Cornerstone Properties Inc.,
its sole general partner
By: /s/ John S. Moody
---------------------------
Name: John S. Moody
Title: President and Chief
Executive Officer
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