Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. COLONIAL PROPERTIES TRUST (909111) 10-Q published on Aug 07, 2013 at 12:09 pm
Reporting Period: Jun 29, 2013
On June 19, 2013, a putative class action and derivative lawsuit was filed in the Circuit Court for Jefferson County, Alabama against and purportedly on behalf of the Trust captioned Williams v. Colonial Properties Trust, et al. The complaint names as defendants the Trust, the members of the Trust's board of trustees, CRLP, Mid-America Apartment Communities, Inc. (“MAA”), Mid-America Apartments, L.P. (“MAA LP”) and Martha Merger Sub, LP (“OP Merger Sub”) and alleges that the trustees of the Trust breached their fiduciary duties by engaging in an unfair process leading to the Merger Agreement with MAA described in Note 16 to the Trust's and CRLP's Consolidated Condensed Financial Statements - “Proposed Merger with MAA”, failing to secure and obtain the best price reasonable for the Trust's shareholders, allowing preclusive deal protection devices in the Merger Agreement, and by engaging in conflicted actions. The complaint alleges that CRLP, MAA, MAA LP and OP Merger Sub aided and abetted those breaches of fiduciary duties. The complaint seeks a declaration that defendants have breached their fiduciary duties or aided and abetted such breaches and that the Merger Agreement is unlawful and unenforceable, an order enjoining the consummation of the mergers contemplated under the Merger Agreement, direction of the trustees of the Trust to exercise their fiduciary duties to obtain a transaction that is in the best interests of the Trust, rescission of the mergers contemplated under the Merger Agreement in the event they are consummated, an award of costs and disbursements, including reasonable attorneys' and experts' fees, and other relief. On July 2, 2013, plaintiff moved for expedited fact discovery and for an expedited schedule for filing and hearing a preliminary motion to enjoin the Mergers; on July 11, 2013, defendants opposed those motions and moved to stay fact discovery. On July 13, 2013, defendants also moved to dismiss the complaint for failure to state a claim upon which relief can be granted on the grounds that (1) the claims against the trustees of the Trust are derivative and not direct, and plaintiff did not comply with Alabama law on serving notice of the claims on the Trust prior to filing; and (2) Alabama law does not recognize a cause of action in aiding and abetting a breach of fiduciary duty. The Court has scheduled a motions hearing for August 14, 2013. For more information regarding the proposed transaction with MAA, see Note 16 to the Trust's and CRLP's Consolidated Condensed Financial Statements - “Proposed Merger with MAA”.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Parent Merger, each outstanding common share of beneficial interest, par value $0.01 per share, of the Trust (“Colonial Common Shares”) will be converted into the right to receive 0.360 (the “Exchange Ratio”) shares of MAA common stock, par value $0.01 per share (other than shares held by any wholly-owned subsidiary of the Trust or by MAA or any of its subsidiaries and other than shares with respect to which dissenters' rights have been properly exercised and not withdrawn under applicable Alabama law). At the effective time of the Partnership Merger, which will occur immediately prior to the Parent Merger, each outstanding limited partnership interest in CRLP will automatically be converted into 0.360 limited partnership units in MAA LP.
Under the terms of the Merger Agreement, at the effective time of the Parent Merger, each option to purchase Colonial Common Shares will be converted into an option exercisable for a number of shares of MAA common stock calculated based on the Exchange Ratio, subject to the same terms and conditions (including vesting schedule) as were applicable to the corresponding option immediately prior to the Parent Merger. In addition, all Colonial restricted share awards outstanding at the effective time of the Parent Merger will be converted into the right to receive a number of shares of MAA common stock calculated based on the Exchange Ratio, subject to the same terms and conditions (including vesting schedule) as were applicable to the corresponding award immediately prior to the Parent Merger.
The completion of the Parent Merger is subject to customary conditions, including, among others: (i) approval by MAA's and the Trust's respective common shareholders, and approval by the holders of the Class A common units in MAA LP; (ii) the absence of a material adverse effect on either MAA or the Trust; (iii) the receipt of tax opinions relating to REIT status and the tax-free nature of the transaction; and (iv) obtaining certain third party consents.
In order for the Parent Merger to be completed, both MAA shareholders and the Trust's shareholders must approve the Parent Merger and the other transactions contemplated by the Merger Agreement and holders of limited partnership interests of MAA LP must approve the Partnership Merger and the amendment and restatement of the limited partnership agreement of MAA LP. Approval of the Parent Merger requires (i) the affirmative vote of a majority of the shares of MAA common stock outstanding and entitled to vote on the proposal; and (ii) the affirmative vote of a majority of the Colonial Common Shares outstanding as of the record date for the Trust's special meeting. Approval of the Partnership Merger and the amendment and restatement of the limited partnership agreement of MAA LP requires the approval of holders of at least 66 2/3rds of the outstanding limited partnership interests of MAA LP, excluding for purposes of the approval all limited partnership interests held by MAA.
If the Mergers do not occur, the Trust may incur payment obligations to MAA.
While management believes that the allegations in the complaint are without merit and intends to defend vigorously against these allegations, the Trust cannot assure you as to the outcome of this, or any similar future lawsuits, including the costs associated with defending this claim or any other liabilities that may be incurred in connection with the litigation or settlement of this claim. The Trust is unable to reliably estimate the likelihood or amount of potential loss. If the plaintiff is successful in obtaining an injunction prohibiting the parties from completing the Mergers on the agreed-upon terms, such an injunction may prevent the completion of the Mergers in the expected time frame, or may prevent them from being completed altogether. Whether the plaintiff's claims are successful, this type of litigation is often expensive and diverts management's attention and resources, which could adversely affect the operation of the business of the Trust.