PREM14A 1 proxy_nov09.htm SPECIAL PROXY MEETING proxy_nov09.htm
 
 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
 
þ
Preliminary Proxy Statement
 
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
o
Definitive Proxy Statement
 
o
Definitive Additional Materials
 
o
Soliciting Material Pursuant to §240.14a-12
AMERICAN COMMUNITY PROPERTIES TRUST
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
 
o
No fee required.
 
þ
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
   
(1)
 
Title of each class of securities to which transaction applies:
Common Shares of Beneficial Interest, par value $0.01 per share, of American Community Properties Trust (“Common Shares”)
   
(2)
 
Aggregate number of securities to which transaction applies:
· 5,308,695 Common Shares;
 
· 313,965 restricted Common Shares; and
 
· 10,400 Common Shares issuable upon vesting of outstanding Share Appreciation Rights (“SARs”).
 
   
(3)
 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
$7.75 per Common Share, including restricted Common Shares; and
$3.75 per SAR, which is the difference between the $7.75 per Common Share Merger Consideration and the $4.00 per Common Share weighted average exercise price per SAR.
   
(4)
 
Proposed maximum aggregate value of transaction:
$43,614,615
   
(5)
 
Total fee paid:
$2,434.00
   
o
 
Fee paid previously with preliminary materials.
   
o
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
   
(1)
 
Amount Previously Paid:
   
(2)
 
Form, Schedule or Registration Statement No.:
   
(3)
 
Filing Party:
   
(4)
 
Date Filed:
       
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 
 

 

AMERICAN COMMUNITY PROPERTIES TRUST
222 Smallwood Village Center
 
St. Charles, Maryland 20602
 
Dear Shareholder:
 
You are cordially invited to attend a special meeting of shareholders of American Community Properties Trust, a Maryland real estate investment trust (the “Company”), to be held at    ●    local time, on    ●   ,       , at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus Drive, Waldorf, Maryland.
 
At the special meeting, we will ask our shareholders to consider and vote upon (i) the merger of FCP/ACPT Acquisition Company, Inc., an indirect subsidiary of FCP Fund I, L.P., with and into the Company (the “Merger”), pursuant to the Agreement and Plan of Merger, dated as of September 25, 2009, by and among the Company, FCP/ACPT Acquisition Company, Inc. and FCP Fund I, L.P (the “Merger Agreement”) and (ii) an amendment to our Amended and Restated Declaration of Trust (the “Declaration of Trust”) to cause the requirement that the Company make a minimum distribution to our shareholders in connection with our net taxable income that is allocable to our shareholders to be of no operation or effect (the “Declaration of Trust Amendment”).  If the Merger is completed, each holder of our Common Shares of beneficial interest, par value $0.01 per share (“Common Shares”), will be entitled to receive $7.75 in cash, without interest, subject to adjustment for certain dividend payments, if any (as described in the enclosed proxy statement), for each outstanding Common Share held on the effective time of the Merger.
 
Our Board of Trustees and a Special Committee comprised solely of independent and disinterested trustees each has determined that the Merger is advisable and in the best interests of the Company on the terms set forth in the Merger Agreement and that the Declaration of Trust Amendment is advisable and in the best interests of the Company and has approved the Merger and the Declaration of Trust Amendment.  Accordingly, our Board of Trustees recommends that you vote “FOR” approval of the Merger and “FOR” approval of the Declaration of Trust Amendment.
 
We cannot complete the Merger unless the holders of at least two-thirds of our issued and outstanding Common Shares that are entitled to vote at the special meeting vote to approve BOTH the Merger and the Declaration of Trust Amendment. The accompanying notice of special meeting of shareholders provides specific information concerning the special meeting.  The enclosed proxy statement provides you with a summary of the Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement, additional information about the parties to the Merger Agreement and a summary of the Declaration of Trust Amendment.  We encourage you to read carefully the enclosed proxy statement, the Merger Agreement, a copy of which is included in the proxy statement as Exhibit A, and the Declaration of Trust Amendment, a copy of which is included in the proxy statement as Exhibit B.
 
Some of our trustees and executive officers and certain other persons have interests and arrangements that may be different from, or in addition to, and may conflict with, your interests as a shareholder of the Company.  These interests are summarized in the section entitled “The Merger—Interests of Our Trustees, Executive Officers and Other Persons in the Merger” on page 36 of the enclosed proxy statement.
 
J. Michael Wilson, the Chairman of our Board of Trustees, and certain of his family members and affiliated entities that hold an aggregate of 2,650,720 of our Common Shares (representing 47% of our outstanding fully diluted Common Shares) have agreed to vote their Common Shares in favor of the Merger and the Declaration of Trust Amendment referred to above.  In addition, our other trustees and executive officers who hold an aggregate of 416,949 of our Common Shares (representing an additional 7.4% of our outstanding fully diluted Common Shares) have indicated that they will vote their Common Shares in favor of the Merger and the Declaration of Trust Amendment.
 
     FCP has advised us that it has entered into an arrangement with one of our shareholders who, together with certain related and affiliated persons, beneficially owns an aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding fully diluted Common Shares), pursuant to which such shareholder and substantially all of his related and affiliated persons would make a passive indirect investment in the surviving entity of the Merger immediately after the closing of the Merger and agree to vote 829,529 of the Common Shares that they own (representing 14.8% of our outstanding fully diluted Common Shares) in favor of the Merger and the Declaration of Trust Amendment at the special meeting.
 
Your vote is very important.  Whether or not you plan to attend the special meeting, please complete and sign the enclosed proxy card and return it as promptly as possible.  If you attend the special meeting, you may continue to have your Common Shares voted as instructed on the proxy card or you may withdraw your proxy at the special meeting and vote your Common Shares in person.
 
 
Sincerely,
   
 
J. Michael Wilson
 
Chairman of the Board

 

 
 

 



AMERICAN COMMUNITY PROPERTIES TRUST
222 Smallwood Village Center
St. Charles, Maryland 20602
 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON       ,      


 
To Our Shareholders:
 
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of American Community Properties Trust, a Maryland real estate investment trust (the “Company”), will be held at        on       ,      , at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus Drive, Waldorf, Maryland, for the purpose of acting upon the following proposals:
 
1.  to consider and vote upon a proposal to approve the Merger of FCP/ACPT Acquisition Company, Inc. with and into American Community Properties Trust (the “Merger”) pursuant to the Agreement and Plan of Merger, dated as of September 25, 2009, by and among American Community Properties Trust, FCP/ACPT Acquisition Company, Inc. and FCP Fund I, L.P. (the “Merger Agreement”), as more fully described in the enclosed proxy statement (Proposal 1);
 
2.  to consider and vote upon an amendment to our Amended and Restated Declaration of Trust to cause Section 5.3.3 to be of no operation or effect (suspending the requirement that the Company make a minimum distribution to its shareholders in connection with our net taxable income that is allocable to our shareholders) and to make such section inapplicable for the fiscal year ending December 31, 2009 and subsequent thereto (the “Declaration of Trust Amendment”), as more fully described in the enclosed proxy statement (Proposal 2); and
 
3.  to consider and vote upon any proposal to adjourn the special meeting to solicit additional proxies in favor of approval of the Merger or the Declaration of Trust Amendment if there are insufficient votes at the time of the special meeting to approve both the Merger and the Declaration of Trust Amendment (Proposal 3).
 
Our Board of Trustees and a Special Committee comprised solely of independent and disinterested trustees each has determined that the Merger is advisable and in the best interests of the Company on the terms set forth in the Merger Agreement and that the Declaration of Trust Amendment is advisable and in the best interests of the Company and has approved the Merger and the Declaration of Trust Amendment.  Accordingly, our Board of Trustees recommends that you vote “FOR” approval of the Merger, “FOR” approval of the Declaration of Trust Amendment and “FOR” any proposal to adjourn the special meeting to solicit additional proxies in favor of approval of the Merger and the Declaration of Trust Amendment if there are insufficient votes at the time of the special meeting to approve both the Merger and the Declaration of Trust Amendment.
 
All common shareholders of record as of the close of business on       , 2009, are entitled to receive notice of, and to attend and vote at, the special meeting or any postponements or adjournments of the special meeting.  Each shareholder is entitled to one vote for each common share of beneficial interest (each a “Common Share”) held as of the close of business on the record date.  Regardless of the number of Common Shares you own, your vote is important.
 
Whether or not you plan to attend the meeting and vote your Common Shares in person, please authorize a proxy to vote your Common Shares.  If your Common Shares are held in “street name” through a broker or other nominee, you may authorize a proxy to vote your Common Shares by following the voting instructions of your broker or other nominee.  If you are a registered shareholder (i.e., you hold your shares in your own name), you may authorize a proxy to vote your Common Shares by marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope.
 
Any proxy may be revoked at any time prior to its exercise by delivery of a later-dated proxy or by attending the special meeting in person and notifying the chairman of the meeting that you would like your proxy revoked.  By authorizing your proxy promptly, you can help us avoid the expense of further proxy solicitations.
 
Your attention is directed to the proxy statement accompanying this notice (including the exhibits thereto) for a more complete description of the matters proposed to be acted on at the special meeting.  We encourage you to read this proxy statement carefully.  If you have any questions or need assistance voting your shares, please call Matthew M. Martin, our Chief Financial Officer, at (301) 843-8600.
 
The attached proxy statement is dated       , 2009 and is expected to be first mailed to shareholders on or about       , 2009.
 
 
 
By Order of the Board of Trustees,
   
 
Matthew M. Martin
 
Chief Financial Officer and Secretary

 
 

 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 

                  
 
Page
   
SUMMARY
1
    Parties to the Merge
1
    The Special Meeting
2
    Record Date, Notice, Quorum and Mailing
2
    Voting Requirements for the Proposals
2
    Proxies; Revocation of Proxies
3
    The Merger
4
    Merger Consideration
4
    Treatment of Restricted Shares and Share Appreciation Rights
4
    Payment Procedures
5
    Declaration of Trust Amendment
5
    Recommendation of Our Board of Trustees
5
    Opinion of the Special Committee’s Financial Advisor
6
    Available Funds
6
    No Dissenters’ or Appraisal Rights
6
    Interests of Our Trustees, Executive Officers and Other Persons in the Merger
6
    Solicitation of Other Offers
7
    Conditions to the Merger
8
    Termination of the Merger Agreement/Payment of Termination Payment and Merger Expenses
9
    Fees and Expenses
10
    Regulatory Approvals
11
    Litigation Relating to the Merger
11
    Who Can Answer Other Questions
11
   
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
18
    THE SPECIAL MEETING
19
    Record Date, Notice and Quorum Requirement
19
    Voting Requirements for the Proposals
19
   
THE MERGER—PROPOSAL 1
21
   
THE PARTIES
21
    FCP/ACPT Acquisition Company, Inc.
21
    General Description of the Merger
21
    Merger Vote Requirement
22
    Background of the Merger
22
    Recommendation of the Special Committee and Our Board of Trustees
29
    Reasons for the Merger
30
    Interests of Our Trustees, Executive Officers and Other Persons in the Mergers
36
   
THE MERGER AGREEMENT
41
    The Merger
41
    Organizational Documents
41
    Effective Time and Closing
42
    Trustees and Officers
42
    Merger Consideration to be Received by Holders of Our Common Shares, Restricted Common Shares and SARs
42
    Payment Procedures
42
    Available Funds
43
    Our Representations and Warranties
43
    Representations and Warranties of the Other Parties to the Merger Agreement
44
    Covenants Regarding Conduct of Our Business
44
    Other Covenants
46
    Solicitation of Other Offers
47

 
 

 


    Employee Benefits
50
    Conditions to the Merger
50
    Definition of Material Adverse Effect
52
    Termination
52
    Termination Payments and Expenses
54
    Amendment of the Merger Agreement
55
    Indemnification; Trustee and Officer Insurance
55
    Litigation Relating to the Merger
56
   
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
57
    Recommendation of Our Board of Trustees
61
   
DECLARATION OF TRUST AMENDMENT—PROPOSAL 2
62
    Recommendation of Our Board of Trustees
62
   
ADJOURNMENTS AND POSTPONEMENTS OF THE SPECIAL MEETING
63
    Proposal for Adjournments- PROPOSAL 3
63
    Recommendation of Our Board of Trustees
63
    Postponements
63
   
MARKET PRICE OF OUR COMMON SHARES
64
   
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
65
   
DISSENTERS’ RIGHTS OF APPRAISAL
67
   
WHERE YOU CAN FIND ADDITIONAL INFORMATION
67
   
   
EXHIBITS
 
   
Exhibit A             Agreement and Plan of Merger
A-1
Exhibit B              Declaration of Trust Amendment
B-1
Exhibit C              Opinion of the Special Committee’s Financial Advisor
C-1


 
 

 

 

AMERICAN COMMUNITY PROPERTIES TRUST
222 Smallwood Village Center
St. Charles, Maryland 20602
 

PROXY STATEMENT


SUMMARY
 
This summary highlights selected information contained elsewhere in this proxy statement relating to the Merger and other matters to be addressed at the special meeting and may not contain all of the information that is important to you. In this proxy statement, we refer to the merger of FCP/ACPT Acquisition Company, Inc. with and into our Company as the “Merger,” and we refer to the proposed amendment to our Amended and Restated Declaration of Trust as the “Declaration of Trust Amendment.”  For a more complete description of the Merger and other transactions contemplated by the Merger Agreement and the Declaration of Trust Amendment, you should carefully read this entire proxy statement as well as the additional documents to which it refers, including the Merger Agreement, a copy of which is attached to this proxy statement as Exhibit A, and the Declaration of Trust Amendment, a copy of which is attached to this proxy statement as Exhibit B.  For instructions on obtaining more information, see “¾Who Can Answer Other Questions” on page 16.  References to “ACPT,” “the Company,” “we,” “our,” or “us” in this proxy statement refer to American Community Properties Trust and its subsidiaries unless otherwise indicated or the context otherwise requires.
 
This proxy statement is dated       , 2009 and is first being mailed to shareholders on or about       , 2009.
 
 Parties to the Merger (Page 21)
 
American Community Properties Trust

American Community Properties Trust is a self-advised and self-managed real estate holding company that is primarily engaged in the business of investing in and managing multifamily rental properties as well as community development and homebuilding.  ACPT’s operations are primarily concentrated in the Washington, D.C. metropolitan area and Puerto Rico.  As of September 30, 2009, we owned or maintained interests in 22 multifamily rental properties, directly and through partnerships, containing an aggregate of 3,366 completed units and 184 units that are currently under construction.  In addition, as of September 30, 2009, we owned two commercial buildings containing approximately 75,000 square feet of leasable space and approximately 4,000 acres of land in St. Charles, Maryland and 600 acres of land in Puerto Rico.  We were formed as a Maryland real estate investment trust in March 1997 to succeed to most of Interstate General Company L.P.’s (“IGC”) real estate operations.  On October 5, 1998, IGC transferred to ACPT the common shares of four subsidiaries that collectively comprised the majority of the principal real estate operations and assets of IGC.  In exchange, ACPT issued to IGC 5,207,954 Common Shares of ACPT, all of which were distributed to the partners of IGC.  We believe that we have qualified and been taxable as a partnership for U.S. federal income tax purposes since October 5, 1998.  Our executive offices are located at 222 Smallwood Village Center, St. Charles, Maryland, 20602, phone number (301) 843-8600.  Our Common Shares currently are listed on the New York Stock Exchange AMEX, or “NYSE Amex,” under the symbol “APO.”  We currently have no preferred shares outstanding.
 
FCP Fund I, L.P.

Federal Capital Partners is a Washington, .D.C.-based real estate investment company that owns and manages a portfolio of multi-family office, industrial and retail properties in the Mid-Atlantic region, including through FCP Fund I, L.P., its equity fund, which we sometimes refer to in this proxy statement as “FCP.”  FCP’s executive offices are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite 120, Washington, D.C. 20007, phone number (202) 333-6030.
 

 
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FCP/ACPT Acquisition Company, Inc.

FCP/ACPT Acquisition Company, Inc., which we sometimes refer to in the proxy statement as “Merger Sub,” is a Maryland corporation and indirect subsidiary of FCP formed for the sole purpose of effecting the Merger.  Merger Sub has not conducted any business operations other than in connection with the transactions contemplated by the Merger Agreement.  Merger Sub’s executive offices are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite 120, Washington, D.C. 20007, phone number (202) 333-6030.
 
 The Special Meeting (Page 19)
 
The special meeting will be held at        local time on       ,       , at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus Drive, Waldorf, Maryland.  At the special meeting, you will be asked to consider and vote upon (i) approval of the Merger pursuant to the terms of the Merger Agreement, (ii) the Declaration of Trust Amendment and (iii)  approval of any proposal to adjourn the special meeting to solicit additional proxies in favor of approval of the Merger and the Declaration of Trust Amendment if there are insufficient votes at the time of the special meeting to approve both the Merger and the Declaration of Trust Amendment.
 
 Record Date, Notice, Quorum and Mailing (Page 19)
 
We have set the close of business on    ●   , 2009 as the record date for determining those shareholders who are entitled to notice of, attend and vote at, the special meeting.  As of the record date,    ●    Common Shares were outstanding.
 
The presence at the special meeting, in person or by proxy, of holders of a majority of the aggregate number of our Common Shares outstanding and entitled to vote on the record date will constitute a quorum, allowing us to conduct the business of the special meeting.
 
A properly executed proxy marked ABSTAIN and a broker non-vote will be counted for purposes of determining whether a quorum is present at the special meeting but will not be voted.
 
This proxy statement is first being mailed to shareholders on or about    ●   , 2009.
 
 Voting Requirements for the Proposals (Page 19)
 
The Merger
 
Under the Merger Agreement, the proposal to approve the Merger requires the affirmative vote of holders of at least two-thirds of our issued and outstanding Common Shares entitled to vote at the special meeting.
 
Declaration of Trust Amendment
 
Under Maryland law and our Declaration of Trust, the proposal to approve the Declaration of Trust Amendment requires the affirmative vote of holders of at least two-thirds of our issued and outstanding Common Shares entitled to vote at the special meeting.
 
Adjournments
 
Under our Bylaws, any proposal to adjourn the special meeting to solicit additional proxies in favor of approval of the Merger and the Declaration of Trust Amendment if there are insufficient votes at the time of the special meeting to approve both the Merger and the Declaration of Trust Amendment will require the affirmative vote of a majority of the votes cast at the special meeting.
 

 
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Other Voting Matters
 
Each Common Share is entitled to one vote.  If you hold your Common Shares in “street name” (that is, through a broker or other nominee), your broker or nominee will not vote your shares unless you provide instructions to your broker or nominee on how to vote your shares.  You should instruct your broker or nominee how to vote your shares by following the directions provided by your broker or nominee.
 
As described below, the Wilson Family Shareholders and their affiliates holding an aggregate of 2,650,720 Common Shares of our Company (representing 47% of our outstanding fully diluted Common Shares) have agreed to vote these shares in favor of the Merger and the Declaration of Trust Amendment.  In addition, our other trustees and executive officers who, in the aggregate, hold 416,949 of our Common Shares (representing an additional 7.4% of our outstanding fully diluted Common Shares) have indicated that they will vote their Common Shares in favor of the Merger and the Declaration of Trust Amendment.
 
FCP has advised us that it has entered into an arrangement with one of our shareholders who, together with certain related and affiliated persons, beneficially owns an aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding fully diluted Common Shares), pursuant to which such shareholder and substantially all of his related and affiliated persons would make a passive indirect investment in the Surviving Entity (as defined herein) of the Merger immediately after the closing of the Merger and agree to vote 829,529 of the Common Shares that they own (representing 14.8% of our outstanding fully diluted Common shares) in favor of the Merger and the Declaration of Trust Amendment at the special meeting.  These Common Shares, combined with the Common Shares owned by the Wilson Family Shareholders and our other trustees and executive officers, comprise, in the aggregate, 3,897,198 of our Common Shares (representing 69% of our outstanding fully diluted Common Shares), and represent a sufficient number of votes required to approve the Merger and the Declaration of Trust at the special meeting.
 
Because the required vote to approve the Merger and the Declaration of Trust Amendment is based on the number of Common Shares outstanding rather than on the number of votes cast, if you fail to authorize a proxy to vote your shares by completing and returning the enclosed proxy card, fail to vote in person or fail to instruct your broker or nominee on how to vote or abstain from voting, it will have the same effect as a vote against these proposals.
 
An abstention or a broker non-vote as to either the Merger or the Declaration of Trust Amendment will have the same effect as a vote against that proposal.  An abstention or a broker non-vote, if any, as to adjournment of the special meeting will have no effect on the result of the vote on adjournment.  A broker non-vote occurs when a broker returns a properly executed proxy but does not vote on a proposal on which the broker is prohibited from exercising its discretionary voting authority.
 
 Proxies; Revocation of Proxies (Page 19)
 
Any of our common shareholders of record entitled to vote at the special meeting may vote by returning the enclosed proxy card or by appearing and voting at the special meeting in person.  If you hold your Common Shares in “street name” (that is, through a broker, bank or other nominee), your broker, bank or nominee will not vote your shares unless you provide instructions to your broker, bank or nominee on how to vote your shares.  Accordingly, you should instruct your broker, bank or nominee how to vote your shares by following the directions provided by your broker, bank or nominee.  If you wish to vote in person at the special meeting and your Common Shares are held by a broker, bank or nominee, you must bring to the special meeting a legal proxy from the broker, bank or nominee authorizing you to vote your Common Shares.  It can often take several days to obtain a legal proxy from a broker, bank or nominee.
 
Even after you have properly submitted your proxy card, you may change your vote at any time before the proxy is voted by delivering to our Secretary either a notice of revocation or a duly executed proxy bearing a later date.  In addition, the powers of the proxy holders will be suspended with respect to your proxy if you attend the special meeting in person and notify the chairman of the meeting that you would like your proxy revoked.  Attendance at the special meeting will not by itself revoke a previously granted proxy.  If you have instructed a broker, bank or nominee to vote your shares, you must follow the directions received from your broker, bank or nominee in order to change your proxy instructions.
 

 
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Voting Agreement with the Wilson Family Shareholders (Page 22)
 
FCP and Merger Sub have entered into a voting agreement with J. Michael Wilson, the Chairman of our Board of Trustees, and certain of his family members and affiliated entities, which we refer to in this proxy statement as the “Wilson Family Shareholders.” The Wilson Family Shareholders own an aggregate of 2,650,720 of our Common Shares (which represents 47% of our outstanding fully diluted Common Shares as of the record date).  Pursuant to the voting agreement, the Wilson Family Shareholders have agreed to vote in favor of the Merger, the Merger Agreement and each transaction contemplated by the Merger Agreement, including the Declaration of Trust Amendment.  In addition, the Wilson Family Shareholders have agreed to vote against certain matters that would impact our ability to timely complete the Merger.  The voting agreement with the Wilson Family Shareholders will be terminated upon the first to occur of (i) the closing of the Merger and (ii) a termination of the Merger Agreement in accordance with its terms.  The voting agreement with the Wilson Family Shareholders may also be terminated at any time upon notice from FCP.
 
Voting by Our Trustees and Executive Officers (Page 38)
 
As of the record date, our trustees and executive officers, excluding J. Michael Wilson, beneficially owned an aggregate of 416,949 Common Shares, representing, in the aggregate, approximately 7.4% of the voting power of our Common Shares entitled to vote at the special meeting.  Our executive officers and trustees other than J. Michael Wilson have informed us that they intend to vote the Common Shares that they beneficially own in favor of the approval of the Merger and the Declaration of Trust Amendment, and for the approval of any adjournments of the special meeting for the purpose of soliciting additional proxies.  As described above, J. Michael Wilson and the other Wilson Family Shareholders are obligated to vote the Common Shares that they beneficially own for the approval of the Merger and the Declaration of Trust Amendment in accordance with the voting agreement.
 
Voting and Passive Investment Arrangement with Paul J. Isaac (Page 38)
 
FCP has advised us that it has entered into an arrangement with one of our shareholders, Paul J. Isaac, who, together with certain related persons and affiliates, beneficially owns an aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all of such related persons and affiliates would, after the closing of the Merger, make a passive indirect investment in the Surviving Entity.  In addition, Mr. Isaac and such related persons and affiliates who would participate in such investment have agreed to vote 829,529 of the Common Shares of our Company that they own in favor of the Merger and the Declaration of Trust Amendment at the special meeting.  These Common Shares, combined with the Common Shares owned by the Wilson Family Shareholders and our other trustees and executive officers, comprise, in the aggregate, 3,897,198 of our Common Shares (representing 69% of our outstanding fully diluted Common Shares), and represent a sufficient number of votes required to approve the Merger and the Declaration of Trust Amendment at the special meeting.  FCP has informed us that Mr. Isaac approached FCP unsolicited to explore such an arrangement after the execution and announcement of the Merger Agreement and that, prior to such meeting, FCP had not had any discussions or meetings, nor had it contemplated initiating any such discussions or meetings, with Mr. Isaac or any of his related persons or affiliates.
 
 The Merger (Page 21)
 
At the closing of the Merger, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a subsidiary of FCP, pursuant to the terms of the Merger Agreement.  We sometimes use the term “Surviving Entity” in this proxy statement to describe the Company as the Surviving Entity following the Merger.
 
 Merger Consideration (Page 21)
 
In the Merger, each outstanding Common Share of the Company will automatically be converted into the right to receive $7.75 in cash, without interest and less any applicable withholding tax.  We refer to this amount in this proxy statement as the “Merger Consideration.”  However, Common Shares held by the Company, FCP, Merger Sub or any subsidiary of the Company or FCP will be cancelled and retired for no additional consideration.  The Merger Consideration is fixed and will not be adjusted for changes in the trading price of our Common Shares.
 

 
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 However, the Merger Consideration is subject to adjustment for certain dividend payments, if any (as described in the enclosed proxy statement).  At this time, we do not expect to make any dividends or other distributions that would impact the Merger Consideration.
 
 Treatment of Restricted Shares and Share Appreciation Rights (Page 22)
 
In the Merger, each unvested restricted common share of the Company that, by its terms, vests automatically upon the consummation of the Merger will fully vest in accordance with its terms and be considered an outstanding Common Share for all purposes, including the right to receive the Merger Consideration.  In addition, each unvested restricted common share of the Company that, by its terms, does not vest in connection with a change of control, such as the Merger, will be cancelled and retired for no additional consideration.  There are currently 313,965 restricted Common Shares outstanding that, by their terms, will vest upon consummation of the Merger.
 
Additionally, in the Merger, each of the outstanding share appreciation rights, which we refer to as SARs, will be cancelled and in lieu thereof, each holder will be entitled to the right to receive an amount in cash equal to the product of (i) the excess of the Merger Consideration over the exercise price per Common Share underlying such share appreciation right, or SAR, multiplied by (ii) the number of Common Shares subject to such share appreciation right.  There are currently 10,400 SARs outstanding.  The excess of the $7.75 per share Merger Consideration over the weighted average exercise price per Common Share underlying the 10,400 outstanding SARs is $3.75 per share, for a total of $39,000.
 
 Payment Procedures (Page 42)
 
Following the completion of the Merger, you will receive a letter of transmittal and instructions describing how you may exchange your Common Shares for the Merger Consideration by sending your Common Share certificates with your completed letter of transmittal to the exchange agent.  You should not send your Common Share certificates to us or anyone else until you receive these instructions.  You will receive payment of the Merger Consideration after we receive from you a properly completed letter of transmittal together with your share certificates.  If you hold your Common Shares in “street name,” your broker or nominee must surrender your shares in exchange for your Merger Consideration following completion of the Merger.
 
 Declaration of Trust Amendment (Page 62)
 
You are also being asked to consider and vote upon the Declaration of Trust Amendment, which will cause Section 5.3.3 to be of no operation or effect.  This amendment would suspend the requirement that we make a minimum distribution to our common shareholders in connection with our net taxable income that is allocable to our shareholders.  The amendment would render such section inapplicable for the taxable year ending December 31, 2009 and thereafter, unless the Merger Agreement is terminated and our Board of Trustees makes a public announcement that Section 5.3.3 will thereafter be operative and in effect.  Our Board of Trustees approved the Declaration of Trust Amendment at the request of FCP as a condition to its willingness to sign the Merger Agreement and is recommending that our common shareholders vote to approve such proposal because the Merger Consideration to which we, FCP and Merger Sub agreed under the Merger Agreement was premised on the mutual understanding that no distributions of any kind would be made by us with respect to our Common Shares in the future so long as the Merger Agreement remains in effect.  The Merger Agreement provides that if we make any distributions with respect to our Common Shares, the Merger Consideration will be reduced accordingly.
 
The effect of the Declaration of Trust Amendment, if approved, is that, even if we have net taxable income that is allocable to our common shareholders for the taxable year ending on December 31, 2009 and thereafter, we would not make a cash distribution as currently required under our Declaration of Trust.  Instead, if the Merger is consummated, you will receive, as a common shareholder, the Merger Consideration.
 
If the special meeting occurs prior to December 31, 2009, and if both the Merger and the Declaration of Trust Amendment are approved by our shareholders, we expect to file the Declaration of Trust Amendment with the State Department of Assessments and Taxation of Maryland (the “SDAT”) as soon as practicable after such approval, and on or prior to December 31, 2009, even if the closing of the Merger does not occur until after December 31, 2009.  In the unlikely event that the Declaration of Trust Amendment is approved, but the Merger is not approved, our Board of Trustees may elect not to file the Declaration of Trust Amendment with the SDAT.
 

 
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 Recommendation of Our Board of Trustees (Page 29)
 
Our Board of Trustees recommends that holders of Common Shares vote FOR approval of the Merger and FOR approval of the Declaration of Trust Amendment.  At a meeting held on September 25, 2009, the Special Committee of our Board of Trustees appointed by our Board of Trustees and comprised of the five independent and disinterested trustees who are not also employees of the Company (the “Special Committee”) unanimously recommended to the Board of Trustees that the Board of Trustees determine that the Merger, on the terms set forth in the Merger Agreement, and the Declaration of Trust Amendment are advisable and in the best interests of Company.  The recommendation of the Special Committee was made after careful consideration of a variety of business, financial and other factors in consultation with its independent financial and legal advisors.  Based on the recommendation of the Special Committee, the Board of Trustees, at a meeting held on September 25, 2009, declared that the Merger, on the terms set forth in the Merger Agreement, and the Declaration of Trust Amendment are advisable and in our best interests and further determined to recommend that our shareholders approve the Merger and the Declaration of Trust Amendment.  Two of the trustees, J. Michael Wilson and Stephen K. Griessel, abstained from voting due to their interests in the Merger; however, both of these trustees have indicated that they intend to vote their Common Shares FOR approval of both the Merger and the Declaration of Trust Amendment.
 
 Opinion of the Special Committee’s Financial Advisor (Page 31)
 
On September 25, 2009, FBR Capital Markets & Co., which we refer to as FBR, rendered its oral opinion to the Special Committee (which was subsequently confirmed in writing by delivery of FBR’s written opinion dated the same date) to the effect that, as of September 25, 2009, the per share Merger Consideration of $7.75 to be received by holders of our Common Shares other than the Wilson Family Shareholders (which we refer to as the “Unaffiliated Holders”), in the proposed Merger pursuant to the Merger Agreement was fair to such Unaffiliated Holders from a financial point of view.
 
FBR’s opinion was directed to the Special Committee and only addressed the fairness, from a financial point of view, of the per share Merger Consideration to be received by the Unaffiliated Holders, in the proposed Merger pursuant to the Merger Agreement, and did not address any other aspect or implication of the proposed Merger. The summary of FBR’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Exhibit C to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by FBR in preparing its opinion. However, neither FBR’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not, constitute advice or a recommendation to any security holder as to how such security holder should act or vote with respect to any matter relating to the Merger.
 
 Available Funds (Page 43)
 
As noted above, the Merger is not subject to any conditions regarding the ability of FCP or Merger Sub to obtain the financing necessary to complete the Merger. FCP has represented to us in the Merger Agreement that it will, on the closing date, have cash sufficient to pay the Merger Consideration and to satisfy the obligations of FCP and Merger Sub at the time and in the manner contemplated by the Merger Agreement, including without limitation, in connection with the Merger and the other transactions contemplated by the Merger Agreement and all related expenses.
 
 
 No Dissenters’ or Appraisal Rights (Page 67)
 
Under Maryland law, because our Common Shares are listed on the NYSE Amex, appraisal rights are not available to holders of our Common Shares in connection with the Merger.
 
 Interests of Our Trustees, Executive Officers and Other Persons in the Merger (Page 36)
 
Each of our executive officers and certain of our trustees and other persons have interests in the Merger that differ from, or are in addition to, and therefore may conflict with, your interests as a shareholder as described in
 

 
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“The Merger—Interests of Our Trustees, Executive Officers and Other Persons in the Merger” beginning on page 36.  Our Board of Trustees is aware of these interests and considered them in approving the Merger and the other transactions contemplated by the Merger Agreement.  These interests include:
 
·  
restricted Common Shares owned by our trustees and executive officers, including 290,995 restricted Common Shares that were granted on September 9, 2009, to our Chief Executive Officer pursuant to the Amended and Restated Employment Agreement, dated May 14, 2009, among us, our subsidiary American Rental Properties Trust and our Chief Executive Officer, which currently are subject to vesting restrictions, will become fully vested upon consummation of the Merger but prior to the effectiveness of the Merger and the holders will be entitled to receive the same consideration as the holders of Common Shares;
 
·  
pursuant to an agreement between our Chief Executive Officer and Interstate Business Corporation (“IBC”), an entity affiliated with J. Michael Wilson, the Chairman of our Board of Trustees, 185,550 of our Common Shares owned by IBC, which were to be transferred in annual installments from IBC to a trust established by IBC for the sole and exclusive benefit of our Chief Executive Officer, will instead be transferred to our Chief Executive Officer upon the consummation of the Merger, and our Chief Executive Officer will be entitled to receive the same per share Merger Consideration in exchange for such 185,550 Common Shares as all other holders of our Common Shares under the terms of the Merger Agreement;
 
·  
share appreciation rights, or SARs, will be cancelled and, in lieu thereof, each holder will be entitled to the right to receive an amount in cash equal to the product of (i) the excess of the Merger Consideration over the exercise price per Common Share underlying such SAR multiplied by (ii) the number of Common Shares subject to such SAR.  An aggregate amount of $37,500 will be paid out to one of our trustees in connection with the cancellation of 10,000 SARs held by him;
 
·  
J. Michael Wilson, the Chairman of our Board of Trustees, had expressed a strong desire on behalf of the Wilson Family Shareholders to sell their Common Shares in order to created needed liquidity;
 
·  
certain of our executive officers, one of whom is also a trustee, may be employed by FCP to assist with the management of the Surviving Entity following the Merger;
 
·  
our Board of Trustees and executive officers are entitled to indemnification by FCP and the Surviving Entity and liability insurance coverage for a period of six years following the effective time of the Merger; and
 
·  
our independent trustees are entitled to receive, for their service on the Special Committee, lump sum payments of $25,000 per member and an additional $40,000 and $20,000 payment to the chairman and vice chairman of the Special Committee, respectively.
 
 Solicitation of Other Offers (Page 47)
 
From the first business day after the date of the Merger Agreement until 11:59 p.m., Eastern Standard Time, on October 28, 2009 (we refer to this period as the “go-shop period”), we were permitted to initiate, solicit and encourage acquisition proposals (including by way of providing access to non-public information pursuant to confidentiality agreements), and participate in discussions or negotiations with respect to acquisition proposals or otherwise cooperate with or assist or participate in, or facilitate any such discussions or negotiations.  The Special Committee directed FBR, during the “go-shop period,” to approach potentially interested parties in an effort to solicit acquisition proposals for the Company that constituted or were reasonably likely to lead to a superior proposal.  Accordingly, FBR contacted 57 potential financial and strategic buyers of which 19 requested a confidentiality agreement so they could consider whether to participate in the process and 10 signed confidentiality agreements and conducted due diligence.  However, none of the potential buyers contacted by FBR submitted an acquisition proposal prior to expiration of the “go-shop” period.
 
After the end of the go-shop period, we have agreed not to:
 
·  
initiate, solicit or encourage any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal;
 

 
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·  
initiate, enter into, engage in, continue, or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any person relating to, any acquisition proposal;
 
·  
withdraw the recommendation of the Board of Trustees;
 
·  
approve, endorse or recommend, or publicly propose to approve, endorse or recommend, any acquisition proposal;
 
·  
enter into any agreement in principle, arrangement, understanding, contract or agreement providing for, or relating to, an acquisition proposal or enter into any agreement or agreement in principle requiring the Company to abandon, terminate or fail to consummate the Merger or any of the transactions contemplated by the Merger Agreement;
 
·  
exempt any person from the restrictions contained in any state “business combination,” takeover or similar laws or otherwise cause such restrictions not to apply to any person or to any acquisition proposal;
 
·  
exempt any person from the ownership limitations and restrictions contained in Article IV of our Declaration of Trust or cause such limitations and restrictions not to apply; or
 
·  
release any person from or fail to enforce any standstill agreement or similar obligation to us and our subsidiaries other than the automatic termination of standstill obligations pursuant to the terms of agreements as in effect as of the date hereof, by virtue of the execution and announcement of the Merger Agreement.
 
Notwithstanding these restrictions:
 
·  
we are permitted to continue discussions and provide non-public information to any party that has made an acquisition proposal that satisfies certain conditions, including the determination by the Board of Trustees or the Special Committee that such proposal constitutes or is reasonably likely to lead to a superior proposal, on or prior to October 28, 2009, and with whom we are having ongoing discussions or negotiations as of October 28, 2009 (we must otherwise immediately cease or cause to be terminated discussions except as permitted below and cause any confidential information provided or made available to be returned or destroyed); and
 
·  
at any time after the date of the Merger Agreement and prior to the approval of the Merger Agreement by our shareholders, we are permitted to furnish information with respect to the Company and our subsidiaries to any person making a bona fide written acquisition proposal and participate in discussions or negotiations with the person making the bona fide acquisition proposal, if such proposal is reasonably likely to lead to a superior proposal (as defined in the Merger Agreement) and it would be inconsistent with the trustees’ duties under applicable law to fail to consider such bona fide proposal.
 
In addition, we may terminate the Merger Agreement and enter into a definitive agreement with respect to a superior proposal under certain circumstances.  In the event that a superior proposal has been made (or any material revision of a superior proposal has been made), we are not allowed to effect a recommendation withdrawal (as defined in the Merger Agreement) or terminate the agreement to accept such proposal unless:
 
·  
we shall have provided prior written notice to FCP and Merger Sub, at least three business days in advance, of our intention to take any such action with respect to such superior proposal, which notice shall specify the material terms and conditions of such superior proposal (including the identity of the party making such superior proposal); and
 
·  
prior to effecting any such action, we shall have, and shall have caused our financial and legal advisors to, during the requisite three-business day period, negotiate with FCP and Merger Sub in good faith (to the extent FCP and Merger Sub desire to negotiate) to make such adjustments in the terms and conditions of
 

 
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the Merger Agreement so that the transactions contemplated by thereby are more favorable to our shareholders than the superior proposal.
 
See “The Merger Agreement — Recommendation Withdrawal/ Termination in Connection with a Superior Proposal.”

 Conditions to the Merger (Page 50)
 
The Merger will be completed only if the conditions specified in the Merger Agreement are either satisfied or waived (to the extent permissible).  The most significant conditions specified in the Merger Agreement include:
 
·  
requisite approval of both the Merger and the amendment to our Declaration of Trust by our shareholders;
 
·  
the absence of any legal prohibition on the Merger;
 
·  
the continued accuracy of the respective representations and warranties of FCP and Merger Sub, on the one hand, and the Company, on the other hand, contained in the Merger Agreement, except, with respect to most of such representations and warranties, where the failure of such representations and warranties to be accurate would not have a material adverse effect on our Company, as defined in the Merger Agreement;
 
·  
FCP and Merger Sub, on the one hand, and the Company, on the other hand, having performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with on or prior to the closing date;
 
·  
the Company having caused American Rental Properties Trust (“ARPT”), one of our subsidiaries, to distribute certain inter-company obligations to the Company in order to distribute the current and accumulated earnings and profits of ARPT;
 
·  
FCP shall not have determined that there is a “substantial risk” (as described in the Merger Agreement) that the Company does not qualify or has not qualified as a partnership for tax purposes, provided that, in the event of such determination, a tax opinion of legal counsel as to the Company’s status as a partnership for tax purposes would satisfy such condition;
 
·  
the receipt of certain third party consents; and
 
·  
the absence of any event, fact, development, circumstance change or effect that, individually or in the aggregate, would constitute a material adverse effect on our Company, as defined in the Merger Agreement.  See “The Merger—The Merger Agreement—Definition of Material Adverse Effect” on page 52 of this proxy statement.
 
The Merger is not conditioned on FCP or FCP Merger Sub obtaining financing for the Merger Consideration.  See “—Available Funds” on page 43 for more information regarding the financing of the Merger.
 
If the holders of the requisite percentage of our Common Shares approve the Merger and the Declaration of Trust Amendment and the other conditions to the Merger are satisfied or waived (to the extent permissible), then we intend to consummate the Merger as soon as practicable following the special meeting.
 
 Termination of the Merger Agreement/Payment of Termination Payment and Merger Expenses (Page 52)
 
In addition to customary termination events, including termination by mutual consent of the parties, termination for breaches of representations or warranties, failure to perform any required covenants or agreements, and termination upon failure to receive the requisite shareholder approval for the Merger, the Merger Agreement may be terminated under the following circumstances:
 
·  
by us any time prior to receiving shareholder approval for the Merger in order to enter into a definitive acquisition agreement that provides for the implementation of a superior proposal in accordance with the termination provisions contained in the Merger Agreement, provided that we pay FCP (i) a $1.45 million
 

 
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termination payment and up to $300,000 of FCP’s merger expenses if the termination was to accept a superior proposal during the go-shop period or otherwise from a party who made a bona fide written acquisition proposal during the go-shop period that was reasonably likely to lead to a superior proposal (as defined in the Merger Agreement) and with whom negotiations or discussions were continuing at the end of the go-shop period or (ii) a $1.75 million termination payment and up to $300,000 of FCP’s merger expenses if the termination was to accept a superior proposal that arose after the go-shop period with any other person; or
 
·  
by either us or FCP if the Merger is not completed on or before March 31, 2010; or
 
·  
by either us or FCP if the Merger is prohibited by any governmental authority; or
 
·  
by FCP if our Board of Trustees or the Special Committee (i) makes a recommendation withdrawal (as that term is defined in the Merger Agreement) prior to the special meeting, (ii) approves or recommends to the Company’s shareholders an acquisition proposal other than the Merger or (iii) fails to cause the recommendation of the Merger to be included in this proxy statement, in which event, pursuant to the Merger Agreement, we would be required to pay the $1.75 million termination payment and up to $300,000 of FCP’s merger expenses; provided, that we would be required to pay $1.45 million termination payment and up to $300,000 of FCP’s merger expenses if the such actions were taken in connection with the acceptance of a superior proposal during the go-shop period or otherwise from a party who made a bona fide written acquisition proposal identified during the go-shop period that was reasonably likely to lead to a superior proposal (as defined in the Merger Agreement) and with whom negotiations or discussions were continuing at the end of the go-shop period (of which there were none).
 
We also would be required to pay FCP certain termination expenses and fees in the following circumstances:
 
·  
if we breach our representations and warranties or fail to perform any covenants or other agreements contained in the Merger Agreement and such breaches cause the conditions to closing to not be satisfied or render such conditions incapable of being satisfied by March 31, 2010, then we would be required to pay the $1.75 million termination payment and up to $300,000 of FCP’s merger expenses; and
 
·  
if the shareholders do not approve the Merger and the Declaration of Trust Amendment, we would be required to reimburse FCP for up to $600,000 of its merger expenses; in addition, if we complete an acquisition proposal within 12 months following the termination date of the Merger Agreement (whether or not the acquisition proposal was received prior to the termination date), we would be required to pay FCP a termination fee of $1.45 million plus up to $600,000 of FCP’s merger expenses paid because of the failure of the shareholders to approve the Merger.
 
·  
if FCP or Merger Sub breaches any of their representations and warranties or fails to perform any covenants or other agreements contained in the Merger Agreement and such breach causes the conditions to closing to not be satisfied or renders such conditions incapable of being satisfied by March 31, 2010, then FCP would be required to pay to us a $1.45 million termination payment and up to $300,000 of our merger expenses; provided, that if we terminate the Merger Agreement for any such breach by FCP or Merger Sub within 5 business days prior to the effective time of the Merger, then FCP would be required to pay to us a $5 million termination payment and up to $300,000 of our merger expenses.
 
Certain Tax Consequences of the Merger (Page 57)

You will be subject to tax on your share of the income we recognize in connection with the distribution by ARPT of certain inter-company obligations to us (the “E&P Distribution”).  You will also be subject to U.S. federal income tax on any gain resulting from your receipt of the Merger Consideration for your Common Shares.  A significant portion of the E&P Distribution and Merger Consideration could be taxed as ordinary income.  For further information on the material U.S. federal income tax consequences of the Merger and the E&P Distribution, please see the section captioned “Material United States Federal Income Tax Consequences—Consequences of the Merger and the E&P Distribution to U.S. Holders of Our Common Shares” on page 58.  You should consult your own tax advisor for a full understanding of the tax consequences of the Merger and the E&P Distribution to you.
 

 
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 Fees and Expenses (Page 25)
 
We estimate that our Company will incur, and will be responsible for paying, transaction-related fees and expenses, consisting primarily of filing fees, fees and expenses of investment bankers, attorneys and accountants and other related charges, totaling approximately $3.7 million, including loan assumption fees and assuming the Merger and the other transactions contemplated by the Merger Agreement are completed.  In the event the Merger and the other transactions contemplated by the Merger Agreement are completed, the Surviving Entity will assume these fees and expenses, to the extent they have not been paid.  In the event the Merger is not completed, we will be responsible for payment of these fees and expenses, other than the fees payable to the financial advisor to the Special Committee and loan assumption fees which are both contingent on closing of the Merger.
 
 Regulatory Approvals (Page 39)
 
No material federal or state regulatory approvals are required to be obtained by us or the other parties to the Merger Agreement in connection with the Merger.  To effect the Merger, however, we must file articles of merger with the SDAT and such articles of merger must be accepted for record by the SDAT.
 
 Litigation Relating to the Merger (Page 40)
 
On October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder, filed a class action complaint in the Circuit Court for Charles County, Maryland, against the Company, our Board of Trustees and FCP.  The complaint alleges that our trustees breached their fiduciary duties in connection with the Merger.  The complaint further alleges that FCP aided and abetted those breaches of fiduciary duties.  The complaint seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and expenses.
 
On October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a class action complaint in the Circuit Court for Charles County, Maryland, against the Company, our Board of Trustees, FCP and Merger Sub.  The complaint alleges that our trustees breached their fiduciary duties in connection with the Merger.  The complaint further alleges that FCP and Merger Sub aided and abetted those breaches of fiduciary duties.  The complaint seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and expenses.
 
 Who Can Answer Other Questions (Page 16)
 
If you have any questions about the Merger or any of the other transactions contemplated by the Merger Agreement or about how to submit your proxy or would like additional copies of this proxy statement, you should contact our Matthew M. Martin, our Chief Financial Officer and Secretary:
 
Matthew M. Martin
American Community Properties Trust
222 Smallwood Village Center
St. Charles, Maryland 20602
(301) 843-8600

 
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QUESTIONS AND ANSWERS ABOUT THE MERGER

What am I being asked to vote on?

Holders of our Common Shares are being asked to consider and vote upon (i) the Merger of Merger Sub with and into our Company pursuant to the terms of the Merger Agreement and (ii) an amendment to our Declaration of Trust to cause Section 5.3.3 to be of no operation or effect, thus suspending the requirement that we make a minimum distribution to our shareholders in connection with our net taxable income that is allocable to our shareholders.

What will I receive in the Merger?

You will be entitled to receive $7.75 in cash, without interest, for each outstanding Common Share that you own as of the effective time of the Merger.  The Merger Consideration is fixed and will not be adjusted for changes in the trading price of our Common Shares.  However, the Merger Consideration is subject to adjustment for certain dividend payments, if any (as described in the enclosed proxy statement).  At this time, we do not expect to make any dividends or other distributions that would impact the Merger Consideration.

What does the Board of Trustees recommend?

Our Board of Trustees and the Special Committee comprised solely of trustees determined by our Board to be independent and disinterested have approved the Merger and declared the Merger, on the terms set forth in the Merger Agreement, advisable and in our best interests.  Our Board of Trustees recommends that holders of our Common Shares vote FOR approval of the Merger.  For a description of factors considered by our Board of Trustees, please see the sections captioned “The Merger—Reasons for the Merger” on page 30 and “The Merger—Recommendation of Our Board of Trustees” on page 29.  In addition, our Board of Trustees and the Special Committee have approved the Declaration of Trust Amendment and determined that such amendment was advisable and in the best interests of the Company.  Our Board of Trustees also recommends that holders of our Common Shares vote FOR approval of the Declaration of Trust Amendment and FOR any proposed adjournments of the special meeting for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the Merger and the Declaration of Trust Amendment.
 
Why was the Special Committee of our Board of Trustees appointed?

One of our trustees who is also an executive officer and J. Michael Wilson, our Chairman who, together with the other Wilson Family Shareholders beneficially own an aggregate of 47% of our outstanding fully diluted Common Shares, may have interests in the Merger and the other transactions contemplated by the Merger Agreement that differ from those of our other shareholders and, as a result, may have conflicts of interest in considering the Merger and related transactions, including the Declaration of Trust Amendment.  In order to limit the effect of these conflicts of interest, as well as the conflict of interest of one trustee who resigned from our Board of Trustees on September 8, 2009, in connection with the evaluation by our Board of Trustees of the Merger and the other transactions contemplated by the Merger Agreement, our Board of Trustees appointed a Special Committee comprised solely of the five non-employee trustees whom the Board determined to be independent and disinterested for purposes of evaluating the proposed transaction and the other strategic alternatives available to the Company.  The members of the Special Committee are Donald J. Halldin, Thomas E. Green, Michael E. Williamson, Antonio Ginorio and Thomas J. Shafer.  For more information about the interests of our trustees and executive officers, please see the section captioned “The Merger—Interests of Our Trustees, Executive Officers and Other Persons in the Mergers” on page 36.
 
What is the premium to the market price of our Common Shares offered in the Merger?

The $7.75 cash per share Merger Consideration represents an approximate 17% premium to the closing price of our Common Shares on September 14, 2009, the last trading day before we announced that we were considering various strategic alternatives, including a possible sale of the Company, and a 18% premium over the volume-weighted average closing price of our Common Shares over the 90 trading day period ended September 14, 2009.

 
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When do you expect to complete the Merger?

A special meeting of our shareholders is scheduled to be held on    ●   ,    ●   , to consider and vote on the Merger pursuant to the terms of the Merger Agreement.  Because obtaining the requisite approval of the Merger by our shareholders is only one of the conditions to the completion of the Merger, we can give you no assurance as to when or whether the Merger will occur, but we expect to close the Merger either late in the fourth quarter of 2009 or early in the first quarter of 2010.  For more information regarding the other conditions to the Merger, please see the section captioned “The Merger Agreement—Conditions to the Merger” on page 50.

If the Merger is completed, when can I expect to receive the Merger Consideration for my Common Shares?

If you are a registered holder of our Common Shares at the effective time of the Merger, then following the completion of the Merger, you will receive (i) a letter of transmittal describing how you may exchange your Common Shares for the Merger Consideration and (ii) instructions for use in effecting the surrender of any share certificates held by you.  At that time, you must send your share certificates with your completed letter of transmittal to the exchange agent.  You should not send your share certificates to us or anyone else until you receive these instructions.  You will receive payment of the Merger Consideration, less any applicable tax withholding, after we receive from you a properly completed letter of transmittal together with your share certificates.  If you hold your Common Shares in “street name,” your broker or nominee must take the actions required to obtain delivery of your portion of the Merger Consideration to your account on your behalf and you will not be required to take any action yourself to receive the Merger Consideration.

If I am a U.S. shareholder, what are the tax consequences of the Merger to me?

You will be subject to tax on your share of the E&P Distribution  You will also be subject to U.S. federal income tax on any gain resulting from your receipt of the Merger Consideration for your Common Shares.  A significant portion of the E&P Distribution and Merger Consideration could be taxed as ordinary income.  For further information on the material U.S. federal income tax consequences of the Merger and the E&P Distribution, please see the section captioned “Material United States Federal Income Tax Consequences—Consequences of the Merger and the E&P Distribution to U.S. Holders of Our Common Shares” on page 58.  You should consult your own tax advisor for a full understanding of the tax consequences of the Merger and the E&P Distribution to you.
 
If I am a non-U.S. shareholder, what are the tax consequences of the Merger to me?

The tax consequences to non-U.S. shareholders are complex and will depend on various factors.  Non-U.S. shareholders are urged to consult with their own tax advisors, especially concerning the Foreign Investment in Real Property Tax Act of 1980, U.S. federal income tax withholding rules and the possible application of benefits under an applicable income tax treaty.

What vote is required to approve the Merger?

While Maryland law and our Declaration of Trust only require the affirmative vote of the holders of a majority of our Common Shares to approve the Merger, under the Merger Agreement, approval of the Merger requires the affirmative vote of the holders of two-thirds of our Common Shares that are issued and outstanding on the record date.  We urge you to complete, execute and return the enclosed proxy card to assure the voting of your shares at the special meeting.

As noted above, the Wilson Family Shareholders, who own an aggregate of 2,650,720 Common Shares of our Company (representing 47% of our outstanding fully diluted Common Shares) have agreed to vote their shares in favor of the Merger and the Declaration of Trust Amendment and other trustees and officers of our Company who own an aggregate of 416,949 of our Common Shares (representing 7.4% of our outstanding fully diluted Common Shares) have indicated they will vote their shares for the Merger and the Declaration of Trust Amendment.

FCP has advised us that it has entered into an arrangement with Mr. Isaac who, together with certain related persons and affiliates, beneficially owns an aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all of his related persons and affiliates would make a passive indirect investment in the Surviving Entity of the Merger immediately after the
 

 
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closing of the Merger and agree to vote 829,529 of the Common Shares that they own (representing 14.8% of our outstanding fully diluted Common Shares) in favor of the Merger and the Declaration of Trust Amendment at the special meeting.  These Common Shares, combined with the Common Shares owned by the Wilson Family Shareholders and our other trustees and executive officers, comprise, in the aggregate, 3,897,198 of our Common Shares (representing 69% of our outstanding fully diluted Common Shares), and represent a sufficient number of votes required to approve the Merger and the Declaration of Trust Amendment at the special meeting.
 
What rights do I have if I oppose the Merger?

You can vote against the Merger by indicating a vote against the proposal on your proxy card and signing and mailing your proxy card or by voting against the Merger in person at the special meeting.  Because our Common Shares are listed on NYSE Amex, you are not entitled to dissenters’ or appraisal rights under Maryland law.

Why is the Declaration of Trust being amended and what vote is required to approve the Declaration of Trust Amendment?

You are also being asked to consider and vote upon an amendment to our Declaration of Trust to cause Section 5.3.3 to be of no operation or effect.  This amendment would suspend the requirement that we make a minimum distribution to our shareholders in connection with our net taxable income that is allocable to our shareholders.  The amendment would render such section inapplicable for the fiscal year ending December 31, 2009 and subsequent thereto, unless the Merger Agreement is terminated and our Board of Trustees makes a public announcement that Section 5.3.3 will thereafter be operative and in effect.  Our Board of Trustees approved the Declaration of Trust Amendment and is recommending that our common shareholders vote to approve such proposal because the Merger Consideration to which we, FCP and Merger Sub agreed under the Merger Agreement was premised on the mutual understanding that no distributions of any kind would be made by us with respect to our Common Shares in the future so long as the Merger Agreement remains in effect.  The Merger Agreement provides that if we make any distributions with respect to our Common Shares, the Merger Consideration will be reduced accordingly.

Approval of the Declaration of Trust Amendment requires the affirmative vote of the holders of two-thirds of our Common Shares that are issued and outstanding on the record date.

Do both the Merger and Declaration of Trust Amendment need to be approved to consummate the Merger?

In order for us to consummate the Merger, BOTH the Merger and the Declaration of Trust Amendment must be approved by our common shareholders.  The obligations of FCP and Merger Sub to consummate the Merger are conditioned on, among other things, approval by our shareholders of the Declaration of Trust Amendment.  If the Declaration of Trust Amendment is not approved, we will not be able to consummate the Merger unless FCP and Merger Sub waive this condition.

If both the Merger and the Declaration of Trust Amendment are approved by our common shareholders, we expect to file the Declaration of Trust Amendment with the SDAT as soon as practicable to effectuate such amendment.  In the unlikely event that the Declaration of Trust Amendment is approved, but the Merger is not approved, our Board of Trustees may elect not to file the Declaration of Trust Amendment with the SDAT.

What vote of our common shareholders is required to approve an adjournment of the special meeting?

Approval of any adjournment of the special meeting to solicit additional proxies requires the affirmative vote of a majority of the votes cast on such proposal.

Who is entitled to vote at the special meeting?

Only our common shareholders of record at the close of business on the record date,    ●   , 2009, are entitled to receive notice of and to attend the special meeting and to vote the shares that they held on that date at the special meeting, or any postponements or adjournments of the special meeting.  Each common shareholder has one vote for each Common Share owned at the close of business on the record date.  As of the record date, there were  ●  common shareholders of record holding 5,622,660 Common Shares entitled to vote at the special meeting.  We currently have no preferred shares outstanding.

 
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What is the location, date and time of the special meeting?

The special meeting will be held at    ●    local time on    ●   ,    ●   , at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus Drive, Waldorf, Maryland.

What happens if I sell my Common Shares before the special meeting or before the completion of the Merger?

If you held your Common Shares on the record date but transfer them prior to the date of the special meeting, you will retain your right to vote at the special meeting, but not the right to receive the Merger Consideration for the Common Shares.  The right to receive such consideration will pass to the person who owns your Common Shares when the Merger becomes effective.

How do I vote?

If you are a registered holder of our Common Shares and properly complete and sign the proxy card attached to this proxy statement and return it to us prior to the special meeting, your shares will be voted as you direct.  If you are a registered shareholder and attend the special meeting, you may deliver your completed proxy card or vote in person.  If you elect to vote in person at the special meeting and your shares are held by a broker or nominee, you must bring to the special meeting a legal proxy from the broker or nominee authorizing you to vote your shares.

If you fail to either return your proxy card or vote in person at the special meeting, or if you mark your proxy card ABSTAIN, the effect will be the same as a vote against the Merger and against the Declaration of Trust Amendment.  For the purposes of the vote to adjourn the special meeting to solicit additional proxies, abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote.  If you sign and return your proxy card and fail to indicate your vote on your proxy, your shares will be voted FOR the Merger, FOR the Declaration of Trust Amendment, and FOR any adjournment of the special meeting to solicit additional proxies.

If my Common Shares are held for me by my broker, will my broker vote my shares for me?

If you hold your Common Shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not vote your shares unless you provide instructions on how to vote.  You should instruct your broker, bank or nominee how to vote your shares by following the instructions of your broker, bank or nominee.  If you do not provide instructions to your broker, bank or nominee, your Common Shares will not be voted and this will have the same effect as a vote against the proposal to approve the Merger and the Declaration of Trust Amendment.

How will proxy holders vote my Common Shares?

If you complete and properly sign the proxy card attached to this proxy statement and return it to us prior to the special meeting, your Common Shares will be voted as you direct.  Unless you give other instructions on your proxy card, the persons named as proxy holders will vote your shares in accordance with the Board of Trustees’ recommendation.  Our Board of Trustees recommends a vote FOR approval of the Merger and FOR approval the Declaration of Trust Amendment.  Please see the section captioned “The Merger—Recommendation of Our Board of Trustees” on page 29 and “Declaration of Trust Amendment—Recommendation of Our Board of Trustees” on page 62.

How can I change my vote after I have mailed my signed proxy card?

If you are a registered holder of our Common Shares, you may change your vote by (i) delivering to our Secretary, before the special meeting, a later dated, signed proxy card or a written revocation of your proxy or (ii) attending the special meeting and notifying the chairman of the meeting that you would like your proxy revoked and

 
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voting in person.  The powers of the proxy holders will be suspended with respect to your proxy if you attend the special meeting in person and so request; your attendance at the special meeting, however, will not, by itself, revoke your proxy.  If you have instructed a broker or nominee to vote your shares, you must follow the directions received from your broker or nominee to change those instructions.  Also, if you elect to vote in person at the special meeting and your shares are held by a broker or nominee, you must bring to the special meeting a legal proxy from the broker or nominee authorizing you to vote your shares.

What will happen to my Common Shares after completion of the Merger?

Following the completion of the Merger, your Common Shares will be cancelled and will represent only the right to receive the Merger Consideration.  Trading in our Common Shares on the NYSE Amex will cease and price quotations for our Common Shares will no longer be available.

What do I need to do now?

This proxy statement contains important information regarding the Merger, the other transactions contemplated by the Merger Agreement, and the Declaration of Trust Amendment, as well as information about our Company and the other parties to the Merger Agreement.  It also contains important information about what our Board of Trustees considered in approving the Merger.  We urge to you read this proxy statement carefully, including the exhibits.

Should I send my Common Share certificates now?

No.  After the Merger is completed, a paying agent will send you a letter of transmittal describing how you may exchange your Common Share certificates for the Merger Consideration.  At that time, you must send in your Common Share certificates or execute an appropriate instrument of transfer of your shares, as applicable, with your completed letter of transmittal to the paying agent to receive the Merger Consideration.  If you hold your shares in “street name,” your broker or nominee must surrender your shares following completion of the Merger.

Where can I find more information about American Community Properties Trust?

We file annual, quarterly and other periodic reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements, or other information we file with the Securities and Exchange Commission at its public reference room in Washington, D.C. (100 F Street, N.E. 20549).  Our Securities and Exchange Commission filing number is 001-14369.  Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference room. Our filings are also available to the public on the Internet, through a website maintained by the Securities and Exchange Commission at http://www.sec.gov and on our website at www.acptrust.com. Information contained on our website is not part of, or incorporated into, this proxy statement.  Please see the section captioned “Where You Can Find Additional Information” on page 67.

Whom can I call with questions?

If you have questions, require assistance voting your shares or need additional copies of proxy materials, you may call:

Matthew M. Martin
Chief Financial Officer and Secretary
American Community Properties Trust
222 Smallwood Village Center
St. Charles, Maryland  20602
(301) 843-8600

Who will solicit and pay the cost of soliciting proxies?

The Company will pay the expenses related to printing, filing and mailing this proxy statement.  In addition to solicitation by mail and, without additional compensation for such services, proxies may be solicited personally, or by telephone or telecopy, by our officers or employees.  We will bear the cost of soliciting proxies.  We will also

 
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request that banking institutions, brokerage firms, custodians, trustees, nominees, fiduciaries and other like parties forward the solicitation materials to the beneficial owners of Common Shares held of record by such persons, and we will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses.

If you have further questions, you may contact Matthew M. Martin, our Chief Financial Officer and Secretary, at the address or telephone number indicated above.
 

 
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This proxy statement contains certain forward-looking statements, including statements relating to the financial condition, results of operations, plans, objectives, future performance and businesses of our Company, as well as information relating to the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement, including statements concerning the anticipated closing date of the Merger, the conduct of the business of our Company if the Merger is not completed, tax consequences of the Merger and the possibility that any of the conditions to closing, including those outside our control, will be satisfied.  The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information.  These forward-looking statements are based on current expectations, beliefs, assumptions, estimates and projections about the current economic environment, our Company, the industry and markets in which our Company operates.  Words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” and variations of such words and similar words also identify forward-looking statements.  Our Company also may provide oral or written forward-looking information in other materials released by the Company to the public.
 
You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control.  Although we believe that the expectations reflected in any forward-looking statements that we made are based upon reasonable assumptions, these risks, uncertainties and other factors may cause our actual results, performance or achievements to differ materially from anticipated future results, or the performance or achievements expressed or implied by such forward-looking statements.  Accordingly, there can be no assurance that these expectations will be realized.
 
We undertake no obligation to update or revise forward-looking statements in this proxy statement to reflect changes in underlying assumptions or factors, new information, future events or otherwise.  Any forward-looking statements speak only as of the date that they are made.
 
All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
 

 
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THE SPECIAL MEETING
 
The special meeting will be held at    ●    local time on    ●   ,    ●    at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus Drive, Waldorf, Maryland.  At the special meeting, you will be asked to consider and vote upon (i) the Merger pursuant to the terms of the Merger Agreement (Proposal 1), (ii) the Declaration of Trust Amendment (Proposal 2) and (iii) any proposal to adjourn the special meeting to solicit additional proxies in favor of approval of the Merger and the Declaration of Trust Amendment if there are insufficient votes at the time of the special meeting to approve both the Merger and the Declaration of Trust Amendment (Proposal 3).
 
 Record Date, Notice and Quorum Requirement
 
We have set the close of business on    ●   , 2009 as the record date for determining those shareholders who are entitled to notice of, attend and vote at, the special meeting.  As of the record date,    ●    Common Shares were outstanding.  We have no preferred shares of beneficial interest outstanding.
 
The presence at the special meeting, in person or by proxy, of holders of a majority of the aggregate number of our Common Shares outstanding and entitled to vote on the record date will constitute a quorum, allowing us to conduct the business of the special meeting.
 
The holder of shares represented by a properly executed proxy marked ABSTAIN and a broker non-vote will be counted as present for purposes of determining whether a quorum is present at the special meeting but will not be voted.
 
 Voting Requirements for the Proposals
 
The Merger
 
Under the Merger Agreement, the proposal to approve the Merger requires the affirmative vote of holders of at least two-thirds of our issued and outstanding Common Shares entitled to vote at the special meeting.
 
Declaration of Trust Amendment
 
Under Maryland law and our Declaration of Trust, the proposal to approve the Declaration of Trust Amendment requires the affirmative vote of holders of at least two-thirds of our issued and outstanding Common Shares entitled to vote at the special meeting.  Approval of the Declaration of Trust Amendment is a condition to the obligations of FCP to close the Merger.
 
Adjournments
 
Under our Bylaws, any proposal to adjourn the special meeting to solicit additional proxies in favor of approval of the Merger and the Declaration of Trust Amendment if there are insufficient votes at the time of the special meeting to approve both the Merger and the Declaration of Trust Amendment will require the affirmative vote of holders of at least a majority of the votes cast on the proposal at the special meeting.
 
Other Voting Matters
 
Abstentions and broker non-votes will have the same effect as a vote against the proposals to approve the Merger and to approve the Declaration of Trust Amendment.  For purposes of the vote to adjourn the special meeting to solicit additional proxies, abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote.
 
Each Common Share is entitled to one vote.  If you hold your Common Shares in “street name” (that is, through a broker or other nominee), your broker or nominee will not vote your shares unless you provide instructions to your broker or nominee on how to vote your shares.  You should instruct your broker or nominee how to vote your shares by following the directions provided by your broker or nominee.
 

 
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As described below, the Wilson Family Shareholders and their affiliates holding an aggregate of 2,650,720 Common Shares of our Company (representing 47% or our outstanding fully diluted Common Shares) have agreed to vote these shares in favor of the Merger and the Declaration of Trust Amendment.  In addition, other trustees and officers of our Company who own an aggregate of 416,949 Common Shares of our Company (representing 7.4% of our outstanding fully diluted Common Shares) have indicated that they will vote their shares in favor of the Merger and the Declaration of Trust Amendment.
 
FCP has advised us that it has entered into an arrangement with Mr. Isaac who, together with certain related persons and affiliates, beneficially owns an aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all of such related persons and affiliates would make a passive indirect investment in the Surviving Entity of the Merger immediately after the closing of the Merger and agree to vote 829,529 of the Common Shares that they own  (representing 14.8% of our outstanding fully diluted Common Shares) in favor of the Merger and the Declaration of Trust Amendment at the special meeting.  These Common Shares, combined with the Common Shares owned by the Wilson Family Shareholders and our other trustees and executive officers, comprise, in the aggregate, 3,897,198 of our Common Shares (representing 69% of our outstanding fully diluted Common Shares), and represent a sufficient number of votes required to approve the Merger and the Declaration of Trust Amendment at the special meeting.
 

 
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THE MERGER—PROPOSAL 1
 
THE PARTIES
 
American Community Properties Trust.
 
American Community Properties Trust is a self-advised and self-managed real estate holding company that is primarily engaged in the business of investing in and managing multifamily rental properties as well as community development and homebuilding.  ACPT’s operations are primarily concentrated in the Washington, D.C. metropolitan area and Puerto Rico.  As of September 30, 2009, we owned or maintained interests in 22 multifamily rental properties, directly and through partnerships, containing an aggregate of 3,366 completed units and 184 units that are currently under construction.  In addition, as of September 30, 2009, we owned two commercial buildings containing approximately 75,000 square feet of leasable space and approximately 4,000 acres of land in St. Charles, Maryland and 600 acres of land in Puerto Rico.  We were formed as a Maryland real estate investment trust on March 17, 1997 to succeed to most of Interstate General Company L.P.’s (“IGC”) real estate operations.  On October 5, 1998, IGC transferred to ACPT the common shares of four subsidiaries that collectively comprised the majority of the principal real estate operations and assets of IGC.  In exchange, ACPT issued to IGC 5,207,954 Common Shares of ACPT, all of which were distributed to the partners of IGC.  We believe that we have qualified and been taxable as a partnership for U.S. federal income tax purposes since October 5, 1998.  Our executive offices are located at 222 Smallwood Village Center, St. Charles, Maryland, 20602, phone number (301) 843-8600.  Our Common Shares currently are listed on the New York Stock Exchange AMEX, or “NYSE Amex,” under the symbol “APO.”  We currently have no preferred shares outstanding.
 
FCP Fund I, L.P.
 
Federal Capital Partners is a Washington, .D.C.-based real estate investment company  that owns and manages a portfolio of multi-family office, industrial and retail properties in the Mid-Atlantic region, including through FCP Fund I, L.P., its equity fund, which we sometimes refer to in this proxy statement as “FCP.”  FCP’s executive offices are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite 120, Washington, D.C. 20007, phone number (202) 333-6030.
 
 FCP/ACPT Acquisition Company, Inc.
 
FCP/ACPT Acquisition Company, Inc., which we sometimes refer to in the proxy statement as “Merger Sub,” is a Maryland corporation and indirect subsidiary of FCP formed for the sole purpose of effecting the Merger.  Merger Sub has not conducted any business operations other than in connection with the transactions contemplated by the Merger Agreement.  Merger Sub’s executive offices are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite 120, Washington, D.C. 20007, phone number (202) 333-6030.
 
 General Description of the Merger
 
 Overview
 
The Merger Agreement provides for the Merger of Merger Sub with and into our Company.  Our Company will be the Surviving Entity in the Merger and will be a subsidiary of FCP.
 
We expect the Merger to occur as soon as practicable after our shareholders approve the Merger and the Declaration of Trust Amendment and the satisfaction or waiver of all other conditions to closing under the Merger Agreement.  The Merger will be completed when the articles of merger have been accepted for record by the SDAT in accordance with Maryland law, or such later time as we and Merger Sub may agree and designate in the articles of merger (not to exceed 30 days from the time the articles of merger are accepted for record).  We currently anticipate closing the Merger late in the fourth quarter of 2009 or early in the first quarter of 2010.
 
 Merger Consideration to be Received by Holders of Our Common Shares
 
As of the effective time of the Merger, holders of our Common Shares will have no further ownership interest in the Surviving Entity.  Instead, each holder of our outstanding Common Shares immediately prior to the effective time of the Merger will be entitled to receive $7.75 in cash per share, without interest.  However, the
 

 
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Merger Consideration is subject to adjustment for certain dividend payments, if any (as described in this proxy statement).  At this time, we do not expect to make any dividends or other distributions that would impact the Merger Consideration.
 
As of the effective time of the Merger, each of our Common Shares that is owned by us, by any of our subsidiaries or by FCP, Merger Sub or any of their subsidiaries, other than shares held on behalf of third parties, will be cancelled and retired and will cease to exist.  No payment will be made for any such cancelled shares.
 
Merger Consideration to be Received by Holders of Restricted Shares and Share Appreciation Rights
 
In the Merger, each unvested restricted common share of our Company that, by its terms, vests automatically upon the consummation of the Merger will fully vest in accordance with its terms and be considered an outstanding Common Share for all purposes, including the right to receive the Merger Consideration.  Each unvested restricted common share of our Company that, by its terms, does not vest in connection with a change of control, such as the Merger, will be cancelled and retired for no additional consideration.

Additionally, in the Merger, each of the outstanding share appreciation rights will be cancelled and in lieu thereof, each holder will be entitled to receive an amount in cash equal to the product of (i) the excess, if any, of the Merger Consideration over the base price per Common Share underlying such share appreciation right multiplied by (ii) the number of Common Shares subject to such share appreciation right.  For more information on these rights and privileges, see the section captioned “The Merger¾Interests of Our Trustees, Executive Officers and Other Persons in the Mergers” on page 36 of this proxy statement.

 Merger Vote Requirement
 
Pursuant to the Merger Agreement, the affirmative vote of the holders of two-thirds of our outstanding Common Shares entitled to vote at the special meeting is required to approve the Merger.  Common shares not voted at the special meeting will have the same effect as a vote against the Merger.
 
FCP and Merger Sub have entered into a voting agreement with the Wilson Family Shareholders who hold an aggregate of 2,650,720 of our Common Shares (which represents 47% of our outstanding fully diluted Common Shares).  Pursuant to the voting agreement, the Wilson Family Shareholders have agreed to vote their Common Shares in favor of the Merger and the Declaration of Trust Amendment.  The Wilson Family Shareholders have agreed to vote against certain matters that would impact our ability to timely complete the Merger as proposed herein.  In addition, other trustees and officers of our Company who own an aggregate of 416,949 of our Common Shares (representing 7.4% of our outstanding fully diluted Common Shares) have indicated that they will vote their shares in favor of the Merger and the Declaration of Trust Amendment.
 
FCP has advised us that it has entered into an arrangement with Mr. Isaac who, together with certain related persons and affiliates, beneficially owns an aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all of such related persons and affiliates would make a passive indirect investment in the Surviving Entity of the Merger immediately after the closing of the Merger and agree to vote 829,529 of the Common Shares they they own  (representing 14.8% of our outstanding fully diluted Common Shares) in favor of the Merger and the Declaration of Trust Amendment at the special meeting.  These Common Shares, combined with the Common Shares owned by the Wilson Family Shareholders and our other trustees and executive officers, comprise, in the aggregate, 3,897,198 of our Common Shares (representing 69% of our outstanding fully diluted Common Shares), and represent a sufficient number of votes required to approve the Merger and the Declaration of Trust Amendment at the special meeting.
 
 Background of the Merger
 
In October 2008, following a change in senior management, we began exploring strategic alternatives in an effort to identify a course of action that would create shareholder value and position our Company to raise additional capital for growth.  In November 2008, the Company engaged FBR to assist the Company in analyzing potential strategic and structural alternatives. Between November 2008 and March 2009, the Company, with the assistance of FBR, reviewed its corporate and capital structure and their tax implications.  Based on this review, the Company concluded that, although the Company had originally been structured so as to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes, the Company was not able to qualify as a REIT due in part to
 

 
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the heavy concentration of ownership of the Company’s Common Shares among a small number of shareholders. In February 2009, the Board of Trustees met to consider the results of this review and concluded that its current corporate and capital structure was inefficient from a tax perspective and was adversely affecting the trading prices of its Common Shares.  As a consequence of this review, the Board of Trustees determined to consider three potential alternatives for the Company:
 
1)           a recapitalization pursuant to which the Company would issue shares of two new classes of tracking stock in exchange for existing Company Common Shares, with one class of shares of the new tracking stock tracking the financial performance of the Company’s multifamily apartment business and the other class of shares of tracking stock tracking the financial performance of the Company’s land and development business.  In connection with the recapitalization, the Company would also seek to cause ARPT to qualify as a REIT.  This alternative would allow the Company to raise additional capital through the issuance of tracking shares that tracked the financial performance of the Company’s apartment business and, if the Company could cause American Rental Property Trust to qualify as a REIT, would enable the Company to operate ARPT in a more tax-efficient manner.
 
2)           a recapitalization pursuant to which the Company would either cause ARPT to qualify as a REIT, or cause the Company to qualify as a REIT and move the Company’s land and development business into a taxable REIT subsidiary.
 
3)           voluntarily delisting and deregistering (“Going Dark”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as a result of which the Common Shares would begin to trade in the over-the-counter market.  This strategy would reduce ongoing costs of being a public company, estimated to be between $1.1 and $2.2 million annually, but continue to require the Company to provide certain quarterly information to shareholders.
 
REIT qualification, under any of these alternatives, was deemed to be important for tax efficiency since this would allow the Company to avoid paying corporate tax on its REIT taxable earnings to the extent such earnings are distributed to shareholders.  REIT qualification could only be achieved, however, by raising additional equity capital to dilute the ownership percentage of the Wilson Family Shareholders or by having the Wilson Family Shareholders sell down their positions in order to satisfy certain REIT ownership tests.
 
At the February 2009 Board meeting, the Board authorized FBR to contact both financial and strategic investors in order to assess their level of interest in a potential strategic investment in the Company in light of the three alternatives under consideration.  At the direction of the Board, FBR contacted 42 potential strategic and financial investors, of which five expressed an interest in exploring a potential transaction with the Company.  However, none of the parties whom FBR contacted ultimately made an investment in the Company.  At a Board meeting in April 2009, the Board, with the assistance of FBR, reviewed the feedback received from the potential financial and strategic investors contacted by FBR.  After reviewing this feedback, at the Board’s request, the Company’s Chief Executive Officer, with the assistance of FBR, held face-to-face meetings with certain of the Company’s existing significant minority shareholders in order to solicit the views of those shareholders with respect to the Company and the alternative strategies being considered by the Company.
 
The feedback received in these discussions was that:
 
·  
the Company was too small to remain a public company,
 
·  
the Company needed to implement a more tax-efficient corporate and capital structure, presumably by qualifying all or a portion of its business as a REIT,
 
·  
the tracking stock idea was not appealing given that the Company would probably not be able to completely insulate its apartment business from the liabilities associated with its land development business and would add complexity to the Company’s corporate and tax structures;
 
·  
none of the potential investors was interested in making a minority investment in a small public company that was both inefficient from a tax standpoint and controlled by an existing majority shareholder; and
 

 
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·  
current significant minority shareholders opposed Going Dark as long as the Company continued to be controlled by a majority shareholder.
 
As of the result of this feedback, the Board of Trustees did not authorize management of the Company to actively pursue any of the alternatives discussed above.
 
In May 2009, a party approached the Wilson Family Shareholders on an unsolicited basis about the possibility of acquiring the Wilson Family Shareholders’ shares in the Company for a price of $7.00 per share.  The Wilson Family Shareholders declined this offer.
 
In June 2009, J. Michael Wilson, the Company’s Chairman, informed the Board that the Wilson Family Shareholders were willing to sell at least 50% of their Company Common Shares in order to address the ownership issues raised by the minority shareholders and potential investors.  The Board was receptive to the Wilson Family Shareholders pursuing this strategy, so long as the sale was to an investor or group of investors that would be willing to invest additional capital in the Company or facilitate an alternative strategy to create shareholder value.  Mr. Wilson expressed a desire to engage FBR to assist the Wilson Family Shareholders in locating a buyer or buyers for the Wilson Family Shareholders shares.  The Wilson Family believed FBR would be best suited to help them locate potential purchasers of their shares because of FBR’s familiarity with the Company and its assets and structure gained in the course of its engagement as a financial advisor to the Company in connection with the Company’s consideration of strategic alternatives.  At the request of the Wilson Family, the Board determined to suspend its engagement of FBR in order to allow FBR to assist the Wilson Family Shareholders with respect to the sale of their shares.
 
In June 2009, FBR was engaged by the Wilson Family Shareholders to assist them in connection with a potential sale of the Wilson Family Shareholders shares.  At the direction of the Wilson Family Shareholders, FBR contacted 25 potential financial and strategic investors.  Of those 25 potential investors, 14 signed confidentiality agreements and performed due diligence and three ultimately submitted proposals to purchase the Wilson Family Shareholders’ Common Shares as discussed below.
 
During this process, FBR received feedback that was similar to the feedback received from potential investors and existing shareholders during the earlier meetings held in March, April and May 2009, and it became apparent that none of the parties contacted were interested in acquiring a significant minority interest in the Company.  Accordingly, the Wilson Family Shareholders determined that their best course of action was to sell their entire stake in the Company and, at the direction of the Wilson Family Shareholders, FBR began contacting potential purchasers of their entire interest. In July and August 2009, three of the parties that FBR contacted on behalf of the Wilson Family Shareholders submitted non-binding indications of interest to acquire the Wilson Family Shareholders’ shares for proposed purchase prices ranging from $6.00 per share to $7.75 per share.  The highest price expressed by one of the initial bidders, which we refer to as Bidder A, was subject to a financing contingency.  FCP, which had already performed a significant amount of due diligence on the Company, submitted a non-binding indication of interest of $7.15 per share with no financing contingency.  The lowest bid of $6.00 per share was submitted by a group of high net worth individuals, which we refer to collectively as Bidder B.  Both FCP and Bidder B also indicated in their indications of interest that any purchase by them of the Wilson Family Shareholders’ shares would be conditioned on their ability to buy out the remaining Company shareholders through a subsequent tender offer or other subsequent purchase transaction and/or to cause the Company to delist its Common Shares from any national securities exchange and deregister the Company under the Exchange Act (i.e., “Go Dark”).  Based on its demonstrated ability and willingness to work towards consummating a transaction expeditiously, its reputation, the professionalism demonstrated by its representatives and the fact that it had performed a significant amount of due diligence in the Company and that its offer was not subject to any financing contingency, the Wilson Family Shareholders believed that FCP seemed to be the most likely of the three bidders to be able to complete the purchase of their interest in the Company on an expedited basis.  After numerous discussions, the Wilson Family Shareholders determined that they would accept FCP’s offer if FCP would increase the price to $7.50 per share.  FCP agreed to the $7.50 per share price, subject to a meeting with the Board of Trustees to describe FCP’s strategic plans for the Company following such purchase of the Wilson Family Shareholders’ shares to gauge the level of support that it would receive from the Board regarding its plans for the Company.
 

 
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In late August 2009, subsequent to the Wilsons’ entering into exclusive negotiations with FCP, the Company received, on an unsolicited basis, a non-binding indication of interest from a private real estate investment fund, which we refer to as Company A, to acquire the Company for a price of $8.00 per share, subject to due diligence and negotiation of definitive documents.
 
In response to FCP’s request to meet with the Board of Trustees, on September 1, 2009, the Board of Trustees met with representatives from FCP.  These representatives from FCP discussed their strategic plans for the Company, including their interest to acquire the remaining outstanding Common Shares of the Company following its purchase of the Wilson Family Shareholders shares.
 
After meeting with FCP, the Board discussed FCP’s proposal to acquire the Wilson Family Shareholders shares and its strategic plans for the Company and also to consider the unsolicited proposal that it had received from Company A to acquire the Company for a price of $8.00 per share as described above.  The Board concluded that FCP’s proposal to the Wilson Family Shareholders was only the first step of a proposed series of related transactions to ultimately acquire the entire Company and determined to view the FCP proposal to the Wilson Family Shareholders as a proposal to acquire the entire Company.
 
In light of the Board’s views regarding the Company’s prospects as a standalone business and FCP’s stated intention to acquire the entire Company, the Board determined that it would be advisable to engage in discussions with FCP about acquiring the Company in a single transaction, rather than permitting FCP to acquire the Wilson Family Shareholders’ shares without a firm commitment or obligation to purchase the outstanding Common Shares of the minority shareholders.  The Board also expressed concern regarding the effect on the minority shareholders if the Company were to Go Dark.
 
After further deliberation, at its September 1, 2009 meeting, the Board directed FBR to invite FCP to make a proposal to acquire the Company at a price higher than $7.50 per share and informed FCP that its approval of any acquisition of the Company by FCP would be conditioned upon being able to conduct a post-signing market check.
 
The FCP representatives returned to meet with the Board of Trustees later in the day on September 1, 2009, and outlined a proposal to acquire the Company in an all-cash merger for a price of $7.75 per share, with no financing contingency, subject to a 21-day “go-shop” arrangement that would commence after execution of a definitive agreement and, upon the occurrence of certain events, reciprocal termination fees of $1.75 million.  The Board also discussed the proposal by Company A and the fact that Company A had not performed a meaningful due diligence investigation of the Company.
 
On September 2, 2009, the Board Trustees met to consider FCP’s proposal and to consider again the proposal from Company A.  At that meeting representatives of the Company’s counsel suggested that the Board consider forming a Special Committee of independent and disinterested trustees to evaluate FCP’s proposal and the other strategic alternatives available to the Company.  On September 2, 2009, the Board established a Special Committee of Trustees, referred to as the “Special Committee,” comprised of the Company’s five independent and disinterested trustees and the Special Committee determined to engage a financial advisor and independent counsel.
 
On September 3, 2009, the Special Committee met again to discuss the engagement of a financial advisor and counsel.  After extensive discussion, the Special Committee determined that it would be in the best interests of the Company to engage FBR as the Special Committee’s financial advisor.  The Special Committee members considered the prior relationships between FBR and the Company and the then current relationship between FBR and the Wilson Family Shareholders and the risk that those relationships would impair FBR’s ability to provide independent financial advice to the Special Committee.  The Special Committee also considered the extensive experience and knowledge gained by FBR from working with the Company and the fact that FBR had already assisted the Wilson Family Shareholders in identifying potential parties that could be interested in acquiring all or a majority of the outstanding shares owned by the Wilson Family Shareholders.  The Special Committee considered the additional cost and potential delay that would likely be incurred if the Special Committee engaged a new financial advisor that would have to spend significant amounts of time becoming familiar with the Company and the parties most likely to be interested in acquiring the Company.  Following those deliberations, the Special Committee concluded that the interests of the Company and its shareholders, including those shareholders unaffiliated with the Wilson Family Shareholders, would be best served if FBR were engaged as the Special Committee’s financial advisor, provided FBR entered into agreements with (i) members of the Wilson Family Shareholders terminating the engagement agreement between FBR and the Wilson Family Shareholders and confirming that FBR would not be
 

 
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entitled to any fees under the terms of FBR’s engagement by the Wilson Family Shareholders whether or not any sale transaction occurred after the date of such termination and (ii) the Company terminating the engagement between FBR and the Company and confirming that FBR would not be entitled to any additional fees under the terms of FBR’s engagement by the Company regardless of whether a sale transaction occurred after the date of such termination.  The Special Committee further determined that Hunton & Williams LLP (“Hunton & Williams”), the Company’s counsel, should continue to be involved, as company counsel, in the process relating to the strategic alternatives available to the Company given its institutional knowledge about the Company and lack of other conflicts, but that the Special Committee would also need its own independent counsel.  After extensive discussion with representatives from FBR and Hunton & Williams, the Special Committee engaged FBR as its financial advisor and determined to engage Venable LLP (“Venable”) as the Special Committee’s independent counsel, subject to interviewing representatives from Venable and negotiating the terms of Venable’s engagement.
 
On September 4, 2009, the Special Committee met again to discuss the communications received from Ross Levin, one of the Company’s trustees, regarding the process being undertaken by the Special Committee and Mr. Levin’s belief that Paul Isaac, Mr. Levin’s employer and the beneficial owner of approximately 11% of the Company’s outstanding Common Shares at the time, may have an interest in submitting a proposal to acquire the Company on terms more favorable than the terms proposed by FCP.  Mr. Levin had indicated that he believed Mr. Isaac may have an interest in acquiring the Company at the September 1, 2009 Board meeting as well, but when asked whether he had any specific knowledge that Mr. Isaac was interested in making a proposal to acquire the Company, Mr. Levin said that he did not, but that he believed the Company should undertake a more open process to sell the Company rather than first entering into an agreement in principle with FCP that contained an exclusive negotiating provision and then undertaking a market check of that transaction after entering into a definitive agreement with FCP.  The Special Committee also considered the fact that FCP had indicated that it would cease to engage in further discussions with the Company unless the Company agreed to negotiate with FCP on an exclusive basis for a reasonable period of time with a view towards entering into a definitive agreement with an appropriate market check after execution of a definitive agreement.  Although the Special Committee considered carefully Mr. Levin's recommendations regarding the Company's review of strategic alternatives, the Special Committee determined that the Company's shareholders would be best served by negotiating initially on an exclusive basis with FCP.  As a result, on September 13, 2009, the Special Committee approved and entered into a non-binding term sheet with FCP that contained a binding agreement to negotiate with FCP on an exclusive basis until September 23, 2009.  This term sheet with FCP provided for the merger of the Company with FCP for cash consideration of $7.75 per share, a 21-day go-shop arrangement following execution of a definitive merger agreement and a mutual break-up fee of $1.75 million.
 
On September 8, 2009, Ross Levin resigned as a trustee of the Company.  In his resignation letter, Mr. Levin objected to the Company’s strategy of pursuing negotiation of a merger on an exclusive basis with one potential buyer rather than having a more open auction-like process.
 
On September 9, 2009, the Board of Trustees met to discuss Mr. Levin’s resignation and the Company’s obligation to announce his resignation in a Current Report on Form 8-K.  The Board and its advisors also discussed the need, in light of Mr. Levin’s resignation, to announce the fact that the Board had formed the Special Committee to explore strategic alternatives, including a possible sale of the Company. On September 14, 2009, the Company filed a Current Report on Form 8-K announcing Mr. Levin’s resignation, the formation of the Special Committee and the execution of a non-binding indication of interest containing an exclusive negotiating agreement.
 
On September 10, 2009, the Special Committee held a telephonic meeting at which it reviewed the status of discussions with FCP with the assistance of its legal and financial advisors.
 
At a meeting of the Special Committee held on September 11, 2009, the Special Committee reviewed the prior processes undertaken by the Company and the Wilson Family Shareholders, including the strategic alternatives previously considered by the Company, and the efforts of the Wilson Family Shareholders to solicit the purchase of all or a significant portion of their Common Shares.  In addition, the Special Committee considered a request from FCP for the Company to reimburse up to $1 million in FCP’s transaction related expenses in the event the Company was to enter into a definitive agreement relating to the acquisition of 50% or more of the Company’s Common Shares or assets with a party other than FCP.  The Special Committee directed its chairman, with the assistance of its legal and financial advisors, to negotiate terms of a cost reimbursement agreement as well as certain other proposed terms of a transaction with FCP, including the duration of the go-shop period, termination fees and the vote required for shareholders to approve the transaction.
 

 
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Later in the evening on September 11, 2009, the Special Committee held another meeting to discuss the status of negotiations with FCP regarding certain proposed transaction terms and FCP’s expense reimbursement request.  The Special Committee authorized approval of a cost reimbursement agreement in which the Company would reimburse FCP up to $300,000 in transaction related expenses incurred from September 8, 2009 forward in the event that the Company was to enter into a definitive agreement relating to the acquisition of 50% or more of the Company’s Common Shares or assets with a party other than FCP within 180 days from the end of the exclusivity period.  On September 25, 2009, the terms of this cost reimbursement agreement were generally subsumed in the terms of the Merger Agreement.
 
At a meeting of the Special Committee on September 18, 2009, the Special Committee discussed proposed terms of the Merger Agreement with the assistance of its legal and financial advisors.  In addition, the Special Committee reviewed how the post-signing market check would work, including the parties that would be contacted during the go-shop period and the due diligence materials that would be available to qualified bidders in an online data room.  The Special Committee also discussed a letter sent to the Company’s trustees from counsel to one of the Company’s shareholders regarding the scope of the process undertaken by the Company and requesting certain due diligence materials.  The Special Committee directed its legal advisors to respond by letter to such shareholder’s counsel.  In that response, the Special Committee’s legal advisors informed such shareholder’s counsel that the Special Committee acknowledged receipt of the letter and would consider the letter promptly and carefully.
 
During the following weeks, the Special Committee, with the assistance of its legal  and financial advisors and the Company’s outside legal counsel, continued to negotiate the terms and conditions of the draft Merger Agreement with FCP and its counsel.  In particular, the Special Committee, in an effort to ensure that the terms of the Merger Agreement would not preclude other potential bidders from submitting proposals that might be superior during the go-shop period, negotiated a longer go-shop period of 30 days and a reduced break-up fee if we terminate the Merger Agreement in favor a superior proposal (as defined in the Merger Agreement) during the go-shop period or otherwise from a bidder identified during the go-shop period with whom negotiations or discussions were continuing at the end of the go-shop period.  In addition, in an effort to ensure that the Company’s minority shareholders have a meaningful vote with respect to the proposed Merger, the Special Committee negotiated a super-majority shareholder approval provision, which requires approval of the holders of two-thirds of the Company’s outstanding Common Shares, notwithstanding the fact that only a majority vote is required under Maryland law and the Company’s Declaration of Trust.
 
On September 22, 2009, the Special Committee met to discuss the proposed terms of the draft Merger Agreement and to consider whether to propose extending the exclusive negotiating period with FCP beyond September 23, 2009.  The Special Committee reserved judgment on the issue of extending the exclusivity period.
 
At a meeting of the Special Committee on September 23, 2009, Venable reviewed the duties of trustees under applicable law and certain proposed terms of the transaction with FCP.   The Special Committee discussed at length the strategic review process and the potential effects on the Company’s minority shareholders in the event that the Wilson Family Shareholders were to sell their shares to a third party.  Later in the evening on September 23, 2009, the Special Committee held another meeting to review the status of the negotiations with FCP with the assistance of its legal and financial advisors.  The Special Committee also reviewed the strategic alternative process previously conducted by the Company, and the efforts of the Wilson Family Shareholders to solicit the purchase of all or a significant portion of their Common Shares.  The Special Committee approved an extension of the exclusivity period with FCP in order to provide the Special Committee further time to consider the proposed terms of a transaction with FCP and to enable both parties to continue to negotiate remaining open issues.
 
On September 24, 2009, the Company filed a Current Report on Form 8-K announcing an extension of the exclusive negotiating period with FCP until September 30, 2009.
 
On September 25, 2009, the Special Committee met in executive session with Venable, during which Venable reviewed the duties of trustees under applicable law and members of the Special Committee reconfirmed their independence.  At the invitation of the Special Committee, representatives from FBR and Hunton & Williams participated in a portion of the meeting, along with Matthew Martin, the Company’s Chief Financial Officer.  Hunton & Williams reviewed in detail the terms of the proposed Merger Agreement. The Special Committee also reviewed the strategic alternatives previously considered by the Company, and the efforts of the Wilson Family Shareholders to solicit the purchase of all or a significant portion of their Common Shares.  At the request of the Special Committee FBR then reviewed its financial analysis of the Company and the proposed merger and delivered
 

 
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its oral opinion to the Special Committee (which was subsequently confirmed in writing by delivery of FBR’s written opinion dated the same date), to the effect that, as of September 25, 2009, the per share Merger Consideration of $7.75 to be received the Unaffiliated Holders in the proposed Merger pursuant to the Merger Agreement was fair to such Unaffiliated Holders from a financial point of view.  The Special Committee discussed at length the foregoing matters.  The Special Committee then unanimously determined (i) that the sale of the Company is the best strategic alternative available to the Company, (ii) that the proposed definitive Merger Agreement with FCP and Merger Sub and the transactions contemplated thereby and the Declaration of Trust Amendment are advisable and in the best interests of the Company, (iii) to recommend that the Board of Trustees determine that the Merger, on the terms set forth in the Merger Agreement, and the Declaration of Trust Amendment are advisable and in the best interests of the Company and (iv) to recommend that the Board of Trustees direct that each of the Merger and the Declaration of Trust Amendment be submitted to the shareholders of the Company for their approval and that the Board of Trustees recommend that the shareholders of the Company approve the Merger and the Declaration of Trust Amendment.
 
At a meeting of the Board of Trustees immediately following the Special Committee meeting, the chairman of the Special Committee reported to the Board of Trustees that the Special Committee had unanimously determined to recommend that the Board of Trustees approve the proposed Merger between the Company and Merger Sub pursuant to the terms of the Merger Agreement and the Declaration of Trust Amendment.  The Special Committee then recommended that the Board of Trustees (a) approve the proposed Merger with Merger Sub pursuant to the terms of the Merger Agreement and the Declaration of Trust Amendment and (b) recommend to the shareholders of the Company approval of the Merger pursuant to the terms of the Merger Agreement and the Declaration of Trust Amendment.  The Board of Trustees (other than Messrs. Wilson and Griessel, who abstained from deliberating or voting), having considered the recommendation of the Special Committee regarding the proposed Merger with Merger Sub, the terms of the Merger, alternatives to the Merger and the risks and benefits of the Merger, in addition to various other factors, including the opinion of FBR, then (i) determined that the Merger with Merger Sub and the transactions contemplated by the proposed Merger Agreement with FCP and Merger Sub and the Declaration of Trust Amendment are in the best interests of the Company, (ii) approved the Merger with Merger Sub and the transactions contemplated by the proposed Merger Agreement and the Declaration of Trust Amendment and (iii) resolved to recommend that the shareholders of the Company vote FOR approval of the Merger and FOR approval of the Declaration of Trust Amendment at a special meeting of shareholders to be held for such purposes.
 
Following this meeting, the Merger Agreement was finalized and executed on September 25, 2009.  On the evening of September 25, 2009, the Company issued a press release announcing that it had entered into the Merger Agreement with FCP and Merger Sub.  In addition, on September 25, 2009, the Wilson Family Shareholders entered into a voting agreement with FCP and Merger Sub.  On September 28, 2009, the Company filed a Current Report on Form 8-K reporting that it had entered into the Merger Agreement and the Wilson Family Shareholders had entered into a voting agreement with FCP and Merger Sub.
 
At the Special Committee’s request, representatives of FBR promptly began contacting parties to solicit their interest in acquiring the Company. Representatives of FBR contacted 57 parties, including public and private real estate companies, institutional investors and significant minority shareholders of the Company, in order to determine whether they would be interested in submitting an acquisition proposal to the Company.
 
At the Special Committee’s request, FBR requested that all parties that had indicated an interest in submitting an acquisition proposal and that had executed confidentiality agreements with the Company, or were in the process of negotiating the same, submit written proposals to acquire the Company along with any proposed revisions to a draft form of merger agreement previously provided on behalf of the Special Committee by 12:00 pm, Eastern time, on October 23, 2009, in order to provide an opportunity to review and negotiate improvements to any proposal received prior to the close of the go-shop period.  As of the end of the go-shop period on October 28, 2009, ten potential bidders had executed confidentiality agreements with the Company and had been provided access to the data room.  As of October 28, 2009, other than FCP, no potential bidder had submitted an acquisition proposal to acquire the Company.
 
On each of September 30, October 1, October 2 and October 6, 2009, Mr. Isaac filed a Statement of Changes in Beneficial Ownership on Form 4 disclosing that, between September 28, 2009 and October 2, 2009, he had acquired, indirectly through one of his controlled entities, an aggregate of 146,392 of our Common Shares in open market transactions.
 

 
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On October 7, 2009, Mr. Isaac filed an amendment to his Schedule 13D disclosing the acquisition of an aggregate of 146,392 of our Common Shares in open market transactions, as previously disclosed on his Statements of Changes in Beneficial Ownership on Form 4 described above, increasing the total number of our Common Shares that he beneficially owns to 865,329 shares.  In the amendment to his Schedule 13D, Mr. Isaac disclosed that he is continuing to review the proposed Merger that we had announced on September 25, 2009 and his alternatives with respect to his investment in light of the pending Merger.
 
We were informed by FCP that, on October 1, 2009, representatives from FCP met with Mr. Isaac at the request of Mr. Isaac and without any solicitation from, or any initiation on the part of, FCP or any of its representatives.  At this meeting, Mr. Isaac informed the representatives of FCP that he was considering his alternatives with respect to his investment in the Company and expressed his interest in possibly participating in the transaction on the buy-side with FCP.  Representatives of FCP informed Mr. Isaac at this meeting that they did not wish to take any action that would jeopardize the Merger or otherwise be viewed as being unfavorable to the shareholders of the Company, but that they would consider his request.
 
After careful consideration by its principals, on October 9, 2009, representatives of FCP informed Mr. Isaac that it would be willing to consider, on a non-binding basis, a passive investment by Mr. Isaac and certain of his related and affiliated persons.  Subsequently, the parties and their respective representatives engaged in a number of follow-up discussions regarding the viability of such a transaction and the possible terms of such arrangement.  On October 15, 2009, FCP informed the Special Committee that it was considering a possible arrangement whereby Mr. Isaac and substantially all of his related persons and affiliates would make a passive indirect investment in the Surviving Entity.
 
On October 16, 2009, the Special Committee met to discuss the possible arrangement that Mr. Isaac and FCP were discussing and the impact of such an arrangement on the Company and the Merger.
 
On November 10, 2009, FCP entered into a voting agreement and a purchase agreement pursuant to which Mr. Isaac and substantially all of his related persons and affiliates would make a cash capital contribution in exchange for a passive indirect investment in the Surviving Entity.  In addition, Mr. Isaac and such related persons and affiliates have agreed to vote in favor of the Merger and the Declaration of Trust.  The material terms of such arrangement are more fully described under “—Voting and Passive Investment Arrangement with Paul J. Isaac.”
 
FCP has informed us that, prior to the meeting on October 1, 2009, which the parties held at Mr. Isaac’s request, neither it nor any of its affiliates had had any prior discussions or meetings with Mr. Isaac or any of his related and affiliated persons, nor had it contemplated or considered initiating any such discussions or meetings, regarding the Merger, the Declaration of Trust Amendment or any of the other transactions contemplated by the Merger Agreement, or any possible investment by Mr. Isaac and any of his related and affiliated persons in the Surviving Entity.  In addition, no discussions regarding such potential investment were held between FCP, on one hand, and Mr. Isaac and any of his related and affiliated persons, on the other hand, after such meeting on October 1, 2009 and prior to October 9, 2009, when FCP informed Mr. Isaac that it would consider a passive investment by Mr. Isaac and certain of his related and affiliated persons.
 
 Recommendation of the Special Committee and Our Board of Trustees
 
Our Board of Trustees recommends that holders of our Common Shares vote FOR approval of the Merger, FOR approval of the Declaration of Trust Amendment and FOR any proposal to adjourn the Special Meeting to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve both the Merger and the Declaration of Trust Amendment.  At a meeting held on September 25, 2009, the Special Committee unanimously recommended the Board of Trustees determine that the Merger, on the terms set forth in the Merger Agreement, and the Declaration of Trust Amendment, are advisable and in the best interests of the Company.  The Board of Trustees, at a meeting held on September 25, 2009, approved the execution of the Merger Agreement and declared the Merger Agreement and the Declaration of Trust Amendment advisable and in the best interests of the Company and further determined to recommend that our shareholders vote FOR approval of the Merger and FOR approval of the Declaration of Trust Amendment.  The two members of our Board of Trustees who are not independent and disinterested, Stephen K. Griessel and J. Michael Wilson, abstained from this vote.  All other members of the Board of Trustees voted in favor of declaring the Merger Agreement and the Declaration of
 

 
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Trust Amendment advisable and determining to recommend that our shareholders vote FOR approval the Merger and FOR approval of the Declaration of Trust Amendment. The approval of our Board of Trustees was made based on the recommendation of the Special Committee and after the careful consideration of a variety of business, financial and other factors and consultation with its advisors.
 
 Reasons for the Merger
 
In deciding to approve the Merger on the terms set forth in the Merger Agreement, our Board of Trustees and the Special Committee considered a number of factors, both potentially positive and potentially negative, with respect to the Merger and the other transactions contemplated by the Merger Agreement.
 
Some of the potentially positive factors that our Board of Trustees and the Special Committee considered include:
 
·  
Premium—the Merger Consideration represents a significant premium over the market price of our Common Shares prior to the Company’s announcement on September 14, 2009, that it had formed a Special Committee to explore strategic alternatives, including a possible sale of the Company. The Merger Consideration represents:
 
·  
a $1.13, or 17%, premium over the closing price of our Common Shares on September 14, 2009, the last trading day before we announced that we were considering various strategic alternatives, including a possible sale of the Company;
 
·  
a $0.90, or 13%, premium over the volume weighted average closing price of our Common Shares for the 10-trading day period ending September 14, 2009;
 
·  
a $1.60, or 26%, premium over the volume weighted average closing price of our Common Shares for the 30-trading day period ending September 14, 2009;
 
·  
a $1.62, or 26%, premium over the volume weighted average closing price of our Common Shares for the 60-trading day period ending September 14, 2009;
 
·  
a $1.21, or 18%, premium over the volume weighted average closing price of our Common Shares for the 90-trading day period ending September 14, 2009; and
 
·  
a $3.39, or 78%, premium over the volume weighted average closing price of our Common Shares for the 180-trading day period ending September 14, 2009.
 
·  
the financial analysis reviewed and discussed with the Special Committee by representatives of FBR, as well as the oral opinion of FBR to the Special Committee on September 25, 2009 (which was subsequently confirmed in writing by delivery of FBR’s written opinion dated the same date) with respect to the fairness, from a financial point of view, to the Unaffiliated Holders of the per share Merger Consideration to be received by the Unaffiliated Holders in the proposed Merger pursuant to the Merger Agreement;
 
·  
the high probability that the Merger would be completed based on, among other things, the lack of any financing condition and the substantial financial resources of FCP;
 
·  
the fact that our Common Shares have historically traded with very low volume on the NYSE Amex and that the Merger will create immediate liquidity for all of our shareholders.  The average daily trading volume of our Common Shares on the NYSE Amex during the 180-trading day period prior to our announcement on September 14, 2009, that we had formed a Special Committee to explore strategic alternatives, including a possible sale of the Company, was 2,812 shares;
 
·  
the fact that most of the U.S. income producing multi-family properties have a low tax basis that would likely result in a large tax liability for the Company if such assets were sold and that such tax liability would not be incurred as a result of the Merger;
 

 
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·  
knowing that the Wilson Family Shareholders, who beneficially own 47% of the Company’s outstanding fully diluted Common Shares, planned to sell their shares to a third party in a privately negotiated sale transaction, the Board and Special Committee considered the fact that the Merger would ensure that our minority shareholders would be treated the same as our majority shareholders, including sharing in a control premium, whereas a private sale by the majority shareholders of control to a third party would likely lead to a tender offer by such third party for the remaining minority shares, or another business combination transaction in which the Company’s minority shareholders would be forced to sell their shares, at a lower price per share than the price at which the Wilson Family Shareholders sold their shares or could result in such third party seeking to delist and deregister our Common Shares in an effort to reduce our overhead, but with the incidental effect of further reducing the liquidity of the our Common Shares and the market price of our Common Shares; and
 
·  
the fact that the Merger would be subject to a market check through the “go-shop” and “fiduciary out” provisions contained in the Merger Agreement.
 
Reasons Against the Merger
 
Some of the potentially negative factors that our Board of Trustees and the Special Committee considered include:
 
·  
the fact that the Merger negotiations occurred at a time when the economy was still in a recessionary phase and the commercial real estate and housing markets had not yet begun to improve materially relative to the bear real estate markets witnessed in recent months;
 
·  
the fact that the Company’s liquidity position had improved recently as a result of the sale of the Company’s Puerto Rico apartment portfolio and repayment of a significant amount of Company debt, thus giving the Company the financial stability to remain solvent and operate independently until a possible upturn in the real estate markets;
 
·  
the fact that an all cash merger results in taxable transaction;
 
·  
the Merger would preclude shareholders from participating in the future performance of the Company;
 
·  
the Merger would create a significant disruption to the operation of the Company’s business;
 
·  
the significant costs incurred in connection with negotiating and entering into the Merger Agreement and completing the Merger and the fact that the Merger would require payment of substantial fees if the Merger is not consummated under certain circumstances;
 
·  
the Merger will trigger the vesting of the unvested restricted Common Shares of our Company held by our Chief Executive Officer and the cash-out of the SARs held by one of our independent trustees;
 
·  
the Merger Agreement imposes restrictions on the Company’s conduct of its business; and
 
·  
the obligation to pay a termination fee could have the effect of dissuading other potential bidders from submitting an acquisition proposal for the Company.
 
In view of the wide variety of factors considered by our Board of Trustees and the Special Committee, our Board of Trustees and the Special Committee did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered.  Our Board of Trustees’ recommendation is based on the totality of the information presented to and considered by it.  After taking into consideration the factors set forth above together with other factors, including those described in “The Merger—Reasons for the Merger” on page 30, our Board of Trustees and the Committee determined that the potential benefits of the Merger substantially outweigh the potential detriments associated with the Merger.
 

 
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Opinion of the Special Committee’s Financial Advisor
 
On September 25, 2009, FBR rendered its oral opinion to the Special Committee (which was subsequently confirmed in writing by delivery of FBR’s written opinion dated the same date) to the effect that, as of September 25, 2009, the Per Share Merger Consideration to be received by the Unaffiliated Holders in the proposed Merger pursuant to the Merger Agreement was fair to such Unaffiliated Holders from a financial point of view.
 
FBR’s opinion was directed to the Special Committee and only addressed the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the Unaffiliated Holders, in the proposed Merger pursuant to the Merger Agreement, and did not address any other aspect or implication of the proposed Merger. The summary of FBR’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Exhibit C to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by FBR in preparing its opinion. However, neither FBR’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute advice or a recommendation to any security holder as to how such security holder should act or vote with respect to any matter relating to the Merger.
 
In arriving at its opinion, FBR:
 
 
·
reviewed a draft, dated September 24, 2009, of the Merger Agreement and certain related documents;
 
 
·
reviewed certain publicly available business and financial information relating to the Company and the industries in which the Company operates;
 
 
·
reviewed certain other business, financial and other information relating to the Company, including financial forecasts for the Company provided to or discussed with FBR by the management of the Company;
 
 
·
met with certain members of the management of the Company to discuss the business and prospects of the Company and the Merger;
 
 
·
reviewed certain financial and share trading data and information for the Company and compared that data and information with corresponding data and information for companies with publicly traded securities that FBR deemed relevant;
 
 
·
reviewed certain financial terms of the proposed Merger and compared those terms with the financial terms of certain other business combinations and other transactions which have recently been effected or announced; and
 
 
·
considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that FBR deemed relevant.
 
In connection with FBR’s review, FBR did not independently verify any of the foregoing information and FBR assumed and relied upon such information being complete and accurate in all material respects. With respect to the financial forecasts provided or discussed with FBR by the Company that FBR used in its analyses, management of the Company advised FBR, and FBR assumed, that such forecasts were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company and FBR expressed no view and assumed no responsibility for the assumptions, estimates and judgments on which such forecasts were based. FBR also assumed, with the Special Committee’s consent, that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the Merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company or the contemplated benefits of the Merger and that the Merger would be consummated in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any material term, condition or agreement thereof. FBR also assumed, with the Special Committee’s consent, that
 

 
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the Merger Agreement, when executed by the parties thereto, would conform to the draft reviewed by FBR in all respects material to FBR’s analyses.
 
FBR’s opinion addressed only the fairness, from a financial point of view, to the Unaffiliated Holders of the Per Share Merger Consideration to be received by the Unaffiliated Holders in the Merger pursuant to the Merger Agreement and did not address any other aspect or implication of the Merger or any agreement, arrangement or understanding entered into in connection with the Merger or otherwise or the fairness of the amount or nature of, or any other aspect relating to, any compensation to any officers, trustees, directors or employees of any party to the Merger, or class of such persons, relative to the Per Share Merger Consideration or otherwise. The issuance of FBR’s opinion was approved by an authorized internal committee of FBR.
 
FBR’s opinion was necessarily based upon information made available to FBR as of the date of its opinion and financial, economic, market and other conditions as they existed and could be evaluated on such date and upon certain assumptions regarding such financial, economic, market and other conditions which are currently subject to unusual volatility and which, if different than assumed, could have a material impact on FBR’s analyses or opinion. FBR’s opinion did not address the relative merits of the Merger as compared to alternative transactions or strategies that might be available to the Company or any other party to the Merger, nor did it address the underlying business decision of the Special Committee or the Board of Trustees of the Company to proceed with the Merger. Furthermore, in connection with FBR’s opinion, FBR was not requested to make, and did not make, any physical inspection or independent appraisal of any of the assets, properties or liabilities (contingent or otherwise) of the Company or any other party, nor was FBR provided with any such appraisal. The Special Committee advised FBR, and for purposes of FBR’s analyses and its opinion FBR assumed, that the Company does not qualify as a REIT for tax purposes and that the Company has been unsuccessful in pursuing alternative transactions that would permit it to qualify as a REIT.
 
FBR’s opinion was provided for the information of the Special Committee and the Board of Trustees of the Company in connection with their consideration of the Merger and should not be construed as creating any fiduciary duty on the part of FBR to the Special Committee, the Board of Trustees of the Company, the Company, any security holder of the Company or any other party. FBR’s opinion does not constitute advice or a recommendation to any investor or security holder of the Company or any other person as to how such investor, security holder or other person should vote or act on any matter relating to the proposed Merger or otherwise.
 
In preparing its opinion to the Special Committee, FBR performed a variety of analyses, including those described below. The summary of FBR’s valuation analyses is not a complete description of the analyses underlying FBR’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of those methods to the unique facts and circumstances presented. As a consequence, neither FBR’s opinion nor the analyses underlying its opinion are readily susceptible to partial analysis or summary description. FBR arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, FBR believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.
 
In performing its analyses, FBR considered business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, business or asset used in FBR’s analyses for comparative purposes is identical to the Company, its business or assets or the proposed transaction. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, FBR did not make separate or quantifiable judgments regarding individual analyses. The implied valuation reference ranges and other valuation metrics indicated by FBR’s analyses are illustrative and not necessarily indicative of actual values nor predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the Company’s control and the control of FBR. Much of the information used in, and accordingly the results of, FBR’s analyses are inherently subject to substantial uncertainty.
 

 
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FBR’s opinion and analyses were provided to the Special Committee and the Board of Trustees of the Company in connection with their consideration of the proposed Merger and were among many factors considered by the Special Committee and the Board of Trustees of the Company in evaluating the proposed Merger. Neither FBR’s opinion nor its analyses were determinative of the Per Share Merger Consideration or of the views of the Special Committee or the Board of Trustees of the Company with respect to the proposed Merger.
 
The following is a summary of the material valuation analyses performed in connection with the preparation of FBR’s opinion rendered to the Special Committee on September 25, 2009. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying and the assumptions, qualifications and limitations affecting each analysis, could create a misleading or incomplete view of FBR’s analyses.
 
For purposes of its analyses, FBR reviewed a number of financial metrics including:
 
Enterprise Value – generally the value as of a specified date of the relevant company’s outstanding equity securities (taking into account its restricted units, outstanding options, warrants and other convertible securities) plus the value of its minority interests plus the amount of its net debt (the amount of its outstanding indebtedness, preferred stock and capital lease obligations less the amount of cash on its balance sheet) as of a specified date.
 
EBITDA – generally the amount of the relevant company’s earnings before interest, taxes, depreciation, and amortization for a specified time period.
 
Unless the context indicates otherwise, common stock prices for the selected companies used in the Selected Companies Analysis described below were as of September 24, 2009, the last trading day for such shares prior to public announcement of the proposed Merger.
 
Enterprise Level Selected Companies Analysis
 
FBR considered certain financial data for the Company and selected multifamily real estate investment companies with publicly traded equity securities including Enterprise Value as a multiple of estimated 2010 EBITDA.
 
The selected companies were selected because they had publicly traded equity securities and were deemed to be similar to the Company in one or more respects including the nature of their business, size, diversification, financial performance and geographic concentration. No specific numeric or other similar criteria were used to select the selected companies and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. As a result, a significantly larger or smaller company with substantially similar lines of businesses and business focus may have been included while a similarly sized company with less similar lines of business and greater diversification may have been excluded. FBR identified a sufficient number of companies for purposes of its analysis but may not have included all companies that might be deemed comparable to the Company. The selected multifamily real estate investment companies were:
 
Equity Residential
Apartment Investment and Management Company
UDR, Inc.
Home Properties Inc.
Essex Property Trust, Inc.
BRE Properties Inc.
Mid-America Real Estate Corporation
Associated Estates Realty Corporation

 
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The selected companies analysis indicated the following:

Multiple Description
High
Low
Median
Mean
         
Enterprise Value as a multiple of:
       
2010E EBITDA
18.2x
12.7x
17.0x
16.3x

 
FBR applied multiple ranges based on the selected companies analysis to corresponding financial data for the Company provided by the Company’s management.  The entity level selected companies analysis indicated an implied valuation reference range per Common Share of $3.53 to $6.33, as compared to the Per Share Merger Consideration of $7.75.
 
Asset Level Analyses
 
FBR also separately analyzed the Company’s U.S. income producing assets; Puerto Rican income producing assets; U.S. non-income producing assets; and Puerto Rican non-income producing assets.
 
U.S. Income Producing Assets.  FBR analyzed the Company’s U.S. income producing multifamily properties (i) using the capitalization rates indicated by sales of comparable multifamily properties as reported by REIS Inc. and (ii) based on the range of sales prices for units in comparable properties is as reported by Reis Inc.  FBR’s analysis indicated an implied aggregate valuation reference range for the Company’s U.S. income producing assets of approximately ($14.822) million to $5.040 million or ($2.64) to $0.90 per Common Share. Numbers in parentheses indicate negative amounts.  FBR’s analysis took into account the tax liability likely to be incurred by the Company as a result of a sale of the U.S. income producing multi-family properties based on information provided by the Company regarding the Company’s low tax basis in those assets.
 
Puerto Rican Income Producing Assets.  FBR analyzed the Company’s Puerto Rican income producing assets based on the projected net operating income and future distributions expected to be generated by such assets as provided by management of the Company.  FBR’s analysis indicated an implied aggregate valuation reference range for the Company’s Puerto Rican income producing assets of approximately $7.174 million to $8.603 million or $1.28 to $1.53 per Common Share.
 
U.S. Non-Income Producing Assets.  FBR analyzed the Company’s U.S. non-income producing assets based on information provided by management of the Company including bids previously received by the Company with respect to certain of those assets; an analysis of the cash flows expected to be generated by certain properties (taking into account the costs to develop and sales rates for such properties), as well as publicly available information regarding sales of certain properties. FBR’s analysis indicated an implied aggregate valuation reference range for the Company’s U.S. non-income producing assets of approximately $23.225 million to $32.306 million or $4.13 to $5.75 per Common Share.
 
Puerto Rican Non-Income Producing Assets.  FBR analyzed the Company’s Puerto Rican non-income producing assets based on information provided by management of the Company including information on prior sales of certain properties; projected costs to develop certain unfinished properties; and market quotes provided to the Company by local real estate brokers. FBR’s analysis indicated an implied aggregate valuation reference range for the Company’s Puerto Rican income producing assets of approximately $3.555 million to $8.149 million or $0.63 to $1.45 per Common Share.
 
FBR calculated an implied aggregate valuation reference range for the Company’s Common Shares by summing the implied valuation reference ranges per Common Share for the U.S. income producing assets; the Puerto Rican income producing assets; the U.S. non-income producing assets; and the Puerto Rican non-income producing assets based on the foregoing analyses and subtracting corporate adjustments of ($1.89) to ($1.70) per
 

 
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Common Share for general and administrative expenses, working capital and other costs expected to be incurred in realizing such values based on estimates and other information provided by management of the Company. Numbers in parentheses indicate costs or amounts to be subtracted.  The asset level analyses indicated an implied valuation reference range per Common Share of $1.51 to $7.93, as compared to the Per Share Merger Consideration of $7.75.
 
Other Considerations
 
Implied Premiums and Premiums Paid
 
FBR also noted the implied premium of the Per Share Merger Consideration relative to historical trading prices of Common Shares was (12%) based on the closing price of Common Shares one-day prior to September 25, 2009 (the date the proposed Merger was publicly announced); 41% based on the closing price of Common Shares thirty trading days prior to September 25, 2009; 17% based on the closing price of Common Shares on September 14, 2009 (the last trading day before the Company publicly announced that it was considering various strategic alternatives); and 34% based on the closing price of Common Shares thirty trading days prior to September 14, 2009. FBR also noted that the average premium paid in selected acquisitions of companies in the real estate industry with publicly traded equity securities was 16% based on the closing price of the acquired company’s shares one day prior to the public announcement of the proposed transaction and 17% based on the closing price of the acquired company’s shares thirty trading days prior to the public announcement of the proposed transaction. Numbers in parentheses indicate negative numbers.
 
Other Matters
 
Pursuant to an engagement letter dated September 4, 2009, the Special Committee retained FBR as its financial advisor in connection with, among other things, the proposed Merger. The Special Committee engaged FBR based on FBR’s qualifications, experience and reputation as an internationally recognized investment banking and financial advisory firm. FBR will receive a fee for its services, a significant portion of which is contingent upon the consummation of the Merger. FBR also became entitled to receive a fee upon the rendering of its opinion which is not contingent upon the consummation of the Merger.  In addition, the Company has agreed to indemnify FBR and certain related parties for certain liabilities and other items arising out of or related to its engagement.
 
From time to time, FBR and its affiliates have in the past provided investment banking and other financial advice and services to the Company and certain of its affiliates, including members of the Wilson Family Shareholders and certain of their affiliates for which FBR and its affiliates have received compensation, including, during the last two years, having acted as financial advisor to the Company in connection with a potential reorganization of the Company (which we refer to as the Company Engagement) and, following the suspension and modification of that engagement, financial advisor to certain members of the Wilson Family Shareholders in connection with the potential sale of all or a material portion of the Common Shares held by the Wilson Family Shareholders (which we refer to as the Wilson Family Shareholders Engagement). In accordance with the Merger Agreement, FBR was also requested to solicit third party indications of interest in acquiring all or any part of the Company for a prescribed period following the execution of the Merger Agreement.  In addition, FBR and its affiliates may in the future provide investment banking and financial advice and services to the Company, FCP and certain of their respective affiliates for which FBR and its affiliates would expect to receive compensation. FBR is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, FBR and its affiliates may acquire, hold or sell, for FBR’s and its affiliates own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of the Company, FCP, affiliates of the Wilson Family Shareholders and certain of their respective affiliates, as well as provide investment banking and other financial services to such companies and persons. The Special Committee was aware that FBR had previously entered into the Company Engagement, which was suspended prior to FBR entering into the Wilson Family Shareholders Engagement. The Special Committee was also aware that, prior to being engaged by the Special Committee, FBR entered into agreements with (i) certain of the Wilson Family Shareholders terminating the engagement period under the Wilson Family Shareholders Engagement and confirming that FBR would not be entitled to any fees under the terms of the Wilson Family Shareholders Engagement whether or not any sale transaction occurred after the date of such termination and (ii) the Company terminating the engagement period under the Company Engagement and confirming that FBR would not be entitled to any additional fees under the terms of the Company Engagement regardless of whether a sale transaction occurred after the date of such termination. Pursuant to the terms of FBR’s engagement by the Special Committee, the fee that became payable by
 

 
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the Company to FBR upon the rendering of FBR’s opinion and certain fees previously paid by the Company to FBR pursuant to the Company Engagement are creditable against the fee payable by the Company to FBR upon consummation of the Merger.
 
 Interests of Our Trustees, Executive Officers and Other Persons in the Mergers
 
In considering the recommendation of our Board of Trustees in connection with the Merger, holders of our Common Shares should be aware that, as described below, each of our executive officers and trustees and certain other persons have interests in, and will receive benefits from, the Merger that differ from, or are in addition to, and therefore may conflict with, the interests of our shareholders generally.  These additional interests are described below, to the extent material.  As noted above, two members of our Board of Trustees who are not independent and disinterested, Stephen K. Griessel and J. Michael Wilson, abstained from voting on the Merger.  In addition, the number of our Common Shares beneficially owned by our trustees and executive officers and holders of greater than 5% of our outstanding Common Shares, as of November 9, 2009, appears below under the section captioned “Principal and Management Shareholders of Our Company” on page 65.  Our Board of Trustees was aware of these interests and considered them in approving the Merger and the other transactions contemplated by the Merger Agreement and the Declaration of Trust Amendment.
 
Restricted Shares.  In the Merger, each unvested restricted common share of the Company that, by its terms, vests automatically upon the consummation of the Merger will fully vest in accordance with its terms and be considered an outstanding Common Share for all purposes, including the right to receive the Merger Consideration.  The following table sets forth the number of restricted Common Shares held by our executive officers and our non-management trustees as of the date of this proxy statement, all of which will be vested and will be considered an outstanding Common Share for all purposes, including the right to receive the Merger Consideration, immediately prior to the Merger.  On September 9, 2009, we awarded 363,743 restricted Common Shares to Stephen K. Griessel, our Chief Executive Officer.  This award was made pursuant to the Amended and Restated Employment Agreement, dated May 14, 2009, by and among Mr. Griessel, the Company and ARPT.  Of the 363,743 restricted Common Shares covered by the award, 72,748 shares vested on September 30, 2009.  In addition, under the award agreement relating to these restricted shares, any unvested shares will vest upon a change in control of our Company.  As a result, the 290,995 shares that are currently subject to vesting restrictions will become fully vested prior to the effective time of the Merger.  In addition, our other trustees own an aggregate of 22,970 restricted shares that will vest prior to the effective time of the Merger in accordance with the terms of the award agreements relating to these shares.

Trustees and Executive Officers:
 
Number of Restricted Shares
 
Value of
Restricted Shares($)
               
Stephen K. Griessel
   
290,995
   
$
2,255,211
Donald J. Halldin
   
4,594
   
$
35,604
Michael E. Williamson
   
4,594
   
$
35,604
Thomas E. Green
   
4,594
   
$
35,604
Antonio Ginorio
   
4,594
   
$
35,604
Thomas J. Shafer
   
4,594
   
$
35,604
               
 
Agreement with Stephen K. Griessel.  On May 12, 2009, Stephen K. Griessel, our Chief Executive Officer, executed an agreement with Interstate Business Corporation (“IBC”), an entity affiliated with J. Michael Wilson, the Chairman of our Board of Trustees, pursuant to which a total of 185,550 of our Common Shares owned by IBC will be transferred in annual installments from IBC to a trust established by IBC for the sole and exclusive benefit of Mr. Griessel.  IBC will retain legal title to all Common Shares held by the trust and the trustee of the trust will be instructed to vote such Common Shares in the manner IBC votes the other Common Shares that it owns.  IBC also agreed to make payments to Mr. Griessel in amounts equal to all dividends and distributions made with respect to the Common Shares held by the trust.  On the earlier of April 30, 2011 or a change of control of our Company, all Common Shares held by the trust will be transferred to Mr. Griessel and IBC will transfer directly to Mr. Griessel the amount of Common Shares required to make the total number of Common Shares transferred to Mr. Griessel pursuant to the agreement equal to 185,550.  Upon the consummation of the Merger, a total of 185,550 of our Common Shares will be transferred from IBC and/or the trust to Mr. Griessel pursuant to the terms of the agreement

 
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and Mr. Griessel will be entitled to receive the same per share Merger Consideration in exchange for such 185,550 Common Shares as all other holders of our Common Shares under the terms of the Merger Agreement.
 
Share Appreciation Rights.   In the Merger, each of the outstanding share appreciation rights will be cancelled and in lieu thereof, each holder will be entitled to receive an amount in cash equal to the product of (i) the excess, if any, of the Merger Consideration over the base price per Common Share underlying such share appreciation right multiplied by (ii) the number of Common Shares subject to such share appreciation right.  None of our trustees and executive officers owns any share appreciation rights and only one of our trustees, Mr. Antonio Ginorio, owns share appreciation rights.  The following table sets forth the number of share appreciation rights held by our trustees and executive officers as of the date of this proxy statement and the value to be received for such rights in connection with the Merger.

Trustees and Executive Officers:
 
Number of Share Appreciation Rights
 
Value of
Share Appreciation Rights ($)
             
Antonio Ginorio
   
10,000
 
$
37,500


Indemnification and Insurance.  The Merger Agreement provides that, following the Merger, FCP and the Surviving Entity will indemnify and hold harmless any person who is a trustee or executive officer of our Company or any of our subsidiaries to the fullest extent allowed by applicable law and advance to such persons the expenses incurred in connection with claims relating to such parties’ duties or service as an officer, trustee, director, employee, agent or fiduciary of our Company and its subsidiaries.  The Merger Agreement further provides that the Surviving Entity will (i) maintain the current policies of trustees’ and officers’ liability insurance maintained by us or our subsidiaries for a period of six years following the closing of the Merger and (ii) maintain for a period of six years after the effective time of the Merger, provisions in the Surviving Entity’s charter and bylaws regarding (a) exculpation from liability for money damages for trustees, directors and officers, (b) indemnification for trustees, directors, officers and employees and (c) advance of expenses related to claims against such trustees, directors, officers and employees.  For a more complete discussion of these provisions of the Merger Agreement, see the section captioned “The Merger Agreement—Indemnification; Trustee and Officer Insurance” on page 55 of this proxy statement.
 
Special Committee Compensation.  The trustees who serve on the Special Committee are entitled to receive a retainer of $25,000 each for their service on the Special Committee, with the Chairman receiving an additional retainer of $40,000 for his service as Chairman of the Special Committee and the Vice Chairman receiving an additional retainer of $20,000 for his service as Vice Chairman.  Such compensation is not conditioned upon the completion of any transaction, including the Merger.
 
Voting by Our Trustees and Executive Officers
 
As of the record date, our trustees and executive officers, excluding J. Michael Wilson, beneficially owned an aggregate of 416,949 Common Shares, representing, in the aggregate, approximately 7.4% of the voting power of our Common Shares entitled to vote at the special meeting.  Our executive officers and trustees other than J. Michael Wilson have informed us that they intend to vote the Common Shares that they beneficially own in favor of the approval of the Merger and the Declaration of Trust Amendment, and for the approval of any adjournments of the special meeting for the purpose of soliciting additional proxies.
 
Voting and Passive Investment Arrangement with Paul J. Isaac

We have been informed by FCP that, subsequent to the announcement of the execution of the Merger Agreement, representatives of FCP met with Paul J. Isaac, who, together with certain of his related and affiliated persons (whom we refer to as the “Isaac Group”), beneficially owns an aggregate of 865,329 of our Common Shares (which represents 15.4% of our outstanding Common Shares as of the record date), on October 1, 2009, at the request of Mr. Isaac and without any solicitation from, or any initiation on the part of, FCP or any of its representatives.  At this meeting, Mr. Isaac informed the representatives of FCP that he was considering his alternatives with respect to his investment in the Company and expressed his interest in possibly participating in the

 
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transaction on the buy-side with FCP.  Representatives of FCP informed Mr. Isaac at this meeting that they did not wish to take any action that would jeopardize the Merger or otherwise be viewed as being unfavorable to the shareholders of the Company, but that they would consider his request.

Mr. Ross Levin, an employee of one of the entities that is controlled by Mr. Isaac, had been one of our trustees until his resignation on September 8, 2009, as more fully described in this proxy statement under the section entitled “—Background of the Merger.”  On October 7, 2009, Mr. Isaac filed an amendment to his Schedule 13D pursuant to which he disclosed that one of the entities controlled by him had purchased an aggregate of 146,392 common shares in open market transactions between September 28, 2009 and October 2, 2009.

After careful consideration by its principals, on October 9, 2009, representatives of FCP informed Mr. Isaac that it would be willing to consider, on a non-binding basis, a passive investment by Mr. Isaac and the Isaac Group.  Subsequently, the parties and their respective representatives engaged in a number of follow-up discussions regarding the viability of such a transaction and the possible terms of such arrangement.  We have been informed by FCP that, on November 10, 2009, FCP, Mr. Isaac and substantially all of the members of the Isaac Group entered into a purchase agreement and a voting agreement in connection with such passive investment by Mr. Isaac and such members of the Isaac Group in the Surviving Entity, the material terms of which are described below.

FCP has informed us that, prior to the meeting on October 1, 2009 that the parties held at Mr. Isaac’s request, neither it nor any of its affiliates had had any prior discussions or meetings with Mr. Isaac or any member of the Isaac Group, nor had it contemplated or considered initiating any such discussions or meetings, regarding the Merger, the Declaration of Trust Amendment or any of the other transactions contemplated by the Merger Agreement, or any possible investment by Mr. Isaac and the Isaac Group in the Surviving Entity.  In addition, no discussions regarding such potential investment were held between FCP, on one hand, and Mr. Isaac and the Isaac Group, on the other hand, after such meeting on October 1, 2009 and prior to October 9, 2009, when FCP informed Mr. Isaac that it would consider a passive investment by Mr. Isaac and the Isaac Group.

Mr. Isaac’s Investment

Pursuant to the terms of a purchase agreement entered into on November 10, 2009 by and among FCP, Mr. Isaac and substantially all, but not all, of the members of the Isaac Group that own an aggregate of 829,529 of our Common Shares (which represents 14.8% of our outstanding common shares as of the record date) (the “Interested Isaac Group”), immediately after the effective time of the Merger, Mr. Isaac and the Interested Isaac Group would make, through a newly formed entity, a capital contribution in cash of an amount equal to 27.5% of the sum of the aggregate Merger Consideration that FCP has agreed to pay to our common shareholders pursuant to the Merger Agreement and all transaction and closing costs, fees and expenses to be incurred by FCP in connection with the Merger.  In exchange for such capital contribution, the newly formed investment vehicle controlled by Mr. Isaac and the Interested Isaac Group would receive a 27.8% passive, limited partnership interest in a limited partnership to be formed through which FCP intends to own substantially all of its interest in the Surviving Entity.  FCP would own the remaining 72.2% interest in the new limited partnership as the sole general partner with sole and exclusive control over the management of such limited partnership and the Surviving Entity.  Mr. Isaac would not be entitled to appoint or designate any members of the Board of Trustees of the Surviving Entity or have any control or involvement in the management of the business and affairs of the newly formed limited partnership or the Surviving Entity.  Instead, the investment vehicle through which Mr. Isaac and the Interested Isaac Group would make their investment in the newly formed limited partnership would be a passive investor with certain limited rights that are intended to protect its investment.  As a limited partner, the Isaac Group investment vehicle would receive cash distributions to the extent that FCP, as the general partner, determines that amounts are available for distributions.

We understand that the consummation of the investment transaction described above by Mr. Isaac and the Interested Isaac Group is conditioned on, among other things, the consummation of the Merger and other customary closing conditions.  In addition, we have been informed that, in the event the purchase agreement related to such arrangement is terminated in accordance with its terms, Mr. Isaac and the Interested Isaac Group would be obligated to refrain from supporting, initiating or being involved in a competing acquisition proposal for a period of 60 calendar days from the date of such termination.

We also understand that the proposed transaction would not affect the rights of Mr. Isaac and the Interested Isaac Group to receive the Merger Consideration at the time of the Merger with all other common shareholders, and

 
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that all of our Common Shares that are owned by Mr. Isaac and the Interested Isaac Group would be cashed-out along with all other outstanding Common Shares at the effective time of the Merger.

Isaac Voting Agreement

In addition to the purchase agreement related to the investment transaction described above, we have been informed that, on November 10, 2009, FCP, Merger Sub, Mr. Isaac and the Interested Isaac Group entered into a voting agreement.  Pursuant to the voting agreement, Mr. Isaac and the Interested Isaac Group have agreed to vote in favor of the Merger and each transaction contemplated by the Merger Agreement, including the Declaration of Trust Amendment.  In addition, Mr. Isaac and the Interested Isaac Group have agreed to vote against certain matters that would impact our ability to timely complete the Merger.  We also understand that Mr. Isaac and the Interested Isaac Group will continue to be bound by the voting agreement for 60 calendar days following the termination of the Merger Agreement by us to enter into a definitive agreement with respect to a superior proposal in accordance with the terms of the Merger Agreement, as well as 60 calendar days following the termination of the purchase agreement described above.
 
Regulatory Approvals
 
No material federal or state regulatory approvals are required to be obtained by us or other parties to the Merger Agreement in connection with the Merger.  To effect the Merger, however, articles of merger must be filed by Merger Sub and us with the SDAT and must be accepted for record by the SDAT.
 
Litigation Related to the Merger
 
On October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder, filed a class action complaint in the Circuit Court for Charles County, Maryland, against the Company, our Board of Trustees and FCP.  The complaint alleges that our trustees breached their fiduciary duties in connection with the Merger.  The complaint further alleges that FCP aided and abetted those breaches of fiduciary duties.  The complaint seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and expenses.
 
On October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a class action complaint in the Circuit Court for Charles County, Maryland, against the Company, our Board of Trustees, FCP and Merger Sub. The complaint alleges that our trustees breached their fiduciary duties in connection with the Merger.  The complaint further alleges that FCP and Merger Sub aided and abetted those breaches of fiduciary duties.  The complaint seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and expenses.
 
We intend to defend these actions vigorously.  However, even if these lawsuits are determined to be without merit, they may potentially delay or, if the delay is substantial enough, prevent the consummation of the Merger by March 31, 2010, potentially prevent the closing of the Merger.
 
Delisting and Deregistration of our Common Shares
 
If the Merger is completed, our Common Shares will no longer be listed on the NYSE Amex and will be deregistered under the Exchange Act.
 

 
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THE MERGER AGREEMENT
 
The following is a summary of selected material provisions of the Merger Agreement. This summary is qualified in its entirety by reference to the complete text of the Merger Agreement, which is incorporated by reference in its entirety and attached to this proxy statement as Exhibit A. We urge you to read carefully the Merger Agreement in its entirety as the rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement.
 
The Merger Agreement has been attached to this proxy statement to provide you with information regarding its terms. It is not intended to provide any other factual information about American Community Properties Trust or the other parties to the Merger Agreement.  Information about our Company can be found elsewhere in this proxy statement and in the other public filings we make with the SEC, which are available without charge at http://www.sec.gov.
 
The Merger Agreement contains representations and warranties made by and to the parties to the Merger Agreement as of specific dates. The statements embodied in those representations and warranties were made solely for purposes of the contract between FCP, Merger Sub and us and may be subject to important qualifications and limitations agreed to by FCP, Merger Sub and us in connection with negotiating its terms. In addition, certain representations and warranties are subject to contractual standards of materiality that may be different from what may be viewed as material to shareholders. The representations and warranties may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts. For the foregoing reasons, you should not rely on the representations and warranties as statements of factual information.
 
 The Merger
 
If the Merger is approved by our shareholders and all other conditions to the Merger are satisfied or waived, Merger Sub, an indirect subsidiary of FCP, will be merged with and into us, and we will continue as the Surviving Entity following the Merger.
 
The closing date of the Merger will be no later than the second (or in certain limited circumstances, the fifth) business day after all of the closing conditions set forth in the Merger Agreement are satisfied or waived by our Company, FCP or Merger Sub, as applicable.  The Merger will become effective when the articles of merger have been accepted by the SDAT in accordance with Maryland law, or such later time (not to exceed 30 days from the date the articles of merger are accepted for record by the SDAT) as the parties to the Merger Agreement may agree and designate in the articles of Merger.
 
We and FCP are working to complete the Merger as quickly as possible. Because completion of the Merger is subject to certain conditions that are beyond the control of FCP and us, we cannot predict the exact timing of the closing. At this time, we expect that the Merger will close either late in the fourth quarter of 2009 or early in the first quarter of 2010 if, at the special meeting of our shareholders, our shareholders approve the Merger and the Declaration of Trust Amendment, and all other conditions are either satisfied or waived.
 
 Organizational Documents
 
In connection with the Merger, at the effective time, the Declaration of Trust of our Company will be amended and restated in its entirety in accordance with a form provided by FCP as a schedule to the Merger Agreement, and such amended and restated Declaration of Trust will be the Declaration of Trust of the Surviving Entity.  The bylaws of Merger Sub, as in effect immediately prior to the effective time of the Merger, will be adopted by the Surviving Entity as the bylaws of the Surviving Entity following the Merger.  If both the proposal to approve the Merger and the proposal to approve the Declaration of Trust Amendment are approved by our common shareholders, we will amend our Declaration of Trust to give effect to the Declaration of Trust Amendment prior to the effective time.  In the unlikely event that the Declaration of Trust Amendment is approved, but the Merger is not approved, our Board of Trustees may elect not to file the Declaration of Trust Amendment with the SDAT.
 

 
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 Effective Time and Closing
 
The Merger will become effective upon the acceptance of the articles of merger for record by SDAT or such later time agreed to by us and the other parties and designated in the articles of merger, not to exceed 30 days from the date the articles of merger are accepted for record by SDAT.  Such time is referred to in this proxy statement as the “effective time of the Merger” or “effective time.”
 
Unless the Merger Agreement is terminated in accordance with its terms, the closing of the Merger will take place as promptly as practicable, but in no event later than the second business day (or, in the event the last condition of the Merger to be satisfied is the condition that relates to a certain matter related to our subsidiary, ARPT, as more fully discussed in this proxy statement, no later than the fifth business day) after all of the conditions of the closing of the Merger are satisfied or appropriately waived.
 
 Trustees and Officers
 
The directors of Merger Sub immediately prior to the effective time will be the trustees of the Surviving Entity.  The officers of the Surviving Entity immediately after effective time will be those individuals who are designated by FCP prior to the effective time.
 
 Merger Consideration to be Received by Holders of Our Common Shares, Restricted Common Shares and SARs
 
Each of our Common Shares (other than shares owned by us or our subsidiaries or FCP, Merger Sub or any of their subsidiaries) issued and outstanding immediately prior to the effective time will be converted into the right to receive $7.75 in cash, without interest.  In the event that, after September 25, 2009 but prior to the effective time of the Merger, the number of Common Shares issued and outstanding changes due to a stock dividend, subdivision, stock split, reclassification, recapitalization combination, or share exchange, an appropriate adjustment to the Merger Consideration will be made.  However, such transactions are prohibited by the Merger Agreement without the written consent of FCP.  In addition, the Merger Consideration is subject to adjustment for certain dividend payments, if any.  At this time, we do not expect to make any dividends or other distributions that would impact the Merger Consideration and such payments are prohibited by the Merger Agreement without the written consent of FCP.
 
In the Merger, each unvested restricted common share of our Company that, by its terms, vests automatically upon the consummation of the Merger will fully vest in accordance with its terms and be considered an outstanding Common Share for all purposes, including the right to receive the Merger Consideration of $7.75 per Common Share.  Each of our unvested restricted Common Shares that, by its terms, does not vest in connection with a change of control, such as the Merger, shall be cancelled and retired for no additional consideration.  Additionally, in the Merger, each of the outstanding share appreciation rights will be cancelled and in lieu thereof, each holder will  receive an amount in cash equal to the product of (i) the excess, if any, of the Merger Consideration over the base price per Common Share underlying such share appreciation right multiplied by (ii) the number of Common Shares subject to such share appreciation right.
 
 Payment Procedures
 
At or prior to the effective time of the Merger, FCP will deposit cash with an exchange agent in the amount of the aggregate Merger Consideration payable to holders of our Common Shares, restricted shares and share appreciation rights.  As soon as practicable after the effective time of the Merger, a letter of transmittal will be sent to each of our shareholders as of the record date that will include instructions on how our shareholders may exchange their shares for the cash consideration they will receive in the Merger.  The exchange  agent will pay our former shareholders, upon receiving the surrender of a shareholder’s share certificate, if applicable, and upon delivery of a properly completed letter of transmittal, the Merger Consideration they are entitled to receive, net of any applicable withholding tax.  No interest will be paid or accrue on any cash payable upon surrender of any share certificate.  The  exchange agent will also pay the holders of the share appreciation rights the share appreciation right consideration described above after the effective time of the Merger.
 

 
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 Available Funds
 
FCP has represented to us in the Merger Agreement that it currently has and will have, on the closing date, cash sufficient to pay the Merger Consideration and to satisfy the obligations of FCP and Merger Sub in connection with the Merger and any other transaction contemplated by the Merger Agreement and any and all fees and expenses in connection with the Merger.
 
 Our Representations and Warranties
 
We have made certain customary representations and warranties to FCP and Merger Sub, subject to the exceptions disclosed in the Merger Agreement and the disclosure letter in connection with the Merger Agreement and subject to customary qualifications for materiality.  These representations and warranties terminate at the effective time of the Merger and relate to, among other things:
 
·  
corporate and partnership matters, including due organization and qualification and good standing;
 
·  
our current capitalization and debt and outstanding restricted stock and share appreciation rights;
 
·  
authority of the Company to execute and deliver the Merger Agreement;
 
·  
the determination, approval and recommendation of the Special Committee and the Board of Trustees;
 
·  
absence of conflicts with, or violations of, organizational documents, applicable laws or other obligations or agreements as a result of the Merger and governmental filings, and consents necessary to complete the Merger;
 
·  
compliance with applicable law and possession of applicable permits;
 
·  
the timely filing and accuracy of SEC reports and financial statements and compliance with the Sarbanes-Oxley Act of 2002, the Exchange Act and NYSE Amex requirements;
 
·  
the absence of certain changes and events that have resulted or would reasonably be expected to result in a material adverse effect with respect to us;
 
·  
the absence of litigation or orders against us;
 
·  
our employee benefit plans;
 
·  
labor matters affecting us and our employees;
 
·  
the accuracy of information contained in this proxy statement regarding us;
 
·  
our properties, leases and related title insurance matters;
 
·  
our intellectual property;
 
·  
tax matters affecting us and our subsidiaries and properties;
 
·  
environmental matters affecting us and our subsidiaries and properties;
 
·  
our material contracts;
 
·  
our insurance;
 

 
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·  
related party transactions involving us and our subsidiaries;
 
·  
the applicability of certain takeover and business combination statutes to us;
 
·  
broker’s fees payable in connection with the Merger;
 
·  
the opinion of our financial advisor;
 
·  
our and our subsidiaries’ status as an investment company under the Investment Company Act of 1940, as amended; and
 
·  
accounting and disclosure controls.
 
 Representations and Warranties of the Other Parties to the Merger Agreement
 
FCP and Merger Sub have made certain representations and warranties to us that terminate at the effective time of the Merger.  These representations and warranties relate to, among other things:
 
·  
corporate and partnership matters, including due organization and qualification and good standing;
 
·  
authority of FCP and Merger Sub to execute and deliver the Merger Agreement;
 
·  
absence of conflicts with, or violations of, organizational documents, applicable laws or other obligations or agreements as a result of the Merger and governmental filings, and consents necessary to complete the Merger;
 
·  
litigation;
 
·  
available funds sufficient to pay the Merger Consideration and to satisfy other obligations in connection with the Merger and the other transactions contemplated by the Merger Agreement;
 
·  
ownership, prior activities and the sole purpose of Merger Sub;
 
·  
ownership of our Common Shares; and
 
·  
accuracy of information contained in this proxy statement regarding FCP and Merger Sub.
 
 Covenants Regarding Conduct of Our Business
 
During the period from September 25, 2009 to the earlier of the closing date of the Merger or termination of the Merger Agreement, we have agreed that we and each of our subsidiaries will not, except (i) as set forth in our disclosure letter given to FCP by us in connection with the Merger Agreement, (ii) as consented to in writing by FCP, which consent is not to be unreasonably withheld, or (iii) as expressly contemplated or permitted by the Merger Agreement:
 
·  
conduct our business other than in the ordinary course consistent with past practice or fail to  use our commercially reasonable efforts to preserve our business organization,  maintain our status as a partnership for tax purposes, maintain our current regulatory authorizations, permits and licenses, keep available the services of our officers, managers and employees and preserve  our current relationships with lessees and other persons with which we  have significant business relations;.
 
·  
authorize, issue, sell, repurchase or redeem our subsidiaries or our securities;
 

 
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·  
pay or declare dividends, except for dividends required by our Declaration of Trust (in which case the Merger Consideration will be reduced dollar for dollar by the amount of such dividends) and dividends from our subsidiaries to us or our subsidiaries, or adjust, split, combine, redeem, reclassify or purchase any of our equity interests or those of our subsidiaries;
 
·  
except as required by one of our benefit plans, increase the compensation or benefits payable to any of our trustees, employees, consultants, directors or officers (other than reasonable increases in accordance with past practice, including increases resulting from the annual performance reviews of Matthew M. Martin and Stephen K. Griessel), grant any new severance rights, enter into any new employment agreements, establish, adopt or enter into any compensation plan, amend or waive any performance or vesting criteria or accelerate vesting, exercisability or funding under any of our benefit plans;
 
·  
acquire all or any portion of the assets, business, properties or shares of stock or other securities of any entity or person;;
 
·  
create, incur or assume any indebtedness or assume, guarantee or endorse the obligations of any person or entity, except (i) in the ordinary course pursuant to our existing credit facilities, not to exceed $1 million in the aggregate, and (ii) the indebtedness listed on the disclosure letter delivered to FCP in connection with the Merger Agreement;
 
·  
pre-pay any long-term indebtedness, except in the ordinary course of business consistent with past practice and in accordance with the its terms;
 
·  
pay, discharge or satisfy any claims, liabilities or obligations, except in the ordinary course of business consistent with past practice and in accordance with their terms;
 
·  
make or authorize any capital expenditures, in excess of $250,000 individually or $500,000 in the aggregate, except for (i) expenditures disclosed in our disclosure letter or (ii) expenditures in the ordinary course of business in order to own, maintain and operate our properties in working order;
 
·  
amend any provision of any organizational document of the Company or our subsidiaries;
 
·  
materially change any of the accounting principles or practices, subject to certain limited exceptions;
 
·  
enter into or terminate any material contract, or modify, amend, fail to comply with or waive compliance with or breaches under, in any material respect, a material contract, except as listed on our disclosure letter;
 
·  
waive, release, assign, settle or compromise any material claim or litigation, except those involving only the payment of monetary damages not exceeding $100,000 individually or $250,000 in the aggregate;
 
·  
make any tax election or settle or compromise any liability for taxes in excess of $25,000, except as required by law or necessary to maintain our status as a partnership for tax purposes;
 
·  
fail to comply in any material respect with applicable laws, including the filing of SEC reports;
 
·  
enter into any new material line of business or change our material operating policies, except as required by law, or form or dissolve any entity or commence or cease the operation of any material business;
 
·  
enter into any new lease (including renewals) for in excess of 10,000 square feet at any of our properties, except in connection with a right of a tenant under an existing tenant lease or as disclosed in our disclosure letter;
 
·  
terminate or materially modify or amend any tenant lease that relates to in excess of 10,000 square feet, except in connection with a right of a tenant under an existing tenant lease;
 

 
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·  
amend any term of any of our securities or the securities of our subsidiaries;
 
·  
sell or otherwise dispose of, or subject to any lien, any of our properties, except for pending sales disclosed to FCP or as otherwise set forth in our disclosure letter;
 
·  
sell, lease, mortgage, subject to a lien or otherwise dispose of any of our personal or intangible property in excess of $100,000 individually or $250,000 in the aggregate;
 
·  
except as set forth in our disclosure letter, enter into or otherwise modify any agreement or arrangement with our employees, officers, trustees, partners, directors and affiliates;
 
·  
fail to use commercially reasonable efforts to comply or remain in compliance with all material terms of any agreement relating to any of our or our subsidiaries indebtedness;
 
·  
adopt a plan of complete or partial liquidation or dissolution or adopt resolutions providing for or authorizing such liquidation or dissolution;
 
·  
fail to maintain or replace existing insurance policies for us and each of our subsidiaries and our properties, assets and businesses;
 
·  
authorize, enter into any agreement or commit to do any of the foregoing;
 
·  
take any action that would interfere with or delay the consummation of the Merger; or
 
·  
take any action that is intended or reasonably likely to result in (i) any of the representations and warranties set forth in the Merger Agreement becoming untrue in any material respect, or (ii) any of the conditions to the Merger not being satisfied.
 
 Other Covenants
 
We and the other parties to the Merger Agreement have agreed to various covenants regarding general matters.  Some of these covenants are mutual, while others have been made either only by us or only by FCP and/or Merger Sub.
 
The mutual covenants regarding general matters include, but are not limited to:
 
·  
cooperating to prepare and file this proxy statement;
 
·  
using commercially reasonable efforts to take all action necessary to effect the Merger, and to cooperate to obtain any necessary permits, consents and approvals from third parties, and to defend against any litigation or judicial action brought in conjunction with the Merger Agreement;
 
·  
cooperating with respect to any press releases or announcements concerning the transactions contemplated by the Merger Agreement;
 
·  
using commercially reasonable efforts to cause our Common Shares to be delisted from the NYSE Amex and deregistered under the Exchange Act; and
 
·  
cooperating in the preparation, execution and filing of all transfer tax related documentation.
 
The covenants regarding general matters that we have made include, but are not limited to:
 
·  
preparing and filing this proxy statement with the SEC and all other required filings and to use our reasonable efforts to have this proxy statement cleared by the SEC;
 

 
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·  
holding a meeting of our shareholders to vote on the Merger and the Declaration of Trust Amendment;
 
·  
including the recommendation of our Board of Trustees that holders of our Common Shares approve the Merger, the amendment to our Declaration of Trust and the other transactions contemplated by the Merger Agreement at the meeting of our shareholders and using all other reasonable efforts to obtain shareholder approval;
 
·  
obtaining and delivering to FCP at the closing of the Merger the resignations of our and our subsidiaries trustees and directors, as applicable, as designated by FCP
 
·  
providing FCP and its representatives with reasonable access to our and our subsidiaries’ facilities, offices, properties, books, records, contracts, commitments, officers, employees, accountants, counsel and other representatives and providing copies of all SEC reports and all other information concerning our business as may be reasonably requested;
 
·  
operating in such a manner as to permit us to continue to qualify as a partnership for U.S. federal income tax purposes until the effective time;
 
·  
preparing and timely filing all tax returns for taxes in excess of $25,000 in a manner consistent with past practice and in accordance with applicable laws;
 
·  
fully and timely paying all taxes due and payable by us;
 
·  
properly reserving for all taxes payable by us and our subsidiaries that accrue prior to the effective time of the Merger;
 
·  
delivering to FCP within 30 days of the execution of the Merger Agreement, but not later than 20 days prior to the effective time, a written determination of the accumulated, as well as estimated current, earnings and profits of ARPT and causing ARPT to distribute at least five business days prior to the effective time certain inter-company receivables to us (but only after we have obtained the approval of our shareholders for the Merger and the Declaration of Trust Amendment and certain third party consents);
 
·  
promptly notifying FCP of (i) any communication from a third party alleging that the consent of such third party is required in connection with the transactions contemplated by the Merger Agreement, (ii) any communication from a governmental authority in connection with the transactions contemplated by the Merger Agreement, (iii) any material actions threatened or commenced against or otherwise affecting us that are related to the transactions contemplated by the Merger Agreement or (iv) any effect, event, development or change that causes or is reasonably likely to cause a condition to closing not to be satisfied; and
 
·  
providing all relevant information and access to our tax advisors necessary for FCP’s tax advisors to determine whether there is a substantial risk that we have not qualified as a partnership for tax purposes for any period commencing with our taxable year ended December 31, 1998.
 
The covenants regarding general matters that FCP and/or Merger Sub have made include, but are not limited to:
 
·  
promptly notifying us of (i) any communication from a third party alleging that the consent of such third party is required in connection with the transactions contemplated by the Merger Agreement, (ii) any communication from a governmental authority in connection with the transactions contemplated by the Merger Agreement, (iii) any material actions threatened or commenced against or otherwise affecting FCP or Merger Sub that are related to the transactions contemplated by the Merger Agreement or (iv) any effect, event, development or change that causes or is reasonably likely to cause a condition to closing not to be satisfied.
 

 
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 Solicitation of Other Offers
 
From the date of the Merger Agreement (September 25, 2009) until 11:59 p.m., Eastern Standard Time, on October 28, 2009 (which we refer to as the “go-shop period”), we were permitted to initiate, solicit and encourage acquisition proposals (including by way of providing access to non-public information pursuant to confidentiality agreements), and participate in discussions or negotiations with respect to acquisition proposals or otherwise cooperate with or assist or participate in, or facilitate any such discussions or negotiations.  We were required to have promptly provided to FCP and Merger Sub any material non-public information concerning us or our subsidiaries that was provided to any person given such access which had not been previously provided to FCP or Merger Sub.
 
Within two business days after receiving an acquisition proposal during the go-shop period that our Board of Trustees or the Special Committee believed in good faith, after consultation with outside legal counsel and our financial advisor, constituted or was reasonably likely to lead to a superior proposal, we were required to notify FCP in writing of the identity of each person who had made such an acquisition proposal.  We were also required to provide FCP a written summary of each such acquisition proposal within two business days.
 
After the end of the go-shop period, we have agreed not to:
 
·  
initiate, solicit or encourage any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal;
 
·  
initiate, enter into, engage in, continue, or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any person relating to, any acquisition proposal;
 
·  
withdraw the recommendation of the Board of Trustees;
 
·  
approve, endorse or recommend, or publicly propose to approve, endorse or recommend, any acquisition proposal;
 
·  
enter into any agreement in principle, arrangement, understanding, contract or agreement providing for, or relating to, an acquisition proposal or enter into any agreement or agreement in principle requiring the Company to abandon, terminate or fail to consummate the Merger or any of the transactions contemplated by the Merger Agreement;
 
·  
exempt any person from the restrictions contained in any state “business combination,” takeover or similar laws or otherwise cause such restrictions not to apply to any Person or to any Acquisition Proposal;
 
·  
exempt any person from the ownership limitations and restrictions contained in Article IV of the Company’s Declaration of Trust or cause such limitations and restrictions not to apply; or
 
·  
release any person from or fail to enforce any standstill agreement or similar obligation to the Company and its subsidiaries other than the automatic termination of standstill obligations pursuant to the terms of agreements as in effect as of the date hereof, by virtue of the execution and announcement of the Merger Agreement.
 
Notwithstanding these restrictions, after the go-shop period, we are permitted to continue discussions and provide non-public information to any party that made a bona fide written acquisition proposal prior to the end of the go-shop period, that our Board of Trustees or the Special Committee determines, as of the end of the go-shop period, in good faith, after consultation with outside legal counsel and our financial advisor, constitutes or is reasonably likely to lead to a superior proposal.
 
However, we must otherwise immediately cease or cause to be terminated discussions except as permitted below and cause any confidential information provided or made available to be returned or destroyed.  At any time
 

 
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after the date of the Merger Agreement and prior to the approval of the Merger Agreement by our shareholders, we are permitted to furnish information with respect to the Company and our subsidiaries to any person making an acquisition proposal and to participate in discussions or negotiations with the person making the acquisition proposal, so long as, in the case of a person with whom we did not have ongoing negotiations or discussions at the end of the go-shop period, such acquisition proposal was a written bona fide acquisition proposal that was not solicited, encouraged, facilitated by us or otherwise obtained in violation of the Merger Agreement.  In addition, our Board of Trustees or the Special Committee must determine in good faith, after consultation with outside legal counsel and our financial advisor, that such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal or that failure to take such action, in light of the acquisition proposal and the terms of this Merger Agreement, would be inconsistent with the trustees’ duties under applicable law.
 
From and after October 28, 2009, we must notify FCP in writing within 48 hours if we receive any acquisition proposal, including in such notice the material terms of the acquisition proposal, and shall keep FCP apprised as to the status and any material developments concerning the same on a current basis (and in any event no later than 36 hours after the occurrence of such developments).  In addition, from and after October 28, 2009, we must notify FCP orally and in writing if we determine to begin providing information or to engage in negotiations concerning an acquisition proposal not later than 24 hours after making such determination.
 
An “acquisition proposal” means any proposal or offer for, whether in one transaction or a series of related transactions, any (i) Merger, consolidation, share exchange, business combination or similar transaction involving us or any of our significant subsidiaries, (ii) sale or other disposition, directly or indirectly, by Merger, consolidation, share exchange, business combination or any similar transaction, of any of our assets or our subsidiaries’ assets representing 20% or more of our consolidated assets, (iii) issue, sale or other disposition by us or any of our subsidiaries of securities (or options, rights or warrants to purchase, or securities convertible into, such securities) representing 20% or more of the votes associated with our outstanding voting securities, (iv) tender offer or exchange offer in which any person or group shall acquire beneficial ownership, or the right to acquire beneficial ownership, of 20% or more of the votes associated with our Common Shares, (v) recapitalization, restructuring, liquidation, dissolution or other similar type of transaction with respect to us, or (vi) transaction which is similar in form, substance or purpose to any of the foregoing transactions.
 
A “superior proposal” means any bona fide written acquisition proposal that we did not solicit in violation of the Merger Agreement (i) that relates to more than 60% of the voting power of our Common Shares or our assets and our subsidiaries’ assets, taken as a whole, (ii) which our Board of Trustees or the Special Committee determines in its good faith judgment (after consultation with its financial advisor and after taking into account all of the terms and conditions of the acquisition proposal) to be more favorable to our shareholders (in their capacities as shareholders) than the Merger, (iii) the material conditions to the consummation of which are all reasonably capable of being satisfied in the judgment of our Board of Trustees or the Special Committee, and (iv) for which financing, to the extent required, is then committed or, in the judgment of our Board of Trustees or the Special Committee, is reasonably likely to be available.
 
Recommendation Withdrawal / Termination in Connection with a Superior Proposal
 
The Merger Agreement requires us to call, give notice of, convene and hold a meeting of our shareholders to approve the Merger and the Declaration of Trust Amendment. In this regard, our Board of Trustees resolved to recommend that our shareholders approve the Merger and the Declaration of Trust Amendment. However, if our Board of Trustees or the Special Committee determines in good faith, after consultation with outside legal counsel, that failure to take such action would be inconsistent with the trustees’ duties under applicable law, the Board of Trustees or the Special Committee may, at any time prior to the approval of the Merger Agreement by our shareholders:
 
·  
withhold, withdraw, modify, change or qualify in a manner adverse to FCP in any material respect, or publicly propose to withdraw, its recommendation; or
 
·  
fail to include its recommendation in this proxy statement; or
 
·  
knowingly take any other action or knowingly make any other public statement that is inconsistent in any material respect with such recommendation; or
 

 
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·  
terminate the Merger Agreement and enter into a definitive agreement with respect to an acquisition proposal that constitutes a superior proposal, after giving effect to all of the adjustments which may be offered by FCP; provided, that we are not entitled to terminate the Merger Agreement in accordance with this bullet unless we have concurrently paid to FCP the applicable termination fee and expenses as described in further detail in “— Termination Payments and Expenses” beginning on page 54.
 

In the event that a superior proposal has been made (or any material revision of a superior proposal has been made), we are not allowed to take any of the actions in bullets 1-4 above unless:
 
·  
we shall have provided prior written notice to FCP and Merger Sub, at least three (3) business days in advance, of our intention to take any of the actions in bullets 1-4 above with respect to such superior proposal, which notice shall specify the material terms and conditions of such superior proposal (including the identity of the party making such superior proposal); and
 
·  
prior to effecting any of the actions in bullets 1-4 above, we shall have, and shall have caused our financial and legal advisors to, during the requisite 3-business day period, negotiate with FCP and Merger Sub in good faith (to the extent FCP and Merger Sub desire to negotiate) to make such adjustments in the terms and conditions of the Merger Agreement so that the transactions contemplated thereby are more favorable to our shareholders than the superior proposal.
 
To the extent our Board of Trustees or the Special Committee proposes to take the foregoing actions with regard to its recommendation, it may only do so if we have not intentionally or materially breached our obligations under certain solicitation provisions of the Merger Agreement.
 
We are not prohibited by the Merger Agreement from complying with our disclosure obligations under U.S. federal or state law with regard to an acquisition proposal, including taking and disclosing to our shareholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) under the Exchange Act.
 
 Employee Benefits
 
Each of our employees who are employees immediately prior to the effective time of the Merger will continue to be an employee of the Surviving Entity immediately after the effective time of the Merger.  To the extent that the Surviving Entity or any affiliate thereof maintains any health, welfare, retirement or paid-time-off benefit plan in which any employee of the Surviving Entity participates after the effective time of the Merger, the Surviving Entity shall cause such plan to recognize the prior service of each such employee with us and our affiliates prior to the effective time as employment with the Surviving Entity and its affiliates for purposes of eligibility and benefit entitlement (and, in the case of severance or paid time off benefits, benefit accrual) under such plans of the Surviving Entity.  In addition, FCP has agreed to waive pre-existing condition exclusions, waiting periods and certain other requirements and to provide credit for co-payments and deductibles paid in the plan year immediately preceding the effective time of the Merger.
 
 Conditions to the Merger
 
The Merger will be completed only if the conditions specified in the Merger Agreement are either satisfied or waived.  Some of the conditions are mutual, meaning that if the condition is not satisfied, none of the parties would be obligated to close the Merger.  Those conditions that are not mutual are in favor of either FCP or Merger Sub, on the one hand, or our Company, on the other hand, meaning that, if the condition is not satisfied, the party could waive the condition, to the extent legally permissible, and the other party would remain obligated to close.
 
The mutual conditions for completion of the Merger are:
 
·  
approval of both the Merger and the Declaration of Trust Amendment by our shareholders; and
 

 
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·  
absence of any action by any governmental authority in the United States that would make the Merger illegal or otherwise restrict, prevent or prohibit consummation of the Merger.
 
Our obligation to effect the Merger is subject to the satisfaction or waiver of various conditions that include the following:
 
·  
the representations and warranties of FCP and Merger Sub being true and correct as of the date of the Merger Agreement and as of the closing date of the Merger (except to the extent the representation or warranty is expressly limited by its terms to another date), except where the failure of such representations and warranties to be true and correct, without giving effect to any materiality or material adverse effect qualifier, does not or would not have, individually or in the aggregate, an FCP material adverse effect;
 
·  
each of FCP and Merger Sub having performed in all material respects all obligations or complied with, in all material respects, all agreements and covenants required to be performed by it under the Merger Agreement on or prior to the closing time of the Merger; and
 
·  
delivery by FCP of an executed officer certificate as to the satisfaction of these conditions.
 
FCP’s and Merger Sub’s obligation to effect the Merger is subject to the satisfaction or waiver of various conditions that include the following:
 
·  
the representations and warranties of our Company being true and correct as of the date of the Merger Agreement and as of the closing date of the Merger (except to the extent the representation or warranty is expressly limited by its terms to another date), except where the failure of such representations and warranties to be true and correct, without giving effect to any materiality or material adverse effect qualifier, does not or would not reasonably be likely to have, individually or in the aggregate, a material adverse effect;
 
·  
the representations and warranties of our Company concerning capitalization, debt and authority relative to the Merger Agreement being true and correct in all material respects;
 
·  
the representations and warranties of our Company concerning the operation of our business in the ordinary course, the absence of a material adverse effect and the validity of our status since our taxable year ended December 31, 1998 as a partnership for tax purposes being true and correct in all respects as of the date of the Merger Agreement and as of the closing date of the Merger;
 
·  
our Company having performed in all material respects all obligations or complied with, in all material respects, all agreements and covenants required to be performed by it under the Merger Agreement on or prior to the closing time of the Merger;
 
·  
delivery by us of an executed officer certificate as to the satisfaction of these conditions;
 
·  
our compliance in all respects with our covenants regarding the earnings and profits of ARPT, including the distribution by ARPT of inter-company obligations in accordance with the Merger Agreement;
 
·  
if FCP’s tax advisors determine that, in their judgment, there is a greater than 25% possibility that we have not qualified to be taxed as a partnership for tax purposes for any taxable period commencing with the taxable year ended December 31, 1998 and deliver a notice describing the technical issue leading to such determination, the delivery within 10 days of receiving such notice of a tax opinion addressed to us from legal counsel satisfactory to FCP to the effect that the technical issues raised by FCP should not have caused us to be treated as an association taxable as a corporation under the Internal Revenue Code for the taxable years commencing with our taxable year ended December 31, 1998;
 
·  
the receipt of certain third party consents; and
 

 
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·  
the absence of a material adverse effect to our Company.
 
Certain of the above conditions, such as the requirement for shareholder approval, cannot be waived under applicable law.  We, FCP and Merger Sub reserve the right to waive other conditions to the Merger.  We cannot be certain when (or if) the conditions to the Merger will be satisfied or waived or that the Merger will be completed.  We expect to complete the Merger as promptly as practicable after all the conditions have been satisfied or waived.
 
 Definition of Material Adverse Effect
 
Under the Merger Agreement, “material adverse effect,” as it applies to our Company, means any event, fact, development, circumstance, change or effect that individually or in the aggregate is or is reasonably likely to be materially adverse to the assets, business, prospects, condition (financial or otherwise) or results of operations of our Company and our subsidiaries, taken as a whole; provided, however, that none of the following shall be deemed to constitute a “material adverse effect”:
 
·  
any event, fact, development, circumstance, change or effect arising out of or resulting from changes in the United States or global economy or capital, financial or securities markets generally, including changes in interest or exchange rates (except to the extent such event, fact, development, circumstance, change or effect affects us and our subsidiaries in a disproportionate manner as compared to other persons or participants in the industries in which we and our subsidiaries conduct our business);
 
·  
the commencement or escalation of a war or armed hostilities or the occurrence of acts of terrorism or sabotage;
 
·  
any changes in general economic, legal, regulatory or political conditions in the geographic regions in which we and our subsidiaries operate (except to the extent such event, fact, development, circumstance, change or effect affects us and our subsidiaries in a disproportionate manner as compared to other persons or participants in the industries in which we and our subsidiaries conduct our business and that operate in the geographic regions affected by such event, fact, development, circumstance, change or effect);
 
·  
the consummation or anticipation of the Merger or the announcement of the execution of the Merger Agreement;
 
·  
the compliance with the terms of, or the taking of any action required by, the Merger Agreement;
 
·  
earthquakes, hurricanes or other natural disasters;
 
·  
any failure of us to complete the sale of all or any of our properties located in Baltimore, Maryland; or
 
·  
changes in law or accounting principles generally accepted in the United States of America.
 
We have agreed that, with respect to our representations regarding the absence of conflicts with, or violations of, organizational documents, applicable laws or other obligations or agreements as a result of the Merger and governmental filings and consents necessary to complete the Merger, the exceptions in bullets 4 and 5 above shall not apply.
 
We and FCP have agreed that the mere fact of a decrease in the market price of our Common Shares shall not, in and of itself, be considered a material adverse effect, but any event, fact, development or circumstance relating to the assets, business, prospects, condition or results of operations of the Company and its subsidiaries that causes such decrease shall be considered in determining whether there has been a material adverse effect.
 

 
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Under the Merger Agreement, “FCP material adverse effect,” means any event, fact, development, circumstance, change or effect that would reasonably be expected to prevent, or materially hinder, FCP and the Merger Sub from being able to consummate the Merger.
 
 Termination
 
The Merger Agreement may be terminated prior to the Merger effective time:
 
·  
by mutual written consent of FCP and us;
 
·  
by either FCP or us, if:
 
·  
our shareholders do not approve the Merger or the Declaration of Trust Amendment;
 
·  
any governmental authority with authority over such matters takes any action that is final and non-appealable that permanently restrains, enjoins or otherwise prohibits the consummation of the Merger, provided that the terminating party uses reasonable best efforts oppose such action or to have the action vacated or made inapplicable to the Merger; or
 
·  
the Merger is not completed on or before March 31, 2010, unless the failure to complete the Merger by this date is the result of any action or inaction under the Merger Agreement by the terminating party;
 
·  
by FCP, if:
 
·  
prior to the special meeting of our shareholders to approve the Merger and the Declaration of Trust Amendment, our Board of Trustees or the Special Committee:
 
·  
withholds, withdraws, modifies, changes or qualifies in a manner adverse to FCP in any material respect, or publicly propose to withdraw, its recommendation;
 
·  
fails to include its recommendation in this proxy statement;
 
·  
knowingly takes any other action or knowingly makes any other public statement that is inconsistent in any material respect with such recommendation;
 
·  
publicly proposes to effect any of the foregoing;
 
·  
our Board of Trustees or the Special Committee approves or recommends (or resolves to approve or recommend) an acquisition proposal other than the Merger to our shareholders;
 
·  
we breach any representation or warranty or fail to perform any covenant or agreement contained in the Merger Agreement that prevents satisfaction of the conditions to FCP’s obligation to close the Merger, and the breach or failure is incapable of being cured by March 31, 2010 or, if capable of being cured by such date, we have not commenced to cure the breach or failure within 10 business days of receiving written notice of the breach or failure from FCP and have not diligently pursued such cure to completion thereafter; provided, however, that FCP is not then also in material breach of its representations, warranties, covenants or agreements such as would cause a condition to closing to not be satisfied.
 
·  
by us, if:
 
·  
FCP breaches any representation or warranty or fails to perform any covenant or agreement contained in the Merger Agreement that prevents satisfaction of the conditions to our obligation to close the Merger, and the breach or failure is incapable of being cured by March 31, 2010 or, if
 

 
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capable of being cured by such date, FCP has not commenced to cure the breach or failure within 10 business days of receiving written notice of the breach or failure from us and has not diligently pursued such cure to completion thereafter; provided, however, that we are not then also in material breach of our representations, warranties, covenants or agreements such as would cause a condition to closing to not be satisfied.
 
·  
prior to approval of the Merger by our shareholders, our Board of Trustees has withdrawn its recommendation and/or approved and authorized us to enter into a definitive agreement with respect to a superior proposal, but only if (i) we have not materially breached any of our obligations under the solicitation provisions of the Merger Agreement, (ii) our Board of Trustees or the Special Committee has determined in good faith that the definitive agreement constitutes a superior proposal and has determined in good faith, after consultation with outside legal counsel, that failure to enter into the competing agreement would be inconsistent with the trustees’ duties under applicable law, (iii) we have provided FCP written notice of our intention to enter the competing agreement, (iv) we have complied with the other requirements for approving a superior proposal as discussed above under the caption “¾Recommendation Withdrawal / Termination in Connection with a Superior Proposal” beginning on page 49; and (v) concurrently with such termination, we have paid FCP the applicable termination fee and certain of its Merger expenses as described under the caption “¾ Termination Payments and Expenses” beginning on page 54.
 
 Termination Payments and Expenses
 
The Merger Agreement provides that we are obligated to pay FCP an amount equal to $1.75 million as a termination payment and up to $300,000 of its Merger expenses incurred since September 3, 2009 if the Merger Agreement is terminated by FCP, if, except as set forth below:
 
·  
prior to the special meeting of our shareholders to approve the Merger and the Declaration of Trust Amendment, our Board of Trustees or the Special Committee:
 
·  
withholds, withdraws, modifies, changes or qualifies in a manner adverse to FCP in any material respect, or publicly propose to withdraw, its recommendation;
 
·  
fails to include its recommendation in this proxy statement;
 
·  
knowingly takes any other action or knowingly makes any other public statement that is inconsistent in any material respect with such recommendation;
 
·  
publicly proposes to effect any of the foregoing;
 
·  
our Board of Trustees or the Special Committee approves or recommends (or resolves to approve or recommend) an acquisition proposal other than the Merger to our shareholders; or
 
·  
we breach any representation or warranty or fail to perform any covenant or agreement contained in the Merger Agreement that prevents satisfaction of the conditions to FCP’s obligation to close the Merger, and the breach or failure is incapable of being cured by March 31, 2010 or, if capable of being cured by such date, we have not commenced to cure the breach or failure within 10 business days of receiving written notice of the breach or failure from FCP and have not diligently pursued such cure to completion thereafter; provided, however, that FCP is not then also in material breach of its representations, warranties, covenants or agreements such as would cause a condition to closing to not be satisfied.
 

 
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In addition, we are obligated to pay FCP an amount equal to $1.75 million as a termination payment and up to $300,000 of its Merger expenses incurred since September 3, 2009 if the Merger Agreement is terminated by us because our Board of Trustees has approved and authorized us to enter into a definitive agreement with respect to a superior proposal subject to the conditions described in, and in accordance with, the Merger Agreement.
 
Notwithstanding the above, the Merger Agreement provides that we are obligated to pay FCP an amount equal to $1.45 million as a termination payment and up to $300,000 of its Merger expenses incurred since September 3, 2009 if the Merger Agreement is terminated by us because our Board of Trustees or the Special Committee has approved and authorized us to enter into a definitive agreement with respect to a superior proposal during the go-shop period or otherwise from a party identified during the go-shop period and who submitted, during the go-shop period, an acquisition proposal that our Board of Trustees or the Special Committee determined, as of the end of the go-shop period, in good faith, after consultation with outside legal counsel and the Special Committee’s financial advisor, constituted or was reasonably likely to lead to a superior proposal.
 
The Merger Agreement provides that we are obligated to reimburse FCP for up to $600,000 of its expenses incurred since September 3, 2009 if the Merger Agreement is terminated by either FCP or us in the event that our shareholders vote to not approve the Merger or the amendment to our Declaration of Trust at the special shareholder meeting.  In addition, if:  (a) prior to the special meeting of shareholders, an acquisition proposal shall have been publicly announced or made known and not otherwise withdrawn, and (b) concurrently with such termination or within 12 months thereafter, we enter into an agreement with respect to an acquisition proposal or any acquisition proposal is consummated, whether or not on the same terms originally proposed, we would be obligated to pay FCP a fee upon the consummation of such acquisition proposal equal to $1.45 million in addition to the expense reimbursement described in the preceding sentence.
 

 
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FCP has agreed to pay us an amount equal to $1.45 million as a termination payment and up to $300,000 of our Merger expenses incurred since September 3, 2009 if the Merger Agreement is terminated by us in the event that FCP breaches any representation or warranty or fails to perform any covenant or agreement contained in the Merger Agreement that prevents satisfaction of the conditions to our obligation to close the Merger, and the breach or failure is incapable of being cured by March 31, 2010 or, if capable of being cured by such date, FCP has not commenced to cure the breach or failure within 10 business days of receiving written notice of the breach or failure from us and has not diligently pursued such cure to completion thereafter; provided, however, that we are not then also in material breach of our representations, warranties, covenants or agreements such as would cause a condition to closing to not be satisfied.  Notwithstanding the foregoing, if we terminate the Merger Agreement for any such breach by FCP or Merger Sub within 5 business days prior to the effective time of the Merger, then FCP would be required to pay to us a $5 million termination payment and up to $300,000 of our Merger expenses incurred since September 3, 2009.
 
Our right to receive payment of the fees and expenses described in this section from FCP shall be our sole and exclusive remedy against FCP, Merger Sub and any of their respective former, current, or future general or limited partners, stockholders, managers, members, directors, officers, affiliates or agents for the loss suffered as a result of the failure of the Merger to be consummated, and upon payment of such amounts, none of FCP, Merger Sub or any of their respective former, current, or future general or limited partners, stockholders, managers, members, directors, officers, affiliates or agents shall have any further liability or obligation relating to or arising out of the Merger Agreement or the transactions thereby.  FCP’s right to receive payment of the fees and expenses described in this section from us shall be the sole and exclusive remedy of FCP and Merger Sub against us and our subsidiaries and any of our respective former, current, or future general or limited partners, shareholders, managers, members, directors, officers, affiliates or agents for the loss suffered as a result of the failure of the Merger to be consummated, and upon payment of such amounts, none of the us or our subsidiaries or any of our respective former, current, or future general or limited partners, shareholders, managers, members, directors, officers, affiliates or agents shall have any further liability or obligation relating to or arising out of the Merger Agreement or the transactions contemplated thereby.  Neither us nor FCP is expressly entitled to seek specific performance of the other’s obligations under the Merger Agreement.
 
 Amendment of the Merger Agreement
 
The parties may amend the Merger Agreement, but after our shareholders have approved the Merger, no such amendment will be made that by law or pursuant to the rules of the NYSE Amex requires further approval by our shareholders without obtaining such approval.
 
 Indemnification; Trustee and Officer Insurance
 
Our Company will be the Surviving Entity in the Merger and, along with FCP, will provide exculpation and indemnification to the fullest extent authorized or permitted by applicable law for each person who as of the date of the Merger Agreement or during the period from the date of the Merger Agreement through the closing date of the Merger, served as an executive officer, trustee, director or fiduciary of our Company or any of our subsidiaries (referred to in this proxy statement as the “indemnified parties”) in connection with any claims and any judgments, fines, penalties and amounts paid in settlement resulting therefrom.  In addition, FCP and the Surviving Entity will promptly pay on behalf of or, within 30 days after any request for advancement, advance to each indemnified party, to the fullest extent permitted by applicable law, any expenses incurred in defending, serving as a witness with respect to or otherwise participating in any claim in advance of the final disposition of such claim.  The indemnification and advancement obligations of FCP and the Surviving Entity pursuant to the Merger Agreement will extend to acts or omissions occurring at or before the closing time and any claim relating thereto, and all rights to indemnification and advancement contained in the Merger Agreement shall continue with respect to an indemnified party even after such indemnified party ceases to be a trustee, director, executive officer or fiduciary of us or our subsidiaries.
 
The Merger Agreement provides that all rights to indemnification and exculpation existing in favor of the present and former trustees, directors, officers, employees or fiduciaries of our Company and our subsidiaries provided for in our and our subsidiaries’ organizational documents will continue in full force and effect for a period of six (6) years from the closing date of the Merger.  The Merger Agreement also requires that the Surviving Entity
 

 
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maintain in effect, for a period of six years after the effective time of the Merger, our current directors’ and officers’ liability policies; provided, however, that the Surviving Entity may instead substitute policies of at least the same amounts and containing other terms and conditions which are, in the aggregate, not less advantageous to the insured persons.  This requirement is subject to a maximum cost per year of coverage of 300% of the annual premiums we paid for such insurance prior to the date we signed the Merger Agreement.  If the cost per year of insurance coverage exceeds such maximum amount, the Surviving Entity must obtain as much comparable insurance as possible for an annual premium equal to 300% of the annual premiums we paid prior to the date we signed the Merger Agreement.
 
The obligations described above regarding trustees’, directors’ and officers’ indemnification and exculpation and directors’ and officers’ insurance must be assumed by any successor entity to the Surviving Entity.
 
 Litigation Relating to the Merger
 
On October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder, filed a class action complaint in the Circuit Court for Charles County, Maryland, against the Company, our Board of Trustees and FCP.  The complaint alleges that our trustees breached their fiduciary duties in connection with the Merger.  The complaint further alleges that FCP aided and abetted those breaches of fiduciary duties.  The complaint seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and expenses.
 
On October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a class action complaint in the Circuit Court for Charles County, Maryland, against the Company, our Board of Trustees, FCP and Merger Sub. The complaint alleges that our trustees breached their fiduciary duties in connection with the Merger.  The complaint further alleges that FCP and Merger Sub aided and abetted those breaches of fiduciary duties.  The complaint seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and expenses.
 
We intend to defend these actions vigorously.  However, even if these lawsuits are determined to be without merit, they may potentially delay or, if the delay is substantial enough, prevent the consummation of the Merger by March 31, 2010, potentially prevent the closing of the Merger.
 

 
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
 
The following is a summary of the material U.S. federal income tax consequences to holders of our Common Shares of:
 
·  
the E&P Distribution; and
 
·  
the Merger.
 
This summary is based on current law and is for general information only.  This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury Regulations, and administrative and judicial interpretations thereof, each as in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect.  We have not requested, and do not plan to request, any rulings from the Internal Revenue Service (the “IRS”) concerning the tax consequences of the E&P Distribution and the Merger, and the statements in this proxy statement are not binding on the IRS or any court.  We can provide no assurance that the tax consequences described in this discussion will not be challenged by the IRS, or if challenged, will be sustained by a court.
 
This summary assumes that our Common Shares are held as a capital asset within the meaning of Code Section 1221 and does not address all tax consequences that may be relevant to particular holders in light of their personal investment or tax circumstances or to persons that are subject to special tax rules.  In addition, except as noted below, this summary does not address the tax consequences for special classes of holders of our Common Shares, including, for example:
 
·  
banks and other financial institutions;
 
·  
insurance companies;
 
·  
tax-exempt entities;
 
·  
REIT;
 
·  
regulated investment companies;
 
·  
subchapter S corporations;
 
·  
dealers in securities or currencies;
 
·  
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
 
·  
persons whose functional currency is not the U.S. dollar;
 
·  
persons holding our Common Shares as part of a hedging or conversion transaction, as part of a “straddle” or a constructive sale, or otherwise part of any integrated transaction for U.S. federal income tax purposes;
 
·  
certain U.S. expatriates;
 
·  
persons subject to the alternative minimum tax;
 
·  
persons who acquired our Common Shares through the exercise of employee stock options or warrants or otherwise as compensation;
 
·  
persons that are properly classified as a partnership or otherwise as a pass-through entity under the Code; and
 
·  
non-U.S. holders, as defined below.
 

 
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This summary also does not discuss any state, local, foreign tax considerations, or other any tax considerations other than U.S. federal income tax considerations.
 
If any entity that is treated as a partnership for U.S. federal tax purposes holds our Common Shares, the tax treatment of its partners or members generally will depend upon the status of the partner or member and the activities of the entity.  If you are a partner of a partnership or a member of a limited liability company or other entity classified as a partnership for U.S. federal tax purposes and that entity holds our Common Shares, you should consult your tax advisor.
 
As noted above, this discussion does not address any tax consequences to persons that are non-U.S. holders.  However, special tax considerations with respect to the E&P Distribution and the merger may apply to a holder of our Common Shares that itself is a U.S. partnership, limited liability company, or other entity which is treated as a partnership for U.S. federal income tax purposes, but which has non-U.S. persons as partners or members.  Accordingly, any shareholder that is treated as a partnership for U.S. federal income tax purposes, and whose partners or members include non-U.S. persons, should consult with its own tax advisor regarding any special U.S. tax consequences to it and its partners or members that may result from the E&P Distribution and the Merger.
 
Consequences of the Merger and the E&P Distribution to U.S. Holders of Our Common Shares
 
This summary does not address any tax consequences to any person (including their affiliates, subsidiaries, and related parties) that acquires or holds any interest in the Company or its subsidiaries (whether directly or indirectly) following the effective time of the Merger.  Such persons should consult their own respective tax advisors regarding any U.S. federal income and other tax consequences to them that may result from the E&P Distribution and the Merger in their specific circumstances.
 
For purposes of this section, a “U.S. holder” means a beneficial owner of our Common Shares that is for U.S. federal income tax purposes one of the following:
 
·  
a citizen or resident of the United States;
 
·  
a corporation or other entity treated as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
 
·  
a trust (A) the administration of which is subject to the primary supervision of a United States court, if one or more United States persons have the authority to control all substantial decisions of the trust, or (B) that was in existence on August 20, 1996, was treated as a United States person on the previous day, and elected to continue to be so treated; or
 
·  
an estate the income of which is subject to U.S. federal income taxation regardless of its source.
 
As used in this section, a “non-U.S. holder” means a beneficial owner of our Common Shares that is not a U.S. holder as described in the bullets above or a partnership for U.S. federal income tax purposes.
 
We have elected to be taxed as a partnership for U.S. federal income tax purposes and believe that we have qualified and been taxable as a partnership since our date of formation.  Specifically, we believe that we are classified as a “publicly traded partnership” or “PTP” under Code Section 7704.  A PTP is taxable as a corporation unless it satisfies a special “90% qualifying income exception” under Code Section 7704(c).  Under that exception, a PTP is not subject to corporate-level tax if 90% or more of its gross income each year has consisted of dividends, interest, “rents from real property” (as that term is defined for purposes of the U.S. federal income tax rules governing REITs, with certain modifications), gain from the sale or other disposition of real property, and certain other types of income.  This entire discussion assumes that we are treated as a PTP that is taxable as a partnership (and not a corporation) for U.S. federal income tax purposes.  If we have failed to satisfy the 90% qualifying income exception and are, as a result, treated as a corporation, the U.S. federal income tax consequences of the E&P Distribution and the Merger to U.S. holders likely would be substantially different from that described herein.  In the
 

 
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event that we are treated as a corporation for U.S. federal income tax purposes, it is, however, unlikely that the consequences would be less favorable to U.S. holders.
 
Consequences of the E&P Distribution to U.S. Holders of Our Common Shares

U.S. holders will be required to take into account as dividend income their distributive share of that portion of the E&P Distribution that constitutes a dividend for U.S. federal income tax purposes.  The E&P Distribution generally will constitute a dividend for U.S. federal income tax purposes to the extent it does not exceed ARPT’s current and accumulated earnings and profits (as determined for U.S. federal income tax purposes).  We estimate that ARPT’s current and accumulated earnings and profits will be approximately $__ per share.  There is substantial uncertainty under current law regarding whether the dividend portion of the E&P Distribution will be treated as “qualified dividend income.”  We intend to report the dividend portion of the E&P Distribution as “qualified dividend income,” but no assurance can be provided that the IRS will not successfully challenge that treatment.  Qualified dividend income allocated to a U.S. holder, taxed at individual rates, generally will be subject to taxation at the 15% maximum rate applicable to long-term capital gain.  If the dividend portion of the E&P Distribution is not qualified dividend income, it will be treated as ordinary income for U.S. holders taxed at individual rates.  U.S. holders should consult their tax advisors regarding the treatment of the dividend portion of the E&P Distribution as qualified dividend income.

To the extent that the E&P Distribution exceeds ARPT’s current and accumulated earnings and profits, the E&P Distribution will first reduce our adjusted basis in the stock of ARPT, and will thereafter be treated as gain from the sale of our interest in ARPT.  Because our adjusted tax basis in the stock of ARPT is very small or zero, the E&P Distribution, to the extent it exceeds ARPT’s current and accumulated earnings and profits, generally will be treated as gain from the sale of our interest in ARPT.  Any such gain generally will be treated as long-term capital gain.  As a general matter, the maximum U.S. federal income tax rate on net long-term capital gain applicable to U.S. holders, taxed at individual rates, currently is 15%.

We estimate that the E&P Distribution will be $__ per share, approximately $__ per share of which will be dividend income and approximately $__ per share of which will be long term capital gain.

           Consequences of the Merger to U.S. Holders of Our Common Shares
 
For U.S. federal income tax purposes, the Merger will be treated, with respect to each U.S. holder, as a sale of Common Shares.  Each such holder generally will recognize gain or loss equal to the difference between the amount realized on the disposition and such holder’s adjusted tax basis in its Common Shares.  For these purposes, the amount realized by a U.S. holder in connection with the Merger generally will the sum of:
 
·  
the Merger Consideration (i.e., the cash received, including any amount withheld under applicable tax law); and
 
·  
the amount of our liabilities allocated to the Common Shares sold.
 
For purposes of this calculation, a U.S. holder’s adjusted tax basis in its Common Shares will be increased by any income allocated by us to such holder in connection with the E&P Distribution.  We do not have any significant liabilities.
 
Generally, any gain or loss recognized by a U.S. holder on the disposition of the Common Shares in connection with the Merger will be capital gain or loss.  However, any portion of a U.S. holder’s amount realized on the disposition that is attributable to our “unrealized receivables,” or “inventory items,” in each case as defined in Code Section 751, generally will give rise to ordinary income or loss.  “Unrealized receivables” include stock in our Puerto Rico subsidiary to the extent of the lower of the appreciation of value of that stock and the amount of earnings and profits accumulated by our Puerto Rico subsidiary which have not been previously subject to U.S. tax.  The amount of unrealized receivables (and thus ordinary income) recognized by a U.S. holder will depend upon how long it has held our Common Shares.  For U.S. holders that have held our Common Shares since our formation in 1998, we estimate that the amount of “unrealized receivables” that will give rise to income will be between $1.91 and $2.98 per share.  However, it is possible that the actual numbers could differ from these estimates.  The amount of ordinary income may exceed the net taxable gain, if any, that a U.S. holder otherwise would realize on the disposition of our Common Shares in connection with the Merger.  This ordinary income will be recognized in any
 

 
60

 

event.  Thus, a U.S. holder may recognize both ordinary income and a capital loss on the disposition of our Common Shares in connection with the Merger.
 
For U.S. holders taxed at individual rates, net capital gain from the sale of an asset held one year or less is subject to tax at the applicable rate for ordinary income.  For these types of U.S. holders, the maximum rate of tax on the net capital gain from a sale or exchange or a capital asset held for more than one year generally is 15%.  Capital losses may be used to offset ordinary income only to a limited extent.
 
In addition to the possibility of recognizing ordinary income under Code Section 751, a portion of any long-term gain recognized by a U.S. holder taxed at individual rates in connection with its disposition of our Common Shares in the Merger may be characterized as unrecaptured Code Section 1250 gain and subject to an increased capital gain tax rate of 25%.  Our assets do not currently have unrecaptured Section 1250 gain associated with them, so that a U.S. holder should not expect to recognize Section 1250 capital gain in connection with the Merger. The amount of a U.S. holder’s long-term capital gain (after the application of Code Section 751 as described above) that is not taxed at the increased rate for Section 1250 capital gain will be taxed at regular long-term capital gain rates.
 
Accordingly, any gain on the sale of Common Shares held for more than one year could be treated partly as gain from the sale of a long-term capital assets subject to a 15% tax rate and partly as ordinary income to the extent attributable to “unrealized receivables.”  Each U.S. holder should consult with its own tax advisor regarding the application of the ordinary income tax rates to a sale of our Common Shares.

FIRPTA Withholding

To prevent U.S. federal income tax withholding under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), currently at a rate of 10%, each U.S. holder is required to complete a FIRPTA affidavit stating that it is not a non-U.S. holder.  Non-U.S. holders generally are subject to U.S. federal income tax (including withholding) under FIRPTA.  U.S. federal income tax withheld under FIRPTA does not constitute a tax in addition to tax otherwise applicable, either under FIRPTA or otherwise, but rather generally is creditable against a holder’s underlying U.S. federal income tax liability.  The application of FIRPTA is complicated, and non-U.S. holders are urged to consult their tax advisors regarding the application of FIRPTA (including withholding) in each holder’s circumstances in connection with the Merger.
 
Reportable Transactions
 
If a holder of our Common Shares recognizes a loss as a result of a transaction with respect to our Common Shares (including in connection with the Merger) of at least (i) $2,000,000 or more in a single taxable year or $4,000,000 or more in a combination of taxable years, for a holder that is an individual, S corporation, trust, or a partnership with at least one noncorporate partner, or (ii) $10,000,000 or more in a single taxable year or $20,000,000 or more in a combination of taxable years, for a holder that is either a corporation or a partnership with only corporate partners, such holder may be required to file a disclosure statement with the IRS on Form 8886.  The fact that a loss is reportable under these Treasury Regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Holders should consult their tax advisors to determine the applicability of these Treasury Regulations in light of their individual circumstances.

Information Reporting and Backup Withholding
 
Backup withholding, presently at a rate of 28%, and information reporting may apply to the Merger Consideration received pursuant to the exchange of our Common Shares in the merger.  Backup withholding generally will not apply, however, to a holder who:
 
·  
in the case of a U.S. holder, furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on IRS Form W-9;
 
·  
in the case of a non-U.S. holder, furnishes an applicable IRS Form W-8; or
 

 
61

 


 
·  
is otherwise exempt from backup withholding and complies with other applicable rules and certification requirements.
 
Backup withholding is not an additional tax.  It generally may be credited against the holder’s U.S. federal income tax liability and may entitle the holder to a refund if required information is properly and  timely furnished to the IRS.
 
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE E&P DISTRIBUTION AND THE MERGER. THEREFORE, HOLDERS OF OUR COMMON SHARES ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE E&P DISTRIBUTION AND THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.

 Recommendation of Our Board of Trustees
 
Our Board of Trustees recommends that holders of our Common Shares vote FOR approval of the Merger.
 

 
62

 


DECLARATION OF TRUST AMENDMENT—PROPOSAL 2
 
Proposed Amendment
 
You are also being asked to consider and vote upon an amendment to our Declaration of Trust to cause Section 5.3.3 to be of no operation or effect.  This amendment would suspend the requirement that we make a minimum distribution to our shareholders in connection with distributions of net taxable income.  The amendment would render such section inapplicable for the fiscal year ending December 31, 2009 and subsequent thereto, unless the Merger Agreement is terminated and our Board of Trustees makes a public announcement that Section 5.3.3 will thereafter be operative and in effect.  Our Board of Trustees approved the Declaration of Trust Amendment and is recommending that our common shareholders vote to approve Proposal 2 because the Merger Consideration to which we, FCP and Merger Sub agreed under the Merger Agreement was premised on the mutual understanding that no distributions of any kind would be made by us with respect to our Common Shares in the future so long as the Merger Agreement remains in effect.  The Merger Agreement provides that if we make any distributions with respect to our Common Shares, the Merger Consideration will be reduced accordingly.  We urge you to read carefully the Declaration of Trust Amendment, which is incorporated by reference in its entirety and attached to this proxy statement as Exhibit B.  If the special meeting occurs prior to December 31, 2009, and if both the Merger and the Declaration of Trust Amendment are approved by our shareholders, we expect to file the Declaration of Trust Amendment with the SDAT as soon as practicable after such approval, and on or prior to December 31, 2009, even if the closing of the Merger does not occur until after December 31, 2009.  In the unlikely event that the Declaration of Trust Amendment is approved, but the Merger is not approved, our Board of Trustees may elect not to file the Declaration of Trust Amendment with the SDAT.
 
Vote Required
 
Approval of the Declaration of Trust Amendment requires the affirmative vote of the holders of two-thirds of our Common Shares that are issued and outstanding on the record date.

 Recommendation of Our Board of Trustees
 
Our Board of Trustees recommends that holders of our Common Shares vote FOR approval of the Declaration of Trust Amendment.
 


 
63

 

ADJOURNMENTS AND POSTPONEMENTS OF THE SPECIAL MEETING
 
 Proposal for Adjournments- Proposal 3

We are asking our common shareholders to vote on a proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the Merger or the Declaration of Trust Amendment.  Under Maryland law and our Bylaws, the affirmative vote of a majority of the votes cast at the special meeting is required to adjourn the special meeting.  The special meeting may be adjourned from time to time to a date not more than 120 days after the original record date without notice other than announcement at such meeting.  For purposes of the vote to approve any adjournment of the special meeting, abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.

Recommendation of our Board of Trustees

Our Board of Trustees recommends that you vote “FOR” the approval of any adjournments of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the Merger or the Declaration of Trust Amendment.

 Postponements

At any time prior to convening the special meeting, our Board of Trustees may postpone the special meeting for any reason without the approval of our shareholders. If the special meeting is postponed, we will provide at least ten days’ notice of the new date of the special meeting.


 
64

 

MARKET PRICE OF OUR COMMON SHARES

Our Common Shares of beneficial interest, par value $0.01 per share, are traded on the NYSE AMEX under the symbol “APO.”  As of the close of business on    ●   , 2009, which is the record date for the special meeting, there were common shareholders of record.  The following table sets forth the high and low closing prices of our Common Shares as reported on the NYSE AMEX (rounded to the nearest cent) and the dividends paid per Common Share for each quarterly period for the past two years and for the first, second, third and fourth quarterly periods (through November 6, 2009) of the fiscal year ending December 31, 2009.

     
Price Range of ACPT Shares
   
Dividends
 
 
Quarter
 
High
   
Low
   
Declared
 
                     
2009
Fourth
  $ 8.55     $ 7.35     $ -  
 
Third
    8.77       5.50       -  
 
Second
    9.09       5.20       -  
 
First
    5.39       3.41       -  
                           
2008
Fourth
  $ 10.20     $ 3.10     $ 0.10  
 
Third
    14.25       10.20       -  
 
Second
    19.01       13.45       -  
 
First
    20.00       14.50       -  
                           
2007
Fourth
  $ 25.75     $ 17.50     $ -  
 
Third
    27.59       19.22       0.10  
 
Second
    20.33       18.58       0.10  
 
First
    19.47       17.64       0.10  


On September 14, 2009, the last trading day before we announced that we were considering various strategic alternatives, including a possible sale of the Company, the closing price of our Common Shares on the NYSE Amex was $6.62 per share.  On November 9, 2009, the closing price of our Common Shares on the NYSE Amex was $7.40 per share.  You are encouraged to obtain current market quotations for our Common Shares.

 
65

 

PRINCIPAL AND MANAGEMENT SHAREHOLDERS
 
As of November 9, 2009, there were 5,622,660 of our Common Shares outstanding.
 
The following table sets forth information, as of November 9, 2009, regarding our Common Shares owned of record or known by us to be owned beneficially by:
 
·  
each person beneficially owning 5% or more of our outstanding Common Shares;
 
·  
each trustee of our Company;
 
·  
our Chief Executive Officer and each of the four other most highly paid executive officers of our Company; and
 
·  
the trustees and executive officers of our Company as a group.
 
The number of our Common Shares “beneficially owned” by each shareholder is determined under rules of the SEC regarding the beneficial ownership of securities. Under the SEC rules, beneficial ownership of our Common Shares includes any shares as to which the person or entity has sole or shared voting power or investment power.
 
Unless otherwise indicated in the footnotes, all such interests are owned directly, and the indicated person or entity has sole voting and investment power.  The address for each of our trustees and executive officers listed below is:  c/o American Community Properties Trust, 222 Smallwood Village Center, St. Charles, Maryland, 20602.
 
 
Shares Beneficially Owned
 
Name and Address of Beneficial Owner
Amount and Nature of Beneficial Ownership(1)
 
Percent
of Class
 
5% Holders:
       
The Wilson Group (1)
  222 Smallwood Village Center
  St. Charles, MD 20602
2,650,720
 
47.1
%
Interstate Business Corporation (1)(2)(3)
  222 Smallwood Village Center
  St. Charles, MD 20602
1,549,976
 
27.6
%
Wilson Securities Corporation (1)(2)(3)
  222 Smallwood Village Center
  St. Charles, MD 20602
586,101
 
10.4
%
Paul J. Isaac (4)
  75 Prospect Avenue
  Larchmont, New York 10538
865,329
 
15.4
%
Leeward Capital, L.P. (5)
  One California Street, Suite 300
  San Francisco, CA 94111
288,000
 
5.1
%

66

Trustees and Executive Officers:
       
J. Michael Wilson (1)(3)(6)
107,747
 
1.9
%
Stephen K. Griessel
363,743
 
6.5
%
Thomas J. Shafer
18,841
 
*
 
Antonio Ginorio
14,841
 
*
 
Donald J. Halldin
6,508
 
*
 
Michael Williamson
6,508
 
*
 
Thomas E. Green
6,508
 
*
 
Matthew M. Martin
--
 
--
 
Jorge Garcia
--
 
--
 
Mark MacFarland
--
 
--
 
Harry Chalstrom
100
 
*
 
All trustees and executive officers as a group (11 persons)(6)
524,796
 
9.3
%

*Less than one percent.
 
(1)
As reported in a Schedule 13D/A filed April 15, 2008, the Wilson Group is comprised of James J. Wilson and his wife, Barbara A. Wilson; their six children, J. Michael Wilson (Chairman of ACPT), Thomas B. Wilson, Kevin J. Wilson, Elizabeth W. Weber, Mary P. Wilson and Brian J. Wilson; Interstate Business Corporation; Wilson Securities Corporation; and Wilson Family Limited Partnership.  The Wilson Group, collectively, has voting and dispositive control through direct and indirect ownership of 47.1% of ACPT's outstanding shares as reflected in the Wilson Group's Schedule 13D.  The members of the group periodically meet to discuss matters relating to their ownership of ACPT and may from time to time act together with respect to the voting or disposition of Common Shares.  However, there is no formal arrangement among the members of the group in regard to their voting and dispositive voting rights and, accordingly, the group members may not always act together with respect to the Common Shares.

(2)
Interstate Business Corporation and Wilson Securities Corporation are owned by the Wilson Family Shareholders, including J. Michael Wilson

(3)
These persons are members of the Wilson Group and their shares are also included with the Wilson Group.

(4)
Based on a Schedule 13D/A filed October 7, 2009, Paul J. Isaac directly owns 73,450 shares and has beneficial ownership of 791,879 shares that are directly owned by: (i) Isaac Brothers L.L.C. (220,200 shares), (ii) Arbiter Partners L.P. (484,329 shares), (iii) Karen Isaac (wife) and 4 grandchildren (70,100), (iv) Isaac Grandchildren’s Trust (12,250 shares), (v) Marjorie S. Isaac u/w/o Irving H. Isaac Marital Trust (5,000 shares).

(5)
Based on a Schedule 13D filed on December 2, 2008, Leeward Capital, L.P. has beneficial ownership of 288,000 shares.

(6)
Includes 21,350 shares attributable to ACPT shares held by the Wilson Family Limited Partnership.  J. Michael Wilson is a General Partner of the Wilson Family Limited Partnership.  The management and control of the business and affairs of the partnership are vested jointly in the General Partners, thus J. Michael Wilson shares voting and dispositive power over Common Shares owned by the Wilson Family Limited Partnership.


 
67

 

DISSENTERS’ RIGHTS OF APPRAISAL
 
We are organized as a real estate investment trust under Maryland law. Under the Maryland REIT Law, because our Common Shares were listed on the NYSE Amex on the record date for determining shareholders entitled to vote at the special meeting, our common shareholders who object to the Merger do not have any appraisal rights or dissenters' rights in connection with the Merger.
 
 
 
We currently know of no other business that will be presented for consideration at the special meeting. Nevertheless, the enclosed proxy card confers discretionary authority to vote with respect to matters described in Rule 14a-4(c) under the Exchange Act, including matters that our Board of Trustees does not know of at this time, if such matters are presented within a reasonable time before proxy solicitation. If any of these matters are presented at the special meeting, then the proxy agents named in the enclosed proxy card will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion.
 
 
SHAREHOLDER PROPOSALS
 
If we complete the Merger, the Company will not have public shareholders and there will be no public participation in any future meeting of shareholders.  If we do not complete the Merger when currently anticipated, we intend to hold our next annual meeting in June 2010 or shortly thereafter.  If the Merger is not completed for any reason, under SEC rules, shareholders intending to submit proposals for presentation at our 2010 Annual Meeting of Shareholders must have submitted their proposals in writing, and we must have received these proposals at our executive offices on or before February 3, 2010 for inclusion in our proxy statement and the form of proxy relating to our 2010 Annual Meeting.
 
Although shareholder proposals received by us after February 3, 2010 will not be included in our proxy statement or proxy card for the 2010 Annual Meeting of Shareholders, shareholder proposals may be included in the agenda for the 2010 Annual Meeting of Shareholders if properly submitted in accordance with our Bylaws. Our Bylaws currently provide that in order for a shareholder to nominate a candidate for election as a director at an annual meeting of shareholders or propose business for consideration at such meeting, notice must be given in writing to our Secretary not later than the close of business on the 90th day prior to the first anniversary of the date of the preceding year’s annual meeting nor earlier than the 60th day prior to the first anniversary of the date the preceding year’s annual meeting. As a result, any notice given by or on behalf of a shareholder pursuant to the provisions of the Bylaws must be delivered in writing via personal delivery or United States certified mail, postage prepaid to our Secretary c/o American Community Properties Trust, 222 Smallwood Village Center, St. Charles, Maryland, 20602, Attn: Secretary, not earlier than March 5, 2010, and not later than April 4, 2010.
 
 
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
We file annual and quarterly reports, proxy statements and other information with the SEC under the Exchange Act.  You may read and obtain copies of this information in person or by mail from the Public Reference Section of the SEC, 100 F Street N.E., Room 1580, Washington, DC 20549, at prescribed rates.  You may obtain information on the operation of the public reference room by calling the SEC at (800) SEC-0330.
 
The SEC also maintains an Internet website that contains annual, quarterly and current reports, proxy statements and other information about issuers like our Company, which file electronically with the SEC.  The address of that site is http://www.sec.gov.  You may also retrieve this information from our website at www.acptrust.com.  Information contained on our website is not incorporated in or made a part of this proxy statement.
 
This proxy statement does not constitute the solicitation of a proxy in any jurisdiction to or from any person to whom or from whom it is unlawful to make such proxy solicitation in such jurisdiction.  You should rely only on the information in this document.  We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement.  The information contained in this document speaks only as of the date of this document, unless the information specifically indicates that another date applies.
 
69

 

EXHIBIT A
 
Agreement and Plan of Merger
 

 


 
 

 



 
 
 
 
Executed Version
 
AGREEMENT AND PLAN OF MERGER
 
DATED AS OF SEPTEMBER 25, 2009
 
AMONG
 
FCP FUND I, L.P.
 
FCP/ACPT ACQUISITION COMPANY, INC.
 
AND
 
AMERICAN COMMUNITY PROPERTIES TRUST
 

 

 
 

 

TABLE OF CONTENTS
 
                                                                    
                                                                      
 
                               
Page
 
ARTICLE 1. CERTAIN DEFINITIONS
    1

 
1.01
Certain Definitions
 1

ARTICLE 2. THE MERGER
10

 
2.01
The Merger
10
 
2.02
Effective Time; Closing
11
 
2.03
Tax Treatment of the Merger
12

ARTICLE 3. CONSIDERATION; EXCHANGE PROCEDURES
12

 
3.01
Conversion of Shares
12
 
3.02
Exchange Procedures; Exchange Agent
12
 
3.03
Share Appreciation Rights; Restricted Stock
14
 
3.04
Adjustments
15
 
3.05
Withholding Taxes
15

ARTICLE 4. Conduct of the Parties Pending Closing
16

 
4.01
Conduct of Business by the Company
16
 
4.02
Conduct of All Parties
20

ARTICLE 5. REPRESENTATIONS AND WARRANTIES
20

 
5.01
Disclosure Letter
20
 
5.02
Representations and Warranties of the Company
20
 
5.03
Representations and Warranties of Acquiror and Merger Subsidiary
42

ARTICLE 6. COVENANTS
45

 
6.01
Company Shareholders Meeting
45
 
6.02
Proxy Statement
46
 
6.03
Access to Information; Confidentiality
47
 
6.04
Acquisition Proposals; Solicitation
47
 
6.05
Further Action; Commercially Reasonable Efforts
53
 
6.06
Public Announcements
54
 
6.07
Exculpation, Indemnification and Insurance
54
 
6.08
Employee Benefit Matters
57
 
6.09
Transfer Taxes
58
 
6.10
Tax Matters
58
 

i

                                                                                                                                            
                    
Page
 
 
6.11
Resignations
  58
 
6.12
Delisting and Deregistering of Securities
  59
 
6.13
Accumulated Earnings and Profits/Distribution of Inter-Company Obligations
  59
 
6.14
Notice of Certain Events
  60
 
6.15
Qualification of the Company as a Partnership for Tax Purpose
  60
 
ARTICLE 7. CONDITIONS TO CONSUMMATION OF THE MERGER
62

 
7.01
Conditions to the Obligations of Each Party
62
 
7.02
Conditions to the Obligations of Acquiror and Merger Subsidiary
62
 
7.03
Conditions to the Obligations of the Company
63

ARTICLE 8. TERMINATION
64

 
8.01
Termination
64
 
8.02
Effect of Termination
65
 
8.03
Fees and Expenses
65

ARTICLE 9. General Provisions
67

 
9.01
Non Survival of Representations and Warranties
67
 
9.02
Notices
67
 
9.03
Severability
68
 
9.04
Amendment
68
 
9.05
Entire Agreement; Assignment
69
 
9.06
Parties in Interest
69
 
9.07
Governing Law
69
 
9.08
Waiver of Jury Trial
69
 
9.09
Waiver
69
 
9.10
Headings
70
 
9.11
Counterparts
70
 
9.12
Mutual Drafting
70



 


 
ii 

 

AGREEMENT AND PLAN OF MERGER, dated as of September 25, 2009 (this “Agreement”), among FCP Fund I, L.P., a Delaware limited partnership (“Acquiror”), FCP/ACPT Acquisition Company, Inc., a Maryland corporation and an indirect subsidiary of Acquiror (“Merger Subsidiary”), and American Community Properties Trust, a Maryland real estate investment trust (the “Company”).
 
RECITALS
 
WHEREAS, the parties wish to effect a business combination through a merger of Merger Subsidiary with and into the Company (the “Merger”) on the terms and subject to the conditions set forth in this Agreement with the Company continuing as the Surviving Company and an indirect subsidiary of Acquiror;
 
WHEREAS, the Board of Trustees of the Company has approved this Agreement and the Merger and the other transactions contemplated herein and declared that the Merger and the other transactions contemplated herein are advisable and in the best interests of the Company and its shareholders, on the terms and subject to the conditions set forth herein;
 
WHEREAS, Acquiror, as the majority shareholder of Merger Subsidiary, has approved this Agreement and the Merger and declared that this Agreement and the Merger are advisable on the terms and subject to the conditions set forth herein; and
 
WHEREAS, simultaneously with the execution and delivery of this Agreement, each of Acquiror, Merger Subsidiary and the Wilson Family Shareholders have executed and delivered a voting agreement (the “Voting Agreement”), pursuant to which each of the Wilson Family Shareholders has agreed to take specified actions in furtherance of the Merger; and
 
WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Merger, and also to prescribe various conditions to such transactions.
 
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:
 
ARTICLE 1.
 
CERTAIN DEFINITIONS
 
1.01  Certain Definitions
 
The following terms are used in this Agreement with the meanings set forth below:
 
Acquiror” has the meaning set forth in the preamble to this Agreement.
 
1

Acquiror Material Adverse Effect” means any event, fact, development, circumstance, change or effect that would reasonably be expected to prevent, or materially hinder, Acquiror or Merger Subsidiary from being able to consummate the Merger and the other transactions contemplated by this Agreement.
 
Acquiror Termination Fee” means $1,450,000; provided, that, such amount shall be $5,000,000 if the Company terminates this Agreement pursuant to Section 8.01(d)(i) within five (5) Business Days prior to the Effective Time.
 
Acquisition Proposal” has the meaning set forth in Section 6.04(b).
 
Action” means any claim, action, suit, proceeding, arbitration, mediation or other investigation.
 
Affiliate” means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.  For purposes of the immediately preceding sentence and the definition of “Subsidiary” in this Section 1.01, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.
 
Agreement” has the meaning set forth in the Preamble.
 
Applicable Permits” has the meaning set forth in Section 5.02(e).
 
Articles of Merger” has the meaning set forth in Section 2.02(b).
 
Benefit Plans” has the meaning set forth in Section 5.02(i).
 
Blue Sky Laws” has the meaning set forth in Section 5.02(d)(ii).
 
Business Day” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the State of New York are authorized or obligated by Law to close.
 
Certificate” means any certificate which immediately prior to the Effective Time represented Company Common Shares.
 
Claim” has the meaning set forth in Section 6.07(a).
 
Closing” and “Closing Date” have the meanings set forth in Section 2.02(a).
 
Code” means the Internal Revenue Code of 1986, as amended.
 
2

Company” has the meaning set forth in the preamble to this Agreement.
 
 “Company Board” means the Board of Trustees of the Company.
 
Company Bylaws” means the Amended and Restated Bylaws of the Company, as amended, as in effect on the date hereof.
 
Company Charter” means the Amended and Restated Declaration of Trust of the Company, as amended, as in effect on the date hereof.
 
“Company Charter Amendment means the proposed amendment to amend the Company Charter to eliminate Section 5.3.3 of the Company Charter and to make such section inapplicable for the year ending December 31, 2009 and for any subsequent year prior to, or including, the year in which the Merger is consummated.

Company Charter Amendment Approval has the meaning set forth in Section 5.02(c)(iv).

 “Company Common Shares” means the common shares of beneficial interest of the Company, par value $0.01 per share.
 
Company Expenses” means all documented, out-of-pocket expenses incurred by the Company from and after September 3, 2009, in connection with the Transaction up to a maximum of $300,000.
 
Company Indemnified Parties” has the meaning set forth in Section 6.07(a).
 
Company Leases” has the meaning set forth in Section 5.02(l)(vii).
 
Company Material Adverse Effect” means any event, fact, development, circumstance, change or effect that, individually or in the aggregate with all other events, facts, developments, circumstances, changes or effects, is or is reasonably likely to be materially adverse to the assets, business, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole; provided, however, that none of the following shall be deemed to constitute a “Company Material Adverse Effect”: (i) any event, fact, development, circumstance, change or effect arising out of or resulting from changes in the United States or global economy or capital, financial or securities markets generally, including changes in interest or exchange rates (except to the extent such event, fact, development, circumstance, change or effect affects the Company and its Subsidiaries in a disproportionate manner as compared to other Persons or participants in the industries in which the Company and its Subsidiaries conduct their business), (ii) the commencement or escalation of a war or armed hostilities or the occurrence of acts of terrorism or sabotage, (iii) any changes in general economic, legal, regulatory or political conditions in the geographic regions in which the Company and its Subsidiaries operate (except to the extent such event, fact, development, circumstance, change or effect affects the Company and its Subsidiaries in a disproportionate manner as compared to
 
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other Persons or participants in the industries in which the Company and its Subsidiaries conduct their business and that operate in the geographic regions affected by such event, fact, development, circumstance, change or effect), (iv) the consummation or anticipation of the Merger or the announcement of the execution of this Agreement, (v) the compliance with the terms of, or the taking of any action required by, this Agreement, (vi) earthquakes, hurricanes or other natural disasters, (vii) any failure of the Company to complete the sale of all or any of its Properties located in Baltimore, Maryland, or (viii) changes in Law or GAAP.  Notwithstanding the foregoing, with respect to references to Company Material Adverse Effect in the representations set forth in Section 5.02(d), the exceptions set forth in clauses (iv) and (v) of this definition shall not apply.  The parties agree that the mere fact of a decrease in the market price of Company Common Shares shall not, in and of itself, constitute a Company Material Adverse Effect, but any event, fact, development, circumstance, change or effect relating to the assets, business, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, that causes such decrease shall be considered in determining whether there has been a Company Material Adverse Effect.
 
Company Property” or “Company Properties” has the meaning set forth in Section 5.02(l).
 
Company Special Committee” means the special committee of the Company Board formed to, among other things, consider strategic alternatives, including, without limitation, a possible change of control of the Company.
 
Company Share Incentive Plan” means the Company’s 2009 Share Incentive Plan.
 
Company Shareholder Approval” has the meaning set forth in Section 5.02(c)(iii).
 
Company Shareholders Meeting” means a special meeting of the Company’s shareholders (including any adjournment or postponement thereof) to consider and vote upon the approval of the Merger, this Agreement and any other matter required to be approved by the Company’s shareholders for consummation of the Transaction.
 
Company Title Insurance Policies” has the meaning set forth in Section 5.02(l)(v).
 
Confidentiality Agreement” has the meaning set forth in Section 6.03(b).
 
Consents” has the meaning set forth in Section 5.02(d).
 
Constituent Documents” means the charter, articles of incorporation, certificate of incorporation or certificate of formation and bylaws of a corporation, the certificate of partnership and partnership agreement of a general or limited partnership, the certificate of formation and limited liability company agreement or operating agreement of a limited liability company, the declaration of trust, trust agreement and bylaws of a trust and the comparable formation and/or governing documents of other entities, including any agreements or arrangements governing the rights of members, shareholders or other holders of interests in any
 
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such entity, including shareholders agreements, voting agreements, registration rights agreements and similar agreements.
 
Continuing Employee” has the meaning set forth in Section 6.08(a).
 
Current Share Appreciation Rights” has the meaning set forth in Section 3.03(a).
 
Disclosure Letter” has the meaning set forth in Section 5.01.
 
Effective Time” has the meaning set forth in Section 2.02(b).
 
Employee” has the meaning set forth in Section 6.08(a).
 
Environmental Laws” means any United States federal, state or local Laws in existence on or before the date hereof relating to (i) pollution, protection, preservation or restoration of the environment, health, safety or natural resources (including, air, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life, wetlands or any other natural resource); (ii) releases or threatened releases of Hazardous Substances; or (iii) the exposure to, or the manufacture, handling, transport, use, generation, recycling, treatment, storage or disposal of Hazardous Substances.
 
ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
 
ERISA Affiliate” means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same “controlled group” as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.
 
Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
 
Exchange Agent” has the meaning set forth in Section 3.02(a).
 
Excluded Party” has the meaning set forth in Section 6.04(a)(iii).
 
Expenses” has the meaning set forth in Section 6.07(a).
 
GAAP” means accounting principles generally accepted in the United States of America.
 
Governmental Authority” means any domestic or foreign (including, without limitation, Puerto Rico) federal, state, municipal or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body of any nature; or any body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature.
 
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Hazardous Substance” means (i) those substances defined in or regulated under the following United States federal statutes and their state (and Puerto Rican) counterparts, as each may be amended from time to time, and all regulations thereunder: the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act and the Clean Air Act; (ii) petroleum and petroleum products or any derivative or by-product thereof, including crude oil and any fractions thereof; (iii) polychlorinated biphenyls, asbestos or asbestos containing material, urea formaldehyde foam insulation, lead, radioactive material and radon; and (iv) any other contaminant, substance, material, pollutant or waste regulated by any Governmental Authority pursuant to any Environmental Law.
 
Intellectual Property” means all intellectual property owned or used by the Company and its Subsidiaries, including patents (including any continuations, divisionals, continuations-in-part, renewals and reissues), trademarks, trade names, service marks, logos, domain names and other indicators of source or origin, database rights, copyrights, copyrightable works, mask works, technology, know-how, trade secrets, inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), tangible or intangible proprietary information or material and all other intellectual property or proprietary rights, together with all goodwill symbolized by any of the foregoing, registrations and applications for the foregoing, and rights to sue for past infringement thereof.
 
IRS” means the Internal Revenue Service.
 
JV Entities” has the meaning set forth in Section 5.02(a)(v).
 
knowledge of the Company” or “to the Company’s knowledge” means the actual knowledge of Stephen K. Griessel, Matthew M. Martin, Peggy Moore or any executive officer of the Company, but excluding J. Michael Wilson.
 
Law” has the meaning set forth in Section 5.02(d).
 
Letter of Transmittal” has the meaning set forth in Section 3.02(b).
 
Liens” means any charge, mortgage, pledge, title defect, security interest, restriction, Claim, lien or encumbrance of any nature.
 
Material Contracts” has the meaning set forth in Section 5.02(p)(i).
 
Material Company Leases” has the meaning set forth in Section 5.02(l)(vii).
 
Merger” has the meaning set forth in the Recitals.
 
Merger Consideration” has the meaning set forth in Section 3.03(a).
 
Merger Subsidiary” has the meaning set forth in the preamble to this Agreement.
 
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MGCL” means the Maryland General Corporation Law or Title 8 of the Corporations and Associations Article of the Annotated Maryland Code, as applicable.
 
No-Shop Period Start Date” means October 28, 2009.
 
NYSE Amex” has the meaning set forth in Section 5.02(d)(ii).
 
Other Filings” has the meaning set for in Section 6.02.
 
Outside Date” has the meaning set forth in Section 8.01(b)(ii).
 
Participation Agreements” has the meaning set forth in Section 5.02(l)(xii).
 
Participation Party” has the meaning set forth in Section 5.02(l)(xii).
 
Payment Fund” has the meaning set forth in Section 3.02(a).
 
Permitted Liens” means (i) Liens for Taxes not yet delinquent and Liens for Taxes being contested in good faith and for which there are adequate reserves on the financial statements of the Company (if such reserves are required pursuant to GAAP); (ii) inchoate mechanics’ and materialmen’s Liens for construction in progress; (iii) inchoate workmen’s, repairmen’s, warehousemen’s and carriers’ Liens arising in the ordinary course of business of the Company or any of its Subsidiaries; (iv) zoning restrictions, building codes, survey exceptions, utility easements, rights of way and similar Liens that are imposed by any Governmental Authority having jurisdiction thereon that are typical for the applicable property type and locality; (v) with respect to real property, any title exception disclosed in any Company title insurance policy provided or made available to Acquiror (whether material or immaterial), Liens and obligations arising under the Material Contracts (including but not limited to any Lien securing mortgage debt disclosed in the Disclosure Letter) relating to any Company Property or any Lien that does not interfere materially with the current use of such property (assuming its continued use in the manner in which it is currently used) or materially adversely affect the value or marketability of such property; (vi) easement agreements and all other matters disclosed on any Company title insurance policy provided to Acquiror; and (vii) matters that would be disclosed on current title reports or surveys that arise or have arisen in the ordinary course of business.
 
Per Share Amount” has the meaning set forth in Section 3.01(a).
 
Person” means any individual, bank, corporation, partnership, limited partnership, association, joint venture, joint-stock company, trust, limited liability company, unincorporated organization or person (including a “person” as defined in Section 13(d)(3) of the Exchange Act).
 
Property Agreements” has the meaning set forth in Section 5.02(l)(iii).
 
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Property Restrictions” has the meaning set forth in Section 5.02(l)(ii).
 
Proxy Statement” has the meaning set forth in Section 5.02(d)(ii).
 
 
“PTP Due Diligence Request” has the meaning set forth in Section 6.15(a).
 
 
 
     “PTP Opinion” has the meaning set forth in Section 6.15(b).
 
Recommendation” has the meaning set forth in Section 6.01.
 
Recommendation Withdrawal” has the meaning set forth in Section 6.01.
 
Rent Roll” has the meaning set forth in Section 5.02(l)(vii).
 
Representative” has the meaning set forth in Section 6.04(a).
 
Rights” has the meaning set forth in Section 5.02(b)(iii).
 
SDAT” has the meaning set forth in Section 2.02(b).
 
SEC” means the Securities and Exchange Commission.
 
SEC Reports” has the meaning set forth in Section 5.02(f).
 
Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
 
“Share Appreciation Right Consideration” has the meaning set forth in Section 3.03(a).
 
Share Appreciation Rights” has the meaning set forth in Section 5.02(b)(iii).
 
Special Shareholder Approval” means the approval of this Agreement and the Merger by the affirmative vote of the holders of two-thirds of the issued and outstanding Company Common Shares.
 
Special Termination Expenses” means all documented, out-of-pocket expenses incurred by Acquiror and its Affiliates from and after September 3, 2009, in connection with the Transaction up to a maximum of $600,000.
 
Special Termination Fee” means $1,450,000.
 
Subsidiary” means, with respect to any Person, (i) any other Person controlled by such Person, directly or indirectly, through one or more intermediaries, and (ii) any “significant subsidiary” of such Person as defined in Rule 1-02 of Regulation S-X promulgated by the SEC.
 
Substantial Tax Issue” has the meaning set forth in Section 6.15(b).
 
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Superior Proposal” has the meaning set forth in Section 6.04(b).
 
Surviving Company” has the meaning set forth in Section 2.01(a).
 
Surviving Company Benefit Plans” has the meaning set forth in Section 6.08(b).
 
Tax” or “Taxes” means any and all taxes, charges, fees, levies and other assessments, including income, gross receipts, excise, property, sales, withholding (including 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, windfall or other profits, capital stock, employment, worker’s compensation, unemployment or compensation taxes, fees and charges, including estimated, excise, ad valorem, stamp, value added, capital gains, duty or custom taxes, imposed by the United States or any government or taxing authority (domestic or foreign), whether computed on a separate, consolidated, unitary, combined or any other basis, and similar charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto), whether or not disputed, imposed by any government or taxing authority.
 
Tax Protection Agreements” has the meaning set forth in Section 5.02(n).
 
Tax Returns” means any return, declaration, report, statement, claim for refund, transfer pricing report or other information required to be provided to a taxing authority in connection with Taxes, including any schedule or attachment thereto, and including any amendment thereof, supplied or required to be supplied to any taxing authority in connection with Taxes.
 
Termination Date” has the meaning set forth in Section 8.01.