**Exhibit 10.3**

 

WAIVERAND STANDSTILL AGREEMENT

 

This Waiver and StandstillAgreement (this “AGREEMENT”), dated as of August 22, 2002, is made by and amongKrupp Government Income Trust, a Massachusetts Business Trust (“GIT”), KruppGovernment Income Trust II, a Massachusetts Business Trust (“GIT 2” and,collectively with GIT, the “TRUSTS”), Berkshire Income Realty, Inc. (“BIR”),Berkshire Income Realty-OP, L.P. (“BIR-OP” and, collectively with BIR, the“PURCHASERS”).

 

WHEREAS, the Declaration ofTrust of each of the Trusts, as presently in effect (collectively, the“DECLARATIONS OF TRUST”), among other things, prohibits the Ownership by aPerson (as those terms are defined herein and therein) of more than 9.8% of theoutstanding shares of such Trust (the “EXCESS SHARE PROVISION”); and

 

WHEREAS, each of theDeclarations of Trust further provides that the trustees of such Trust (the“TRUSTEES”) may in their discretion waive the Excess Share Provision providedthat certain conditions are met relating to the effect of such waiver (the“EXCESS SHARE WAIVER”) on the applicable Trust’s status under the InternalRevenue Code as a real estate investment trust (a “REIT”); and

 

WHEREAS, the Purchasers haveproposed to acquire up to 55% of the outstanding shares of each of the Trustsin exchange for the Series A preferred stock of BIR in connection with theformation of a REIT whose primary goal will be to acquire, own and operatemulti-family residential properties (the “EXCHANGE OFFER”); and

 

WHEREAS, in connection withthe Exchange Offer, the Purchasers have requested that the Trustees of each ofthe Trusts grant an Excess Share Waiver to each of the Purchasers pursuant toArticle XII.1(G) of each of the Declarations of Trust; and

 

WHEREAS, the Trustees ofeach of the Trusts have determined to grant such Excess Share Waivers on theterms and conditions set forth herein;

 

NOW, THEREFORE, inconsideration of the mutual covenants and agreements contained herein, theparties hereto agree as follows:

 

1.             DEFINITIONS.

 

As used in this Agreement,the following terms shall have the meanings set forth below:

 

1.1. “ACTION” means anyclaim, action, cause of action or suit (whether in contract or tort orotherwise), litigation (whether at law or in equity, whether civil orcriminal), controversy, assessment, arbitration, investigation, hearing,charge, complaint, demand, notice or proceeding to, from, by or before anyUnited States federal, state or local or any foreign government, or politicalsubdivision thereof, or any multinational organization or authority or anyauthority, agency or commission entitled to exercise any administrative,executive, judicial, legislative, police, regulatory or taxing authority orpower, any court or tribunal (or any department, bureau or division thereof),or any arbitrator or arbitral body.

 

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1.2. “AFFILIATE” shall havethe meaning given it in Rule 12b-2 under the Exchange Act. For the avoidance ofdoubt, the Trusts shall not be deemed to be an Affiliate of the Purchaser.

 

1.3. “AGREEMENT” shall havethe meaning set forth in the preamble.

 

1.4. “ASSOCIATE” shall havethe meaning given it in Rule 12b-2 under the Exchange Act. For the avoidance ofdoubt, the Trusts shall not be deemed to be an Associate of the Purchaser.

 

1.5. “BIR” shall have themeaning set forth in the preamble.

 

1.6. “BIR-OP” shall have themeaning set forth in the preamble.

 

1.7. “BUSINESS COMBINATION”shall mean (i) any merger or consolidation of either Trust with (a) thePurchasers, their Affiliates or Associates, or (b) any other entity if themerger or consolidation is caused by the Purchasers, their Affiliates orAssociates; (ii) any sale, lease, exchange, mortgage, pledge, transfer or otherdisposition of assets, in one transaction or a series of transactions, exceptproportionally as a holder of Shares, whether as part of a dissolution orotherwise, by either Trust to the Purchasers, their Affiliates or Associates;(iii) any transaction which results in the issuance or transfer by either Trustof any Shares to the Purchasers, their Affiliates or Associates, except (a)pursuant to the exercise, exchange or conversion of securities exercisable for,exchangeable for or convertible into Shares, which securities were outstandingon the date of the Exchange Offer, (b) pursuant to a dividend paid or made bysuch Trust from any source in respect of the Shares, or the exercise, exchangeor conversion of securities exercisable for, exchangeable for or convertibleinto Shares which securities are distributed PRO RATA to all holders of Shares,which securities were outstanding on the date of the Exchange Offer, (c)pursuant to an exchange offer by such Trust to purchase Shares made on the sameterms to all holders of Shares, or (d) the issuance or transfer of Shares bysuch Trust; PROVIDED, HOWEVER, that in no case under clauses (b) through (d)above, inclusive, that there shall be an increase in the Purchasers’proportionate Ownership of the Shares; (iv) any transaction by either Trust whichhas the effect, directly or indirectly, of increasing the proportionateOwnership of the Shares (or securities convertible into Shares) which are ownedby the Purchasers, except as a result of any purchase or redemption of anyShares not caused, directly or indirectly, by the Purchasers, their Affiliatesor Associates; or (v) any receipt by the Purchasers, their Affiliates orAssociates of the benefit, directly or indirectly, except proportionately as aholder of Shares of such Trust, of any loans, advances, guarantees, pledges orother financial benefits, other than those expressly permitted in subsections(i) through (iv) above, inclusive, provided by or through such Trust.

 

1.8. “CODE” shall mean theInternal Revenue Code of 1986, as amended.

 

1.9. “DECLARATIONS OF TRUST”shall have the meaning set forth in the recitals.

 

1.10. “EXCESS SHAREPROVISION” shall have the meaning set forth in the recitals.

 

1.11. “EXCESS SHARE WAIVER”shall have the meaning set forth in the recitals.

 

1.12. “EXCHANGE ACT” shallmean the Securities Exchange Act of 1934, as amended.

 

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1.13. “EXCHANGE OFFER” shallhave the meaning set forth in the recitals.

 

1.14. “INDEPENDENT TRUSTEE”shall mean a Trustee of one or both of the Trusts who (i) is not an Affiliate,directly or indirectly, of the Krupp Mortgage Advisors Limited Partnership(together with any successors, the “Advisor”), whether by ownership of,ownership interest in, employment by, any material business or professionalrelationship with, or services as an officer or director of, the Advisor or itsAffiliates, (ii) does not serve as a director or trustee for more than twoother REITs organized by the Advisor or its Affiliates, and (iii) performs noother services for the Trust, except as a Trustee. For this purpose, anindirect relationship shall include circumstances in which an immediate familymember of a Trustee has one of the foregoing relationships with the Advisor orthe Trust.

 

1.15. “INDIVIDUAL” shallhave the meaning given it in Section 542(a)(2) of the Code, as modified bySection 856(h) of the Code.

 

1.16. “GIT” and “GIT 2”shall have the meanings set forth in the preamble.

 

1.17. A Person shall beconsidered to “OWN”, be the “OWNER” or have “OWNERSHIP” of equity interests(including without limitation Shares) if such Person is treated as owner ofsuch equity interests for purposes of Section 542 and Section 544 of the Codeas modified by Section 856(h) of the Code. 

 

1.18. “PERSON” shall includean individual, corporation, partnership, estate, trust, association, jointstock company, unincorporated organization or other entity and also includes agroup as that term is used for purposes of Section 13(d)(3) of the ExchangeAct.

 

1.19. “PURCHASERS” shallhave the meaning set forth in the preamble.

 

1.20. “REIT” shall have themeaning set forth in the recitals.

 

1.21. “SHARES” of a Trustshall mean shares of beneficial interest, no par value, of such Trust.

 

1.22. “TRUSTEES” shall havethe meaning set forth in the recitals.

 

1.23. “TRUSTS” shall havethe meaning set forth in the preamble.

 

2.             EXCESS SHARE WAIVER.

 

2.1. EXEMPTION FROM EXCESSSHARE PROVISIONS. Subject to the terms and conditions of this Agreement, eachof the Trusts hereby exempts each of the Purchasers, in respect of theacquisition of Shares of such Trust pursuant to the Exchange Offer, from theprovisions of Article XII.1(A) of each of the Declarations of Trust regarding aPerson becoming an Owner of Shares of such Trust in excess of 9.8% of the outstandingShares, but less than 80% of the outstanding Shares; PROVIDED, that (i) eachTrust shall have received contemporaneously with this grant of such exemptionan opinion of counsel from counsel to the Purchasers in the form attached asEXHIBIT A hereto; (ii) such opinions shall be reconfirmed as of theconsummation of the Exchange Offer; (iii) each Trust shall have received anopinion of counsel from counsel to

 

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the Purchasers that this Agreement is enforceableagainst the Purchasers in accordance with its terms; and (iv) the Purchasersshall have furnished to each Trust a copy of the opinion of an independentinvestment bank, when delivered to the Purchasers, to the effect that theconsideration to be received by the holder of Shares of the Trusts tendered inthe Exchange Offer is fair, from a financial point of view, to such holder.

 

2.2. LIMITATION ON OWNERSHIPOF TRUSTS. Each of the Trusts will use its best efforts to prevent any Person(other than the Purchasers and Persons treated as Owners of the outstandingShares of each Trust through their Ownership of the Purchasers) from becomingthe Owner of more than 4.9% of the outstanding Shares of such Trust, includingby utilizing any redemption provisions of the Trust and all available powersunder the Declaration of Trust to prevent or refuse to permit the transfer ofShares in order to preserve the status of the Trust as a REIT under the Code;PROVIDED, HOWEVER, that if any court of competent jurisdiction shall determineany such action is ineffective or unauthorized in any instance, the Trust shallhave no liability to the Purchasers and the Purchasers shall promptly exercisetheir rights described in Section 3.1.2 of this Agreement to protect and preservethe status of the Trust

as a REIT.

 

2.3. TERM. The exemptiongranted by Section 2.1 above shall expire if the Purchasers have not acquiredmore than 9.8% of the outstanding Shares of a Trust pursuant to the ExchangeOffer by March 31, 2003. The provisions of Section 2.2 above shall expire atsuch time as the Purchasers Own 9.8% or less of the outstanding Shares of suchTrust.

 

2.4. COMPLIANCE WITHREGULATIONS. Each of the Trusts will comply with the procedures imposed by theregulations promulgated under Section 857(f) of the Code for purposes ofdetermining the Ownership of the outstanding Shares of the Trust and shallfurnish to the Purchasers copies of all information provided by the holders ofShares of such Trust in accordance with such procedures.

 

2.5. PROHIBITED ACTIONS. TheTrusts will not, without the prior written consent of the Purchasers, take, orfail to take, any action that causes any Shares of the Trusts acquired by thePurchasers pursuant to the Exchange Offer to be deemed “Excess Shares” underthe Declarations of Trust; PROVIDED, HOWEVER, that nothing in this Agreementshall require the Trusts to take any such actions to preclude the applicationof the Excess Share Provisions of the Declarations of Trust to any othertransaction not expressly permitted under this Agreement, whether involving thePurchasers or any Person treated as an Owner of the Shares of any Trust as aconsequence of such Person’s direct or indirect interest in any Purchaser.

 

3.             STANDSTILL PROVISIONS.

 

3.1.GENERAL STANDSTILL.

 

3.1.1.LIMITATION ON OWNERSHIP BY THE PURCHASERS. The Purchasers shall not Own, oroffer, propose or agree to Own, in the aggregate, directly or indirectly, anyShares of either of the Trusts in excess of fifty-five (55%) percent of theoutstanding Shares of such Trust.

 

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3.1.2.LIMITATION ON OWNERSHIP BY INDIVIDUALS. Each Purchaser shall by the provisionsof its organizational instruments and by agreement with its shareholders andpartners secure effective and enforceable rights to prevent, and shallprohibit, the acquisition or retention of shares or partnership interests insuch Purchaser by any Person to the extent necessary so that (i) no Individualshall Own more than 23.0% (by value) of the outstanding Shares of either Trust;(ii) no two Individuals shall collectively Own more than 30% (by value) of theoutstanding Shares of such Trust; (iii) no three Individuals shall collectivelyOwn more than 36.5% (by value) of the outstanding Shares of such Trust; (iv) nofour Individuals shall collectively Own more than 43.0% (by value) of theoutstanding Shares of such Trust; (v) no five Individuals shall collectivelyOwn more than 49.5% (by value) of the outstanding Shares of such Trust; and(vi) no Individual not taken into account in the immediately preceding clausesshall, as a consequence of such Person’s Ownership of shares of BIR, Own morethan 1.75% (by value) of the outstanding Shares of either Trust. Withoutlimiting the generality of the foregoing, the Purchasers agree that they shallmake distributions of available cash, dispose of Shares of either Trust, ortake any other reasonable action necessary or appropriate to maintain theforegoing limitations on Ownership of the Trusts.

 

3.1.3.VIOLATION. If a Purchaser, or any Person that is treated as Owning Shares ofany Trust as a consequence of such Person’s direct or indirect interest in suchPurchaser, Owns, or offers, proposes or agrees to Own or retain any Shares ofeither of the Trusts in violation of this Agreement, such Purchaser shallnotify the Trusts and shall immediately take all such action as necessary tocause such violation to be corrected in compliance with the provisions of thisAgreement, the organizational documents of the Purchasers, and relatedagreements between the Purchasers and their shareholders or partners; PROVIDED,HOWEVER, that the Trusts may also pursue any other available remedy to whichthey may be entitled as a result of such violation.

 

3.2. COMPLIANCE WITH REGULATIONS.BIR will comply with the procedures imposed by the regulations promulgatedunder Section 857(f) of the Code for purposes of determining the Ownership ofthe outstanding shares of BIR. BIR-OP will follow the same procedures as if itwere governed by the provisions of Section 857(f). Each Purchaser shall furnishto the Trusts copies of all information provided by the shareholders orpartners of such Purchaser in accordance with such procedures and any otherprocedures adopted by the Purchasers in order to ensure compliance with theprovisions of this Agreement.

 

3.3. VALUATION REPORTS. Forpurposes of ensuring compliance with the provisions of Section 3.1.2 hereof,the Purchasers shall furnish to the Trustees of each Trust (i) each fiscalquarter, a report setting forth the best judgment of the General Partner ofBIR-OP and of the directors of BIR as to the value of the different classes ofinterests in each of the Purchasers and their determination of the percentageOwnership in the Trusts held by Individuals that are direct and indirectpartners of BIR-OP (provided, however, that for those Individuals who areindirect partners of BIR-OP solely by reason of the fact that they Own sharesof BIR, it shall be sufficient to represent that no such Individual Owns morethan 1.75% (by value) of the outstanding shares of either Trust solely byreason of such Individual’s Ownership of shares of BIR); and (ii) annually, anaudit by the Purchasers’ independent accountants (or such other expertsreasonably acceptable to the Trusts) of the valuation methods and assumptionsused to prepare such reports.

 

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3.4. FURTHER INFORMATION.Each Purchaser shall promptly provide such further information regarding theOwnership of its respective equity interests as the Trustees of the Trustsshall from time to time reasonably request.

 

3.5. BOARDS OF TRUSTEES.Each Purchaser shall not, and shall cause each Affiliate and Associate of suchPurchaser not to, directly or indirectly seek to change the composition of theBoard of Trustees of either of the Trusts such that the majority of such Boardof Trustees would not be comprised of Independent Trustees.

 

3.6. ACTIONS AFFECTINGSTATUS. Each Purchaser shall not, and shall cause each Affiliate and Associateof such Purchaser not to, directly or indirectly take any action to causeeither of the Trusts to cease to be a reporting company under the Exchange Act.

 

3.7. BUSINESS COMBINATIONS.Each Purchaser shall not, and shall cause each Affiliate and Associate of suchPurchaser not to, alone or in concert with any Person, directly or indirectlysolicit, seek to effect, negotiate with or provide any information to any otherparty with the intent of effecting, or make any statement or proposal, whetherwritten or oral, with the intent of effecting

any Business Combination with either or bothof the Trusts that shall not have been approved by a majority of theIndependent Trustees of such Trust.

 

4.             MISCELLANEOUS.

 

4.1. SUCCESSION ANDASSIGNMENT; NO THIRD-PARTY BENEFICIARY. This Agreement shall be binding uponand inure to the benefit of the parties hereto and their respective successorsand permitted assigns, each of which such successors and permitted assignsshall be deemed to be a party hereto for all purposes hereof. Except asexpressly provided herein, this Agreement is for the sole benefit of theparties and their permitted successors and assignees and nothing hereinexpressed or implied shall give or be construed to give any Person, other thanthe Parties and such successors and assignees, any legal or equitable rightshereunder.

 

4.2. AMENDMENTS AND WAIVERS.No amendment or waiver of any provision of this Agreement shall be valid andbinding unless the same shall be in writing and signed by the Trusts and thePurchasers. No waiver by any party of any breach of any provision hereunder,whether intentional or not, shall be deemed to extend to any prior orsubsequent breach of any such provision hereunder or affect in any way anyrights arising by virtue of any prior or subsequent such occurrence. No delayor omission on the part of any party in exercising any right, power or remedyunder this Agreement shall operate as a waiver thereof.

 

4.3. ENTIRE AGREEMENT. ThisAgreement constitutes the entire agreement among the parties hereto withrespect to the subject matter hereof and supersedes any and all priordiscussions, negotiations, proposals, undertakings, understandings andagreements, whether written or oral, with respect thereto.

 

4.4. COUNTERPARTS. ThisAgreement may be executed in any number of counterparts, each of which shall bedeemed an original, but all of which together shall constitute but one and thesame instrument. This Agreement shall become effective when each party heretoshall have received counterparts hereof signed by the other parties hereto.

 

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4.5. SEVERABILITY. Any termor provision of this Agreement that is invalid or unenforceable in anysituation in any jurisdiction shall not affect the validity or enforceabilityof the remaining terms and provisions hereof or the validity or enforceabilityof the offending term or provision in any other situation or in any otherjurisdiction. In the event that any provision hereof would, under applicablelaw, be invalid or unenforceable in any respect, each party hereto intends thatsuch provision shall be construed by modifying or limiting it so as to be validand enforceable to the maximum extent compatible with, and possible under, applicablelaw.

 

4.6. HEADINGS. The headingscontained in this Agreement are for convenience purposes only and shall not inany way affect the meaning or interpretation hereof.

 

4.7. CONSTRUCTION. Theparties have participated jointly in the negotiation and drafting of thisAgreement. In the event an ambiguity or question of intent or interpretationarises, this Agreement shall be construed as if drafted jointly by the partiesand no presumption or burden of proof shall arise favoring or disfavoring anyparty by virtue of the authorship of any of the provisions of this Agreement.The parties intend that each provision contained herein shall have independentsignificance.

 

4.8. GOVERNING LAW. ThisAgreement, the rights of the parties and all Actions arising in whole or inpart under or in connection herewith shall be governed by and construed inaccordance with the domestic substantive laws of The Commonwealth ofMassachusetts, without giving effect to any choice or conflict of law provisionor rule that would cause the application of the laws of any other jurisdiction.

 

4.9. JURISDICTION; VENUE.Each party to this Agreement, by its execution hereof, (a) hereby irrevocablysubmits to the exclusive jurisdiction of the state courts of The Commonwealthof Massachusetts or the United States District Court located in TheCommonwealth of Massachusetts for the purpose of any Action between the partiesarising in whole or in part under or in connection with this Agreement, (b)hereby waives to the extent not prohibited by applicable law, and agrees not toassert, by way of motion, as a defense or otherwise, in any such Action, anyclaim that it is not subject personally to the jurisdiction of the above-namedcourts, that its property is exempt or immune from attachment or execution,that any such Action brought in one of the above-named courts should bedismissed on grounds of FORUM NON CONVENIENS, should be transferred or removedto any court other than one of the above-named courts, or should be stayed byreason of the pendency of some other proceeding in any other court other thanone of the above-named courts, or that this Agreement or the subject matterhereof may not be enforced in or by such court and (c) hereby agrees not tocommence any such Action other than before one of the above-named courts.

 

Each party further agreesthat for any Action between the parties arising in whole or in part under or inconnection with this Agreement, such party bring Actions only in the City ofBoston. Each party further waives any claim and shall not assert that venueshould properly lie in any other location within the selected jurisdiction.Notwithstanding any other provision of this Agreement, a party may commence anAction in any court and location (a) solely for the purpose of enforcing anorder or judgment issued by one of the courts specified above and (b) to theextent set forth in Section 6.10.

 

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4.10. SPECIFIC PERFORMANCE.Each of the parties acknowledges and agrees that the other parties would bedamaged irreparably in the event any of the provisions of this Agreement arenot performed in accordance with their specific terms or otherwise arebreached. Accordingly, each of the parties agrees that, without posting bond orother undertaking, the other parties shall be entitled to an injunction orinjunctions to prevent breaches of the provisions of this Agreement and toenforce specifically this Agreement and the terms and provisions hereof in anyAction instituted in any court of the United States or any state thereof havingjurisdiction over the parties and the matter in addition to any other remedy towhich it may be entitled, at law or in equity. Each party further agrees that,in the event of any action for specific performance in respect of such breach,it shall not assert the defense that a remedy at law would be adequate.

 

4.11. WAIVER OF JURY TRIAL.TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THEPARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER ASPLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTIONARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT, WHETHERNOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANYCOURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENTAMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANYPROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT.

 

[THE REMAINDER OF THIS PAGEIS INTENTIONALLY BLANK. SIGNATURES FOLLOW.]

 

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IN WITNESS WHEREOF, each ofthe undersigned has executed this Agreement as an agreement under seal as ofthe date first above written.

 
| The Trusts:     | KRUPP GOVERNMENT INCOME  TRUST    |
|-----------------|-----------------------------------|
|            |                              |   |
|            | By:                               | /s/ Douglas Krupp |   |
|            |                              | Name: Douglas Krupp |
|            |                              | Title: Chairman |
|            |                              |   |
|            | KRUPP GOVERNMENT INCOME  TRUST II |
|            |                              |   |
|            | By:                               | /s/ Douglas Krupp |   |
|            |                              | Name: Douglas Krupp |
|            |                              | Title: Chairman |
|            |                              |   |
| The Purchasers: | BERKSHIRE INCOME REALTY,  INC.    |
|            |                              |   |
|            | By:                               | /s/ David Quade |   |
|            |                              | Name: David Quade |
|            |                              | Title: President |
|            |                              |   |
|            | BERKSHIRE INCOME  REALTY-OP, L.P. |
|            | by:                               |  Berkshire Income Realty, Inc.,  its general partner |
|            |                              |   |
|            | By:                               | /s/ David Quade |   |
|            |                              | Name: David Quade |
|            |                              | Title: President |

 

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