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As filed with the Securities and Exchange Commission on June 26, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 36-3877868
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Two North Riverside Plaza, Suite 450
Chicago, Illinois 60606
(312) 474-1300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Douglas Crocker II
President and Chief Executive Officer
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
(312) 474-1300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copy to:
Sheli Z. Rosenberg, Esq.
Ruth Pinkham Haring, Esq.
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, Suite 1515
Chicago, Illinois 60606
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement and from time
to time as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to distribution or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with distribution or
interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
Proposed Maximum Proposed Maximum
Amount to be Aggregate Price Aggregate Amount of
Title of Securities to be Registered Registered Per Share (1) Offering Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest,
$.01 par value per share............... 608,665 $32.875 $20,009,862 $6,900.00
===============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee based upon the average high and low prices reported for such shares on
the New York Stock Exchange on June 19, 1996, pursuant to Rule 457(c) under
the Securities Act.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS SUPPLEMENT
AND PROSPECTUS. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED JUNE 26, 1996
SUBJECT TO COMPLETION
PROSPECTUS
- ----------
608,665 SHARES
EQUITY RESIDENTIAL PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
This Prospectus relates to (i) the possible issuance by Equity Residential
Properties Trust (the "Company") of up to 608,665 common shares (the "Exchange
Shares") of beneficial interest, $.01 par value per share ("Common Shares"), of
the Company if, and to the extent that (subject to the discretion of the
Company), holders of up to 608,665 outstanding partnership interests ("OP
Units") in ERP Operating Limited Partnership (the "Operating Partnership"), of
which the Company is the sole general partner and owns a controlling interest,
exchange such OP Units for Common Shares; and (ii) the offer and sale from time
to time of up to 608,665 Exchange Shares by the holders thereof following the
potential issuance of such Exchange Shares upon the exchange of up to 608,665 OP
Units to the holders thereof, if and to the extent such holders exchange such OP
Units for the Exchange Shares. The Company is registering the Exchange Shares as
required under the terms of a registration rights and lock-up agreement dated
June 15, 1995 (the "Registration Rights Agreement") between the Company and the
holders of the OP Units exchangeable for the Exchange Shares (collectively, the
"Selling Shareholders"). The registration of the Exchange Shares does not
necessarily mean that any of the Exchange Shares will be offered or sold by the
Selling Shareholders. The Company will receive no part of the proceeds of the
sales of the Exchange Shares. See "Selling Shareholders" and "Plan of
Distribution."
The Common Shares are listed on the New York Stock Exchange (the "NYSE")
under the symbol "EQR." To ensure that the Company maintains its qualification
as a real estate investment trust (a "REIT"), ownership by any person is limited
to 5% of the lesser of the number or value of outstanding Common Shares, with
certain exceptions. See "Description of Shares of Beneficial Interest--Common
Shares--Restrictions on Transfer." The closing sales price of the Common Shares
as reported by the NYSE on June 24, 1996 was $33 1/8 per share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS," BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Selling Shareholders may from time to time offer and sell all or a
portion of the Exchange Shares in transactions on the NYSE, in the over-the-
counter market, on any other national securities exchange on which the Common
Shares are listed or traded, in negotiated transactions or otherwise, at prices
then prevailing or related to the then-current market price or at negotiated
prices. The Exchange Shares may be sold directly or through agents or broker-
dealers acting as principal or agent, or in block trades or pursuant to a
distribution by one or more underwriters on a firm commitment or best-efforts
basis. To the extent required, the names of any agent or broker-dealer and
applicable commissions or discounts and any other required information with
respect to any particular offer will be set forth in this Prospectus under the
caption "Plan of Distribution" or an accompanying Prospectus Supplement. Each of
the Selling Shareholders reserves the right to accept or reject, in whole or in
part, any proposed purchase of the Exchange Shares to be made directly or
through agents. The Selling Shareholders and any agents or broker-dealers
participating in the distribution of the Exchange Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any profit on the sale of Exchange Shares by the Selling
Shareholders and any commissions received by any such agents or broker-dealers
may be deemed to be underwriting commissions or discounts under the Securities
Act. The Company will not receive any of the proceeds from the sale of any
Exchange Shares by the Selling Shareholders.
THE DATE OF THIS PROSPECTUS IS JUNE , 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Common
Shares are listed on the New York Stock Exchange under the symbol "EQR" and
similar information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act, with respect to the Exchange Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Exchange Shares,
reference is hereby made to the Registration Statement and such exhibits and
schedules which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December
31, 1995.
b. The Company's Amended and Restated Declaration of Trust (the
"Declaration of Trust") filed as Exhibit 3(i) to the Company's
Quarterly Report on Form 10-Q for the three and six month periods
ended June 30, 1995.
c. The Company's Amended and Restated Bylaws, filed as an exhibit to the
Company's Registration Statement on Form S-11, No. 33-63158 dated July
26, 1993, as amended.
d. The Company's definitive proxy statement dated March 29, 1996 relating
to the annual meeting of shareholders held on May 10, 1996.
e. The description of the Company's Common Shares contained in the
Company's Registration Statement on Form S-11, No. 33-80420, dated
July 20, 1994, as amended.
f. The Company's Quarterly Report on Form 10-Q for the three month period
ended March 31, 1996.
g. The Company's Current Reports on Form 8-K dated September 21, 1995 (as
amended by Forms 8-K/A filed on October 25, 1995 and October 30, 1995,
respectively), January 22, 1996, January 25, 1996, February 5, 1996,
March 1, 1996, May 15, 1996, May 23, 1996 and May 24, 1996 and the
Company's Current Report on Form 8-K/A dated March 1, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of all Exchange Shares to which this
Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in the
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
applicable Prospectus Supplement relating to a specific offering of Exchange
Shares, or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each
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accompanying Prospectus Supplement is qualified in its entirety by the
information appearing in the documents incorporated by reference.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to Equity Residential Properties Trust, Two North Riverside Plaza,
Chicago, Illinois 60606, Attention: Cynthia McHugh (telephone number: (312) 474-
1300).
As used herein, the term "Company" includes Equity Residential Properties
Trust and those entities owned or controlled by it (collectively, the
"Subsidiaries"), unless the context indicates otherwise.
THE COMPANY
GENERAL
Equity Residential Properties Trust is a self-administered and self-managed
equity REIT. The Company was organized in March 1993 and commenced operations on
August 18, 1993 upon completion of its initial public offering (the "IPO"). The
Company was formed to continue the multifamily residential business objectives
and acquisition strategies of certain affiliated entities controlled by Mr.
Samuel Zell, Chairman of the Board of Trustees of the Company. These entities
had been engaged in the acquisition, ownership and operation of multifamily
residential properties since 1969. The Company's senior executives average over
23 years of experience in the multifamily property business.
The Company is the largest publicly traded REIT owner of multifamily
properties (based on the number of apartment units owned and total revenues
earned). As of June 17, 1996, the Company owned or had interests in a portfolio
of 211 multifamily properties (individually a "Property" and collectively, the
"Properties") containing 63,032 units and managed approximately 14,000
additional units owned by third parties. Since the Company's IPO, at which time
the Company owned 69 Properties, the Company has acquired, directly or
indirectly, interests in an additional 149 Properties containing 44,080 units
for a total purchase price of approximately $2 billion, including the assumption
of $435 million of mortgage indebtedness. Since the IPO, the Company has
disposed of seven of its properties containing 2,773 units for a total sales
price of approximately $58.2 million and the release of mortgage indebtedness in
the amount of $20.5 million. The Company's interest in six of the Properties
consists solely of ownership of the debt collateralized by such Properties and
in 21 of the Properties consists solely of investments in partnership interests
and subordinated mortgages collateralized by such Properties. The Properties are
located throughout the United States in the following 30 states: Arizona,
Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana,
Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Missouri, New Hampshire,
New Jersey, New Mexico, Nevada, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Washington.
All of the Company's interests in the Properties are held directly or
indirectly by, and substantially all of its operations relating to the
Properties are conducted through, the Operating Partnership. The Operating
Partnership currently has three classes of limited partnership interests
outstanding: OP Units, which may be exchanged by the holders thereof for either
Common Shares on a one-for-one basis or, at the Company's option, cash; 9 3/8%
Cumulative Redeemable Preference Units ("9 3/8% Preference Units") which are
owned by the Company and mirror the payments of distributions, including accrued
and unpaid distributions upon redemption, and the liquidation preference amount
of the Company's 9 3/8% Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest ($.01 par value per share) (liquidation preference $25.00
per share) (the "Series A Preferred Shares"); and 9 1/8% Cumulative Redeemable
Preference Units ("9 1/8% Preference Units") which are owned by the Company and
mirror the payments of distributions, including accrued and unpaid distributions
upon redemption, and the liquidation preference amount of the Company's 9 1/8%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest ($.01 par
value per share) (liquidation preference $250.00 per share) (the "Series B
Preferred Shares"). The Company controls the Operating Partnership as the sole
general partner and, as of May 31, 1996, owned approximately 82.86% of all of
the Operating Partnership's outstanding OP Units.
The Company's corporate headquarters and executive offices are located at
Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606, and its telephone
number is (312) 474-1300. In addition, the Company has regional operations
centers in Chicago, Illinois; Dallas, Texas; Denver, Colorado; Seattle,
Washington; Tampa, Florida and Bethesda, Maryland, and area offices in Atlanta,
Georgia; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; San Antonio,
Texas and Laguna Hills, California.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from sales of the Exchange
Shares by the Selling Shareholders. All reasonable costs and expenses incurred
in connection with the registration under the Securities Act of the offering
made hereby will be paid by the Selling Shareholders, excluding compensation of
employees of the Company or expenses incurred in connection with documents
incorporated herein by reference.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below prior to making an investment decision regarding the
Exchange Shares offered hereby.
SPECIAL CONSIDERATIONS APPLICABLE TO EXCHANGING PARTNERS
Tax Consequences of Exchange of OP Units. The exercise by limited partner
holders of OP Units (each, a "Limited Partner") of his or its right to require
the exchange of his or its OP Units will be treated for tax purposes as a sale
of the OP Units by the Limited Partner. Such a sale will be fully taxable to the
exchanging Limited Partner and such exchanging Limited Partner will be treated
as realizing for tax purposes an amount equal to the sum of the cash or the
value of the Common Shares received in the exchange plus the amount of the
Operating Partnership nonrecourse liabilities allocable to the exchanged OP
Units at the time of the exchange. It is possible that the amount of gain
recognized (or even the tax liability resulting from such gain) could exceed the
amount of cash and the value of other property (e.g., Exchange Shares) received
upon such disposition. See "Exchange of OP Units - Tax Consequences of
Exchange." In addition, the ability of the Limited Partner to sell a substantial
number of Exchange Shares in order to raise cash to pay tax liabilities
associated with exchange of OP Units may be restricted due to the Company's
relatively low trading volume, and, as a result of fluctuations in the share
price, the price the Limited Partner receives for such Exchange Shares may not
equal the value of his or her OP Units at the time of exchange.
Potential Change in Investment Upon Exchange of Units. If a Limited Partner
exercises the right to require the exchange of his or her OP Units, such Limited
Partner may receive cash or Common Shares of the Company in exchange for the OP
Units. If the Limited Partner receives cash, the Limited Partner will no longer
have any interest in the Company and will not benefit from any subsequent
increases in share price and will not receive any future distributions from the
Company (unless the Limited Partner currently owns or acquires in the future
additional Common Shares or OP Units). If the Limited Partner receives Common
Shares, the Limited Partner will become a shareholder of the Company rather than
a holder of OP Units in the Operating Partnership. Although the nature of an
investment in Common Shares is substantially equivalent economically to an
investment in OP Units in the Operating Partnership, there are some differences
between ownership of OP Units and ownership of Common Shares relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, investor rights and
federal income taxation. These differences, some of which may be material to
investors, are discussed in "Exchange of OP Units - Comparison of Ownership of
OP Units and Common Shares."
ADVERSE CONSEQUENCES OF DEBT FINANCING AND PREFERRED SHARES
General Risks. As of May 31, 1996, the Properties were subject to
approximately $573 million of mortgage indebtedness and the Company's total debt
equaled approximately $953 million, $162 million of which was floating rate
debt. In April 1995, the Operating Partnership issued $125 million aggregate
principal amount of 7.95% Notes due April 15, 2002 (the "Fixed Rate Notes")
pursuant to a public debt offering (the "Second Public Debt Offering"). In
addition, in June 1995, the Company issued 6,120,000 Series A Preferred Shares
pursuant to a preferred share offering and in November 1995, the Company issued
5,000,000 Depositary Shares each representing a 1/10 fractional interest in a
Series B Preferred Share pursuant to a depositary share offering (collectively,
the "Preferred Share Offerings"). The Company used the proceeds from the Second
Public Debt Offering and the Preferred Share Offerings to repay indebtedness.
The Company is subject to the risks normally associated with debt or preferred
equity financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk that
existing indebtedness may not be refinanced or that the terms of such
refinancing will not be as favorable as the terms of current indebtedness and
the risk that necessary capital expenditures for such purposes as renovations
and other improvements may not be financed on favorable terms or at all. If the
Company were unable to refinance its indebtedness on acceptable terms, or at
all, the Company might be forced to dispose of one or more of the Properties on
disadvantageous terms, which might result in losses to the Company and might
adversely affect the cash available for distributions to shareholders. If
interest rates or other factors at the time of the refinancing result in higher
interest rates upon refinancing, the Company's interest expense would increase,
which would affect the Company's ability to make distributions to its
shareholders. Furthermore, if a Property is mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the mortgagee
could foreclose upon the Property, appoint a receiver and receive an assignment
of rents and leases or pursue other remedies, all with a consequent loss of
income and asset value
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to the Company. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby hindering the Company's ability to meet the
REIT distribution requirements of the Internal Revenue Code of 1986, as amended
(the "Code").
Restrictions on the Company's Activities. $350 million of the Company's
debt was issued pursuant to two different indentures (the "Indentures") which
restrict the amount of indebtedness (including acquisition financing) the
Company may incur. Accordingly, in the event that the Company is unable to
raise additional equity or borrow money because of the debt restrictions in the
indentures, the Company's ability to acquire additional properties may be
limited. If the Company is unable to acquire additional properties, its ability
to increase the distributions with respect to Common Shares, as it has done in
the past, will be limited to management's ability to increase funds from
operations, and thereby cash available for distributions, from the existing
Properties in the Company's portfolio.
Bond Compliance Requirements. The Company owns 17 Properties that are
subject to restrictive covenants or deed restrictions relating to current or
previous tax-exempt bond financing and owns the bonds collateralized by six
additional Properties. The Company has retained an independent outside
consultant to monitor compliance with the restrictive covenants and deed
restrictions that affect these Properties. The bond compliance requirements may
have the effect of limiting the Company's income from these Properties in the
event the Company is required to lower its rental rates to attract low or
moderate income tenants, or eligible/qualified tenants.
Control and Influence by Significant Shareholders
As of May 31, 1996, Mr. Zell, certain of the current holders (the "Zell
Holders") of certain OP Units issued at the time of the IPO ("Original OP
Units") to certain affiliates of Mr. Zell which contributed 33 of the Properties
at the time of the IPO (the "Zell Original Owners"), Equity Properties
Management Corp. ("EPMC") and other affiliates of Mr. Zell owned in the
aggregate approximately 8.96% of the Common Shares (assuming that all of the
partnership interests in the Operating Partnership are exchanged for Common
Shares), and certain entities controlled by Starwood Capital Partners L.P.
("Starwood") and its affiliates which contributed 23 of the Properties at the
time of the IPO (the "Starwood Original Owners") owned in the aggregate
approximately 6.58% of the Common Shares (assuming that all of the partnership
interests in the Operating Partnership are exchanged for Common Shares). The
Starwood Original Owners, together with the Zell Original Owners, shall be
referred to collectively as the "Original Owners." The Company has options
outstanding to purchase approximately 2,500,000 Common Shares which it has
granted to certain officers, employees and trustees of the Company and
consultants to the Company, some of whom are affiliated with Mr. Zell,
representing in the aggregate approximately 4.6% of the Common Shares (assuming
that all such options are exercised for Common Shares and all of the outstanding
partnership interests in the Operating Partnership are exchanged for Common
Shares). Further, the consent of affiliates of Mr. Zell who are Zell Holders
and of the Starwood Original Owners is required for certain amendments to the
Operating Partnership's Fourth Amended and Restated ERP Operating Limited
Partnership Agreement of Limited Partnership (the "Partnership Agreement").
Accordingly, Mr. Zell and the Starwood Original Owners may continue to have
substantial influence over the Company, which influence might not be consistent
with the interests of other shareholders, and on the outcome of any matters
submitted to the Company's shareholders for approval. In addition, although
there is no current agreement, understanding or arrangement for these
shareholders to act together on any matter, these shareholders would be in a
position to exercise significant influence over the affairs of the Company if
they were to act together in the future.
Potential Environmental Liability Affecting the Company
Under various Federal, state and local environmental laws, ordinances and
regulations, an owner of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property. These
laws often impose environmental liability without regard to whether the owner
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The presence of such substances, or the failure properly to
remediate such substances, may adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain laws impose liability for release of asbestos-
containing materials ("ACMs") into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
ACMs. In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Company or the Subsidiaries,
as the case may be, may be considered an owner or operator of such properties or
as having arranged for the disposal or treatment of hazardous or toxic
substances and, therefore, potentially liable for removal or remediation costs,
as well as certain other related costs, including governmental fines and
injuries to persons and property.
All of the Properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. All of the
environmental assessments were conducted within the last five years and were
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obtained prior to the acquisition by the Company of each of the Properties.
These environmental assessments have not revealed, nor is the Company aware of,
any environmental liability that the Company's management believes would have a
material adverse effect on the Company's business, results of operations,
financial condition or liquidity.
No assurance can be given that existing environmental assessments with
respect to any of the Properties reveal all environmental liabilities, that any
prior owner of a Property did not create any material environmental condition
not known to the Company, or that a material environmental condition does not
otherwise exist as to any one or more Properties.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Income from real property investments and the Company's resulting
ability to make expected distributions to shareholders may be adversely affected
by the general economic climate, local conditions such as oversupply of
apartment units or a reduction in demand for apartment units in the area, the
attractiveness of the Properties to tenants, zoning or other regulatory
restrictions, the ability of the Company to provide adequate maintenance and
insurance, and increased operating costs (including insurance premiums and real
estate taxes). The Company's income would also be adversely affected if tenants
were unable to pay rent or the Company were unable to rent apartment units on
favorable terms. If the Company were unable to promptly relet or renew the
leases for a significant number of apartment units, or if the rental rates upon
such renewal or reletting were significantly lower than expected rates, then the
Company's funds from operations and ability to make expected distributions to
shareholders may be adversely affected. In addition, certain expenditures
associated with each equity investment (such as real estate taxes and
maintenance costs) generally are not reduced when circumstances cause a
reduction in income from the investment. Furthermore, real estate investments
are relatively illiquid and, therefore, will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions.
Changes in Laws. Increases in real estate taxes and income, service or
other taxes generally are not passed through to tenants under existing leases
and may adversely affect the Company's funds from operations and its ability to
make distributions to shareholders. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which would adversely affect the
Company's funds from operations and its ability to make distributions to
shareholders.
OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
5% Ownership Limit; Inapplicability to Mr. Zell and Others. In order to
maintain its qualification as a REIT under the Code, not more than 50% of the
value of the outstanding shares of beneficial interest of the Company may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities). Certain beneficial owners of the Zell Holders
affiliated with Mr. Zell and EPMC (i.e., beneficiaries of trusts established for
the benefit of Mr. Zell and his family and trusts established for the benefit of
the family of Mr. Robert Lurie, a deceased partner of Mr. Zell (the "Lurie
Family Trusts")) and of the Starwood Original Owners (through their potential
ownership rights of Common Shares) together constitute four individuals for
purposes of this test and, under the Internal Revenue Service's (the "Service")
rules applicable to determining percentages of ownership, will be deemed to own
approximately 14% of the value of the outstanding shares of beneficial interest
of the Company. Due to such concentration of ownership of the Company, ownership
of more than 5% of the lesser of the number or value of the outstanding shares
of beneficial interest of the Company by any single shareholder has been
restricted, with certain exceptions, for the purpose of maintaining the
Company's qualification as a REIT under the Code. Such restrictions in the
Company's Declaration of Trust do not apply to the ownership of the 7,060,071
Common Shares subject to acquisition by the holders of Original OP Units and
EPMC through the exchange of Original OP Units. Additionally, the Company's
Declaration of Trust allows certain transfers of such Common Shares without the
transferees being subject to the 5% ownership limit, provided such transfers do
not result in an increased concentration in the ownership of the Company. The
Company's Board of Trustees, upon receipt of a ruling from the Service, an
opinion of counsel or other evidence satisfactory to the Board of Trustees and
upon such other conditions as the Board of Trustees may direct, may also exempt
a proposed transferee from this restriction. See "Description of Shares of
Beneficial Interest--Common Shares--Restrictions on Transfer."
The 5% ownership limit, as well as the ability of the Company to issue
additional Common Shares or other shares of beneficial interest (which may have
rights and preferences senior to the Common Shares), may discourage a change of
control of the Company and may also (i) deter tender offers for the Common
Shares, which offers may be advantageous to shareholders, and (ii) limit the
opportunity for shareholders to receive a premium for their Common Shares that
might otherwise exist if an investor were attempting to assemble a block of
Common Shares in excess of 5% of the outstanding shares of beneficial interest
of the Company or otherwise effect a change of control of the Company.
Staggered Board. The Board of Trustees of the Company has been divided into
three classes of trustees. The terms of the current classes will expire in 1997,
1998 and 1999, respectively. As the term of each class expires, trustees for
that class will be
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elected for a three-year term and the trustees in the other two classes will
continue in office. The staggered terms for trustees may impede the
shareholders' ability to change control of the Company even if a change in
control were in the shareholders' interest.
Preferred Shares. The Company's Declaration of Trust authorizes the Board
of Trustees to issue up to 10,000,000 preferred shares of beneficial interest,
$.01 par value per share ("Preferred Shares") and to establish the preferences
and rights (including the right to vote and the right to convert into Common
Shares) of any Preferred Shares issued. The power to issue Preferred Shares
could have the effect of delaying or preventing a change in control of the
Company even if a change in control were in the shareholders' interest. As of
May 31, 1996, 6,620,000 Preferred Shares were issued and outstanding.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. The Company believes that it has qualified and
will continue to qualify as a REIT under the Code, commencing with its taxable
year ended December 31, 1993. However, no assurance can be given that the
Company was organized and has been operated and will be able to operate in a
manner so as to qualify or remain so qualified. Qualification as a REIT involves
the satisfaction of numerous requirements (some on an annual and quarterly
basis) established under highly technical and complex Code provisions for which
there are only limited judicial or administrative interpretations, and involves
the determination of various factual matters and circumstances not entirely
within the Company's control.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to shareholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to shareholders would no longer be
required to be made. See "Federal Income Tax Considerations."
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain Federal, state and local taxes on its income and property.
See "Federal Income Tax Considerations--Other Tax Considerations--State and
Local Taxes." In addition, the Company's management operations, which are
conducted through Equity Residential Properties Management Limited Partnership
and Equity Residential Properties Management Limited Partnership II
(collectively, the "Management Partnerships") generally will be subject to
Federal income tax at regular corporate rates. See "Federal Income Tax
Considerations--Other Tax Considerations."
Consequences of Failure to Qualify as Partnerships. The Company believes
that the Operating Partnership, the Management Partnerships and each of the
other partnership and limited liability company Subsidiaries have been organized
as partnerships and will qualify for treatment as such under the Code. If any of
such Subsidiaries fails to qualify for such treatment under the Code, the
Company would cease to qualify as a REIT, and such Subsidiary would be subject
to Federal income tax (including any alternative minimum tax) on its income at
corporate rates. See "Federal Income Tax Considerations--Taxation of the
Company--Failure to Qualify" and "--Tax Aspects of the Company's Investments in
Partnerships--General."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers. While
the Company believes that it could find replacements for these key personnel,
the loss of their services could have a temporary adverse effect on the
operations of the Company. None of these officers has entered into employment
agreements with the Company.
DISTRIBUTION REQUIREMENTS POTENTIALLY INCREASING INDEBTEDNESS OF THE COMPANY
The Company may be required from time to time, under certain circumstances,
to accrue as income for tax purposes interest and rent earned but not yet
received. In such event, or upon the repayment by the Company or its
Subsidiaries of principal on debt, the Company could have taxable income without
sufficient cash to enable the Company to meet the distribution requirements of a
REIT. Accordingly, the Company could be required to borrow funds or liquidate
investments on adverse terms in order to meet such distribution requirements.
See "Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements."
EXEMPTIONS FOR MR. ZELL AND OTHERS FROM MARYLAND BUSINESS COMBINATION LAW WHICH
TEND TO INHIBIT TAKEOVERS
Under the Maryland General Corporation Law, as amended ("MGCL"), certain
"business combinations" (including certain issuances of equity securities)
between a Maryland real estate investment trust and any person who beneficially
owns 10% or more of the voting power of the trust's shares of beneficial
interest (an "Interested Shareholder") or an affiliate thereof are prohibited
for
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five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. Thereafter, any such business combination
must be approved by two super-majority shareholder votes unless, among other
conditions, the holders of the common shares of the trust receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. The Zell Original Owners beneficially own
more than 10% of the Company's voting shares and would, therefore, be subject to
the business combination provisions of the MGCL. However, pursuant to the
statute, the Company has exempted any business combination involving Mr. Zell,
the Zell Original Owners, EPMC and their respective affiliates and associates,
present or future, or any other person acting in concert or as a group with any
of the foregoing persons and, consequently, the five-year prohibition and the
super-majority vote requirements will not apply to a business combination
between any of them and the Company. As a result, Mr. Zell, the Zell Original
Owners, EPMC, any present or future affiliate or associate of theirs or any
other person acting in concert or as a group with any of the foregoing persons
may be able to enter into business combinations with the Company, which may not
be in the best interest of the shareholders, without compliance by the Company
with the super-majority vote requirements and other provisions of the statute.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The summary of the terms of the shares of beneficial interest of the
Company set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust and amended
and restated bylaws ("Bylaws") of the Company, a copy of which is an exhibit to
the Company's Registration Statement No. 33-63158 and which is incorporated
herein by reference.
The Declaration of Trust of the Company provides that the Company may issue
up to 110,000,000 shares of beneficial interest, consisting of 100,000,000
Common Shares, $0.01 par value per share, and 10,000,000 Preferred Shares. As of
May 31, 1996, 43,223,307 Common Shares were issued and outstanding. In addition,
as of May 31, 1996, 8,940,036 Common Shares were issuable upon exchange of OP
Units currently held by the holders of the Original OP Units or holders who were
issued OP Units in exchange for the contribution of certain of the Properties.
The OP Units are exchangeable on a one-for-one basis for Common Shares or, at
the Company's option, cash.
Both the Maryland REIT law and the Company's Declaration of Trust provide
that no shareholder of the Company will be liable for any debt or obligation of
the Company solely as a result of his status as a shareholder of the Company.
The Company's bylaws further provide that the Company shall indemnify each
shareholder against any claim or liability to which the shareholder may become
subject by reason of his being or having been a shareholder and that the Company
shall reimburse each shareholder for all reasonable expenses incurred by him in
connection with any such claim or liability. However, with respect to tort
claims, contractual claims where shareholder liability is not so negated, claims
for taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
COMMON SHARES
All Exchange Shares offered hereby are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of the Company's Declaration of Trust
regarding Excess Shares (as defined herein), holders of Common Shares are
entitled to receive distributions if, as and when authorized and declared by the
Board of Trustees out of assets legally available therefor and to share ratably
in the assets of the Company legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company. The Company currently pays regular quarterly distributions.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, each outstanding Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of such Common Shares will possess the exclusive voting power. There is
no cumulative voting in the election of trustees, which means that the holders
of a majority of the outstanding Common Shares can elect all of the trustees
then standing for election and the holders of the remaining shares of beneficial
interest, if any, will not be able to elect any trustees.
Holders of Common Shares have no conversion, sinking fund, redemption or
preemptive rights to subscribe for any securities of the Company. Subject to the
provisions of the Company's Declaration of Trust regarding Excess Shares, Common
Shares have equal distribution, liquidation and other rights, and have no
preference, exchange or, except as expressly required by the Maryland REIT law,
appraisal rights.
Pursuant to the Maryland REIT law, a REIT generally cannot dissolve, amend
its declaration of trust or merge, unless approved by the affirmative vote or
written consent of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the REIT's declaration of trust. The Company's Declaration of Trust does not
provide for a lesser percentage in such situations. A declaration of trust may
permit the Trustees by a two-thirds vote to amend the declaration of trust from
time to time to qualify as a REIT under the Code or the Maryland REIT law
without the affirmative vote or written consent of the shareholders. The
Company's Declaration of Trust permits such action by the Board of Trustees.
The transfer agent and registrar for the Common Shares is The First
National Bank of Boston.
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RESTRICTIONS ON TRANSFER
Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions, provides that no holder may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 5% (the "Ownership Limit") of
the lesser of the number of shares or value of the issued and outstanding shares
of beneficial interest of the Company. The Board of Trustees, upon receipt of a
ruling from the Service, an opinion of counsel or other evidence satisfactory to
the Board of Trustees and upon such other conditions as the Board of Trustees
may direct, may also exempt a proposed transferee from the Ownership Limit. As a
condition of such exemption, the intended transferee must give written notice to
the Company of the proposed transfer no later than the fifteenth day prior to
any transfer which, if consummated, would result in the intended transferee
owning shares in excess of the Ownership Limit. Any transfer of Common or
Preferred Shares that would (i) create a direct or indirect ownership of shares
of beneficial interest in excess of the Ownership Limit, (ii) result in the
shares of beneficial interest being owned by fewer than 100 persons, or (iii)
result in the Company being "closely held" within the meaning of Section 856(h)
of the Code, will be void ab initio, and the intended transferee will acquire no
rights to the shares of beneficial interest. The foregoing restrictions on
transferability and ownership will not apply if the Board of Trustees determines
that it is no longer in the best interests of the Company to attempt to qualify,
or to continue to qualify, as a REIT.
The Company's Declaration of Trust exempts from the Ownership Limit certain
of the beneficial owners of the Original Owners and EPMC, who would exceed the
Ownership Limit as a result of the exchange of the OP Units for Common Shares,
which OP Units were received by them at the time of the formation of the
Company. These persons may also acquire additional shares of beneficial interest
through the Company's Second Amended and Restated 1993 Share Option and Share
Award Plan (the "Option and Award Plan"), but in no event will such persons be
entitled to acquire additional shares of beneficial interest such that the five
largest beneficial owners of the Company's shares of beneficial interest hold
more than 50% in number or value of the total outstanding shares of beneficial
interest.
Any shares of beneficial interest the transfer of which would result in a
person owning shares of beneficial interest in excess of the Ownership Limit or
cause the Company to become "closely held" under Section 856(h) of the Code that
is not otherwise permitted as provided above will constitute excess shares
("Excess Shares"), which will be transferred by operation of law to the Company
as trustee for the exclusive benefit of the person or persons to whom the Excess
Shares are ultimately transferred, until such time as the intended transferee
retransfers the Excess Shares. While these Excess Shares are held in trust, they
will not be entitled to vote or to share in any distributions (except upon
liquidation). Subject to the Ownership Limit, the Excess Shares may be
retransferred by the intended transferee to any person (if the Excess Shares
would not be Excess Shares in the hands of such person) at a price not to exceed
the price paid by the intended transferee or, if the intended transferee did not
give value for such Excess Shares (e.g., a transfer by gift or devise), the fair
market value (as described below) at the time of the purported transfer that
resulted in the Excess Shares, at which point the Excess Shares will
automatically be exchanged for the shares of beneficial interest to which the
Excess Shares are attributable. In addition, such Excess Shares held in trust
are subject to purchase by the Company at a purchase price equal to the lesser
of the price paid for the Excess Shares in the transaction that created such
Excess Shares (or, in the case of a devise or gift, the fair market value at the
time of such devise or gift) and the fair market value of the Preferred Shares
or Common Shares to which such Excess Shares relate on the date the Company
exercises its right to purchase. Fair market value will be the last sales price
of such shares of beneficial interest reported on the NYSE on the trading day
immediately preceding the relevant date, or if not then traded on the NYSE, the
last reported sales price of such shares of beneficial interest on the trading
day immediately preceding the relevant date as reported on any exchange or
quotation system over which such shares of beneficial interest may be traded, or
if not then traded over any exchange or quotation system, then the fair market
value of such shares of beneficial interest on the relevant date as determined
in good faith by the Board of Trustees of the Company. The Company's right to
purchase shall be for a period of 90 days after the later of the date of the
purported transfer which resulted in the Excess Shares and the date the Board of
Trustees determines in good faith that such a transfer has occurred. From and
after the intended transfer to the intended transferee of the Excess Shares, the
intended transferee shall cease to be entitled to distributions (except upon
liquidation), voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the shares or the
retransfer of shares as provided above. Any distribution paid to a proposed
transferee on Excess Shares prior to the discovery by the Company that such
shares of beneficial interest have been transferred in violation of the
provisions of the Company's Declaration of Trust shall be repaid to the Company
upon demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such
Excess Shares and to hold such Excess Shares on behalf of the Company.
All certificates representing shares of beneficial interest shall bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5% as
provided in the rules and regulations promulgated under the Code) of the lesser
of the number or value of the outstanding shares of beneficial interest of the
Company must give a written notice to the Company by
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January 31 of each year. In addition, each shareholder will upon demand be
required to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of shares of beneficial interest
as the Board of Trustees deems reasonably necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
For the Company to qualify as a REIT under the Code, shares of beneficial
interest must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. Also, not more than 50% of the
value of the issued and outstanding shares of beneficial interest may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain tax-exempt entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year. Certain beneficial owners of the Zell Original Owners (i.e., beneficiaries
of trusts established for the benefit of Mr. Zell and his family and the family
of Mr. Robert Lurie, a deceased partner of Mr. Zell) and EPMC, together with the
Starwood Original Owners (through their potential ownership of shares of
beneficial interest) together constitute four individuals for purposes of this
test and, under the Service's rules applicable to determining percentages of
ownership, are deemed to own approximately 14% of the value of the outstanding
shares of beneficial interest of the Company.
These ownership limitations could have the effect of delaying, deferring or
preventing a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
DESCRIPTION OF OP UNITS
All of the Company's assets are held by or through, and all of its
operations are conducted by or through, the Operating Partnership. The Company
is the sole general partner of the Operating Partnership and, as of May 31,
1996, held approximately 82.86% of the outstanding OP Units. The material terms
of the OP Units, including a summary of certain provisions of the Partnership
Agreement, are set forth below. The following description of the terms and
provisions of the OP Units and the Partnership Agreement does not purport to be
complete and is subject to and qualified in its entirety by reference to
applicable provisions of Illinois law and the terms of the Partnership
Agreement. For a comparison of the voting and other rights of holders of OP
Units and holders of Common Shares, see "Exchange of OP Units--Comparison of
Ownership of OP Units and Common Shares."
GENERAL
Holders of OP Units (other than the Company in its capacity as general
partner) hold limited partnership interests in the Operating Partnership, and
all holders of OP Units (including the Company in its capacity as general
partner) are entitled to share in cash distributions from, and in the profits
and losses of, the Operating Partnership. Each OP Unit generally receives
distributions in the same amount as paid by the Company on each Common Share.
The OP Units are not registered pursuant to federal or state securities laws,
and they are not listed on the NYSE or any other exchange or quoted on any
national market system.
The Operating Partnership was formed as a limited partnership under the
Illinois Revised Uniform Limited Partnership Act (the "Partnership Act").
Holders of OP Units (other than the Company in its capacity as general partner)
have the rights to which Limited Partners are entitled under the Partnership
Agreement and the Partnership Act. The form of the Partnership Agreement is
included as an exhibit to the Registration Statement of which this Prospectus is
a part. The Partnership Agreement imposes certain restrictions on the transfer
of OP Units, as described below.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership is, in general, to acquire,
purchase, own, operate, manage, develop, redevelop, invest in, finance,
refinance, sell, lease and otherwise deal with multifamily properties and assets
related thereto, and interests therein.
The Company, as general partner of the Operating Partnership, is the sole
manager of the business of the Operating Partnership and has the right to make
all decisions and take all actions with respect thereto. No Limited Partner may
take part in the conduct or control of the business or affairs of the Operating
Partnership by virtue of being a holder of OP Units.
The Company intends to make decisions in its capacity as general partner of
the Operating Partnership so as to maximize the profitability of the Company and
the Operating Partnership as a whole, independent of the tax effects on the
Limited Partners. Limited Partners have no right or authority to act for or to
bind the Operating Partnership.
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ENGAGING IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The Company, as the general partner of the Operating Partnership, is
required to devote its full time and efforts to the conduct of the business of
the Operating Partnership and to conduct all of its activities with respect to
the multifamily property business exclusively through the Operating Partnership
or the other Subsidiaries and not conduct or engage in any other business.
Except as may otherwise be agreed to in writing, each Limited Partner, and its
affiliates, is free to engage in any business or activity, even if such business
or activity competes with or is enhanced by the business of the Operating
Partnership. Mr. Zell and certain of the other executive officers of the Company
have entered into noncompetition agreements with the Company. The Company, in
the exercise of its power and authority under the Partnership Agreement, may
contract and otherwise deal with or otherwise obligate the Operating Partnership
to entities in which the Company or any one or more of the officers, trustees or
shareholders of the Company may have an ownership or other financial interest,
whether direct or indirect.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides for the distribution of "Operating Cash
Flow" to the Company and the Limited Partners of the Operating Partnership in
proportion to their percentage interests in the Operating Partnership.
"Operating Cash Flow" is generally defined as cash receipts for the period in
question (excluding capital contributions and proceeds of sales, financing and
proceeds of insurance and condemnation and other items of "Capital Cash Flow" as
hereinafter described) in excess of Operating Partnership expenses (excluding
depreciation and other non-cash expenses) and cash needs, including debt
service, capital expenditures and any reserves (as determined by the Company and
which may include cash held for future acquisitions). The Partnership Agreement
provides that Operating Cash Flow will be distributed to partners of the
Operating Partnership not less frequently than annually in accordance with such
partners' respective percentage interest in the Operating Partnership. The
Partnership Agreement provides for the distribution of "Capital Cash Flow", not
less frequently than annually, to the Company and the Limited Partners in
proportion to their percentage interest in the Operating Partnership. "Capital
Cash Flow" includes proceeds from the sale of assets of the Operating
Partnership, gross financing or refinancing proceeds, gross condemnation or
insurance proceeds (excluding such proceeds to be applied to restoration) less
the sum of closing costs, the cost to discharge any partnership financing
encumbering or otherwise associated with the asset in question, the
establishment of reserves (as determined by the Company, and which may include
cash held for future acquisitions) and other expenses of the Operating
Partnership.
BORROWING BY THE OPERATING PARTNERSHIP
The Company is authorized to cause the Operating Partnership to borrow
money and finance and refinance the assets of the Operating Partnership.
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS AFFILIATES
The Company, as a partner in the Operating Partnership, has the same right
to allocations and distributions as other partners of the Operating Partnership.
In addition, the Operating Partnership will reimburse the Company for all
expenses it incurs relating to its activities as general partner, its continued
existence and qualification as a REIT and all other liabilities incurred by the
Company in connection with the pursuit of its business and affairs (unless paid
by the Company in connection with the issuance of shares). The Company may
retain such persons or entities as it shall determine (including itself, any
entity in which the Company has an interest, or any entity with which it is
affiliated) to provide services to or on behalf of the Operating Partnership.
The Company is entitled to reimbursement from the Operating Partnership for its
out of pocket expenses (including, without limitation, amounts paid or payable
to the Company or any entity in which the Company has an interest or with which
it is affiliated) incurred in connection with Operating Partnership business.
Such expenses include those incurred in connection with the administration and
activities of the Operating Partnership, such as the maintenance of the
Operating Partnership books and records, management of the Operating Partnership
property and assets, and preparation of information respecting the Operating
Partnership provided to the partners in the preparation of their individual tax
returns.
LIABILITY OF THE COMPANY AND LIMITED PARTNERS
The Company, as general partner of the Operating Partnership, will be
liable for all general recourse obligations of the Operating Partnership to the
extent not paid by the Operating Partnership. The Company will not be liable for
the nonrecourse obligations of the Operating Partnership.
No partner of the Operating Partnership will be required to make additional
capital contributions to the Operating Partnership, except that the Company is
generally required to contribute net proceeds of the sale of shares of
beneficial interest
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of the Company to the Operating Partnership. No limited or general partner will
be required to pay to the Operating Partnership any deficit or negative balance
which may exist in his or its account. Assuming that a Limited Partner (in his
or its capacity as limited partner) does not take part in the control of the
business of the Operating Partnership, and otherwise acts in conformity with the
provisions of the Partnership Agreement, the liability of the Limited Partner
for obligations of the Operating Partnership under the Partnership Agreement and
the Partnership Act will generally be limited, subject to certain possible
exceptions, to the loss of the Limited Partner's investment in the Operating
Partnership represented by his or its OP Units. Under the Partnership Act, the
Operating Partnership may not make a distribution to a partner if, at the time
of the distribution, after giving effect thereto, the liabilities of the
Operating Partnership, other than liabilities to partners on account of their
partnership interest, exceed the fair value of the Operating Partnership's
assets, except that the fair value of any property subject to nonrecourse
liabilities of the Operating Partnership will be included in the assets of the
Operating Partnership to the extent that the fair value of such property exceeds
such liability. The Partnership Act provides that a Limited Partner who receives
a distribution in violation of the foregoing prohibition is liable to the
Operating Partnership for the amount of the distribution.
The Operating Partnership is qualified to conduct business in Illinois,
Arizona, Arkansas, California, Florida, Georgia, Idaho, Michigan, North
Carolina, Ohio, Oregon, South Carolina, Texas and Washington. Maintenance of
limited liability may require compliance with certain legal requirements of
those jurisdictions and certain other jurisdiction. Limitations on the liability
of a limited partner for the obligations of a limited partnership have not been
clearly established in many jurisdictions. Accordingly, if it were determined
that the exercise by the Limited Partners of any right granted to them, to make
certain amendments to the Partnership Agreement or to take other action pursuant
to the Partnership Agreement, constituted "control" of the Operating
Partnership's business for the purposes of the statutes of any relevant
jurisdiction, the Limited Partners might be held personally liable for the
Operating Partnership's obligations.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY
The Partnership Agreement generally provides that the Company, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any Limited Partner for losses sustained or liabilities incurred
as a result of errors in judgment or for any mistakes of fact or law or for
anything which it may do or refrain from doing in connection with the business
and affairs of the Operating Partnership except in the case of fraud, willful
misconduct, or gross negligence or for other breaches of the Partnership
Agreement. With respect to liability arising from the Company's breach of the
Partnership Agreement, the Company's liability is limited to its interest in the
Operating Partnership. The Company has no liability for the loss of any Limited
Partner's capital. In addition, the Company is not responsible for any
misconduct, negligent acts or omissions of any consultant or contractor of the
Operating Partnership or of the Company and has no obligation other than to use
due care in the selection of all such contractors and consultants. The Company
may consult with counsel, accountants, appraisers, management consultants,
investment bankers and other consultants selected by it. An opinion by any
consultant on a matter which the Company believes to be within such consultant's
professional or expert competence is complete protection as to any action taken
or omitted by the Company based on such opinion and taken in good faith.
The Partnership Agreement also requires the Operating Partnership to indemnify
the Company, and the trustees and officers of the Company, against any loss or
damage, including reasonable legal fees and court costs incurred by such person
by reason of anything he or it may do or refrain from doing for or on behalf of
the Operating Partnership or in connection with its business or affairs;
provided, however, that the Operating Partnership is not required to indemnify
the Company for any loss or damage resulting from the Company's fraud, willful
misconduct or gross negligence in the performance of its duties and provided,
further, that the indemnification does not relieve the Company, as a general
partner, of its proportionate share of the obligations of the Operating
Partnership. The Operating Partnership will reimburse the Company for out-of-
pocket expenses incurred in connection with partnership business. In addition,
the Company is entitled to reimbursement by the Operating Partnership for any
amounts paid by it in satisfaction of indemnification obligations owed by the
Company to present or former trustees or directors of the Company or its
predecessors. Any such indemnification claims must be satisfied solely out of
the assets of the Operating Partnership.
SALES OF ASSETS
Under the Partnership Agreement, the Company has the exclusive authority to
determine whether, when and on what terms the assets of the Operating
Partnership (including the Properties) will be sold.
TRANSFER OF THE COMPANY'S INTEREST
The Company may not transfer its interest in the Operating Partnership except
by operation of law.
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RESTRICTIONS ON TRANSFER OF OP UNITS BY LIMITED PARTNERS
The Partnership Agreement provides that no Limited Partner shall, without the
prior written consent of the Company (which may be withheld in the sole
discretion of the Company), sell, assign, distribute or otherwise transfer all
or any part of his or its interest in the Operating Partnership except by
operation of law, gift (outright or in trust) or by sale, in each case to or for
the benefit of his spouse or descendants, except for pledges or other collateral
transfers effected by a Limited Partner to secure the repayment of a loan, the
exchange of OP Units for Common Shares in accordance with the Partnership
Agreement, and the distribution of OP Units by a Limited Partner to any of its
partners in compliance with any lock-up restrictions and/or applicable
securities laws.
An assignee, legatee, distributes or other transferee ("Transferee") of all or
any portion of a partner's interest in the Operating Partnership shall be
entitled to receive profits, losses and distributions under the Partnership
Agreement attributable to such interest, from and after the effective date of
the transfer of such interest; provided, however, (i) no transfer by a Limited
Partner shall be effective until such transfer has been consented to by the
Company, (ii) no Transferee shall be considered a substituted Limited Partner,
and (iii) the Operating Partnership and the Company shall be entitled to treat
the transferor of such interest as the absolute owner thereof in all respects,
and shall incur no liability for the allocation of profits, losses or
distributions which are made to such transferor until such time as the written
instrument of transfer has been received by the Company and the effective date
of the transfer is passed. The Company shall have the right to require any such
transferor to exchange the OP Units to which such interest relates into Common
Shares pursuant to the Partnership Agreement. The "effective date" of any
transfer shall be the last day of the month set forth on the written instrument
of transfer or such other date consented to in writing by the Company as the
"effective date." Notwithstanding the foregoing, (x) in the event a Limited
Partner dissolves and liquidates, the partners receiving any portion of the
Limited Partner's interest in the Operating Partnership will become substitute
Limited Partners and shall succeed to the rights and obligations of such Limited
Partner in the Operating Partnership in proportion to their respective interests
in the dissolving or liquidating Limited Partner and (y) no transfer shall be
effective to the extent it would, by treating the OP Units so transferred as if
they had been exchanged for Common Shares, violate the limitations on ownership
set forth in the Declaration of Trust in order to protect and preserve the
Company's status as a REIT. See "Description of Shares of Beneficial Interest--
Restrictions on Transfer."
EXCHANGE OF OP UNITS
Subject to certain limitations of the Partnership Agreement and applicable
registration rights agreements, holders of OP Units other than the Company have
the right to request an exchange of any or all of such OP Units for Common
Shares, with one OP Unit being exchangeable for one Common Share, by notifying
the Company at least 10 days prior to the date of exchange. Upon receipt of such
a request, the Company may, in its discretion, in lieu of issuing Common Shares,
cause the Operating Partnership to pay to such Limited Partner cash in an amount
equal to the product arrived at by multiplying (i) the number of OP Units
requested to be exchanged by such Limited Partner, multiplied by (ii) the market
price per share of the Common Shares as determined in accordance with the
Partnership Agreement (generally the ten-day average of the last reported sale
price per share of the Common Shares at the close of trading). The Company will
at all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the exchange of OP Units for
Common Shares, a sufficient number of shares as shall from time to time be
sufficient for the conversion of all outstanding OP Units not owned by the
Company. No Limited Partner, by virtue of being the holder of one or more OP
Units, will be deemed to be a shareholder of or have any other interests in the
Company. In the event of any change in the outstanding shares by reason of any
share dividend, split, recapitalization, merger, consolidation, combination,
exchange of shares or other similar change, the number of OP Units held by each
partner shall be proportionately adjusted so that one OP Unit remains
exchangeable for one share without dilution. A Limited Partner shall not have
the right to request an exchange of OP Units for Common Shares if (i) in the
opinion of counsel for the Company, the Company would, as a result thereof, no
longer qualify (or it would be likely that the Company no longer would qualify)
as a REIT under the Code; or (ii) such exchange would, in the opinion of counsel
for the Company, constitute or be likely to constitute a violation of applicable
securities laws.
NO WITHDRAWAL BY LIMITED PARTNERS
No Limited Partner has the right to withdraw from or reduce his or its capital
contribution to the Operating Partnership, except as a result of the transfer of
OP Units in accordance with the Partnership Agreement.
ISSUANCE OF ADDITIONAL OP UNITS AND/OR PREFERENCE UNITS
The Company is authorized at any time, without the consent of the Limited
Partners, to cause the Operating Partnership to issue additional OP Units to (i)
existing or newly admitted partners (including itself) in exchange for
additional capital
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<PAGE>
contributions by a partner ("Capital Contributions") to the Operating
Partnership, (ii) the Company in connection with the issuance by the Company of
additional Common Shares in exchange for OP Units as provided in the Partnership
Agreement or (iii) to the Company upon the issuance by the Company of additional
Common Shares not in connection with the exchange of OP Units as provided in the
Partnership Agreement, provided that any net proceeds received by the Company as
a result of the issuance of additional shares are contributed to the Operating
Partnership as additional Capital Contributions in accordance with the
Partnership Agreement (except that the Company may issue Common Shares in
connection with the Option and Award Plan, restricted share plans or other
employee benefits plans without receiving any proceeds and that the issuance of
such shares shall nonetheless entitle the Company to additional OP Units). Upon
the issuance of additional OP Units, the percentage interest of all the partners
in the Operating Partnership would be diluted so that the percentage interest of
each partner will equal the quotient (expressed as a percentage) arrived at by
dividing the number of OP Units held by a partner by the total number of OP
Units then outstanding. In addition, the Partnership Agreement provides that the
Operating Partnership may also issue preferred units ("Preference Units") having
such rights, preferences and other privileges, variations and designations as
may be determined by the Company. Any such Preference Units may have terms,
provisions and rights which are preferential to the terms, provisions and rights
of the OP Units.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Each Limited Partner, by execution of the Partnership Agreement, irrevocably
appoints the Chairman of the Board of Trustees of the Company, with power of
substitution, as his or its true and lawful attorney coupled with an interest,
in his or its name, place and stead to amend the Partnership Agreement in any
respect other than: (i) to enlarge the obligation of any partner to make
contributions to the capital of the Operating Partnership, (ii) except as
otherwise provided for in the Partnership Agreement or as required by law, to
modify the allocation of profits or losses or distributions among the partners
as provided for in the Partnership Agreement, or (iii) to amend certain
provisions of the Partnership Agreement dealing with issuance and conversion of
OP Units, limitations on the power and authority of partners, transfer of
partnership interests or amendments to the Partnership Agreement. With respect
to matters related to the aforementioned exceptions, the Partnership Agreement
may be amended by the consent of each of the Original Owners, so long as such
Original Owners remain Limited Partners, and the consent of those Limited
Partners holding not less than 67% of the aggregate of Percentage Interests held
by all Limited Partners.
BOOKS AND REPORTS
The Operating Partnership's books and records are maintained at the principal
office of the Operating Partnership which is located at Two North Riverside
Plaza, Suite 450, Chicago, Illinois 60606. All elections and options available
to the Operating Partnership for federal or state income tax purposes may be
taken or rejected by the Operating Partnership in the sole discretion of the
Company.
POWER OF ATTORNEY
Pursuant to the Partnership Agreement, each Limited Partner appoints the
Chairman of the Board of Trustees of the Company with full power of
substitution, his or its true and lawful attorney to sign, swear to,
acknowledge, file and record, among other things, the Partnership Agreement (and
amendments thereto as described above under "Description of OP Units--Amendment
of the Partnership Agreement"), any certificates or instruments required by or
appropriate in connection with the Operating Partnership's conduct of business,
or to effect the contribution of properties of the Operating Partnership or the
admission of partners. The Partnership Agreement provides that such power of
attorney is irrevocable, will survive the incapacity of any Limited Partner or
the transfer of any of such Limited Partner's OP Units and will extend to such
Limited Partner's or assignee's heirs, successors, assigns and personal
representatives.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will be dissolved and its affairs wound up upon the
earliest of (i) December 31, 2080; (ii) the agreement of partners holding at
least ninety percent (90%) of the percentage interests of all of the partners
that the Operating Partnership should be dissolved; or (iii) the entry of a
final judgment, order or decree of a court of competent jurisdiction
adjudicating as bankrupt either the Operating Partnership or the Company, and
the expiration without appeal of the period, if any, allowed by applicable law
to appeal therefrom. Any proceeds from liquidation of the Operating Partnership
shall be applied in the following order of priority: (a) to pay debts of the
Operating Partnership, including repayment of principal and interest on loans
and advances made by the Company; (b) to the establishment of any reserves
deemed necessary or appropriate by the Company, or by the person winding up the
affairs of the Operating Partnership in the event there is no remaining general
partner of the Operating Partnership, for any contingent or unforeseen
liabilities or obligations of the Operating Partnership; and then (c) to the
partners of the Operating Partnership in accordance with their respective
capital account balances, after giving
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<PAGE>
effect to all contributions, distributions and allocation for all periods. The
Operating Partnership shall be terminated when all notes received in connection
with such disposition have been paid and all of the cash or property available
for application and distribution under the Partnership Agreement have been
applied and distributed in accordance with the Partnership Agreement.
SHARES AVAILABLE FOR FUTURE SALE
As of May 31, 1996, the Company had outstanding 43,223,307 Common Shares,
all of which are tradable without restriction under the Securities Act. The
608,665 Exchange Shares to be issued upon exchange of the OP Units pursuant to
this Prospectus and any applicable Prospectus Supplement will be tradable
without restriction under the Securities Act pursuant to the Registration
Statement of which this Prospectus is a part. In addition, as of May 31, 1996,
8,940,036 Common Shares were issuable upon the exchange of OP Units currently
held by the holders of OP Units or holders who were issued OP Units in exchange
for certain of the Properties, all of which Common Shares currently would be or
may be, upon the exercise of registration rights, tradable without restriction
under the Securities Act.
The holders of Exchange Shares may also be able to sell their shares without
registration in accordance with the exemptions provided by Rule 144 under the
Securities Act. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated in accordance with the Rule) who has
beneficially owned his shares for at least two years, as well as any persons who
may be deemed "affiliates" of the Company (as defined in the Securities Act),
would be entitled to sell within any three month period a number of Common
Shares that does not exceed the greater of 1% of the then outstanding number of
shares or the average weekly trading volume of the shares during the four
calendar weeks preceding each such sale. After shares are held for three years,
a person who is not deemed an "affiliate" of the Company is entitled to sell
such shares under Rule 144 without regard to the volume limitations described
above. Sales of shares by affiliates will continue to be subject to the volume
limitations. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through the use of one or more intermediaries,
controls, or is controlled by, or is under common control with, such issuer.
The Company has adopted the Option and Award Plan for the purpose of
attracting and retaining officers, other key employees and directors. The
Company has reserved 3,600,000 Common Shares for future issuance under the
Option and Award Plan. The Company has granted options to purchase approximately
2,500,000 Common Shares to certain officers, trustees and employees of the
Company and consultants to the Company. The Company has also adopted its 1996
Non-Qualified Employee Share Purchase Plan (the "Employee Share Purchase Plan")
and pursuant thereto has reserved 1,000,000 Common Shares for future issuance
under such plan. As of June 26, 1996, the Company has not issued any Common
Shares under the Employee Share Purchase Plan. The Company has filed Form S-8
Registration Statements with respect to the Common Shares issuable under each of
the Option and Award Plan and the Employee Share Purchase Plan, which Common
Shares may be resold without restriction, unless held by affiliates.
No prediction can be made as to the effect, if any, that future sales of
Common Shares, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Shares (including Common Shares issued upon the exercise of Options), or
the perception that such sales could occur, could adversely affect prevailing
market price of the shares.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this Prospectus is a
part pursuant to its obligations under the terms of the Registration Rights
Agreement among the Company, the Operating Partnership and each of the Beauchamp
Investors, as defined therein. The following summary does not purport to be
complete and is qualified in its entirety by reference to the Registration
Rights Agreement.
Under the Registration Rights Agreement, the Company is obligated to (a) use
its best efforts to cause a registration statement filed pursuant to request as
provided in the Registration Rights Agreement to become effective, and (b) to
file such amendments, post-effective amendments and supplements to such
registration statement as may be necessary to keep such registration statement
continuously effective for the period required by the intended method of
disposition or to describe the terms of any offering made pursuant to a "shelf
registration" pursuant to Rule 415 of Regulation C promulgated under the
Securities Act. The Company is registering the Exchange Shares pursuant to such
a shelf registration. Any Exchange Shares or Common Shares sold to the public
pursuant to this offering or another offering registered under the Securities
Act or sold to the public in compliance with Rule 144 under the Securities Act
(or any similar rule then in force) will cease to be "Registrable Securities"
within the meaning of the Registration Rights Agreement.
The Beauchamp Investors have agreed to pay all reasonable expenses of the
Company incident to its performance and compliance under the Registration Rights
Agreement, including all legal fees of the Company, registration expenses, and
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qualification and filing fees associated with the registration of the Exchange
Shares but excluding compensation of employees of the Company or expenses
incurred in connection with documents incorporated herein by reference. The
Company also has agreed to indemnify the Selling Shareholders and their
respective partners, officers and directors and each person who controls (within
the meaning of the Securities Act) each of the Selling Shareholders against
certain losses, claims, damages and expenses arising under the securities laws
in connection with this offering. Each Selling Shareholder has agreed to
indemnify the Company, its trustees, shareholders and officers and each person
who controls (within the meaning of the Securities Act) the Company against
other losses, claims, damages and expense arising under the securities laws in
connection with this offering with respect to written information furnished to
the Company by such Selling Shareholder, provided, however, that the
indemnification obligation is individual to each Selling Shareholder and is
limited to the net amount of proceeds from the sale of such Selling
Shareholder's Exchange Shares.
SELLING SHAREHOLDERS
As described elsewhere herein, the "Selling Shareholders" are holders of OP
Units that were issued such OP Units in exchange for the contribution of certain
Properties to the Company. The following table provides the names of each
Selling Shareholder and, as of the date hereof, the number of Common Shares to
be owned upon exchange of OP Units by each Selling Shareholder, which is equal
to the maximum number of Exchange Shares to be sold in the offering:
<TABLE>
<CAPTION>
MAXIMUM NUMBER
OF COMMON SHARES TO
BE SOLD IN
NAME OF SELLING SHAREHOLDER THE OFFERING (1)(2)
- --------------------------------------- -------------------
<S> <C>
James B. Beauchamp...................... 34,331
Robert F. Beauchamp, Sr., Trustee of
the Beauchamp Trust.................... 294,765
Midlands Company........................ 170,811
Real American Properties................ 23,524
Allayn J. Stevens....................... 40,487
Timothy S. Wagner, Trustee of the
Timothy S. Wagner Revocable Trust...... 44,747
-------
TOTAL............................... 608,665
</TABLE> =======
-----------------
(1) Assuming the exchange of all OP Units held by each Selling Shareholder,
the number of Common Shares set forth in this column is also the number
of Common Shares owned by each Selling Shareholder prior to the offering.
Each Selling Shareholder has claimed sole voting and investment power
concerning their Exchange Shares.
(2) There is no assurance that the Selling Shareholders will sell any or all
of the Exchange Shares. If all of the Exchange Shares are sold, however,
none of the Selling Shareholders would own any securities of the Company
after completion of the offering.
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EXCHANGE OF OP UNITS
GENERAL
Each Limited Partner may, subject to certain limitations, transfer to the
Company all or a portion of his or its OP Units at any time, by delivering a
notice to the Company. In exchange, such Limited Partner may receive one Common
Share from the Company for each OP Unit so transferred. In the alternative,
such Limited Partner may, at the Company's option, receive cash in an amount
equal to the product arrived at by multiplying (i) the number of OP Units
requested to be exchanged by such Limited Partner, by (ii) the market price per
share of the Common Shares as determined in accordance with the Partnership
Agreement (generally the ten-day average of the last reported sale price per
share of the Common Shares at the close of trading).
Such an exchange will be treated as a sale of the OP Units to the Company
for federal income tax purposes. See "Exchange of OP Units--Tax Consequences of
Exchange." Upon exchange, such Limited Partner's right to receive distributions
with respect to the OP Units exchanged will cease, although the Limited Partner
will have rights as a shareholder of the Company from the time of his or its
acquisition of the Exchange Shares.
A Limited Partner must give the Company ten days' prior notice of his or
its desire to exchange OP Units by sending a written notice, a copy of which is
available from the Company. Unless the Company determines to pay such Limited
Partner cash, the exchange of OP Units for Common Shares generally will occur on
the tenth business day after the notice is delivered by the Limited Partner,
except that no exchange can occur if the delivery of Exchange Shares would be
prohibited under the provisions of the Declaration of Trust designed to protect
the Company's qualification as a REIT or such exchange would, in the opinion of
counsel to the Company, constitute or be likely to constitute a violation of
applicable securities laws.
TAX CONSEQUENCES OF EXCHANGE
The following discussion summarizes all material federal income tax
considerations to a Limited Partner which exercises its right to request the
exchange of OP Units. THIS DISCUSSION IS SUMMARY IN NATURE AND DOES NOT
CONSTITUTE A COMPLETE DISCUSSION OF THESE MATTERS, AND HOLDERS OF OP UNITS
SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS, THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND ANY APPLICABLE PROSPECTUS
SUPPLEMENT FOR ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY.
Tax Treatment of Exchange of OP Units. If the Company satisfies a Limited
Partner's exercise of its Exchange Right (as defined below) by delivering Common
Shares, such exchange will be treated by the Company, the Operating Partnership
and the exchanging Limited Partner for federal income tax purposes as a sale of
OP Units by such Limited Partner to the Company at the time of such exchange. (A
Limited Partner's right to request the exchange of OP Units is referred to as
the "Exchange Right."). Such an exchange will be fully taxable to the exchanging
Limited Partner. The amount of taxable gain or loss to an exchanging Limited
Partner will equal the difference between the amount realized for tax purposes
and the tax basis in the OP Units exchanged. See "Basis of OP Units" below. Such
exchanging Limited Partner will be treated as realizing an amount equal to the
value of the Common Shares received in the exchange plus the amount of any
Operating Partnership liabilities allocable to the exchanged OP Units at the
time of the exchange. It is possible that the amount of gain recognized or even
the tax liability resulting from such gain could exceed the value of any Common
Shares received upon such an exchange.
If the Company elects not to satisfy the exercise of an Exchange Right by a
Limited Partner by delivering Common Shares, but instead causes the Operating
Partnership to transfer to the Limited Partner, in exchange for its OP Units,
either cash or Common Shares contributed by the Company for that purpose, then
although the matter is not free from doubt, the transaction would likely be
treated for federal income tax purposes as a sale of such OP Units to the
Company in a fully taxable transaction (with the consequences to the Limited
Partner as described in the preceding paragraph). In that event, the exchanging
Limited Partner would be treated as realizing an amount equal to the sum of the
cash or the value of the Common Shares received in the exchange plus the amount
of any Operating Partnership liabilities allocable to the exchanged OP Units at
the time of the transaction.
If the Operating Partnership satisfies a Limited Partner's Exchange Right
using cash that is not contributed by the Company to effect the exchange, the
tax consequences to the Limited Partner would generally be the same as for a
taxable sale as described in the preceding two paragraphs. If, however, the
Operating Partnership redeems less than all of a Limited Partner's OP Units, the
Limited Partner would not be permitted to recognize any loss on the transaction
and would recognize taxable gain only to the extent that the cash received in
the exchange, plus the amount of any Operating Partnership liabilities allocable
to the OP Units exchanged, exceeded the Limited Partner's basis in all of such
Limited Partner's OP Units immediately before the exchange.
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Except as described below, any gain recognized upon a sale or other
disposition of OP Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of an OP Unit attributable to a Limited Partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section 751
of the Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, among other things,
amounts that would be subject to depreciation recapture as ordinary income if
the Operating Partnership had sold its assets at their fair market value at the
time of the transfer of an OP Unit (including the recapture of any depreciation
on real property held for one year or less).
Basis of OP Units. In general, a Limited Partner which contributed a
partnership interest or other property in exchange for its OP Units (the
"Initial Transactions") has an initial tax basis in its OP Units equal to its
basis in the contributed partnership interest or other property ("Initial
Basis"). A Limited Partner's Initial Basis in its OP Units generally is
increased by (i) such Limited Partner's share of the Operating Partnership's
taxable income and (ii) increases in its share of liabilities of the Operating
Partnership (including any increase in its share of liabilities occurring in
connection with the Initial Transactions). Generally, such Limited Partner's
basis in its OP Units is decreased (but not below zero) by (A) its share of
Operating Partnership distributions, (B) decreases in its share of liabilities
of the Operating Partnership (including any decrease in its share of liabilities
of the Operating Partnership occurring in connection with the Initial
Transactions), (C) its share of losses of the Operating Partnership, and (D) its
share of nondeductible expenditures of the Operating Partnership that are not
chargeable to capital.
Potential Application of the Disguised Sale Regulations to an Exchange of
OP Units. There is a risk that an exchange of OP Units issued in the Initial
Transactions may cause the original transfer of property to the Operating
Partnership in exchange for OP Units in connection with the Initial Transactions
to be treated as a "disguised sale" of property as of the time of the Initial
Transactions. The Code and the Treasury Regulations thereunder (the "Disguised
Sale Regulations") generally provide that, unless one of the prescribed
exceptions is applicable, a partner's contribution of property to a partnership
and a simultaneous or subsequent transfer of money or other consideration
(including the assumption of or taking subject to a liability) from the
partnership to the partner will be presumed to be a sale, in whole or in part,
of such property by the partner to the partnership or to another partner (such
as the Company). Further, the Disguised Sale Regulations provide generally that,
in the absence of an applicable exception, if money or other consideration is
transferred by a partnership to a partner within two years of the partner's
contribution of property, the transactions are presumed to be a sale of the
contributed property unless the facts and circumstances clearly establish that
the transfers do not constitute a sale. The Disguised Sale Regulations also
provide that if two years have passed between the transfer of money or other
consideration and the contribution of property, the transactions are presumed
not to be a sale unless the facts and circumstances clearly establish that the
transfers constitute a sale.
Accordingly, if an OP Unit is exchanged within two years following the
Initial Transactions, the Service could contend that the Disguised Sale
Regulations apply because, as a result of the exchange, a Limited Partner
receives Common Shares subsequent to the Limited Partner's previous contribution
of property to the Operating Partnership. In that event, the Service could
contend that the Initial Transactions themselves were taxable, in whole or in
part, as a disguised sale under the Disguised Sale Regulations. Any gain
recognized thereby may be eligible for installment sale reporting under Section
453 of the Code, subject to certain limitations.
COMPARISON OF OWNERSHIP OF OP UNITS AND COMMON SHARES
Generally, the nature of any investment in Common Shares of the Company is
substantially equivalent economically to an investment in OP Units in the
Operating Partnership. A holder of Common Shares receives the same distribution
that a holder of OP Units receives and shareholders and OP Unit holders
generally share in the risks and rewards of ownership in the enterprise being
conducted by the Company (through the Operating Partnership). However, there are
some differences between ownership of OP Units and ownership of Common Shares,
some of which may be material to investors.
The information below highlights a number of the significant differences
between the Operating Partnership and the Company relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and federal income
taxation, and compares certain legal rights associated with the ownership of OP
Units and Common Shares, respectively. These comparisons are intended to assist
Limited Partners in understanding how their investment will be changed if their
OP Units are exchanged for Common Shares. THIS DISCUSSION IS SUMMARY IN NATURE
AND DOES NOT CONSTITUTE A COMPLETE DISCUSSION OF THESE MATTERS, AND HOLDERS OF
OP UNITS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS, THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND ANY APPLICABLE
PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY.
Form of Organization and Assets Owned. The Operating Partnership. The
Operating Partnership is organized as an Illinois limited partnership. The
Operating Partnership owns interests (directly and through subsidiary
partnerships) in the Properties and, as general partner of the Management
Partnerships, controls the management of the Properties.
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<PAGE>
The Company. The Company is a Maryland real estate investment trust. The
Company has elected to be taxed as a REIT under the Code commencing with its
taxable year ended December 31, 1993, and intends to maintain its qualification
as a REIT. The Company's primary asset is its interest in the Operating
Partnership, which gives the Company an indirect investment in the Properties
and other assets owned by the Operating Partnership.
Length of Investment. The Operating Partnership. The Operating
Partnership has a stated termination date of December 31, 2080, although it may
be terminated earlier under certain circumstances.
The Company. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
Purpose and Permitted Investments. The Operating Partnership. The purpose
of the Operating Partnership is to acquire, purchase, own, operate, manage,
develop, redevelop, invest in, finance, refinance, sell, lease or otherwise deal
with multifamily residential properties and assets related thereto and interests
therein. The Operating Partnership may invest in or enter into partnerships,
joint ventures or similar arrangements and may own interests in any other
entity.
The Company. The Company's fundamental investment policy, as set forth in
its Declaration of Trust, is to make investments in such manner as to comply
with the REIT provisions of the Code and with the provisions of Maryland REIT
law. Under the Partnership Agreement the Company, as general partner, may not
conduct any business other than the business of the Operating Partnership and
generally cannot own any assets other than its interest in the Operating
Partnership and other assets necessary to carry out its responsibilities under
the Partnership Agreement.
Additional Equity. The Operating Partnership. The Operating Partnership
is authorized to issue OP Units to the partners or to other persons for such
consideration and on such terms and conditions set forth in the Partnership
Agreement. In addition, the general partner may cause the Operating Partnership
to issue to the Company additional OP Units in conjunction with the offering of
Common Shares of the Company, in which the net proceeds thereof are contributed
to the Operating Partnership. Also, the Operating Partnership may issue
preference units, having such rights, preferences and other privileges,
variations and designations as may be determined by the general partner in its
sole and absolute discretion and otherwise in accordance with the Partnership
Agreement. Consideration for additional partnership interests may be cash or
other property or other assets permitted by the Partnership Agreement and the
Partnership Act.
The Company. The Board of Trustees of the Company may issue, in its sole
discretion, additional equity securities consisting of Common Shares or
Preferred Shares; provided, that the total number of shares issued does not
exceed the authorized number of shares of beneficial interest set forth in the
Company's Declaration of Trust. As long as the Operating Partnership is in
existence, the net proceeds of all Common Shares raised by the Company will be
contributed to the Operating Partnership in exchange for OP Units in the
Operating Partnership.
Borrowing Policies. The Operating Partnership. The Operating Partnership
is restricted under the Indentures to which it is a party from incurring
borrowings beyond a certain level and the Company as general partner has full
power and authority to borrow money on behalf of the Operating Partnership
within said restrictions. In addition, the Operating Partnership may become
subject to certain restrictions in connection with its currently registered debt
shelf offering. The Company (as general partner), through its Board of
Trustees, has adopted a policy that currently limits total borrowings to 50% of
the total market capitalization of the Company and the Operating Partnership
(the market value of issued and outstanding Common Shares and OP Units plus
total debt), but this policy may be altered at any time by the Board of
Trustees.
The Company. The Company is restricted under the Indentures from incurring
borrowings beyond a certain level but is not otherwise subject to any
restrictions as to borrowings except as described in the preceding sentence.
Other Investment Restrictions. The Operating Partnership. There are no
restrictions upon the Operating Partnership's authority to enter into
transactions such as making investments (except as restricted by Code and the
regulations related to qualifying as a REIT), lending Operating Partnership
funds, or reinvesting the Operating Partnership's cash flow and net sale or
refinancing proceeds.
The Company. Neither the Company's Declaration of Trust nor its bylaws
impose any restrictions upon the types of investments made by the Company except
that under the Declaration of Trust the Board of Trustees is obligated to use
its best efforts to cause the Company to qualify for federal income tax purposes
as a REIT; provided, however, that if the Board of Trustees determines that it
is no longer in the best interests of the Company for it to continue to qualify
as a REIT, the Board may revoke or otherwise terminate the Company's REIT
election.
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Management Control. The Operating Partnership. All management powers over
the business and affairs of the Operating Partnership are vested in the general
partner of the Operating Partnership, and no Limited Partner of the Operating
Partnership has any right to participate in or exercise control or management
power over the business and affairs of the Operating Partnership. Each Limited
Partner, by execution of the Partnership Agreement, irrevocably appointed the
Chairman of the Board of Trustees of the Company, with full power of
substitution, as the Limited Partner's attorney for purposes of amending the
Partnership Agreement in any respect other than (i) to enlarge the obligation of
any partner to make contributions to the capital of the Operating Partnership,
(ii) except as otherwise provided for in the Partnership Agreement or as
required by law, to modify the allocation of profits or losses or distributions
among the partners as provided for in the Partnership Agreement, or (iii) to
amend certain provisions of the Partnership Agreement dealing with issuance and
conversion of OP Units, limitations on the power and authority of partners,
transfer of partnership interests or amendments to the Partnership Agreement.
With respect to matters related to the aforementioned exceptions, the
Partnership Agreement may be amended by unanimous written consent of the
partners.
The Company. All management powers over the business and affairs of the
Company are vested in the Board of Trustees of the Company. Shareholders of the
Company are entitled to vote for, among other things, the election of trustees.
See "Description of Shares of Beneficial Interest--Common Shares."
Anti-takeover Provisions. The Operating Partnership. Except in limited
circumstances, the general partner of the Operating Partnership has exclusive
management power over the business and affairs of the Operating Partnership.
The general partner may not be removed by the Limited Partners regardless of
cause. Under the Partnership Agreement, the general partner may, in its sole
discretion, prevent a Limited Partner from transferring his or its interest or
any rights as a Limited Partner except in certain limited circumstances. See
"Description of OP Units." The general partner may exercise this right of
approval to deter, delay or hamper attempts by persons to acquire a controlling
interest in the Operating Partnership.
The Company. The Declaration of Trust and Bylaws of the Company contain a
number of provisions that may have the effect of delaying or discouraging an
unsolicited proposal for the acquisition of the Company or the removal of
incumbent management. These provisions include, among others: (i) a staggered
board of trustees; (ii) authorized capital stock that may be issued as Preferred
Shares in the discretion of the board of trustees with superior voting rights to
the Common Shares; and (iii) provisions designed to avoid concentration of share
ownership in a manner that would jeopardize the Company's status as a REIT under
the Code. See "Description of Shares of Beneficial Interest."
Voting Rights. The Operating Partnership. Under the Partnership Agreement,
the Limited Partners have voting rights only as to certain amendments of the
Partnership Agreement, as described more fully under "Exchange of OP Units-
Management Control" above. Otherwise, all decisions relating to the operation
and management of the Operating Partnership are made by the Company, as the sole
general partner of the Operating Partnership. See "Description of OP Units." As
of May 31, 1996, the Company held approximately 82.86% of the outstanding OP
Units. As OP Units are exchanged by Limited Partners, the Company's percentage
ownership of the Operating Partnership will increase. If additional OP Units or
other interests in the Operating Partnership are issued to third parties, the
Company's percentage ownership of the outstanding OP Units will decrease.
The Company. Shareholders of the Company have the right to vote on, among
other things, a merger or sale of substantially all of the assets of the
Company, certain amendments to the Declaration of Trust and dissolution of the
Company. Such action must be taken by not less than two-thirds of all shares
then outstanding and entitled to vote on the matter. The Company is managed and
controlled by a Board of Trustees consisting of three classes having staggered
terms of office. Each class is to be elected by the shareholders at annual
meetings of the Company. All Common Shares have one vote, and the Declaration
of Trust permits the Board of Trustees to classify and issue Preferred Shares in
one or more series having voting power which may differ from that of the Common
Shares.
Amendment of the Partnership Agreement or the Declaration of Trust. The
Operating Partnership. Certain amendments that affect the fundamental rights of
a Limited Partner must be approved by each affected Limited Partner. See
"Exchange of OP Units-Management Control." In addition, the Company, as the sole
general partner, may, without the consent of the Limited Partners, amend the
Partnership Agreement as to certain matters.
The Company. Amendments to the Company's Declaration of Trust must be
approved by the Board of Trustees and, except for amendments to enable the
Company to quality as a REIT under the Code or under Maryland REIT law (in which
event the Board may amend by two-thirds vote), by the vote of not less than two-
thirds of all shares then outstanding and entitled to vote on the matter. Under
Maryland REIT law, the Board of Trustees must obtain approval of holders of not
less than two-thirds of all shares then outstanding and entitled to vote on the
matter in order to voluntarily dissolve the Company or merge. Under Maryland
REIT law, and pursuant to the Company's Declaration of Trust, the sale of all or
substantially all of the assets of
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the Company or any merger or consolidation of the Company requires the approval
of the Board of Trustees and holders of not less than two-thirds of all shares
then outstanding and entitled to vote on the matter. No approval of the
shareholders is required for the sale of less than all or substantially all of
the Company's assets.
Compensation, Fees and Distributions. The Operating Partnership. The
Company does not receive any compensation for its services as general partner of
the Operating Partnership. As a partner in the Operating Partnership, however,
the Company has the same right to allocations and distributions as other
partners of the Operating Partnership. In addition, the Operating Partnership
will reimburse the Company for all expenses incurred relating to the ongoing
operation of the Company and any offering of partnership interests in the
Operating Partnership or shares of beneficial interest of the Company.
The Company. The trustees and officers of the Company receive compensation
for their services.
Liability of Investors. The Operating Partnership. Under the Partnership
Agreement and applicable state law, the liability of the Limited Partners for
the Operating Partnership's debts and obligations is generally limited to the
amount of their investment in the Operating Partnership.
The Company. Under Maryland law, shareholders are not personally liable
for the debts or obligations of the Company.
Nature of Investment. The Operating Partnership. The OP Units constitute
equity interests entitling each Limited Partner to his or its pro rata share of
cash distributions made to the Limited Partners of the Operating Partnership.
The Operating Partnership generally intends to retain and reinvest proceeds of
the sale of property or excess refinancing proceeds in its business.
The Company. The Common Shares constitute equity interests in the Company.
The Company is entitled to receive its pro rata share of distributions made by
the Operating Partnership with respect to the OP Units, and each shareholder
will be entitled to his or its pro rata share of any distributions paid with
respect to the Common Shares. The distributions payable to the shareholders are
not fixed in amount and are only paid if, when and as declared by the Board of
Trustees. In order to qualify as a REIT, the Company must distribute at least
95% of its taxable income (excluding capital gains), and any taxable income
(including capital gains) not distributed will be subject to corporate income
tax.
Potential Dilution of Rights. The Operating Partnership. The general
partner of the Operating Partnership is authorized, in its sole discretion and
without Limited Partner approval, to cause the Operating Partnership to issue
additional OP Units or other limited partnership interests in the Operating
Partnership for any partnership purpose at any time to the Limited Partners or
to other persons on terms established by the general partner within the
boundaries established by the Partnership Agreement.
The Company. The Board of Trustees of the Company may issue, in its
discretion, additional Common Shares and has the authority to issue from the
authorized shares of beneficial interest a variety of other equity securities of
the Company with such powers, preferences and rights as the Board of Trustees
may designate at the time. The issuance of either additional Common Shares or
other similar equity securities may result in the dilution of the interests of
the shareholders.
Liquidity. The Operating Partnership. The OP Units are not freely
transferable and, since no market for the OP Units currently exists, are
illiquid. See "Description of OP Units-Restrictions on Transfer of OP Units by
Limited Partners" for a discussion of the limitations on the transferability of
the OP Units.
The Company. The Exchange Shares will be freely transferable as registered
securities under the Securities Act subject to the 5% ownership limitations
established in the Company's Declaration of Trust to protect the Company's
status as a REIT. The Common Shares are listed on the NYSE. The breadth and
strength of this market will depend, among other things, upon the number of
shares outstanding, the Company's financial results and prospects, the general
interest in the Company and other real estate investments, and the Company's
dividend yield compared to that of other debt and equity securities.
Federal Income Taxation. The Operating Partnership. The Operating
Partnership is not subject to federal income taxes. Instead, each holder of OP
Units includes his or its allocable share of the Operating Partnership's taxable
income or loss in determining his or its individual federal income tax
liability. The maximum federal income tax rate for individuals is currently
39.6%. Income and loss from the Operating Partnership generally is subject to
the "passive activity" limitation. Under the "passive activity" rules, income
and loss from the Operating Partnership that is considered "passive" income or
loss generally can be offset against income and loss (including passive loss
carryforwards from prior years) from other investments that constitute "passive
activities" (unless the Operating Partnership is considered a "publicly traded
partnership," in which case
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income and loss from the Operating Partnership can only be offset against other
income and loss from the Operating Partnership). Income of the Operating
Partnership, however, attributable to dividends from Equity Residential
Properties Management Corp., Equity Residential Properties Management Corp. II
and Equity Residential Properties Management Corp. III (collectively, the
"Management Corps."), or interest paid by the limited partnerships and limited
liability companies (the "Financing Partnerships") that own the beneficial
interest of certain Properties encumbered by mortgage financing, does not
qualify as passive income and cannot be offset with losses and deductions from a
"passive activity." Cash distributions from the Operating Partnership are not
taxable to a holder of OP Units except to the extent they exceed such holder's
basis in his or its interest in the Operating Partnership (which will include
such holder's allocable share of the Operating Partnership's nonrecourse debt).
Each year, holders of OP Units will receive a Schedule K-I tax form containing
detailed tax information for inclusion in preparing their federal and state
income tax returns. Holders of OP Units are required, in some cases, to file
state income tax returns and/or pay state income taxes in the states in which
the Operating Partnership owns property, even if they are not residents of those
states, and in some such states, including Illinois, the Operating Partnership
is required to remit a withholding tax with respect to such nonresidents.
The Company. The Company has elected to be taxed as a REIT. So long as it
qualifies as a REIT, the Company will be permitted to deduct distributions paid
to its shareholders, which effectively will reduce (or eliminate) the "double
taxation" that typically results when a corporation earns income and distributes
that income to its shareholders in the form of dividends. A REIT, however, is
subject to federal income tax on income that is not distributed and also may be
subject to federal income and excise taxes in certain circumstances. The maximum
federal income tax rate for corporations is currently 35%. Dividends paid by the
Company will be treated as "portfolio" income and cannot be offset with losses
from "passive activities." The maximum federal income tax rate for individuals
is currently 39.6%. Distributions made by the Company to its taxable domestic
shareholders out of current or accumulated earnings and profits will be taken
into account by them as ordinary income. Distributions that are designated as
capital gain dividends generally will be taxed as long-term capital gain,
subject to certain limitations. Distributions in excess of current or
accumulated earnings and profits will be treated as a non-taxable return of
basis to the extent of a shareholder's adjusted basis in his or its Common
Shares, with the excess taxed as capital gain. Each year, shareholders of the
Company will receive IRS Forms 1099 used by corporations to report dividends
paid to their shareholders. Shareholders who are individuals generally should
not be required to file state income tax returns and/or pay state income taxes
outside of their state of residence with respect to the Company's operations and
distributions. The Company may be required to pay state income taxes in certain
states.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes all material federal income tax
considerations to a holder of Common Shares. The following discussion, which is
not exhaustive of all possible tax considerations, does not give a detailed
discussion of any state, local or foreign tax considerations. Nor does it
discuss all of the aspects of federal income taxation that may be relevant to a
prospective shareholder in light of his or her particular circumstances or to
certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws. As used in this section,
the term "Company" refers solely to Equity Residential Properties Trust.
EACH PROSPECTIVE PURCHASER OF EXCHANGE SHARES IS ADVISED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM, IN
LIGHT OF HIS SPECIFIC OR UNIQUE CIRCUMSTANCES, OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company elected REIT status commencing with its taxable year
ended December 31, 1993. In the opinion of Hogan & Hartson L.L.P., which has
acted as special tax counsel to the Company, the Company was organized and has
operated in conformity with the requirements for qualification and taxation as a
REIT under the Code for its taxable years ended December 31, 1993, December 31,
1994 and December 31, 1995, and the Company's current organization and method of
operation should enable it to continue to meet the requirements for
qualification and taxation as a REIT. It must be emphasized that this opinion is
based on various assumptions relating to the organization and operation of the
Company, the Operating Partnership, the Management Partnerships, the Management
Corps., the Financing Partnerships, and various qualified REIT subsidiaries
wholly owned by the Company (each a "QRS Corporation") (collectively, the
Management Partnerships, the Management Corps., the Financing Partnerships and
the QRS Corporations may be referred to as the "Subsidiary Entities"), and is
conditioned upon certain representations made by the Company and the Operating
Partnership as to certain relevant factual matters, including matters related
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to the organization, expected operation, and assets of the Company, the
Operating Partnership and the Subsidiary Entities. The Company's qualification
and taxation as a REIT depend upon the Company's ability to meet on a continuing
basis, through actual annual operating and other results, the various
requirements under the Code and described in the Prospectus with regard to,
among other things, the sources of its gross income, the composition of its
assets, the level of its dividends to shareholders, and the diversity of its
share ownership. Hogan & Hartson L.L.P. will not review the Company's compliance
with these requirements on a continuing basis. No assurance can be given that
the actual results of the operations of the Company, the Operating Partnership,
and the Subsidiary Entities, the sources of their income, the nature of their
assets, the level of the Company's dividends to shareholders and the diversity
of its share ownership for any given taxable year will satisfy the requirements
under the Code for qualification and taxation as a REIT.
In any year in which the Company qualifies as a REIT, generally it will not
be subject to Federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. This treatment substantially
eliminates the "double taxation" (at both the corporate and shareholder levels)
that generally results from the use of corporate investment vehicles. The
Company may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed.
If the Company should fail to satisfy either the 75% or the 95% gross
income test (as discussed below), and nonetheless maintains its qualification as
a REIT because certain other requirements are met, it will be subject to a 100%
tax on the greater of the amount by which it fails the 75% or the 95% test,
multiplied by a fraction intended to reflect its profitability. The Company will
also be subject to a tax of 100% on net income from any "prohibited
transaction," as described below. In addition, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior years, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company may also be
subject to the corporate "alternative minimum tax," as well as tax in certain
situations and on certain transactions not presently contemplated. The Company
will use the calendar year both for Federal income tax purposes and for
financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Test. Shares of beneficial interest of the Company must be
held by a minimum of 100 persons for at least, approximately, 92% of the days in
each taxable year subsequent to 1993. In addition, at all times during the
second half of each taxable year subsequent to 1993, no more than 50% in value
of the shares of beneficial interest of the Company may be owned, directly or
indirectly and by applying certain constructive ownership rules, by five or
fewer individuals. The Company believes that it has satisfied both of these
tests, and it believes it will continue to do so. In order to help comply with
the second of these tests, the Company has placed certain restrictions on the
transfer of the Common Shares and Preferred Shares that are intended to prevent
further concentration of share ownership.
Asset Tests. At the close of each quarter of the Company's taxable year,
the Company must satisfy two tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
any combination of interests in real property, interests in mortgages on real
property, shares in other REITs, cash, cash items and certain government
securities. Second, although the remaining 25% of the Company's assets generally
may be invested without restriction, securities in this class may not exceed
either (i) 5% of the value of the Company's total assets as to any one issuer
(other than an interest in a partnership), or (ii) 10% of the outstanding voting
securities of any one issuer (other than an interest in a partnership or shares
of a qualified REIT subsidiary or another REIT). Where the Company invests in a
partnership, it will be deemed to own a proportionate share of the partnership's
assets. The Company's investment in the Properties through its interest in the
Operating Partnership will constitute qualified assets for purposes of the 75%
asset test.
The Operating Partnership owns none of the voting stock, but owns 100% of
the non-voting stock of each of the Management Corps. By virtue of its
partnership interest in the Operating Partnership, the Company is deemed to own
its pro rata share of the assets of the Operating Partnership, including the
stock of the Management Corps. as described above. The Operating Partnership has
not and will not own more than 10% of the voting securities of the Management
Corps. In addition, based upon its analysis of the estimated value of the stock
of the Management Corps. owned by the Operating Partnership relative to the
estimated value of the other assets owned by the Operating Partnership, the
Company believes that its pro rata share of the stock of each Management Corp.
held by the Operating Partnership has not exceeded and will not exceed 5% of the
total value of the Company's assets. No independent appraisals, however, have
been obtained to support this conclusion. This 5% limitation must be satisfied
not only on the date that the Company first acquired stock of a Management
Corp., but also at the end of each quarter in which the Company increases its
interest in either of the Management Corps. (including as a result of increasing
its interest in the Operating Partnership as the holders of OP Units exercise
their exchange rights). Although the Company plans to take steps to ensure that
it satisfies the 5% value test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be successful
or will not require a reduction in the Operating Partnership's overall interest
in the Management Corps.
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The Company's indirect interests as a general partner in the Financing
Partnerships are held through the QRS Corporations, each of which is organized
and operated as a "qualified REIT subsidiary" within the meaning of the Code.
Qualified REIT subsidiaries are not treated as separate entities from their
parent REIT. Instead, all assets, liabilities and items of income, deduction and
credit of each QRS Corporation will be treated as assets, liabilities and items
of the Company. Each QRS Corporation therefore will not be subject to Federal
corporate income taxation, although it may be subject to state or local
taxation. In addition, the Company's ownership of the voting stock of each QRS
Corporation will not violate the general restriction against ownership of more
than 10% of the voting securities of any issuer.
Gross Income Tests. There are three separate percentage tests relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will retain
the same character in the hands of the Company as it has in the hands of the
partnership.
1. The 75% Test. At least 75% of the Company's gross income for each
taxable year must be "qualifying income." Qualifying income generally includes
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); (vii) commitment fees received for agreeing to make
loans collateralized by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment income attributable
to the investment of new capital received by the Company in exchange for its
shares during the one-year period following the receipt of such new capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person. Finally, for rents received to qualify as rents from
real property, the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent that the services
provided by the Company are "usually or customarily rendered" in connection with
the rental of space for occupancy only, and are not otherwise considered
"rendered to the occupant."
The Company, through the Management Partnerships, provides certain services
with respect to the Properties and any newly acquired multifamily residential
properties. The Company believes that the services provided by the Management
Partnerships are usually or customarily rendered in connection with the rental
of space for occupancy only, and therefore that the provision of such services
has not caused, and will not in the future cause the rents received with respect
to the Properties to fail to qualify as rents from real property for purposes of
the 75% and 95% gross income tests.
2. The 95% Test. At least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends (including the Company's
share of dividends paid by the Management Corps.) and interest on any
obligations not collateralized by an interest in real property and any payments
made on behalf of the Company by a financial institution pursuant to a rate
protection agreement will be included as qualifying income for purposes of the
95% gross income test, but not for purposes of the 75% test. For purposes of
determining whether the Company complies with the 75% and 95% income tests,
gross income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain dealer property
held by the Company for at least four years and excluding foreclosure property.
The Company's investment in the Properties, through the Operating
Partnership, in major part gives rise to rental income qualifying under the 75%
and 95% gross income tests. Gains on sales of the Properties or of the Company's
interest in the Operating Partnership will generally qualify under the 75% and
95% gross income tests. The Company believes that the income on its other
investments, including its indirect investment in the Management Corps., has not
resulted in the Company failing the 75% or 95% gross income test for any year,
and the Company anticipates that this will continue to be the case.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally
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be available if: (i) the Company's failure to comply was due to reasonable cause
and not to willful neglect; (ii) the Company reports the nature and amount of
each item of its income included in the tests on a schedule attached to its tax
return; and (iii) any incorrect information on this schedule is not due to fraud
with intent to evade tax. If these relief provisions apply, the Company,
however, will still be subject to a 100% tax based upon the greater of the
amount by which it fails either the 75% or 95% gross income test for that year,
less certain adjustments.
3. The 30% Test. The Company must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. The Company has not had and does not
anticipate that it will have any substantial difficulty in complying with this
test.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to make dividend distributions (other than capital gain
distributions) to its shareholders each year in an amount at least equal to (A)
the sum of (i) 95% of the Company's REIT taxable income (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that the Company does not distribute all of its net capital gain or distributes
at least 95%, but less than 100%, of its REIT taxable income, as adjusted, it
will be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be.
The Company has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that the Company
may not have sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to the payment of principal on debt or to timing differences
between the actual receipt of income and actual payment of expenses on the one
hand, and the inclusion of such income and deduction of such expenses in
computing the Company's REIT taxable income on the other hand. To avoid any
problem with the 95% distribution requirement, the Company will closely monitor
the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be required and, if made, will not
be deductible by the Company. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be ineligible for qualification as a REIT for the four taxable years
following the year during which qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds direct or indirect interests in the Operating
Partnership, the Management Partnerships and certain Financing Partnerships
(each individually a "Partnership" and, collectively, the "Partnerships"). The
Company believes that each of the Partnerships qualifies as a partnership (as
opposed to an association taxable as a corporation) for Federal income tax
purposes. If any of the Partnerships were to be treated as an association, it
would be taxable as a corporation and therefore subject to an entity-level tax
on its income. In such a situation, the character of the Company's assets and
items of gross income would change, which would preclude the Company from
satisfying the asset tests and possibly the income tests (see "Federal Income
Tax Considerations--Taxation of the Company--Asset Tests" and "--Gross Income
Tests"), and in turn would prevent the Company from qualifying as a REIT.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the 69 Properties contributed at
the time of the IPO (the "Initial Properties")) must be allocated in a manner
such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value and the adjusted tax basis of contributed property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property (including certain of the
Initial Properties). Consequently, the Operating Partnership agreement (as well
as the Financing
26
<PAGE>
Partnerships agreements) requires such allocations to be made in a manner
consistent with Section 704(c). As a result, certain limited partners of the
Operating Partnership will be allocated lower amounts of depreciation deductions
for tax purposes and increased taxable income and gain on sale by the
Partnerships of the contributed assets (including certain of the Initial
Properties). These allocations will tend to eliminate the Book-Tax Difference
over the life of the Partnerships. However, the special allocation rules of
Section 704(c) as applied by the Company do not always entirely rectify the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands of the Partnerships will cause the Company to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "Federal Income Tax Considerations--Taxation of the Company--
Annual Distribution Requirements."
Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations--Taxation of the Company--
Gross Income Tests--The 95% Test." Under existing law, whether property is
dealer property is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Partnerships have
held and intend to continue to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the Properties and other multifamily residential properties
and to make such occasional sales of the Properties as are consistent with the
Company's investment objectives. Based upon such investment objectives, the
Company believes that in general the Properties should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
General. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable domestic shareholders, with respect to their Exchange
Shares out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income
and will not be eligible for the dividends received deduction for shareholders
that are corporations. For purposes of determining whether distributions on the
Exchange Shares are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Preferred
Shares and second to the Common Shares. There can be no assurance, however, that
the Company will have sufficient earnings and profits to cover distributions on
the Preferred Shares. Dividends that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent that they do not exceed
the Company's actual net capital gain for the taxable year) without regard to
the period for which the shareholder has held its Shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. To the extent that the Company makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the shareholder, reducing
the tax basis of a shareholder's Exchange Shares by the amount of such
distribution (but not below zero), with distributions in excess of the
shareholder's tax basis taxable as capital gains (if the Exchange Shares are
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a shareholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the shareholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of Exchange Shares by a
shareholder who has held such Exchange Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company received by such
shareholder are required to be treated by such shareholder as long-term capital
gains.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
Exchange Shares with "acquisition indebtedness" within the meaning of the Code
and the Exchange Shares are not otherwise used in an unrelated trade or business
of the tax-exempt entity. In addition, for taxable years beginning on or after
January 1, 1994, certain pension trusts that own more than 10% of a "pension-
held REIT" must report a portion of the distribution that they receive from such
a REIT as UBTI. The Company has not been and does not expect to be treated as a
pension-held REIT for purposes of this rule.
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<PAGE>
TAXATION OF FOREIGN SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income
tax consequences of the ownership and disposition of Exchange Shares applicable
to Non-U.S. Holders of such Exchange Shares. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, or (iii) an estate or trust whose income
is includable in gross income for U.S. Federal income tax purposes regardless of
its source. The discussion is based on current law and is for general
information only.
DISTRIBUTIONS FROM THE COMPANY
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Holders payable out of the Company's earnings and profits which are not
attributable to capital gains of the Company or of the Operating Partnership and
which are not effectively connected with a U.S. trade or business of the Non-
U.S. Holder will be subject to U.S. withholding tax at the rate of 30% (unless
reduced by an applicable treaty). In general, Non-U.S. Holders will not be
considered engaged in a U.S. trade or business solely as a result of their
ownership of Exchange Shares. In cases where the dividend income from a Non-U.S.
Holder's investment in Exchange Shares is (or is treated as) effectively
connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the
Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in the
same manner as U.S. shareholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax in the case of a Non-U.S.
Holder that is a foreign corporation).
2. Non-Dividend Distributions. Distributions by the Company which are not
dividends out of the earnings and profits of the Company will not be subject to
U.S. income or withholding tax. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of the
Company's current and accumulated earnings and profits, the entire distribution
will be subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Holder may seek a refund of such amounts from the Service if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of United States
Real Property Interests ("USRPIs") such as the Properties beneficially owned by
the Company ("USRPI Capital Gains"), will be considered effectively connected
with a U.S. trade or business of the Non-U.S. Holder and subject to U.S. income
tax at the rate applicable to U.S. individuals or corporations, without regard
to whether such distribution is designated as a capital gain dividend. In
addition, the Company will be required to withhold tax equal to 35% of the
amount of dividends to the extent such dividends constitute USRPI Capital Gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax
in the hands of a foreign corporate shareholder that is not entitled to treaty
exemption.
Dispositions of Exchange Shares. Unless Exchange Shares constitute a USRPI,
a sale of Exchange Shares by a Non-U.S. Holder generally will not be subject to
U.S. taxation under FIRPTA. The Exchange Shares will not constitute a USRPI if
the Company is a "domestically controlled REIT." A domestically controlled REIT
is a REIT in which, at all times during a specified testing period, less than
50% in value of its Exchange Shares is held directly or indirectly by Non-U.S.
Holders. The Company believes that it has been and anticipates that it will
continue to be a domestically controlled REIT, and therefore that the sale of
Exchange Shares will not be subject to taxation under FIRPTA. Because the
Exchange Shares will be publicly traded, however, no assurance can be given the
Company will continue to be a domestically controlled REIT. If the Company does
not constitute a domestically controlled REIT, a Non-U.S. Holder's sale of
Exchange Shares generally will still not be subject to tax under FIRPTA as a
sale of a USRPI provided that (i) the Exchange Shares are "regularly traded" (as
defined by applicable Treasury regulations) on an established securities market
and (ii) the selling Non-U.S. Holder held 5% or less of the Company's
outstanding Common Shares and Preferred Shares at all times during a specified
testing period.
If gain on the sale of Exchange Shares were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
shareholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of Exchange Shares could be required to withhold
10% of the purchase price and remit such amount to the Service. Capital gains
not subject to FIRPTA will nonetheless be taxable in the United States to a Non-
U.S. Holder in two cases: (i) if the Non-U.S. Holder's investment in Exchange
Shares is effectively connected with a U.S. trade or business conducted by such
Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment as a
U.S. shareholder with respect to such gain, or (ii) if the Non-U.S. Holder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
28
<PAGE>
OTHER TAX CONSIDERATIONS
The Management Corps. A portion of the cash to be used by the Operating
Partnership to fund distributions to its partners, including the Company, is
expected to come from the Management Corps. through payments of dividends on the
non-voting stock of the Management Corps. held by the Operating Partnership. The
Management Corps. pay Federal and state income tax at the full applicable
corporate rates. The Management Corps. will attempt to minimize the amount of
such taxes, but there can be no assurance whether or the extent to which
measures taken to minimize taxes will be successful. To the extent that the
Management Corps. are required to pay Federal, state or local taxes, the cash
available for distribution by the Company to shareholders will be reduced
accordingly.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the Federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the shares of the Company.
29
<PAGE>
PLAN OF DISTRIBUTION
Any of the Selling Shareholders may from time to time, in one or more
transactions, sell all or a portion of the Exchange Shares on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Shares are listed or traded, in negotiated transactions, in underwritten
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The offering price of the
Exchange Shares from time to time will be determined by the Selling Shareholders
and, at the time of such determination, may be higher or lower than the market
price of the Common Shares on the NYSE. In connection with an underwritten
offering, underwriters or agents may receive compensation in the form of
discounts, concessions or commissions from a Selling Shareholder or from
purchasers of Exchange Shares for whom they may act as agents, and underwriters
may sell Exchange Shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Under agreements that may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of Exchange Shares may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such underwriters, dealers or agents may be required to make
in respect thereof. The Exchange Shares may be sold directly or through broker-
dealers acting as principal or agent, or pursuant to a distribution by one or
more underwriters on a firm commitment or best-efforts basis. The methods by
which the Exchange Shares may be sold include (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Exchange Shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(d) an exchange distribution in accordance with the rules of the NYSE; (e)
privately-negotiated transactions; and (f) underwritten transactions. The
Selling Shareholders and any underwriters, dealers or agents participating in
the distribution of the Exchange Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit on the sale of the
Exchange Shares by the Selling Shareholder sand any commissions received by an
such broker-dealers may be deemed to be underwriting commissions under the
Securities Act.
When a Selling Shareholder elects to make a particular offer of Exchange
Shares, a prospectus supplement, if required, will be distributed that will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from such Selling Shareholder and any
other required information.
In order to comply with the securities laws of certain states, if
applicable, the Exchange Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Exchange Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
The Selling Shareholders have agreed to pay all reasonable costs and
expenses incurred in connection with the registration under the Securities Act
of the Exchange Shares, including, without limitation, all registration and
filing fees, printing expenses and fees and disbursements of counsel and
accountants for the Company but excluding compensation of employees of the
Company or expenses incurred in connection with documents incorporated herein by
reference. The Selling Shareholders also will pay any brokerage fees and
commissions, fees and disbursements of legal counsel for the Selling
Shareholders and stock transfer and other taxes attributable to the sale of the
Exchange Shares. The Company also has agreed to indemnify each of the Selling
Shareholders and their respective partners, officers and directors and each
person who controls (within the meaning of the Securities Act) such Selling
Shareholder against certain losses, claims, damages and expenses arising under
the securities laws in connection with this offering. Each of the Selling
Shareholders has agreed to indemnify the Company, its officers, trustees and
shareholders and each person who controls (within the meaning of the Securities
Act) the Company against other losses, claims, damages and expenses arising
under the securities laws in connection with this offering with respect to
written information furnished to the Company by such Selling Shareholder;
provided, however, that the indemnification obligation is several, not joint, as
to each Selling Shareholder and is limited to the net amount of proceeds from
the sale of each Selling Shareholder's Exchange Shares.
There is no assurance that the Selling Shareholders will sell any or all of
the Exchange Shares.
30
<PAGE>
EXPERTS
The Consolidated and Combined Financial Statements incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1995 have been so incorporated in reliance on the reports of Grant
Thornton LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting. The Combined Statement of Revenue and
Certain Expenses of the 1996 Acquired Properties and Probable Properties for the
year ended December 31, 1995, as set forth in the Company's Current Report on
Form 8-K, dated May 23, 1996, has been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
in this Prospectus by reference. Such combined financial statement is
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the Exchange Shares offered hereby will be passed upon for
the Company by Rosenberg & Liebentritt, P.C., Chicago, Illinois. Rosenberg &
Liebentritt, P.C. will rely on Hogan & Hartson L.L.P., Washington, D.C., as to
certain matters of Maryland law. Certain tax matters will be passed upon by
Hogan & Hartson L.L.P.
Sheli Z. Rosenberg, the Chairman of the Board of Rosenberg & Liebentritt,
P.C., is a trustee of the Company. The Company incurred legal fees to Rosenberg
& Liebentritt, P.C. of approximately $1.031 million in 1995 and, through May 31,
1996, approximately $250,000 in 1996. Attorneys of Rosenberg & Liebentritt,
P.C. beneficially own less than 1% of the outstanding Common Shares, either
directly or upon the exercise of options.
31
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================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE
SHARES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS PROSPECTUS OR ANY
OFFER OR SALE MADE HEREUNDER SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
__________________
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................................ 2
Incorporation of Certain Documents by Reference...................... 2
The Company.......................................................... 3
Use of Proceeds...................................................... 4
Risk Factors......................................................... 4
Description of Shares of Beneficial Interest......................... 9
Description of OP Units.............................................. 11
Shares Available for Future Sale..................................... 16
Registration Rights.................................................. 16
Selling Shareholders................................................. 17
Exchange of OP Units................................................. 18
Federal Income Tax Considerations.................................... 23
Plan of Distribution................................................. 30
Experts.............................................................. 31
Legal Matters........................................................ 31
</TABLE>
================================================================================
================================================================================
608,665 SHARES
EQUITY RESIDENTIAL
PROPERTIES TRUST
COMMON SHARES
OF
BENEFICIAL INTEREST
PROSPECTUS
JUNE , 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth those expenses for distribution to be
incurred in connection with the issuance and distribution of the securities
being registered.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee.............................................. $ 6,900
Printing and Duplicating Expenses............................. 2,500
Legal Fees and Expenses....................................... 25,000
Accounting Fees and Expenses.................................. 3,000
Blue Sky Fees and Expenses.................................... 5,000
Miscellaneous................................................. 2,600
-------
Total...................................................... $45,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
Under Maryland law, a real estate investment trust formed in Maryland is
permitted to eliminate, by provision in its Declaration of Trust, the liability
of trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) acts or omissions established by a
final judgment as involving active and deliberate dishonesty and being material
to the matter giving rise to the proceeding. The Company's Declaration of Trust
includes such a provision eliminating such liability to the maximum extent
permitted by Maryland law.
The Maryland REIT law, effective October 1, 1994, permits a Maryland real
estate investment trust to indemnify and advance expenses to its trustees,
officers, employees and agents to the same extent as permitted by the MGCL for
directors and officers of Maryland corporations. In accordance with the MGCL,
the Company's bylaws require it to indemnify (a) any present or former trustee,
officer or shareholder or any individual who, while a trustee, officer or
shareholder, served or is serving as a trustee, officer, director, shareholder
or partner of another entity at the Company's express request who has been
successful, on the merits or otherwise, in the defense of a proceeding to which
he was made a party by reason of service in such capacity, against reasonable
expenses incurred by him in connection with the proceeding, (b) any present or
former trustee or officer or any individual who, while a trustee or officer
served or is serving as a trustee, officer, director, shareholder or partner of
another entity at the Company's express request against any claim or liability
to which he may become subject by reason of service in such capacity unless it
is established that (i) his act or omission was material to the matter giving
rise to the proceeding and was committed in bad faith or was the result of
active and deliberate dishonesty, (ii) he actually received an improper personal
benefit in money, property or services or (iii) in the case of a criminal
proceeding, he had reasonable cause to believe that his act or omission was
unlawful and (c) any present or former shareholder against any claim or
liability to which he may become subject by reason of such status. In addition,
the Company's bylaws require it to pay or reimburse, in advance of final
disposition of a proceeding, reasonable expenses incurred by a present or former
trustee, officer or shareholder or any individual who, while a trustee, officer
or shareholder, served or is serving as a trustee, officer, director,
shareholder or partner of another entity at the Company's express request made a
party to a proceeding by reason of such status, provided that, in the case of a
trustee or officer, the Company shall have received (1) a written affirmation by
such person of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the bylaws and (2)
a written undertaking by or on his behalf to repay the amount paid or reimbursed
by the Company if it shall ultimately be determined that the applicable standard
of conduct was not met. The Company's bylaws also (x) permit the Company to
provide indemnification and payment or reimbursement of expenses to a present or
former trustee, officer or shareholder who served a predecessor of the Company
or to any employee or agent of the Company or a predecessor of the Company, (y)
provide that any indemnification and payment or reimbursement of the expenses
permitted by the bylaws shall be furnished in accordance with the procedures
provided for indemnification and payment or reimbursement of expenses under
Section 2-418 of the MGCL for directors of Maryland corporations and (z) permit
the Company to provide to the trustees and officers such other and further
indemnification or payment or reimbursement of expenses to the fullest extent
permitted by Section 2-418 of the MGCL for directors of Maryland corporations.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees and officers of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that, although
the validity and scope of the governing statute have not been tested in court,
in the opinion of the Securities and Exchange Commission, such indemnification
II-1
<PAGE>
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
The partnership agreements of the Operating Partnership and the Management
Partnerships also provide for indemnification of the Company and its officers
and trustees to the same extent that indemnification is provided to officers and
trustees of the Company in its Declaration of Trust, and limit the liability of
the Company and its officers and trustees to the Operating Partnership and the
Management Partnerships and their respective partners to the same extent that
the liability of the officers and trustees of the Company to the Company and its
shareholders is limited under the Company's Declaration of Trust.
ITEM 16. EXHIBITS
4.1 * - Amended and Restated Declaration of Trust, as amended
4.2 ** - Amended and Restated Bylaws
4.3 - Form of Fourth Amended and Restated ERP Operating
Limited Partnership Agreement of Limited Partnership
5 - Opinion of Rosenberg & Liebentritt, P.C.
8 - Opinion of Hogan & Hartson L.L.P. regarding
certain tax matters.
23.1 - Consent of Grant Thornton LLP
23.2 - Consent of Ernst & Young LLP
23.3 - Consent of Rosenberg & Liebentritt, P.C. (included in
Exhibit 5)
23.4 - Consent of Hogan & Hartson L.L.P. (included in
Exhibit 8)
24 - Power of Attorney (filed as part of the
signature page to the Registration Statement)
----------
* Included as an exhibit to the Company's Form 10-Q for the three months
ended June 30, 1995, and incorporated herein by reference.
** Included as an exhibit to the Company's Form S-11 Registration
Statement, File No. 33-63158, and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of Exchange Shares (if the total
dollar value of Exchange Shares would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in this registration
statement;
provided, however, that subparagraphs (i) and (ii) above do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in the periodic reports filed with or furnished to the Commission by
the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the Exchange Shares offered herein, and the
offering of such Exchange Shares at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any of
the Exchange Shares being registered which remain unsold at the termination the
offering.
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Exchange Shares offered herein, and the offering of such
Exchange Shares at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to existing provisions or arrangements whereby the
registrant may indemnify a trustee, officer or controlling person of the
registrant against liabilities arising under the Securities Act of 1933, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on June 26, 1996.
EQUITY RESIDENTIAL PROPERTIES TRUST
By: /s/ Douglas Crocker II
----------------------------------------------
Douglas Crocker II, President, Chief Executive
Officer and Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints Douglas Crocker II and Sheli Z.
Rosenberg, or either of them, his attorneys-in-fact and agents, with full power
of substitution and resubstitution for him in any and all capacities, to sign
any or all amendments or post-effective amendments to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith or in connection with the registration of the Securities
under the Exchange Act, with the Securities and Exchange Commission, granting
unto each of such attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary in connection
with such matters as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of such attorneys-in-
fact and agents or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Name Title Date
- ---- ----- ----
/s/ Samuel Zell Chairman of the Board of Trustees June 26, 1996
- ---------------------------
Samuel Zell
/s/ Douglas Crocker II President, Chief Executive Officer June 26, 1996
- --------------------------- and Trustee
Douglas Crocker II
/s/ David J. Neithercut Executive Vice President and Chief June 26, 1996
- --------------------------- Financial Officer
David J. Neithercut
/s/ Micheal J. McHugh Senior Vice President, Chief June 26, 1996
- --------------------------- Accounting Officer and Treasurer
Michael J. McHugh
/s/ Gerald A. Spector Trustee June 26, 1996
- ---------------------------
Gerald A. Spector
Trustee June 26, 1996
- ---------------------------
Sheli Z. Rosenberg
/s/ James D. Harper, Jr. Trustee June 26, 1996
- ---------------------------
James D. Harper, Jr.
/s/ Errol R. Halperin Trustee June 26, 1996
- ---------------------------
Errol R. Halperin
/s/ John Alexander Trustee June 26, 1996
- ---------------------------
John Alexander
/s/ Barry S. Sternlicht Trustee June 26, 1996
- ---------------------------
Barry S. Sternlicht
/s/ B. Joseph White Trustee June 26, 1996
- ---------------------------
B. Joseph White
/s/ Henry H. Goldberg Trustee June 26, 1996
- ---------------------------
Henry H. Goldberg
II-4
<PAGE>
EXHIBIT INDEX
--------------
Exhibit Exhibit
Number Description
------- -----------
4.1 * Amended and Restated Declaration of Trust, as amended
4.2 ** Amended and Restated Bylaws
4.3 Form of Fourth Amended and Restated ERP Operating Limited
Partnership Agreement of Limited Partnership
5 Opinion of Rosenberg & Liebentritt, P.C.
8 Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Rosenberg & Liebentritt, P.C. (included in
Exhibit 5)
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8)
24 Power of Attorney (filed as part of the signature page to the
Registration Statement)
____________
*Included as an exhibit to the Company's Form 10-Q for the three months ended
June 30, 1995, and incorporated herein by reference.
**Included as an exhibit to the Company's Form S-11 Registration Statement, File
No. 33-63158, and incorporated herein by reference.
II-5
<PAGE>
FOURTH AMENDED AND RESTATED
ERP OPERATING LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
--------------------------------
AS OF
SEPTEMBER 30, 1995
<PAGE>
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FOR
ERP OPERATING LIMITED PARTNERSHIP
---------------------------------
THIS FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") has been executed and delivered as of the 30th day of
September, 1995, by Equity Residential Properties Trust (the "General
Partner" or the "Company"), a Maryland real estate investment trust,
pursuant to Section 16 hereof, for itself and on behalf of the following
entities: (i) those partnerships identified on Schedule A to this Agreement
(each a "Zell Partner" and collectively, the "Zell Partners"); (ii) those
entities identified on Schedule B to this Agreement (each a "Starwood
Partner" and collectively, the "Starwood Partners"); and (iii) to the
extent not included in Schedule A or B those persons and entities
identified in Schedule C (the "Additional Partners"), and Equity Properties
Management Corp., an Illinois corporation ("EPMC") (the General Partner,
the Zell Partners, the Starwood Partners, the Additional Partners, and EPMC
being each a "Partner" and collectively, the "Partners"). The Zell
Partners, the Starwood Partners, the Additional Partners, and EPMC are each
a "Limited Partner" and are, as of the date of this Agreement, the "Limited
Partners".
RECITALS
--------
A. The Partners are parties to that certain Third Amended and Restated
Agreement of Limited Partnership of ERP Operating Limited Partnership
dated as of December 1, 1994 (the "Prior Partnership Agreement") and,
in accordance therewith, have been doing business as an Illinois
limited partnership (the "Partnership") under the name "ERP Operating
Limited Partnership."
B. Pursuant to the powers granted to the General Partner under Section 16
hereof, the General Partner deems it to be in the best interest of the
Partnership to amend and restate the Prior Partnership Agreement and is
desirous of continuing the Partnership in accordance with the Illinois
Revised Uniform Limited Partnership Act and this Agreement.
THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the General Partner, for
itself and on behalf of the Partners, agrees as follows:
1
<PAGE>
1. Partnership.
1.1 Continuation of Partnership; Partnership Interests. The General
Partner and the Limited Partners do hereby continue the Partnership as an
Illinois limited partnership according to all of the terms and provisions
of this Agreement and otherwise in accordance with the Act. The General
Partner is the sole general partner and the Limited Partners are the sole
limited partners of the Partnership. All Partnership profits, losses, and
distributive shares of tax items accruing prior to the date of this
Agreement shall be allocated in accordance with, and the respective rights
and obligations of the Partners with respect to the period prior to the
date of this Agreement shall be governed by, the Prior Partnership
Agreement. No Partner has any interest in any Partnership property but the
interests of all Partners in the Partnership are, for all purposes,
personal property.
1.2 Name. The Partnership name shall be "ERP Operating Limited
Partnership", but the General Partner may from time to time change the name
of the Partnership or may adopt such trade or fictitious names as it may
determine.
2. Definitions.
2.1 As used in this Agreement, the following terms shall have the
meanings set forth respectively after each:
"Act" shall mean the Illinois Revised Uniform Limited Partnership Act,
as amended from time to time, and any successor statute.
"Adjusted Capital Account Deficit" shall mean, at any time, the then
balance in the Capital Account of a Partner, after giving effect to the
following adjustments:
(i) credit to such Capital Account any amounts that such Partner
is deemed obligated to restore as described in the penultimate sentences of
Regulations Section 1.704-2(g)(1) and Regulations Section 1.704-2(i)(5), or
any successor provisions; and
(ii) debit to such Capital Account the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Agreement" shall mean this Fourth Amended and Restated Agreement of
Limited Partnership, as it may be amended from time to time.
"Bankruptcy" of a Partner shall mean (a) the filing by a Partner of a
2
<PAGE>
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other Federal or state
insolvency law, or a Partner's filing an answer consenting to or acquiescing in
any such petition, (b) the making by a Partner of any assignment for the benefit
of its creditors or the admission by a Partner in writing of its inability to
pay its debts as they mature, or (c) the expiration of sixty (60) days after the
filing of an involuntary petition under Title 11 of the United States Code (or
corresponding provisions of future laws), seeking an application for the
appointment of a receiver for the assets of a Partner, or an involuntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts under any other Federal or state insolvency law, provided that the same
shall not have been vacated, set aside or stayed within such 60-day period.
"Capital Account" shall mean the capital account maintained by the
Partnership for each Partner as described in Section 3.4 below.
"Capital Cash Flow" shall have the meaning provided in Section 8.2
below.
"Capital Contribution" shall mean, when used in respect of a Partner,
the initial capital contribution of such Partner as set forth in Section 3.1
below and any other amounts of money or the fair market value of other property
contributed by such Partner to the capital of the Partnership pursuant to the
terms of this Agreement, including the Capital Contribution made by any
predecessor holder of the Partnership Interest of such Partner.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended from time to time, and any successor statute.
"Common Share" shall have the meaning provided in clause (i) of
Section 3.2(A) below.
"Company" means Equity Residential Properties Trust, a Maryland real
estate investment trust and the General Partner of the Partnership.
"Contributing Partner" shall have the meaning provided in clause (vi)
of Section 3.2(B) below.
"Depreciation" shall mean for any fiscal year or portion thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such period for Federal income tax
purposes, except that if the Gross Asset Value of an asset differs from its
adjusted basis for Federal income tax
3
<PAGE>
purposes at the beginning of such period, Depreciation shall be an amount that
bears the same relationship to such beginning Gross Asset Value as the
depreciation, amortization or cost recovery deduction in such period for Federal
income tax purposes bears to the beginning adjusted tax basis; provided,
however, that if the adjusted basis for Federal income tax purposes of an asset
at the beginning of such period is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any reasonable method
selected by the General Partner.
"General Partner" means Equity Residential Properties Trust, a
Maryland real estate investment trust sometimes also referred to in this
Agreement as the "Company".
"Gross Asset Value" means, with respect to any Partnership asset, the
asset's adjusted basis for Federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the General Partner;
(ii) The Gross Asset Value of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the General Partner, as of the following times: (a) the acquisition of an
additional interest in the Partnership by any new or existing Partner in
exchange for more than a de minimis Capital Contribution; (b) the distribution
by the Partnership to a Partner of more than a de minimis amount of Partnership
property as consideration for an interest in the Partnership; and (c) the
liquidation of the Partnership within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (a) and
(b) above shall be made only if the General Partner reasonably determines that
such adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset distributed
to any Partner shall be adjusted to equal the gross fair market value of such
asset on the date of distribution as determined by the General Partner; and
(iv) The Gross Asset Value of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis
of such assets pursuant to Code Section 734(b) or Code Section
4
<PAGE>
743(b), but only to the extent that such adjustments are taken into account
in determining Capital Accounts pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m) and paragraph (vi) of the definition of Profits and Losses
and Section 7.3(G) below; provided, however, that Gross Asset Value shall
not be adjusted pursuant to this paragraph (iv) to the extent the General
Partner determines that an adjustment pursuant to paragraph (ii) above is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
paragraphs (i), (ii) or (iv) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
"Limited Partner" shall mean any Person (i) whose name is set forth as
a Limited Partner on Schedule C attached hereto or who has become a Limited
Partner pursuant to the terms and conditions of this Agreement, and (ii) who
holds a Partnership Interest. "Limited Partners" means all such persons.
"Market Price" shall have the meaning set forth in Section 3.2(B)below
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(c).
"Operating Cash Flow" shall have the meaning provided in Section 8.1
below.
"OP Units" are units of Partnership Interest more particularly
described in Section 3.2 below.
"OP Unit Value" shall mean, as of any given time, the number of OP
Units into which a Preference Unit is convertible (whether or not the conversion
can then be effected), or the value of the Preference Unit expressed in OP Units
if the Preference Unit is not convertible into OP Units, as provided for in the
applicable Preference Unit Term Sheet or Other Securities Term Sheet.
"Other Securities" shall have the meaning set forth in clause (iv) of
Section 3.2(B) below.
"Other Securities Term Sheet" shall have the meaning provided in
clause (f) of Section 3.2(B) below.
5
<PAGE>
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i).
"Partners" shall mean, collectively, the General Partner and the
Limited Partners, or any additional or successor partners of the Partnership
admitted to the Partnership in accordance with the terms of this Agreement.
Reference to a Partner shall be to any one of the Partners.
"Partnership Interest" shall mean the ownership interest of a Partner
in the Partnership at any particular time, including the right of such Partner
to any and all benefits to which such Partner may be entitled as provided in
this Agreement, and to the extent not inconsistent with this Agreement, under
the Act, together with the obligations of such Partner to comply with all of the
terms and provisions of this Agreement and of the Act.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d).
"Percentage Interest" shall mean, as to each Partner, the quotient
(expressed as a percentage) arrived at by dividing (i) the sum of the OP Unit
Value of any Preference Units held by that Partner and the number of OP Units
held by that Partner, by (ii) the sum of the OP Unit Value of all Preference
Units issued and outstanding at the time and the total number of OP Units issued
and outstanding at the time. The respective Percentage Interests of the Partners
as of the date of this Agreement are set forth in Schedule C attached to this
Agreement.
"Person" means any individual, partnership, corporation, trust or
other entity.
"Preference Units" are units of Partnership Interest more particularly
described in Section 3.2 below.
"Preference Unit Term Sheet" shall have the meaning provided in clause
(e) Section 3.2(B) below.
6
<PAGE>
"Prior Partnership Agreement" has the meaning set forth in Recital A
above.
"Profits" and "Losses" shall mean for each fiscal year or portion
thereof, an amount equal to the Partnership's items of taxable income or loss
for such year or period, determined in accordance with Section 703(a) of the
Code with the following adjustments:
(i) any income which is exempt from Federal income tax and not
otherwise taken into account in computing Net Profits or Net Losses shall
be added to taxable income or loss;
(ii) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Section 705(a)(2)(B) expenditures under
Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into
account in computing Profits or Losses, will be subtracted from taxable
income or loss;
(iii) in the event that the Gross Asset Value of any Partnership
asset is adjusted pursuant to the definition of Gross Asset Value contained
in this Section 2, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Profits and Losses;
(iv) gain or loss resulting from any disposition of Partnership
assets with respect to which gain or loss is recognized for Federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal year
or other period;
(vi) to the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4)
to be taken into account in determining Capital Accounts as a result of a
distribution other than in complete liquidation of a Partner's Partnership
Interest, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the
7
<PAGE>
disposition of the asset and shall be taken into account for purposes of
computing Profits or Losses; and
(vii) any items specially allocated pursuant to Section 7.3 or
Section 7.4 below shall not be considered in determining Profits or Losses.
"Recapitalization" shall have the meaning provided in Section 3.2(C)
below.
"Record Date" shall have the meaning provided in Section 9.1(x) below.
"Regulations" shall mean the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Third Party Loan" shall have the meaning provided in Section 9.7(E)
below.
"Units" has the meaning set forth in Section 3.2(A) below.
3. Capital.
3.1 Prior Capital. The initial capital contributions to the
Partnership were made by the General Partner and 3000 Grand Associates Limited
Partnership, an Illinois limited partnership (which is no longer a Partner to
this Agreement), and consisted of $25.00 and $2,475.00, respectively.
Additional capital was contributed to the Partnership pursuant to the Prior
Partnership Agreement as follows:
(a) the Company contributed the sum of $332,359,380 (representing
the proceeds of the sale of 13,225,000 Common Shares, net of the
underwriters' discount), cash in the amount of $34,865,000 and a note in
the aggregate principal amount of $910,000 (such cash and note representing
the proceeds of the sale of Common Shares to the initial shareholders of
the Company);
(b) each of the Zell Partners contributed its interest in and to
one or more multifamily residential properties (all such properties being
identified on Schedule A attached to this Agreement);
(c) each of the Starwood Partners contributed its interest in and
to one or more multifamily residential properties (all such properties
being identified on Schedule B attached to this Agreement);
8
<PAGE>
(d) each of the Partners identified in Schedule C hereto either
contributed its interest in and to one or more multifamily residential
properties, or received its interest in the Partnership pursuant to a
Transfer (as defined in Section 12(B) hereof) approved by the General
Partner; and
(e) EPMC contributed all of the outstanding preferred stock of
Equity Residential Properties Management Corp., a Delaware corporation.
(f) Subsequently, the Company contributed the net proceeds of the
sale of a total of 19,503,420 Common Shares and 6,120,000 9 3/8% Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par
value per share, (liquidation preference $25.00 per share).
3.2 Issuance and Conversion of Units.
A. The interest of a Partner in the Partnership is referred to as
being evidenced by one or more "Units". Units may be either "OP Units" or
"Preference Units":
(i) An "OP Unit" is a unit of Partnership Interest that, as more
particularly provided for below in Section 3.2(B), may be
converted into either cash or one (1) common share of beneficial
interest in the Company (a "Common Share").
(ii) A "Preference Unit" is a unit of Partnership Interest having such
rights, preferences and other privileges, variations and
designations as may be determined by the General Partner in its
sole and absolute discretion (but not in violation of the
provisions of Section 3.2(B) or the terms of any other Preference
Unit(s)). There may be more than one series or class of
Preference Units having differing terms and conditions, but all
Preference Units within a given series or class shall have the
same rights, preferences and other privileges, variations and
designations. A Preference Unit shall be convertible into one or
more OP Units or be capable of being valued in OP Units. With
respect to each series or class of Preference Units, the General
Partner may also, in its discretion, determine and fix, among
other terms and conditions, any of the following: (a) the series
to which such Preference Units shall belong, (b) the distribution
rate therefore, (c) the price at and the terms and conditions on
which such Preference Units may be redeemed, (d) the amount
payable in
9
<PAGE>
respect of such Preference Units in the event of involuntary or
voluntary liquidation, (e) the terms and conditions on which such
Preference Units may be converted, if such Preference Units are
issued with the privilege of conversion, and (f) the number of
such Preference Units to be issued as a part of such series. Once
determined and fixed as herein provided, however, the terms and
conditions of a particular series or class of Preference Units
may not be changed without the written consent of the holders of
at least 67% of the Preference Units within the class or series
(or such greater percentage as may be provided for in the
applicable Preference Unit Term Sheet or Other Securities Term
Sheet, as the case may be).
The aggregate total of all Units outstanding as of the date of this Agreement,
including the making of the capital contributions referred to in Section 3.1
above, is 44,405,752 (assuming full conversion of all outstanding Preference
Units into OP Units). As of the date of this Agreement, each Partner is deemed
to hold Units as shown on Schedule C.
B. From time to time hereafter, subject to and in accordance
with the provisions of this Section 3.2(B), the General Partner shall cause the
Partnership to issue additional Units as follows:
(i) OP Units to the Company upon the issuance by the Company of
additional Common Shares (other than in exchange for OP Units) and
the contribution of the net proceeds thereof as a Capital
Contribution to the Partnership as provided for in Section 3.3(B)
below it being understood, however, that the Company may issue
Common Shares in connection with share option plans, dividend
reinvestment plans, restricted share plans or other benefit or
compensation plans (for example, shares issued in lieu of fees or
compensation) without receiving any proceeds and that the issuance
of such Common Shares shall nonetheless entitle the Company to
additional OP Units pursuant to this clause (i);
(ii) OP Units to Partners (including itself) that hold Preference Units
that are convertible into OP Units, upon the exercise of such
conversion in accordance with the terms and conditions of the
Preference Unit Term Sheet or Other Securities Term Sheet (each
hereinafter defined) applicable thereto;
(iii) OP Units to Partners holding OP Units (including itself) if and to
the extent of each such Partner's participation in any reinvestment
program
10
<PAGE>
contemplated by Section 3.3(C) below;
(iv) Preference Units to the Company upon the issuance by the Company of
securities other than Common Shares (whether debt or equity
securities; ("Other Securities") and the contribution of the net
proceeds thereof as a Capital Contribution to the Partnership as
provided for in Section 3.3(B) below; and
(v) in all other cases, OP Units and/or Preference Units, as determined
by the General Partner, in its discretion, to existing or newly-
admitted Partners (including itself), in exchange for the
contribution by a Partner (the "Contributing Partner") of additional
Capital Contributions to the Partnership.
Issuance of OP Units as aforesaid shall be in accordance with the following:
(a) the number of OP Units issued to the Company under clause (i) of
this Section 3.2(B) shall be equal to the number of Common Shares
issued;
(b) the number of OP Units issued to a Partner under clause (ii) of this
Section 3.2(B) shall be as provided for in the Preference Unit Term
Sheet or the Other Securities Term Sheet (each hereinafter defined)
pursuant to which the Preference Units being converted exist;
(c) the number of OP Units issued to a Limited Partner under clause
(iii) of this Section 3.2(B) shall be as provided for in the
applicable reinvestment program; and
(d) the number of OP Units issued to a Contributing Partner under clause
(v) of this Section 3.2(B) shall be equal to the quotient (rounded
to the nearest whole number) arrived at by dividing (x) the initial
Gross Asset Value of the property contributed as additional Capital
Contributions (net of any debt to which such property is subject or
assumed by the Partnership in connection with such contribution) by
(y) the Market Price (as hereinafter defined).
As used in this Section 3.2, "Market Price" means either (a) the average, for
the most recent ten (10) trading days for the Common Shares preceding the
"Determination Date", of the last reported sale price per share of the Common
Shares at the close of trading on each such date as reported in the Wall Street
Journal (Midwest Edition) or such other reputable stock price reporting service
as may be selected by the General Partner, or (b) in the event that the Common
Shares have not traded for at least ten (10) trading days, then the average as
aforesaid over the most recent number of days that Common Shares
11
<PAGE>
have traded. For purposes of this Section 3.2(B) only, the "Determination Date"
shall mean the trading date, preceding the issuance of the OP Units, selected by
the General Partner, in its discretion, based on the particular facts and
circumstances surrounding the proposed issuance of the OP Units in question.
Issuance of Preference Units as aforesaid shall be in accordance with the
following:
(e) Preference Units issued pursuant to clause (v) of this Section 3.2(B)
shall have the terms and conditions specified in an agreement (a
"Preference Unit Term Sheet") executed by and between the Partnership
(at the direction and in the discretion of the General Partner) and
the Contributing Partner (subject, however, to the approval, not to be
unreasonably withheld or delayed, of the Zell Partners and the
Starwood Partners, or their respective successors in interest, as
applicable, for so long as they remain Partners, and such Preference
Unit Term Sheet shall thereupon be a part of this Agreement. The
number of Preference Units issued to a Contributing Partner under
clause (v) of this Section 3.2(B) shall be equal to the quotient
(rounded to the nearest whole number) arrived at by dividing (x) the
initial Gross Asset Value of the property contributed as additional
capital contributions (net of any debt to which such property is
subject or assumed by the Partnership in connection with such
contribution) by (y) an amount provided for in the Preference Unit
Term Sheet; and
(f) Preference Units issued pursuant to clause (iv) of this Section 3.2(B)
shall have economic terms substantially identical to those of the
applicable Other Securities and such other terms and conditions, all
of which are specified in an agreement (an "Other Securities Term
Sheet") executed between the Partnership and the Company and such
Other Securities Term Sheet shall thereupon be a part of this
Agreement.
Units may also be issued to some or all of the Partners holding Preference Units
if and to the extent of such Partner's participation in any reinvestment program
contemplated by Section 3.3(C) below. Upon the issuance of additional OP Units
and/or Preference Units in accordance with the provisions of this Section
3.2(B), each recipient of such Units shall either execute this Agreement or a
joinder to this Agreement (which joinder, as to Preference Units, may be a part
of the applicable Preference Unit Term Sheet or Other Securities Term Sheet) and
the Percentage Interests of all of the Partners shall thereupon be appropriately
adjusted by the General Partner. Notwithstanding anything to the contrary
contained herein, in no event shall any additional Preference Units or OP Units
be issued (pursuant to this Section 3.2(B) or otherwise) to the extent that the
effect of such issuance would be to reduce the General Partner's Percentage
Interest to fifty
12
<PAGE>
percent (50%) or less.
C. Subject to the further provisions of this Section 3.2(C),
the Company hereby grants to each Limited Partner holding OP Units the right to
request an exchange of any or all of its OP Units for Common Shares, with one OP
Unit being exchangeable for one Common Share. Such right may be exercised by a
Limited Partner at any time and from time to time upon not less than ten (10)
days prior written notice to the Company. Upon receipt of such a request, the
Company may, in its discretion, in lieu of issuing Common Shares, cause the
Partnership to pay to such Limited Partner cash in an amount equal to the
product arrived at by multiplying (i) the number of OP Units requested to be
exchanged by such Limited Partner multiplied by (ii) the Market Price, with such
payment to be made within ten (10) days after the Company's receipt of the
Limited Partner's exercise notice as aforesaid; provided, however, that in
calculating Market Price for this Section 3.2(C) only, the "Determination Date"
shall mean the trading date immediately preceding the date on which the Company
receives notice from the holder of OP Units stating such holder's intention to
exercise its right to request an exchange of its OP Units for Common Shares. If
the Company does not elect to make a cash payment, it shall be obligated to
issue Common Shares as provided above. The Company shall at all times reserve
and keep available out of its authorized but unissued Common Shares, solely for
the purpose of effecting the exchange of OP Units for Common Shares, such number
of Common Shares as shall from time to time be sufficient to effect the
conversion of all outstanding OP Units not owned by the Company, and any
Preference Units not owned by the Company that are convertible into OP Units
(whether or not the conversion can then be effected). No Limited Partner shall,
by virtue of being the holder of one or more OP Units and/or Preference Units,
be deemed to be a shareholder of or have any other interest in the Company. In
the event of any change in the outstanding Common Shares by reason of any share
dividend, split, recapitalization, merger, consolidation, combination, exchange
of shares or other similar corporate change (a "Recapitalization"), the number
of OP Units held by each Partner (or into which Preference Units are or may be
convertible, if applicable) shall be proportionately adjusted so that one OP
Unit remains exchangeable for one Common Share without dilution. In the event
the Company issues any Common Shares in exchange for OP Units pursuant to this
Section 3.2(C), the General Partner shall record the transfer on the books of
the Partnership so that the Company is thereupon the owner and holder of such OP
Units. Notwithstanding the foregoing provisions of this Section 3.2(C), a
Limited Partner shall not have the right to exchange OP Units for Common Shares
if (i) in the opinion of counsel for the Company, the Company would, as a result
thereof, no longer qualify (or it would be likely that the Company no longer
would qualify) as a real estate investment trust under the Code; or (ii) such
exchange would, in the opinion of counsel for the Company, constitute or be
likely to constitute a violation of applicable securities laws. In either such
event, to the extent the consequences described in (i) or (ii) could be
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eliminated by reasonable action of the Company without any material detriment to
the Company and at the expense of such Limited Partner(s) requesting such
exchange, the Company shall take all such reasonable action to affect the
exchange of OP Units for Common Shares by such Limited Partner(s) as herein
provided.
3.3 Additional Funds.
A. No Partner shall be assessed or, except as otherwise
provided in this Agreement, required to contribute additional funds or other
property to the Partnership. Any additional funds or other property required by
the Partnership, as determined by the General Partner in its sole discretion,
may, at the option of the General Partner and without an obligation to do so
(except as provided for in Section 3.3(B) below), be contributed by the General
Partner or any other Partner (provided such other Partner is willing to do so
and the General consents thereto, each in its sole and absolute discretion) as
additional Capital Contributions. If and as the General Partner or any other
Partner makes additional Capital Contributions to the Partnership, each such
Partner shall receive additional OP Units and/or Preference Units as provided
for in Section 3.2(B) above. The General Partner shall also have the right (but
not the obligation) to raise any additional funds required for the Partnership
in accordance with the provisions of Section 9.7(E) below and/or by causing the
Partnership to borrow the necessary funds from third parties on such terms and
conditions as the General Partner shall deem appropriate in its sole discretion.
If the General Partner elects to cause the Partnership to borrow the additional
funds, or if the Partnership issues a guaranty, indemnity or similar undertaking
in connection with indebtedness of the Company as aforesaid, in any such case
one or more of the Partnership's assets may be encumbered to secure the loan or
undertaking. Except as provided for in Section 3.3(C) below, no Limited Partner
shall have the right to make additional Capital Contributions to the Partnership
without the prior written consent of the General Partner.
B. Except for (i) the capitalization of any wholly owned entity
of the General Partner which is the general partner of a partnership having the
Partnership as a limited partner, (ii) the net proceeds generated by the
issuance of Other Securities that evidence debt (and are not equity securities)
that are loaned by the Company to the Partnership, and (iii) where, in the good
faith opinion of the Company, the net proceeds generated by the issuance of
Other Securities (whether for debt or equity) are retained by the Company for a
valid business reason consistent with the purposes of the Partnership and such
retention does not materially adversely affect the Limited Partners, the net
proceeds of any and all funds raised by or through the Company through the
issuance of Common Shares or Other Securities shall be contributed to the
Partnership as additional Capital Contributions, and in such event the Company
shall be issued additional Units pursuant to Section 3.2(B) above.
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C. If the General Partner creates and administers a
reinvestment program in substantial conformance with a dividend reinvestment
program which may be available from time to time to holders of the Common
Shares, each Limited Partner holding OP Units shall have the right to reinvest
any or all cash distributions payable to it from time to time pursuant to this
Agreement by having some or all (as the Limited Partner elects) of such
distributions contributed to the Partnership as additional Capital
Contributions, and in such event the Partnership shall issue to each such
Limited Partner additional OP Units pursuant to clause (iv) of Section 3.2(B)
above, or the General Partner may elect to cause distributions with respect to
which a Limited Partner has elected reinvestment to be contributed to the
Company in exchange for the issuance of Common Shares. At the option of the
General Partner, such a program may also be made available with respect to
Preference Units.
3.4 Capital Accounts. A separate capital account ("Capital Account")
shall be maintained for each Partner.
A. To each Partner's Capital Account there shall be credited
such Partner's Capital Contributions, such Partner's distributive share of
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Section 7.3, Section 7.4 or Section 14.2(C) hereof, and
the amount of any Partnership liabilities assumed by such Partner or which are
secured by any Partnership property distributed to such Partner.
B. To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership property distributed
to such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Losses and any items in the nature of expenses or losses
which are specially allocated pursuant to Section 7.3 or Section 7.4 hereof, and
the amount of any liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such Partner to the
Partnership.
C. In the event all or a portion of a Partnership Interest is
transferred in accordance with the terms of this Agreement (including a transfer
of OP Units in exchange for Common Shares, pursuant to Section 3.2(C)), the
transferee shall succeed to the Capital Account of the transferor to the extent
it relates to the transferred Partnership Interest.
D. In determining the amount of any liability for purposes of
Sections 3.4(A) and 3.4(B) above, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
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E. This Section 3.4 and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership, or the Partners) are computed
in order to comply with such Regulations, the General Partner may make such
modification, provided that it is not likely to have a material effect on the
amounts distributed to any Partner pursuant to Section 14 below upon the
dissolution of the Partnership. The General Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership capital reflected
on the Partnership's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
modifications in the event unanticipated events (for example, the acquisition by
the Partnership of oil or gas properties) might otherwise cause this Agreement
not to comply with Regulations Section 1.704-1(b).
3.5 Interest on and Return of Capital.
A. No Partner shall be entitled to any interest on its Capital
Account or on its contributions to the capital of the Partnership.
B. Except as expressly provided for in this Agreement, no
Partner shall have the right to demand or to receive the return of all or any
part of his capital contributions to the Partnership and there shall be no
priority of one Partner over the other as to the return of capital contributions
or withdrawals or distributions of profits and losses. No Partner shall have
the right to demand or receive property other than cash in return for the
contributions of such Partner to the Partnership.
3.6 Negative Capital Accounts. No Partner shall be required to pay
to the Partnership any deficit or negative balance which may exist in its
Capital Account.
3.7 Limit on Contributions and Obligations of Partners. Neither the
Limited Partner nor the General Partner shall be required to make any additional
advances or contributions to or on behalf of the Partnership or to endorse any
obligations of the Partnership.
3.8 Redemption and Repurchase of Units. Notwithstanding any other
provision of this Agreement which may be contrary to this Section 3.8, in the
event of the
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proposed repurchase or redemption for cash by the Company of (i) Common Shares
or, (ii) Other Securities with respect to which the Company had previously been
issued Preference Units pursuant to Section 3.2(B)(iv) of this Agreement, then,
in such event, the Partnership shall provide cash to the Company concurrently
with such repurchase or redemption or for such purpose equal to the proposed
repurchase or redemption price, and one OP Unit owned by the General Partner
(or, in the case of redemption or repurchase by the Company of Other Securities
contemplated by clause (ii) above, one Preference Unit owned by the General
Partner which had been issued with respect to such Other Securities) shall be
cancelled with respect to each Common Share (or share of Other Securities) so
repurchased or redeemed.
4. Principal Office. The principal office of the Partnership shall
be located at Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606, or
at such other place as the General Partner may designate after giving written
notice of such designation to the other Partners.
5. Purpose and Powers of Partnership.
A. The purposes of the Partnership shall be to acquire, purchase,
own, operate, manage, develop, redevelop, invest in, finance, refinance, sell,
lease and otherwise deal with multifamily residential properties and assets
related thereto, and interests therein, whether directly or indirectly, alone or
in association with others. The purposes of the Partnership include, but are not
limited to:
(i) acquiring, developing, operating, leasing and managing
multifamily residential properties and conducting any other lawful business
relating thereto;
(ii) financing, mortgaging, exchanging, selling, encumbering or
otherwise disposing of all or any part of a multifamily residential
property or any interest therein;
(iii) constructing, reconstructing, altering, modifying and
subtracting from or adding to a multifamily residential property or any
part thereof;
(iv) organizing and holding partnership interests in partnerships
owning or otherwise having an interest in, whether directly or indirectly,
one or more multifamily residential properties; and
(v) in general, the making of any investments or expendi-
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tures, the borrowing and lending of money and the taking of any and all
actions which are incidental or related to any of the purposes recited
above.
It is agreed that each of the foregoing is an ordinary part of the Partnership's
business and affairs. Property may be acquired subject to, or by assuming, the
liens, encumbrances, and other title exceptions which affect such property. The
Partnership may also be a partner, general or limited, in partnerships, general
or limited, and joint ventures created to accomplish all or any of the
foregoing.
B. The Partnership purposes may be accomplished by taking any
action which is not prohibited under the Act and which is related to the
acquisition, ownership, development, improvement, operation, management,
financing, leasing, exchanging, selling or otherwise encumbering or disposing of
all or any portion of the assets of the Partnership, or any interest therein.
6. Term. The term of the Partnership shall continue until the
Partnership is terminated upon the occurrence of an event described in Section
14.1 below.
7. Allocations.
7.1 Profits. After giving effect to the allocations set forth
in Sections 7.3, 7.4 and 14.2(C) below, Profits for any fiscal year shall be
allocated among the Partners in proportion to their respective Percentage
Interests.
7.2 Losses.
A. After giving effect to the special allocations set
forth in Sections 7.3, 7.4 and 14.2(C) below, Losses for any fiscal year shall
be allocated among the Partners in proportion to their respective Percentage
Interests.
B. The Losses allocated pursuant to Section 7.2(A) above
shall not exceed the maximum amount of Losses that can be so allocated without
causing any Limited Partner to have an Adjusted Capital Account Deficit at the
end of any fiscal year. All Losses in excess of the limitations set forth in
this Section 7.2(B) shall be allocated to the General Partner.
7.3 Special Allocations. The following special allocations
shall be made in the following order:
A. Minimum Gain Chargeback. Except as otherwise
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provided in Regulations Section 1.704-2(f), notwithstanding any other provision
of this Section 7, if there is a net decrease in Partnership Minimum Gain during
any fiscal year, each Partner shall be specially allocated items of Partnership
income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g). The items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 7.3(A) is
intended to comply with the minimum gain chargeback requirement in Section
1.704-2(f) of the Regulations and shall be interpreted consistently therewith.
B. Partner Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(i)(4), notwithstanding any other
provision of this Section 7, if there is a net decrease in Partner Nonrecourse
Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any
Partnership fiscal year, each Partner who has a share of the Partner Nonrecourse
Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated
items of Partnership income and gain for such fiscal year (and, if necessary,
subsequent fiscal years) in an amount equal to such Partner's share of the net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-
2(i)(4). The items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(i)(4) and 1.704-2(i)(2). This Section 7.3(B) is
intended to comply with the minimum gain chargeback requirement in Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
C. Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Regulations Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5),
or Section 1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall
be specially allocated to each such Partner in an amount and manner sufficient
to eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Partner as quickly as possible, provided that an
allocation pursuant to this Section 7.3(C) shall be made only if and to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for this Section 7 have been tentatively made, as
if this Section 7.3(C) were not in the Agreement.
D. Gross Income Allocation. In the event any Partner has
a deficit Capital Account at the end of any Partnership fiscal year which is in
excess of the sum of (i) the amount such Partner is obligated to restore
pursuant to any provision of this Agreement, and (ii) the amount such Partner is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and
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1.704-2(i)(5), each such Partner shall be specifically allocated items of
Partnership income and gain in the amount of such excess as quickly as possible,
provided that an allocation pursuant to this Section 7.3(D) shall be made only
if and to the extent that such Partner would have a deficit Capital Account in
excess of such sum after all other allocations provided for in this Section 7
have been made as if Section 7.3(C) hereof and this Section 7.3(D) were not in
the Agreement.
E. Preferential Gross Income Allocations. If and to the
extent Partners receive distributions from the Partnership (other than (i)
distributions pursuant to Section 14.2(C) in final liquidation of the
Partnership), each such Partner shall be allocated an equal amount of
Partnership gross income prior to any allocations of Profit and Loss pursuant to
Sections 7.1 and 7.2 above. For purposes of this Section 7.3(E), any payment
with respect to a Preference Unit that, under the applicable Preference Unit
Term Sheet or Other Securities Term Sheet, as the case may be, constitutes a
payment in redemption of such Preference Unit shall not be considered a
distribution except to the extent such payment is specifically attributable to
accrued and unpaid preferred distributions with respect to such Preference Unit
provided for in such Term Sheet.
F. Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year shall be allocated among the Partners in accordance with their
respective Percentage Interests.
G. Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable, in accordance with
Regulations Section 1.704-2(i)(1).
H. Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Regulations Section
1.704- 1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest in the
Partnership, the amount of such adjustment to Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases such basis) and such gain or loss shall be
specifically allocated to the Partners in accordance with their respective
Percentage Interests in the event that Regulations Section 1.704-
1(b)(2)(iv)(m)(2) applies, or the Partner to whom such distribution was made in
the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
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7.4 Curative Allocations. The allocations set forth in Sections
7.2(B), 7.3(A), 7.3(B), 7.3(C), 7.3(D), 7.3(F), 7.3(G) and 7.3(H) above (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations under Sections 704(b) and 514(c)(9)(E) of the Code. It is the
intent of the Partners that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with special
allocations of other items of Partnership income, gain, loss, or deduction
pursuant to this Section 7.4. Therefore, notwithstanding any other provision of
this Section 7 (other than the Regulatory Allocations), the General Partner
shall make such offsetting special allocations of Partnership income, gain,
loss, or deduction in whatever manner it determines appropriate so that, after
such offsetting allocations are made, each Partner's Capital Account balance is,
to the extent possible, equal to the Capital Account balance such Partner would
have had if the Regulatory Allocations were not part of the Agreement and all
Partnership items were allocated pursuant to Sections 7.1 and 7.2(A) (subject,
however, to Section 7.3(E) above), and so that, to the greatest extent possible,
such allocations comply with the Regulations under Code Section 514(c)(9)(E).
In exercising its discretion under this Section 7.4, the General Partner shall
take into account future Regulatory Allocations under Sections 7.3(A) and 7.3(B)
that, although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 7.3(F) and 7.3(G).
7.5 Tax Allocations: Code Section 704(c).
A. Income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any variation
between the adjusted basis of such property to the Partnership for Federal
income tax purposes and its initial Gross Asset Value in accordance with any
permissible manner or manners under Code Section 704(c) and the Regulations
thereunder.
B. In the event the Gross Asset Value of any Partnership asset
is adjusted pursuant to the definition of "Gross Asset Value" contained in
Section 2 above, subsequent allocations of income, gain, loss, and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset for Federal income tax purposes and its Gross Asset
Value in the same manner or manners permitted under Code Section 704(c) and the
Regulations thereunder.
C. Any elections or other decisions relating to such
allocations shall be made by the General Partner in any permissible manner under
the Code or the Regulations that the General Partner may elect in its sole
discretion. Allocations pursuant to this Section 7.5 are solely for purposes of
Federal, state, and local taxes and shall not
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affect, or in any way be taken into account in computing, any Partner's Capital
Account or share of Profits, Losses, other items, or distributions pursuant to
any provision in this Agreement.
8. Cash Available For Distribution.
8.1 Operating Cash Flow. As used in this Agreement, "Operating
Cash Flow" shall mean and be defined as all cash receipts of the Partnership
from whatever source (but excluding Capital Cash Flow and excluding the proceeds
of any additional Capital Contributions to the Partnership pursuant to Section
3.3 above) during the period in question in excess of all items of Partnership
expense (other than non-cash expenses such as depreciation) and other cash needs
of the Partnership, including, without limitation, amounts paid by the
Partnership as principal on debts and advances, during such period, capital
expenditures and any reserves (as determined by the General Partner) established
or increased during such period. In the discretion of the General Partner,
reserves may include cash held for future acquisitions. Operating Cash Flow
shall be distributed to or for the benefit of the Partners of record as of the
applicable Record Date not less frequently than annually, and shall be
distributed: first to those Partners holding Preference Units to the extent of
the respective priorities (if any) established by the applicable Preference Unit
Term Sheets and Other Securities Term Sheets; and then the balance prorata among
the Partners holding OP Units and the Partners holding Preference Units which,
based on the provisions of the applicable Preference Unit Term Sheets and Other
Securities Term Sheets, entitle such Partners to participate in such
distributions on a pari passu basis with the holders of OP Units (the "Residual
Operating Cash Flow Preference Units"), to each Partner based on the quotient
(expressed as a percentage) arrived at by dividing (i) the sum of the OP Unit
Value of any Residual Operating Cash Flow Preference Units held by that Partner
and the number of OP Units held by that Partner by (ii) the sum of the OP Unit
Value of all Residual Operating Cash Flow Preference Units issued and
outstanding at the time and the total number of OP Units issued and outstanding
at the time. Notwithstanding the foregoing, any incoming Limited Partners who
were admitted during the applicable quarter (but excluding any incoming Partners
who received Units from an existing Limited Partner) and who held Units as of an
applicable Record Date, but held such Units for less than the entire period with
respect to which an Operating Cash Flow distribution is to be paid, shall be
entitled to receive a pro-rated portion of such Operating Cash Flow distribution
otherwise payable to such Partner based on the number of days such Units were
outstanding during the applicable period, or any other method of pro-ration
deemed equitable by the General Partner, and in such event, if the General
Partner, in its sole discretion, deems it necessary, the amount of the
distribution payable to all other Partners shall be adjusted accordingly.
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8.2 Capital Cash Flow. As used in this Agreement, "Capital Cash
Flow" shall mean and be defined as collectively (a) gross proceeds realized in
connection with the sale of any assets of the Partnership, (b) gross financing
or refinancing proceeds, (c) gross condemnation proceeds (excluding condemnation
proceeds applied to restoration of remaining property) and (d) gross insurance
proceeds (excluding rental insurance proceeds or insurance proceeds applied to
restoration of property), less (a) closing costs, (b) the cost to discharge any
Partnership financing encumbering or otherwise associated with the asset(s) in
question, (c) the establishment of reserves (as determined by the General
Partner, and which may include cash held for future acquisitions), and (d) other
expenses of the Partnership then due and owing. Subject to Section 14.2 below,
if applicable, Capital Cash Flow shall be distributed to or for the benefit of
the Partners of record as of the applicable Record Date not less frequently than
annually and shall be distributed: first to the Partners holding Preference
Units to the extent of the respective priorities (if any) established by the
applicable Preference Unit Term Sheets and Other Securities Term Sheets; and
then the balance prorata among those Partners holding OP Units and those
Partners holding Preference Units which, based on the provisions of the
applicable Preference Unit Term Sheets and Other Securities Term Sheets, entitle
such Partners to participate in such distributions on a pari passu basis with
the holders of OP Units (the "Capital Cash Flow Preference Units"), to each
Partner based on the quotient (expressed as a percentage) arrived at by dividing
(i) the sum of the OP Unit Value of any Capital Cash Flow Preference Units held
by that Partner and the number of OP Units held by that Partner by (ii) the sum
of the OP Unit Value of all Capital Cash Flow Preference Units issued and
outstanding at the time and the total number of OP Units issued and outstanding
at the time. Notwithstanding the foregoing, the General Partner reserves the
right to pro-rate distributions of Capital Cash Flow to incoming Limited
Partners who were admitted during the applicable quarter (but excluding any
incoming Partners who received Units from an existing Limited Partner) and who
held Units as of the applicable Record Date but held such Units for less than
the entire period with respect to which the Capital Cash Flow distribution is to
be paid, based on the number of days such Units were outstanding during the
applicable period, or any other method of pro-ration deemed equitable by the
General Partner and, in such event, the amount of the distribution payable to
all other Partners shall be adjusted accordingly.
8.3 Consent to Distributions. Each of the Partners hereby
consents to the distributions provided for in this Agreement.
8.4 Right to Limit Distributions. The right of any Partner to
receive distributions of any nature pursuant to the terms of this Agreement
shall be subject to the terms of any agreement between such Partner and the
Partnership limiting, restricting or providing rights of set-off with respect to
such distributions.
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9. Management of Partnership.
-------------------------
9.1 General Partner. The General Partner shall be the sole
manager of the Partnership business, and shall have the right and power to make
all decisions and take any and every action with respect to the property, the
business and affairs of the Partnership and shall have all the rights, power and
authority generally conferred by law, or necessary, advisable or consistent with
accomplishing the purposes of the Partnership. All such decisions or actions
made or taken by the General Partner hereunder shall be binding upon all of the
Partners and the Partnership. The powers of the General Partner to manage the
Partnership business shall include, without limitation, the power and authority
to, directly or indirectly:
(i) operate any business normal or customary for the owner of or
investor in multifamily residential property;
(ii) perform any and all acts necessary or appropriate to the
operation of the Partnership assets, including, but not limited to,
applications for rezoning, objections to rezoning of other property and the
establishment of bank accounts in the name of the Partnership;
(iii) procure and maintain with responsible companies such
insurance as may be available in such amounts and covering such risks as
are deemed appropriate by the General Partner;
(iv) take and hold all real, personal and mixed property of the
Partnership in the name of the Partnership or in the name of a nominee;
(v) execute and deliver leases on behalf of and in the name of
the Partnership;
(vi) borrow money (whether on a secured or unsecured basis),
finance and refinance the assets of the Partnership or any part thereof or
interest therein, and in connection therewith, issue notes, bonds,
securities and other undertakings and evidences of indebtedness and
documents related thereto (including, without limitation, guaranty,
indemnities and similar undertakings to support loans obtained or debt
securities issued by the Company where the net proceeds thereof are either
loaned to the Partnership or contributed to the Partnership as a Capital
Contribution);
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(vii) coordinate all accounting and clerical functions of the
Partnership and employ such accountants, lawyers, property managers,
leasing agents and other management or service personnel as may from time
to time be required to carry on the business of the Partnership;
(viii) acquire any assets, and encumber, sell, ground lease or
otherwise dispose of any or all of the assets of the Partnership, or any
part thereof or interest therein;
(ix) and organize one or more partnerships which are
controlled, directly or indirectly, by the Partnership (including, without
limitation, Equity Residential Properties Management Limited Partnership)
and make any capital contributions required pursuant to the partnership
agreements of any such partnerships; and
(x) establish the date (the "Record Date") for the purpose of
making any proper determination in connection with, but not limited to, the
following matters: (a) which Partners are entitled to receive
distributions, (b) consent to any matter for which the consent of Partners
is permitted or required under any provision hereof, or (c) otherwise when
Partners are allocated rights hereunder.
9.2 Limitations on Powers and Authorities of Partners.
Notwithstanding the powers of the General Partner set forth in Section 9.1
above, no Partner shall have the right or power to do any of the following:
(a) do any act in contravention of this Agreement, or any
amendment hereto;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership, except to the extent that such act is
specifically permitted by the terms hereof (it being understood and agreed
that, except as hereafter provided in this Section 9.2, a sale of any or
all of the assets of the Partnership, for example, would be an ordinary
part of the Partnership's business and affairs and is specifically
permitted hereby); or
(c) confess a judgment against the Partnership.
9.3 Limited Partners. The Limited Partners shall have no right or
authority to act for or to bind the Partnership and no Limited Partner shall
participate in the conduct or control of the Partnership's affairs or business.
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9.4 Liability of General Partner. The General Partner shall not be
liable or accountable, in damages or otherwise, to the Partnership or to any
other Partner for any error of judgment or for any mistakes of fact or law or
for anything which it may do or refrain from doing hereafter in connection with
the business and affairs of the Partnership except (i) in the case of fraud,
willful misconduct (such as an intentional breach of fiduciary duty or an
intentional breach of this Agreement) or gross negligence, and (ii) for other
breaches of this Agreement, but the liability of the General Partner under this
clause (ii) shall be limited to its interest in the Partnership as more
particularly provided for in Section 9.8 below. The General Partner shall not
have any personal liability for the return of any Limited Partner's capital.
9.5 Indemnity. The Partnership shall indemnify and shall hold the
General Partner (and the officers and directors thereof) harmless from any loss
or damage, including without limitation reasonable legal fees and court costs,
incurred by it by reason of anything it may do or refrain from doing hereafter
for and on behalf of the Partnership or in connection with its business or
affairs; provided, however, that (i) the Partnership shall not be required to
indemnify the General Partner (or any officer or director thereof) for any loss
or damage which it might incur as a result of its fraud, willful misconduct or
gross negligence in the performance of its duties hereunder and (ii) this
indemnification shall not relieve the General Partner of its proportionate part
of the obligations of the Partnership as a Partner. In addition, the General
Partner shall be entitled to reimbursement from the Partnership for any amounts
paid by it in satisfaction of indemnification obligations owed by the General
Partner to present or former directors of the General Partner or its
predecessors, as provided for in or pursuant to the Declaration of Trust and By-
Laws of the General Partner. The right of indemnification set forth in this
Section 9.5 shall be in addition to any rights to which the person or entity
seeking indemnification may otherwise be entitled and shall inure to the benefit
of the successors and assigns of any such person or entity. No Partner shall be
personally liable with respect to any claim for indemnification pursuant to this
Section 9.5, but such claim shall be satisfied solely out of assets of the
Partnership.
9.6 Other Activities of Partners and Agreements with Related Parties.
The General Partner shall devote its full-time efforts in furtherance of the
Partnership business, it being expressly understood that, except for (i) the
Company's ownership of any wholly owned subsidiary or other entity of the
Company which is a partner of a partnership having the Partnership as a partner,
(ii) borrowing (including the issuance of debt securities) where the net
proceeds thereof are loaned or contributed to the Partnership, and (iii)
activities incidental to the Company's status and existence as a real estate
investment trust, the General Partner shall conduct all of its activities with
respect to the multifamily residential property business exclusively through the
Partnership and
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shall not conduct or engage in any way in any other business. Except as may
otherwise be agreed to in writing, each Limited Partner, and its affiliates,
shall be free to engage in, to conduct or to participate in any business or
activity whatsoever, including, without limitation, the acquisition,
development, management and exploitation of real and personal property (other
than property of the Partnership), without any accountability, liability or
obligation whatsoever to the Partnership or to any other Partner, even if such
business or activity competes with or is enhanced by the business of the
Partnership. The General Partner, in the exercise of its power and authority
under this Agreement, may contract and otherwise deal with or otherwise obligate
the Partnership to entities in which the General Partner or any one or more of
the officers, directors or shareholders of the General Partner may have an
ownership or other financial interest, whether direct or indirect.
9.7 Other Matters Concerning the General Partner.
--------------------------------------------
A. The General Partner shall be protected in relying, acting or
refraining from acting on any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
B. The General Partner may exercise any of the powers granted or
perform any of the duties imposed by this Agreement either directly or through
agents. The General Partner may consult with counsel, accountants, appraisers,
management consultants, investment bankers and other consultants selected by it,
each of whom may serve as consultants for the Partnership. An opinion by any
consultant on a matter which the General Partner believes to be within its
professional or expert competence shall be full and complete protection as to
any action taken or omitted by the General Partner based on the opinion and
taken or omitted in good faith. The General Partner shall not be responsible for
the misconduct, negligence, acts or omissions of any consultant or contractor of
the Partnership or of the General Partner, and shall assume no obligations other
than to use due care in the selection of all consultants and contractors.
C. No mortgagee, grantee, creditor or any other person dealing
with the Partnership shall be required to investigate the authority of the
General Partner or secure the approval of or confirmation by any Limited Partner
of any act of the General Partner in connection with the conduct of the
Partnership business.
D. The General Partner may retain such persons or entities as it
shall determine (including the General Partner or any entity in which the
General Partner shall have an interest or with which it is affiliated) to
provide services to or on behalf of the Partnership. The General Partner shall
be entitled to reimbursement from the Partnership
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for its out-of-pocket expenses (including, without limitation, amounts paid or
payable to the General Partner or any entity in which the General Partner shall
have an interest or with which it is affiliated) incurred in connection with
Partnership business. Such expenses shall be deemed to include those expenses
required in connection with the administration of the Partnership such as the
maintenance of Partnership books and records, management of the Partnership
property and assets and preparation of information respecting the Partnership
needed by the Partners in the preparation of their individual tax returns.
E. The General Partner may loan to the Partnership the net
proceeds of loans obtained or debt securities issued by the Company so long as
the terms of such loan to the Partnership are substantially equivalent to the
corresponding loan obtained or debt securities issued by the Company.
9.8 Partner Exculpation. Except for fraud, willful misconduct and
gross negligence, no Partner shall have any personal liability whatever, whether
to the Partnership or to the other Partner, for the debts or liabilities of the
Partnership or its obligations hereunder, and the full recourse of the other
Partner shall be limited to the interest of that Partner in the Partnership. To
the fullest extent permitted by law, no officer, director or shareholder of the
General Partner shall be liable to the Partnership for money damages except for
(i) active and deliberate dishonesty established by a final judgment or (ii)
actual receipt of an improper benefit or profit in money, property or services.
Without limitation of the foregoing, and except for fraud, willful misconduct
and gross negligence, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) in favor of any other Partner(s) and arising out of, or in connection
with, this Agreement. This Agreement is executed by the officers or general
partners of each Partner solely as officers or partners of the same and not in
their own individual capacities. No advisor, trustee, director, officer,
partner, employee, beneficiary, shareholder, participant or agent of any Partner
(or of any partner of a Partner) shall be personally liable in any matter or to
any extent under or in connection with this Agreement, and the Partnership, each
Partner and their respective successors and assigns shall look solely to the
interest of the other Partner in the Partnership for the payment of any claim or
for any performance hereunder.
9.9 General Partner Expenses and Liabilities. All costs and expenses
incurred by the Company in connection with its activities as the General Partner
hereunder, all costs and expenses incurred by the Company in connection with its
continued corporate existence, qualification as a real estate investment trust
under the Code and otherwise, and all other liabilities incurred or suffered by
the General Partner in connection with the pursuit of its business and affairs
as contemplated hereunder and in
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connection herewith, shall be paid (or reimbursed to the Company, if paid by the
Company) by the Partnership unless and to the extent that any such costs were
paid by the Company in connection with the issuance of additional shares of
beneficial interest of the Company as contemplated by Section 3.3(B) above.
Notwithstanding anything to the contrary contained herein, this Section 9.9
shall apply only to the extent that such costs, expenses or liabilities exceed
any cash distributed to the General Partner by any wholly-owned subsidiary of
the General Partner.
10. Banking. The funds of the Partnership shall be kept in accounts
designated by the General Partner and all withdrawals therefrom shall be made on
such signature or signatures as shall be designated by the General Partner.
11. Accounting.
----------
11.1 Fiscal Year. The fiscal year and taxable year of the
Partnership (the "fiscal year") shall end on the last day of December of each
year, unless another fiscal year end is selected by the General Partner.
11.2 Books of Account. The Partnership books of account shall be
maintained at the principal office designated in Section 4 above or at such
other locations and by such person or persons as may be designated by the
General Partner. The Partnership shall pay the expense of maintaining its books
of account. Each Partner shall have, during reasonable business hours and upon
reasonable prior notice, access to the books of the Partnership and in addition,
at its expense, shall have the right to copy such books. The General Partner,
at the expense of the Partnership, shall cause to be prepared and distributed to
the Partners annual financial data sufficient to reflect the status and
operations of the Partnership and its assets and to enable each Partner to file
its federal income tax return.
11.3 Method of Accounting. The Partnership books of account shall be
maintained and kept, and its income, gains, losses and deductions shall be
accounted for, in accordance with sound principles of accounting consistently
applied, or such other method of accounting as may be adopted hereafter by the
General Partner. All elections and options available to the Partnership for
Federal or state income tax purposes shall be taken or rejected by the
Partnership in the sole discretion of the General Partner.
11.4 Section 754 Election. In case of a distribution of property
made in the manner provided in Section 734 of the Code (or any similar provision
enacted in lieu thereof), or in the case of a transfer of any interest in the
Partnership permitted by this Agreement made in the manner provided in Section
743 of the Code (or any similar provision enacted in lieu thereof), the General
Partner, on behalf of the Partnership, will
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file an election under Section 754 of the Code (or any similar provision enacted
in lieu thereof) in accordance with the procedures set forth in the applicable
Regulations.
11.5 Tax Matters Partner. The General Partner is hereby designated
the Tax Matters Partner (hereinafter referred to as the "TMP") of the
Partnership and shall have all the rights and obligations of the TMP under the
Code.
11.6 Administrative Adjustments. If the TMP receives notice of a
Final Partnership Administrative Adjustment (the "FPAA") or if a request for an
administrative adjustment made by the TMP is not allowed by the United States
Internal Revenue Service (the "IRS") and the IRS does not notify the TMP of the
beginning of an administrative proceeding with respect to the Partnership's
taxable year to which such request relates (or if the IRS so notifies the TMP
but fails to mail a timely notice of an FPAA), the TMP may, but shall not be
obligated to, petition a Court for readjustment of partnership items. In the
case of notice of an FPAA, if the TMP determines that the United States District
Court or Claims Court is the most appropriate forum for such a petition, the TMP
shall notify each person who was a Partner at any time during the Partnership's
taxable year to which the IRS notice relates of the approximate amount by which
its tax liability would be increased (based on such assumptions as the TMP may
in good faith make) if the treatment of partnership items on his return was made
consistent with the treatment of partnership items on the Partnership's return,
as adjusted by the FPAA. Unless each such person deposits with the TMP, for
deposit with IRS, the approximate amount of his increased tax liability,
together with a written agreement to make additional deposits if required to
satisfy the jurisdictional requirements of the Court, within thirty days after
the TMP's notice to such person, the TMP shall not file a petition in such
Court. Instead, the TMP may, but shall not be obligated to, file a petition in
the United States Tax Court.
12. Transfers of Partnership Interests.
----------------------------------
A. General Partner. In no event may the General Partner at any
time assign, sell, transfer, pledge, hypothecate or otherwise dispose of all or
any portion of its Partnership Interest, except by operation of law.
B. Limited Partner.
---------------
(i) No Limited Partner or substituted Limited Partner shall,
without the prior written consent of the General Partner (which consent may be
given or withheld in the sole discretion of the General Partner), sell, assign,
distribute or otherwise transfer (a "Transfer") all or any part of his interest
in the Partnership, except (w) by operation of law, testamentary disposition,
gift (outright or in trust) or by sale, in each case to or for the benefit of
his parent(s), spouse or descendants, (x) pledges or other collateral
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transfers effected by a Limited Partner to secure the repayment of a loan or
other obligation; provided however, that each such pledgee shall agree in
writing, concurrent with such pledge or other collateral transfer, to (i)
subordinate its rights with respect to the pledged interest to any and all
rights granted by the pledging Limited Partner to the Partnership, whether or
not such rights constitute perfected security interests in favor of the
Partnership, including, without limitation, any rights to withhold, restrict or
offset distributions in respect of such pledged interest under the terms of any
agreement between the Partnership and the pledging Limited Partner, and (ii) to
defer the exercise of its rights as a secured creditor to realize upon the
collateral in the case of an event of default until the expiration of any
applicable "lock-up" period under the terms of any agreement between the
Partnership and the pledging Limited Partner, (y) the exchange of OP Units for
shares of beneficial interest of the Company, pursuant to Section 3.2(C) above,
and (z) the distribution of OP Units or Preference Units by a Limited Partner to
any of its direct or indirect constituent partners or owners. Notwithstanding
the foregoing, each such transfer shall be subject to compliance with
restrictions on transferability contained in any other applicable agreement
executed by the transferor and compliance with applicable securities laws; the
General Partner reserves the right to require an opinion of counsel regarding
such matters in form and substance reasonably acceptable to the General Partner
as a condition to any such Transfer. Neither the conversion of a Preference Unit
into one or more OP Units nor the conversion of OP Unit into a Common Share
constitutes a Transfer. A Limited Partner shall notify the General Partner of
any Transfer of beneficial interest or other interest which occurs without a
transfer of record ownership, as well as any pledge or other collateral
transfer. No part of the interest of a Limited Partner shall be subject to the
claims of any creditor, any spouse for alimony or support, or to legal process,
and may not be voluntarily or involuntarily alienated or encumbered except as
may be specifically provided for in this Agreement. A Limited Partner shall not
be permitted to retire or withdraw from the Partnership except as expressly
permitted by this Agreement.
(ii) An assignee, legatee, distributee or other transferee
(whether by conveyance, operation of law or otherwise)(including any pledgee
upon realization of its rights as a secured creditor) (a "Transferee") of all or
any portion of a Limited Partner's interest in the Partnership shall be entitled
to receive Profits, Losses and distributions hereunder attributable to such
interest acquired by reason of such Transfer, from and after the effective date
of the Transfer of such interest; provided, however, anything in this Agreement
to the contrary notwithstanding, (a) no Transfer by a Limited Partner shall be
effective until such Transfer has been consented to by the General Partner
except as provided in Section 12(B)(i); (b) without the prior written consent of
the General Partner, no Transferee shall be considered a substituted Limited
Partner except as provided in Section 12(B)(i)(w) and (z) and, in any event,
until such Transferee shall have agreed to be bound by the terms of this
Agreement and shall have executed a
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counterpart hereof; (c) the Partnership and the General Partner shall be
entitled to treat the transferor of such interest as the absolute owner thereof
in all respects, and shall incur no liability for the allocation of Profits and
Losses or distributions which are made to such transferor until such time as the
written instrument of Transfer has been received by the General Partner and the
"effective date" of the Transfer has passed, and (d) the General Partner shall
have the right to require any such transferor to exchange the OP Units to which
such interest relates for Common Shares, pursuant to Section 3.2(C) above. The
"effective date" of any Transfer shall be the last day of the month set forth on
the written instrument of Transfer or such other date consented to in writing by
the General Partner as the "effective date".
(iii) Notwithstanding anything to the contrary contained in
this Section 12(B), (a) in the event a Limited Partner distributes in
dissolution and liquidation all or any portion of its interest in the
Partnership, the partners, shareholders or members (as the case may be) in such
Limited Partner receiving such interest shall become substituted Limited
Partners, and shall (upon agreeing to be bound by the terms of this Agreement
and executing a counterpart hereof and/or any Preference Unit Terms Sheet or
Other Securities Term Sheet) succeed to the rights, interests and obligations of
such Limited Partner in the Partnership, in proportion to their respective
interests in such Limited Partner, and (b) no Transfer shall be effective to the
extent that such Transfer would, in the opinion of the General Partner (y) by
treating the interest in the Partnership so transferred as if it had been
exchanged for Common Shares in accordance with Section 3.2(C) above, violate the
limitations on ownership of Common Shares contained in Article VII of the
Declaration of Trust of the Company, or (z) violate any State or Federal
securities laws.
C. Admission Adjustments. The General Partner shall, when
necessary, cause this Agreement to be amended from time to time to reflect the
addition or withdrawal of Partners, and the issuance, conversion and redemption
of any Preference Units and/or OP Units (including the corresponding adjustments
to Percentage Interests).
D. Limitation. Notwithstanding any other provision of this
Agreement to the contrary, no sale, exchange, assignment, or other transfer or
issuance of a Partnership Interest by or to any Partner shall be effective, if
the effect of such transaction would be to cause the General Partner's
Percentage Interest to decrease to a level of fifty percent (50%) or less.
13. Admission of New Partners. The General Partner shall admit to
the Partnership as limited partners those persons and entities who are not
already Partners and who receive OP Units and/or Preference Units in accordance
with the provisions of
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this Agreement.
14. Termination, Liquidation and Dissolution of Partnership.
-------------------------------------------------------
14.1 Termination Events. The Partnership shall be dissolved and
its affairs wound up in the manner hereinafter provided
upon the earliest to occur of the following events:
(a) December 31, 2080; or
(b) the agreement of those Partners holding at least
ninety percent (90%) of the Percentage Interests of
all of the Partners, determining that the Partnership
should be dissolved; or
(c) subject to Section 14.4 below, the entry of a final
judgment, order or decree of a court of competent
jurisdiction adjudicating as bankrupt either the
Partnership or the General Partner, and the expiration
without appeal of the period, if any, allowed by
applicable law to appeal therefrom.
14.2 Method of Liquidation. Upon the happening of any of the
events specified in Section 14.1 above, the General Partner (or if there be no
General Partner, a liquidating trustee selected by those Limited Partners
holding in the aggregate more than fifty percent 50% of the Percentage Interests
held by all Limited Partners) shall immediately commence to wind up the
Partnership's affairs and shall liquidate the assets of the Partnership as
promptly as possible, unless the General Partner, or the liquidating trustee,
shall determine that an immediate sale of Partnership assets would cause undue
loss to the Partnership, in which event the liquidation may be deferred for a
reasonable time. The Partners shall continue to share Operating Cash Flow,
Capital Cash Flow, Profits and Losses during the period of liquidation in the
same proportions as before dissolution (subject to Section 14.2(C) below). The
proceeds from liquidation of the Partnership, including repayment of any debts
of Partners to the Partnership, shall be applied in the order of priority as
follows:
A. Debts of the Partnership, including repayment of principal
and interest on loans and advances made by the General Partner pursuant to
Sections 3.3 and/or 9.7 above; then
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B. To the establishment of any reserves deemed necessary or
appropriate by the General Partner, or by the person(s) winding up the affairs
of the Partnership in the event there is no remaining General Partner of the
Partnership, for any contingent or unforeseen liabilities or obligations of the
Partnership. Such reserves established hereunder shall be held for the purpose
of paying any such contingent or unforeseen liabilities or obligations and, at
the expiration of such period as the General Partner, or such person(s) deems
advisable, the balance of such reserves shall be distributed in the manner
provided hereinafter in this Section 14.2 as though such reserves had been
distributed contemporaneously with the other funds distributed hereunder; then
C. To the Partners in accordance with their respective Capital
Account balances, after giving effect to all contributions, distributions and
allocations for all periods. In connection therewith, income, gain and loss of
the Partnership (and to the extent necessary to achieve the purposes hereof,
items of gross income and deduction) with respect to the sale or other
disposition of all or substantially all of the Partnership's assets and/or the
Partnership's operations in connection therewith (whether or not attributable to
the taxable year in which the distribution pursuant to this Section 14.2(C) is
to be made or a preceding taxable year) shall be allocated among the Partners so
that each Partner's Capital Account shall equal, after taking into account the
prior balance (positive or negative) in such Partner's Capital Account and the
effect of such allocation, the amount that such Partner would be entitled to
receive if the Partnership were to make a distribution to the Partners pursuant
to the provisions of Section 8.2 hereof in an amount equal to the remaining
liquidation proceeds to be distributed under this Section 14.2(C).
14.3 Date of Termination. The Partnership shall be terminated when
all notes received in connection with such disposition have been paid and all of
the cash or property available for application and distribution under Section
14.2 above (including reserves) shall have been applied and distributed in
accordance therewith.
14.4 Reconstitution Upon Bankruptcy.
------------------------------
A. Notwithstanding any dissolution of the Partnership under
clause (c) of Section 14.1 above, if the Partnership is reconstituted as set
forth in this Section 14.4, then the business of the Partnership shall be
continued with the Partnership's property and the Partnership's assets shall not
be liquidated.
B. If the Partnership is dissolved by reason of the bankruptcy of
the General Partner, a successor general partner may be admitted within 90 days
after the dissolution, effective as of the date of dissolution, as the General
Partner hereunder, with the written consent of those Limited Partners holding
more than 50% of the aggregate
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Percentage Interests of all Limited Partners. Upon the admission of such
successor general partner, without any further consent or approval of any other
Partner, the Partnership shall be reconstituted as a successor limited
partnership.
C. If the Partnership is dissolved by reason of the bankruptcy of the
Partnership in a proceeding for the reorganization (and not the liquidation) of
the Partnership, then, with the consent of the Company and those Limited
Partners holding at least fifty percent (50%) of the Percentage Interests held
by all Limited Partners, the Partnership may be reconstituted within 90 days
after dissolution, effective as of the date of dissolution, whereupon the
Partnership shall be reconstituted as a successor limited partnership.
D. The successor limited partnership reconstituted in accordance with the
foregoing provisions of this Section 14.4 shall continue the business of the
Partnership with the Partnership's property. The Percentage Interests of the
Partners in the successor limited partnership shall be in proportion to their
respective Percentage Interests in the dissolved Partnership. Such successor
limited partnership shall be governed by the terms and provisions of this
Agreement and references in this Agreement to the Partnership or to the Partners
or their rights and obligations shall be understood to comprehend such successor
limited partnership and the Partners thereof and their rights and obligations.
14.5 Death, Legal Incompetency, Etc. of a Limited Partner. The death, legal
incompetency, insolvency, dissolution or bankruptcy of a Limited Partner shall
not dissolve or terminate the Partnership. Upon the death or incapacity of an
individual Limited Partner, such individual Limited Partner's interest in the
Partnership shall be transferred either by will, the laws of intestacy or
otherwise to the legal representative or successor of such individual Limited
Partner.
15. Power of Attorney. Each Limited Partner hereby irrevocably constitutes
and appoints the Chairman of the Board of the General Partner (or the Co-
Chairmen acting together if there be more than one), with full power of
substitution, its true and lawful attorney, for him and in his name, place and
stead and for his use and benefit, to sign, swear to, acknowledge, file and
record:
(i) this Agreement, and subject to Section 16 below, amendments to
this Agreement;
(ii) any certificates, instruments and documents (including assumed
and fictitious name certificates) as may be required by, or may be
appropriate under, the laws of the State of Illinois or any other State or
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jurisdiction in which the Partnership is doing or intends to do business,
in order to discharge the purposes of the Partnership or otherwise in
connection with the use of the name or names used by the Partnership;
(iii) any other instrument which may be required to be filed or
recorded by the Partnership on behalf of the Partners under the laws of any
State or by any governmental agency in order for the Partnership to conduct
its business;
(iv) any documents which may be required to effect the continuation of
the Partnership, the admission of a substitute or additional Partner, or
the dissolution and termination of the Partnership, provided such
continuation, admission or dissolution and termination is not in violation
of any provision of this Agreement; and
(v) any documents which may be required or desirable to have the
General Partner appointed, and act as, the "Tax Matters Partner" as
described in the Code.
The foregoing grant of authority is a special power of attorney coupled with an
interest, is irrevocable and shall survive the death or incapacity of any
individual Limited Partner, and shall survive the delivery of any assignment by
a Limited Partner of the whole or any portion of his interest in the
Partnership.
16. Amendment of Agreement.
----------------------
A. Each Limited Partner, by his execution of or joinder in this
Agreement, hereby irrevocably appoints the Chairman of the Board of the General
Partner (or the Co-Chairmen acting together if there be more than one) with
power of substitution, as his true and lawful attorney coupled with an interest,
in his name, place and stead to amend this Agreement in any respect other than:
(i) to enlarge the obligation of any Partner to make contributions to
the capital of the Partnership, as provided for in Section 3 above; or
(ii) except as otherwise provided for in this Agreement or as required
by law, to modify the allocation of Profits or Losses or distributions
among the Partners as provided for in Section 7 and 8 above, respectively;
or
(iii) to amend Sections 1, 3.2, 9.2, or 12; or
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(iv) to amend this Section 16.
B. With respect to amendments regarding Sections 16(A)(ii) or
16(A)(iii), this Agreement may be amended with the written consent of the
Company, the Zell Partners, and the Starwood Partners or their respective
successors in interest, as applicable, so long as they shall remain Partners and
those Limited Partners holding not less than 67% of the aggregate of Percentage
Interests held by all Limited Partners.
Notwithstanding the foregoing, the terms and conditions of a particular
series of Preference Units may not be changed without the written consent of the
holders of at least 67% of the Preference Units within the class or series (or
such greater percentage as may be provided for in the applicable Preference Unit
Term Sheet or Other Securities Term Sheet, as the case may be).
C. With respect to amendments regarding Sections 16(A)(i) or (iv),
this Agreement may be amended only with the written consent of all Partners.
In the event this Agreement shall be amended pursuant to this Section 16,
the General Partner shall cause this Agreement to be amended to reflect the
amendment.
17. Miscellaneous.
-------------
17.1 Notices. Any notice, election or other communication provided
for or required by this Agreement shall be in writing and shall be deemed to
have been given when delivered by hand or by telecopy or other facsimile
transmission, the first business day after sent by overnight courier (such as
Federal Express), or on the second business day after deposit in the United
States Mail, certified or registered, return receipt requested, postage prepaid,
properly addressed to the Partner to whom such notice is intended to be given at
the address for the Partner set forth on the signature pages of this Agreement,
or at such other address as such person may have previously furnished in writing
to the Partnership and each Partner with copies to:
Equity Residential Properties Trust
Two North Riverside Plaza
Suite 450
Chicago, Illinois 60606
Attention: General Counsel
17.2 Modifications. Except as otherwise provided in this Agreement,
no
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change or modification of this Agreement, nor any waiver of any term or
condition in the future, shall be valid or binding upon the Partners unless such
change or modification shall be in writing and signed by all of the Partners
provided, however, that in the case of a waiver of any term or condition, no
waiver shall be valid or binding upon any Partner against whom enforcement is
sought unless such Partner has consented to such waiver in writing.
17.3 Successors and Assigns. Any person acquiring or claiming an
interest in the Partnership, in any manner whatsoever, shall be subject to and
bound by all of the terms, conditions and obligations of this Agreement to which
his predecessor-in-interest was subject or bound, without regard to whether such
a person has executed a counterpart hereof or any other document contemplated
hereby. No person, including the legal representative, heir or legatee of a
deceased Partner, shall have any rights or obligations greater than those set
forth in this Agreement, and no person shall acquire an interest in the
Partnership or become a Partner thereof except as expressly permitted by and
pursuant to the terms of this Agreement. Subject to the foregoing, and the
provisions of Section 12 above, this Agreement shall be binding upon and inure
to the benefit of the Partners and their respective successors, assigns, heirs,
legal representatives, executors and administrators. Notwithstanding the
foregoing, the special voting and consent privileges granted to the Zell
Partners and the Starwood Partners contained in Section 3.2(B)(e) and Article 16
shall be limited to the Zell Partners and the Starwood Partners for such time as
they remain Partners and any Person acquiring Units as a result of the exercise
of remedies by a pledgee of Units held by such Partner and shall not be
transferred to each Partner's respective successors-in-interest.
17.4 Duplicate Originals. For the convenience of the Partners, any
number of counterparts hereof may be executed, and each such counterpart shall
be deemed to be an original instrument, and all of which taken together shall
constitute one agreement.
17.5 Construction. The titles of the Sections and subsections herein
have been inserted as a matter of convenience of reference only and shall not
control or affect the meaning or construction of any of the terms or provisions
herein.
17.6 Governing Law. This Agreement shall be governed by the laws of
the State of Illinois. Except to the extent the Act is inconsistent with the
provisions of this Agreement, the provisions of such Act shall apply to the
Partnership.
17.7 Other Instruments. The parties hereto covenant and agree that
they will execute such other and further instruments and documents as, in the
opinion of the General Partner, are or may become necessary or desirable to
effectuate and carry out
38
<PAGE>
the Partnership as provided for by this Agreement.
17.8 General Partner with Interest as Limited Partner. If the General
Partner ever has an interest as a Limited Partner in the Partnership, the
General Partner shall, with respect to such interest, enjoy all of the rights
and be subject to all of the obligations and duties of a Limited Partner.
17.9 Legal Construction. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
17.10 Gender. Whenever the context shall so require, all words
herein in any gender shall be deemed to include the masculine, feminine or
neuter gender, all singular words shall include the plural, and all plural words
shall include the singular.
17.11 Prior Agreements Superseded. This Agreement supersedes any
prior understandings or written or oral agreements amongst the Partners, or any
of them, respecting the within subject matter and contains the entire
understanding amongst the Partners with respect thereto; provided, however, that
the following joinders and/or addendums shall be deemed to be incorporated
herein and shall be deemed to be part of this Fourth Amended and Restated ERP
Operating Limited Partnership Agreement of Limited Partnership: (a) 1994 Series
A Preference Unit Term Sheet and Joinder to Operating Partnership dated as of
December 14, 1994; (b) Other Securities Term Sheet and Joinder to ERP Operating
Partnership Agreement for 9 3/8% Series A Cumulative Preference Units dated as
of June 1, 1995; (c) Addendum to Other Securities Term Sheet and Joinder to ERP
Operating Partnership Agreement for 9 3/8% Series A Cumulative Preference Units
dated as of June 13, 1995; (d) Addendum dated as of August 4, 1995 to Third
Amended and Restated ERP Operating Limited Partnership Agreement of Limited
Partnership; and (e) Further Addendum dated as of August 7, 1995 to Third
Amended and Restated ERP Operating Limited Partnership Agreement of Limited
Partnership, copies of which are attached hereto.
17.12 No Third Party Beneficiary. The terms and provisions of this
Agreement are for the exclusive use and benefit of General Partner and the
Limited Partners and shall not inure to the benefit of any other person or
entity.
17.13 Purchase for Investment. Each Partner represents, warrants and
agrees that it has acquired and continues to hold its interest in the
Partnership for its own account for investment only and not for the purpose of,
or with a view toward, the resale
39
<PAGE>
or distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances. Each Partner further represents and
warrants that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds it has invested in the Partnership in what it
understands to be a highly speculative and illiquid investment.
17.14 Waiver. No consent or waiver, express or implied, by any
Partner to or of any breach or default by any other Partner in the performance
by such other Partner of its obligations hereunder shall be deemed or construed
to be a consent to or waiver of any other breach or default in the performance
by such other Partner of the same or any other obligations of such Partner
hereunder. Failure on the part of any Partner to complain of any act or failure
to act on the part of any other Partner or to declare any other Partner in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Partner of its rights hereunder.
17.15 Time of Essence. Time is hereby expressly made of the essence
with respect to the performance by the parties of their respective obligations
under this Agreement.
17.16 Counterparts. This Agreement may be executed in one or more
counterparts, which when taken together, shall constitute but one original.
40
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and sworn to as of the
day and year first above written by the General Partner for itself and on behalf
of the Limited Partners pursuant to Section 16 hereof.
GENERAL PARTNER:
----------------
EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland
real estate investment trust
By: /s/ David J. Neithercut
-----------------------
Name: David J. Neithercut
Title: Executive Vice President
and Chief Financial Officer
41
<PAGE>
SCHEDULE A
----------
LIMITED PARTNER
515 Lake-Two Lakes General Partnership
E-BS Associates
E-FH-One, Inc.
E-FH-Two , Inc.
E-FH-Three, Inc.
E-G-Three Associates
E-QR Associates
E-SD Associates
E-V-One Associates
E-V-Two Associates
E-V-Three Associates
FC Partnership, Ltd.
FU Associates
Hidden Valley Joint Venture
Mallgate Investors
Maxwell Apartments Limited Partnership
SE Continental Villas Limited Partnership
SE Governor's Place Associates Limited Partnership
SE Plantation Limited Partnership
Southeastern Properties Associates
Arlington-Temple Terrace General Partnership
The Lakes, Ltd.
Valley Park South Apartments Investors
E-Chaparral, Inc.
E-Stonebrook, Inc.
E-G-One, Inc.
E-G-Two, Inc.
E-Lodge, Inc.
First Capital Grave Dancer I
Equity Financial Investment Company
Equity Properties Management Corp.
42
<PAGE>
SCHEDULE B
----------
LIMITED PARTNER PROPERTY
Sofistar I Limited Partnership, Northgate Apartments
a Delaware limited partnership Kingswood Apartments
Hearthstone Apartments
River Oaks Apartments
Hartley House Apartments
Flying Sun Apartments
Bay Club Apartments
Canyon Creek Apartments
The Trails Apartments
Windmill Apartments
Cheyenne Crest Apartments
Deerwood Meadows Apartments
Stonelake Club Apartments
Park West Apartments
Indian Tree Apartments
Bethany Village Apartments (I)
Bethany Village Apartments (II)
SCP Nashville Partners, L.P. Arbors of Brentwood (I and II)
Arbor Ridge Apartments
Starwood Opportunity Fund I, L.P., Glenridge Apartments
a Delaware limited partnership Yuma Court Apartments
Starwood Opportunity Fund IA, L.P., Hunters Green Apartments
a Delaware limited partnership
Starwood Mortgage Investors III, Inc., Bethany Village Apartments (I)
a Delaware corporation Bethany Village Apartments (II)
Breton/Hammocks Limited Partnership, Breton Mill Apartments
43
<PAGE>
a Delaware limited partnership Hammocks Place Apartments
44
<PAGE>
[Letterhead of Rosenberg & Liebentritt, P.C.]
June 26, 1996
Board of Trustees
Equity Residential Properties Trust
Two North Riverside Plaza
Suite 450
Chicago, Illinois 60606
Ladies and Gentlemen:
We are acting as counsel to Equity Residential Properties Trust, a Maryland
real estate investment trust (the "Company"), in connection with its
registration statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission relating to (i) the possible issuance by the
Company of up to 608,665 common shares (the "Exchange Shares") of beneficial
interest, $.01 par value per share ("Common Shares"), of the Company if, and to
the extent that (subject to the discretion of the Company), holders of up to
608,665 outstanding partnership interests ("OP Units") in ERP Operating Limited
Partnership (the "Operating Partnership"), of which the Company is the sole
general partner and owns a controlling interest, exchange such OP Units for
Common Shares; and (ii) the offer and sale from time to time of up to 608,665
Exchange Shares by the holders set forth in the Prospectus which is a part of
the Registration Statement (the "Selling Shareholders") thereof following the
potential issuance of such Exchange Shares, upon the exchange of up to 608,665
OP Units, to the Selling Shareholders, if and to the extent such Selling
Shareholders exchange such OP Units for the Exchange Shares. This opinion
letter is furnished to you at your request to enable the Company to fulfill the
requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. (S) 229.601(b)(5),
in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents;
1. An executed copy of the Registration Statement.
2. Copies of that certain Agreement for Contribution of Real Estate and
Related Property dated as of June 15, 1995 (the "Contribution Agreement"),
pursuant to which the
<PAGE>
Board of Trustees
Equity Residential Properties Trust
June 26, 1996
Page 2
Beauchamp Investors (as defined therein) received OP Units in exchange for
interests in certain multifamily properties.
3. Copies of that certain Registration Rights and Lock-Up Agreement dated
as of June 15, 1995 (the "Registration Rights Agreement"), pursuant to which the
Beauchamp Investors and their successors and assigns were granted demand
registration rights as to the Exchange Shares.
4. The Amended and Restated Declaration of Trust, as amended, of the
Company, as certified by the Secretary of the Company as being complete,
accurate and in effect as of the date hereof.
5. The Amended and Restated Bylaws of the Company, as certified by the
Secretary of the Company on the date hereof as being complete, accurate and in
effect as of the date hereof and as of the respective dates of the Contribution
Agreement and the Registration Rights Agreement.
6. Resolutions of the Board of Trustees of the Company adopted on July 17,
1995 and June 26, 1996, as certified by the Secretary of the Company on the date
hereof as then being complete, accurate and in effect, relating to the
authorization of the Contribution Agreement and the Registration Rights
Agreement, and the authorization and filing of the Registration Statement, and
arrangements in connection therewith, respectively.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
We call your attention to the fact that our firm only requires lawyers to
be qualified to practice law in the State of Illinois and, in rendering the
opinions set forth herein, we express no opinion with respect to any laws
relevant to this opinion other than the laws and regulations identified herein.
With respect to the opinion below that relates to the laws of the State of
Maryland, with your consent, we rely solely on the opinion of Hogan & Hartson
L.L.P., a copy of which is attached hereto as Exhibit A.
<PAGE>
Board of Trustees
Equity Residential Properties Trust
June 26, 1996
Page 3
Based upon, subject to and limited by the foregoing, we are of the opinion
that following effectiveness of the Registration Statement and assuming that at
the time the OP Units were issued pursuant to the Contribution Agreement, the
Company and/or the Operating Partnership received the consideration for the OP
Units specified in the resolutions of the Board of Trustees authorizing the
Contribution Agreement, the Exchange Shares, if and when issued upon the
exchange of the OP Units, will be validly issued, fully paid and nonassessable
under Title 8 of the Corporation and Associations Article of the Annotated Code
of Maryland.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent (i) to be named in the Registration Statement, and in the
Prospectus, as attorneys who will pass upon the legality of the Securities to be
sold thereunder and (ii) to the filing of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
ROSENBERG & LIEBENTRITT, P.C.
By: /s/ Ruth Pinkham Haring
------------------------------------
Vice President
<PAGE>
EXHIBIT A
June 26, 1996
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza
Suite 1515
Chicago, Illinois 60606
Ladies and Gentlemen:
We are acting as special Maryland counsel to Equity Residential Properties
Trust, a Maryland real estate investment trust (the "Company"), in connection
with its registration statement on Form S-3 (the "Registration Statement") filed
with the Securities and Exchange Commission relating to (i) the proposed public
offering of up to 608,665 common shares (the "Exchange Shares") of beneficial
interest, $.01 par value per share (the "Common Shares"), that may be issued by
the Company if, and to the extent that, holders of up to 608,665 outstanding
partnership interests ("OP Units") in ERP Operating Limited Partnership (the
"Operating Partnership"), of which the Company is the sole general partner,
exchange such OP Units for Common Shares; and (ii) the offer and sale from time
to time of up to 608,665 Exchange Shares by the holders thereof following the
potential issuance of such Exchange Shares, upon the exchange of up to 608,665
OP Units, to the holders thereof, if and to the extent that such holders
exchange such OP Units for the Exchange Shares. This opinion letter is
furnished to you at your request to enable the Company to continue to fulfill
the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R.
(S) 229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Amended and Restated Declaration of Trust, as amended, of the
Company (the "Declaration of Trust"), as certified by the
<PAGE>
Rosenberg & Liebentritt, P.C.
June 26, 1996
Page 2
Maryland State Department of Assessments and Taxation on May 17, 1996
and the Secretary of the Company on the date hereof as being complete,
accurate and in effect.
3. The Amended and Restated Bylaws of the Company, as certified by the
Secretary of the Company on the date hereof as being complete,
accurate and in effect.
4. Resolutions of the Board of Trustees of the Company adopted on June
26, 1996, relating to the filing of the Registration Statement and
related matters, as certified by the Secretary of the Company on the
date hereof as being complete, accurate and in effect.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on Title 8 of the
Corporation and Associations Article of the Annotated Code of Maryland (the
"Maryland REIT Statute"). We express no opinion herein as to any other laws,
statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the opinion
that following issuance of the Exchange Shares in exchange for OP Units as
described in the prospectus included in the Registration Statement and as
specified in the resolutions of the Board of Trustees referred to above, the
Exchange Shares will be validly issued, fully paid and nonassessable under the
Maryland REIT Statute.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing by the Company of the
Registration Statement on the date of this opinion letter and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
<PAGE>
Rosenberg & Liebentritt, P.C.
June 26, 1996
Page 3
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus constituting a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are an "expert" within the
meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE>
June 26, 1996
Equity Residential Properties Trust
Two North Riverside Plaza
Suite 450
Chicago, Illinois 60606
Ladies and Gentlemen:
We have acted as counsel to Equity Residential Properties Trust, a Maryland
real estate investment trust (the "Company"), in connection with the
registration of up to 608,665 shares of the Company's common shares of
beneficial interest, par value $.01 per share (the "Common Shares"), as more
fully described in the Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on the date hereof (the "Registration
Statement," which includes the "Prospectus"). In connection with the
registration of the Common Shares, we have been asked to provide an opinion
regarding certain federal income tax matters related to the Company. Capitalized
terms used in this letter and not otherwise defined herein have the meaning set
forth in the Prospectus.
The opinion set forth in this letter is based on relevant provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
thereunder (including proposed and temporary Regulations), and interpretations
of the foregoing as expressed in court decisions, the legislative history, and
existing administrative rulings and practices of the Internal Revenue Service
(including its practices and policies in issuing private letter rulings, which
are not binding on the Internal Revenue Service except with respect to a
taxpayer that receives such a ruling), all as of the date hereof. These
provisions and interpretations are subject to change, which may or may not be
retroactive in effect, that might result in modifications of our opinion. Our
opinion does not foreclose the possibility of a contrary determination by the
Internal Revenue Service or a court of competent jurisdiction, or of a contrary
position by the Internal Revenue Service or the Treasury Department in
regulations or rulings issued in the future.
In rendering our opinion, we have examined such statutes, regulations,
records, certificates and other documents as we have considered necessary or
appropriate as a basis for such opinion, including the following: (1) the
Registration Statement (including the exhibits thereto and all amendments made
through the date hereof); (2) the Amended and Restated Declaration of Trust of
the Company (the "Declaration of Trust") as in effect on the date hereof;
<PAGE>
Equity Residential Properties Trust
June 26, 1996
Page 2
(3) the Fourth Amended and Restated ERP Operating Limited Partnership Agreement
of Limited Partnership, dated September 30, 1995; (4) the Equity Residential
Properties Management Limited Partnership Agreement of Limited Partnership,
dated July 23, 1993 and the Equity Residential Properties Management Limited
Partnership II Agreement of Limited Partnership, dated November 3, 1994
(collectively, these two partnerships will be referred to as the "Management
Partnerships"); (5) the articles of incorporation, by-laws and stock ownership
information of the three Management Corps.; (6) the partnership agreements or
limited liability company agreements of the Financing Partnerships and all other
partnerships or limited liability companies in which the Operating Partnership
has an interest (collectively, the "Subsidiary Partnerships") (for a list of the
Subsidiary Partnerships, see Exhibit A); and (7) the articles of incorporation,
by-laws and stock ownership information of the QRS Corporations (for a list of
the QRS Corporations, see Exhibit B). The opinion set forth in this letter also
is premised on certain representations of the Company and the Operating
Partnership.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are true
and correct, and all of the obligations imposed by any such documents on the
parties thereto have been and will be performed or satisfied in accordance with
their terms. Moreover, we have assumed that the Company, the Operating
Partnership, and the Subsidiary Entities (as defined in the Prospectus) each
have been and will continue to be operated in the manner described in the
relevant partnership agreement, limited liability company agreement, articles of
incorporation or other organizational documents and in the Prospectus. We also
have assumed the genuineness of all signatures, the proper execution of all
documents, the authenticity of all documents submitted to us as originals, the
conformity to originals of documents submitted to us as copies, and the
authenticity of the originals from which any copies were made.
For the purposes of our opinion, we have not made an independent
investigation of the facts set forth in the documents we reviewed. We
consequently have assumed that the information presented in such documents or
otherwise furnished to us accurately and completely describes all material facts
relevant to our opinion. No facts have come to our attention, however, that
would cause us to question the accuracy and completeness of such facts or
documents in a material way.
We assume for the purposes of this opinion that the Company is a validly
organized and duly incorporated real estate investment trust under the laws of
the State of Maryland, that the Management Corps. and the QRS Corporations are
validly organized and duly incorporated corporations under the laws of the
states in which they are incorporated, and that the Operating Partnership, the
Management Partnerships, and the Financing Partnerships are duly
<PAGE>
Equity Residential Properties Trust
June 26, 1996
Page 3
organized and validly existing partnerships or limited liability companies under
the laws of the states in which they are organized.
Based upon, and subject to, the foregoing and the next paragraph below, we
are of the opinion that:
1. The Company was organized and has operated in conformity with the
requirements for qualification and taxation as a REIT under the Code
for its taxable years ended December 31, 1993, December 31, 1994, and
December 31, 1995, and the Company's current organization and method of
operation should enable it to continue to meet the requirements for
qualification and taxation as a REIT; and
2. The discussion in the Prospectus under the heading "Federal Income
Tax Considerations," to the extent that it constitutes matters of law
or legal conclusions, is correct in all material respects.
The Company's qualification and taxation as a REIT depend upon the
Company's ability to meet on a continuing basis, through actual annual operating
and other results, the various requirements under the Code and described in the
Prospectus with regard to, among other things, the sources of its gross income,
the composition of its assets, the level of its distributions to stockholders,
and the diversity of its share ownership. Hogan & Hartson L.L.P. will not review
the Company's compliance with these requirements on a continuing basis. No
assurance can be given that the actual results of the operations of the Company,
the Operating Partnership, and the Subsidiary Entities, the sources of their
income, the nature of their assets, the level of the Company's distributions to
shareholders and the diversity of its share ownership for any given taxable year
will satisfy the requirements under the Code for qualification and taxation as a
REIT.
For a discussion relating the law to the facts and the legal analysis
underlying the opinion set forth in this letter, we incorporate by reference the
discussion of federal income tax issues, which we assisted in preparing, in the
section of the Prospectus under the heading "Federal Income Tax Considerations".
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein.
Very truly yours,
<PAGE>
Equity Residential Properties Trust
June 26, 1996
Page 4
Hogan & Hartson L.L.P.
<PAGE>
Exhibit A
SUBSIDIARY PARTNERSHIPS
1. EQR-Emerald Place Financing Limited Partnership;
2. EQR-Essex Place Financing Limited Partnership;
3. EQR-Tanasbourne Terrace Financing Limited Partnership;
4. WENT Limited Partnership;
5. EQR-Reserve Square Limited Partnership;
6. Country Club Associates Limited Partnership;
7. Second Country Club Associates Limited Partnership;
8. Second Georgian Woods Limited Partnership;
9. Greenwich Woods Associates Limited Partnership;
10. Artery Northampton Limited Partnership;
11. Third Towne Centre Limited Partnership;
12. Fourth Towne Centre Limited Partnership;
13. EQR-BS Financing Limited Partnership;
14. EQR-Chaparral Creek GP Limited Partnership;
15. E-Chaparral Associates Limited Partnership;
16. EQR-Lincoln Green I and II GP Limited Partnership;
17. E-G One Associates;
18. E-G Two Associates;
19. EQR-Lodge (OK) GP Limited Partnership;
20. E-Lodge Associates;
21. EQR-Stonebrook GP Limited Partnership;
22. E-Stonebrook Associates;
23. EQR-Sleepy Hollow Financing Limited Partnership;
24. EQR-EOI Financing Limited Partnership;
25. EQR-Continental Villas Financing Limited Partnership;
26. EQR-Doral Financing Limited Partnership;
27. EQR-Governor's Place Financing Limited Partnership;
<PAGE>
Exhibit A
28. EQR-Plantation Financing Limited Partnership;
29. EQR-Valley Park South Financing Limited Partnership;
30. EQR-Yorktowne Financing Limited Partnership;
31. EQR-SWN Line Financing Limited Partnership;
32. EQR-Arbors Financing Limited Partnership;
33. EQR-Breton Hammocks Financing Limited Partnership;
34. EQR-Met Financing Limited Partnership;
35. EQR-Met CA Financing Limited Partnership;
36. EQR-Wellington Hill Financing Limited Partnership;
37. Equity-Chaparral Venture Limited Partnership;
38. Equity-Green I Venture;
39. Equity-Green II Venture;
40. Equity-Lodge Venture Limited Partnership;
41. Equity-Stonebrook Venture Limited Partnership;
42. EQR-Fountainhead I Financing General Partnership;
43. EQR-Fountainhead II Financing General Partnership;
44. EQR-Fountainhead III Financing General Partnership;
45. Georgian Woods Annex Associates;
46. EQR-Keystone, L.L.C.;
47. EQR-Camellero Financing Limited Partnership;
48. EQR-Arizona, L.L.C.;
49. EQR-Washington, L.L.C.;
50. EQR-Wellington, L.L.C.;
51. EQR-Oregon, L.L.C.;
52. EQR-Waterfall, L.L.C.;
53. Multifamily Portfolio LP Limited Partnership;
54. EQR-California, L.C.C.;
55. EQR-Georgia, L.L.C.;
56. EQR-Plantation, L.L.C.;
-2-
<PAGE>
Exhibit A
57. EQR-ArtBHolder, L.L.C.; and
58. EQR-ArtCapLoan, L.L.C.
59. EQR-Keystone Financing G.P.;
60. Country Ridge General Partentnership; and
61. Rosehill Pointe General Partnership.
-3-
<PAGE>
Exhibit B
QRS CORPORATIONS
1. ERP-QRS BS, Inc.;
2. ERP-QRS Chaparral Creek, Inc.;
3. ERP-QRS Lincoln Green, Inc.;
4. ERP-QRS Lodge (OK), Inc.;
5. ERP-QRS Stonebrook, Inc.;
6. ERP-QRS Sleepy Hollow, Inc.;
7. ERP-QRS EOI, Inc.;
8. ERP-QRS Continental Villas, Inc.;
9. ERP-QRS Doral, Inc.;
10. ERP-QRS Governor's Place, Inc.;
11. ERP-QRS Plantation, Inc.;
12. ERP-QRS Valley Park South, Inc.;
13. ERP-QRS Yorktowne, Inc.;
14. ERP-QRS SWN Line, Inc.;
15. ERP-QRS Arbors, Inc.;
16. ERP-QRS Breton Hammocks, Inc.;
17. ERP-QRS Emerald Place, Inc.;
18. ERP-QRS Essex Place, Inc.;
19. ERP-QRS Met, Inc.;
20. ERP-QRS Met CA, Inc.;
21. ERP-QRS Wellington Hill, Inc.;
22. ERP-QRS Tanasbourne Terrace, Inc.;
23. ERP-QRS Reserve Square, Inc.;
24. WENT Corp.;
25. ERP-QRS Camellero, Inc.;
26. QRS-LLC, Inc.;
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our reports dated February 14, 1996 (except for Note 20, as to
which the date is March 14, 1996) accompanying the consolidated and combined
financial statements and schedule of Equity Residential Properties Trust and
Predecessor Business as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995. We have also issued our report
dated October 4, 1995 accompanying the Combined Statement of Revenue and Certain
Expenses of the 1995 Most Recent Acquired Properties for the year ended December
31, 1994 included in the Current Report of Equity Residential Properties Trust
on Form 8-K/A, as amended, dated September 21, 1995. We consent to the
incorporation by reference of the above reports in the Registration Statement of
Equity Residential Properties Trust on Form S-3, and to the use of our name as
it appears under the caption "Experts".
GRANT THORNTON LLP
Chicago, Illinois
June 26, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3 and related Prospectus of Equity Residential
Properties Trust for the registration of 608,665 common shares of beneficial
interest and to the incorporation by reference therein of our report dated May
17, 1996 with respect to the Combined Statement of Revenue and Certain Expenses
of the 1996 Acquired Properties and Probable Properties for the year ended
December 31, 1995, included in the Current Report of Equity Residential
Properties Trust on Form 8-K, dated May 23, 1996, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Chicago, Illinois
June 26, 1996
