<PAGE>
REGISTRATION NO. 333-35873
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EQUITY RESIDENTIAL PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 6513 13-3675988
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
TWO NORTH RIVERSIDE PLAZA, SUITE 400
CHICAGO, IL 60606
(312) 474-1300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DOUGLAS CROCKER II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TWO NORTH RIVERSIDE PLAZA, SUITE 400
CHICAGO, IL 60606
(312) 474-1300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ERROL R. HALPERIN, ESQ. KENNETH M. DORAN, ESQ.
HAL M. BROWN, ESQ. GIBSON, DUNN & CRUTCHER LLP
RUDNICK & WOLFE 333 SOUTH GRAND AVENUE
203 NORTH LASALLE STREET, SUITE 1800 LOS ANGELES, CALIFORNIA 90071
CHICAGO, ILLINOIS 60601 (213) 229-7000
(312) 368-4000 (213) 229-7520 (TELECOPIER)
(312) 236-7516 (TELECOPIER)
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<PAGE>
Revised Preliminary Copy
LOGO
TWO NORTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
November 24, 1997
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Equity Residential Properties Trust, a Maryland real estate investment trust
("EQR"), to be held at One North Franklin, Chicago, Illinois, on December 23,
1997, at 10:00 a.m., local time (the "EQR Special Meeting").
At the EQR Special Meeting, you will be asked to approve the acquisition of
the multifamily property business of Evans Withycombe Residential, Inc., a
Maryland corporation ("EWR"), by EQR through the tax-free merger of EWR into
EQR (the "Merger"). In the Merger, each outstanding share of common stock of
EWR will be converted into 0.5 of a common share of beneficial interest of
EQR.
Details of the proposed Merger and information regarding EQR and EWR are
contained in the attached Joint Proxy Statement/Prospectus, which you are
encouraged to read carefully. Special note should be taken of the risk factors
relating to the proposed Merger, which are discussed beginning on page 15 of
the attached Joint Proxy Statement/Prospectus.
Your Board of Trustees believes that the proposed acquisition of EWR by EQR
will benefit EQR by (i) acquiring a high quality portfolio of approximately
16,000 apartment units, (ii) making the resulting company better equipped to
meet competitive challenges by increasing its size and achieving greater
economics of scale, (iii) improving its access to capital and (iv) improving
its capability to expand and monitor EQR's relationships with third-party
developers who build multifamily properties for EQR to purchase upon
completion.
Your Board of Trustees has carefully reviewed and considered the terms and
conditions of the Merger and has received and considered the opinion of J.P.
Morgan Securities Inc. ("J.P. Morgan") dated August 27, 1997 to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the consideration to be paid by EQR in connection with
the Merger was fair to EQR from a financial point of view. A copy of the
written opinion of J.P. Morgan is included as Appendix C to the Joint Proxy
Statement/Prospectus and should be read carefully in its entirety. Your Board
of Trustees has approved the Merger and believes the Merger is in the best
interests of EQR and its shareholders, and recommends that all shareholders
vote FOR approval of the Merger.
The Merger requires the affirmative vote of EQR shareholders owning a
majority of the outstanding shares of EQR Common. Accordingly, whether or not
you plan to attend the EQR Special Meeting, please complete, sign and date the
accompanying proxy card and return it in the enclosed prepaid envelope. You
may revoke your proxy in the manner described in the accompanying Joint Proxy
Statement/Prospectus at any time before it has been voted at the EQR Special
Meeting. If you attend the EQR Special Meeting, you may vote in person even if
you have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated. This solicitation is made on behalf of the Board of
Trustees of EQR.
Sincerely,
LOGO
Douglas Crocker II,
Chief Executive Officer, President and
Trustee
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("EQR Special
Meeting") of Equity Residential Properties Trust, a Maryland real estate
investment trust ("EQR"), will be held at One North Franklin, Chicago,
Illinois, on December 23, 1997 at 10:00, a.m. local time, to consider and vote
on a proposal to approve the merger of Evans Withycombe Residential, Inc., a
Maryland corporation ("EWR"), into EQR, pursuant to an Agreement and Plan of
Merger entered into by EQR and EWR on August 27, 1997.
Only holders of record of common shares of beneficial interest, $.01 par
value per share, of EQR at the close of business on November 14, 1997 will be
entitled to vote at the EQR Special Meeting.
By Order of the Board of Trustees,
Bruce C. Strohm
Executive Vice President,
Secretary and General Counsel
Chicago, Illinois
November 24, 1997
PLEASE DATE, SIGN AND RETURN YOUR EQR PROXY PROMPTLY IN THE ENCLOSED, SELF-
ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE>
Revised Preliminary Copy
EVANS WITHYCOMBE RESIDENTIAL, INC.
6991 EAST CAMELBACK ROAD
SUITE A-200
SCOTTSDALE, ARIZONA 85251
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Evans Withycombe Residential, Inc. ("EWR") to be held at
, Scottsdale, Arizona, on December 23, 1997, at 9:00 a.m., Arizona time
(the "EWR Special Meeting").
At the EWR Special Meeting, you will be asked to approve the merger (the
"Merger") of the multifamily property business of EWR with and into Equity
Residential Properties Trust, a Maryland real estate investment trust ("EQR").
In the Merger, each outstanding share of Common Stock of EWR ("EWR Common")
will be converted into 0.5 of a common share of beneficial interest of EQR
("EQR Common").
Details of the proposed Merger and information regarding EWR and EQR are
contained in the attached Joint Proxy Statement/Prospectus, which you are
encouraged to read carefully. Special note should be taken of the risk factors
relating to the proposed Merger, which are discussed beginning on page 15 of
the attached Joint Proxy Statement/Prospectus and which include the following
risks:
. Conflicts of interest due to the fact that certain members of the Board of
Directors and management of EWR have certain interests that arise in
connection with the Merger that are in addition to the interests of
shareholders of EWR generally including, among other things, consulting and
employment agreements between EQR and certain executives of EWR; payments
in cash by EQR for the value of certain options to purchase EWR Common and
for certain bonuses and the issuance of options to purchase EQR Common to
certain officers of EWR.
. EQR is subject to the risks associated with debt or preferred equity
financings, including the risk that EQR's cash flow will be insufficient to
meet required payments of principal, interest and distributions, 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 certain 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.
. A substantial portion of EQR's debt was issued pursuant to indentures which
restrict the amount of indebtedness (including acquisition financing) that
EQR may incur.
. Immediately following consummation of the Merger, EQR will own properties
and bonds collateralized by properties that are subject to restrictive
covenants or deed restrictions.
. Risks associated with (a) a potential change in the relative stock prices
of EQR Common and EWR Common prior to the effective time of the Merger and
(b) a possible reduction in the market price of EQR Common following the
Merger.
. Expectations that the distributions payable with respect to each share of
EQR Common will be $2.50 per annum compared to $3.18 per annum with respect
to two shares of EWR Common (based upon the distributions per share of EQR
Common and EWR Common declared for the four fiscal quarters ending
September 30, 1997).
. Shareholders of EWR and shareholders of EQR are not entitled to dissenting
shareholders' appraisal rights under Maryland law.
. The obligation of EWR to pay a substantial break-up fee and/or break-up
expenses under certain circumstances may adversely affect the ability of
EWR to engage in another transaction in the event the Merger is not
consummated.
. Upon consummation of the Merger, holders of shares of EWR Common will own
approximately 12% of EQR Common and will not have separate approval rights
with respect to any actions or decisions of EQR.
. EQR and EWR are large enterprises with operations in a number of different
states. There can be no assurance that costs or other factors associated
with the integration of the two companies would not adversely affect future
combined results of operations or the benefits of expected cost savings.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger and has received and considered the written opinion
of Morgan Stanley Realty Incorporated ("Morgan Stanley") dated August 27, 1997
to the effect that, as of the date of such opinion, and based upon and subject
to the assumptions made, matters considered, and limits on the review as
stated therein, the proposed consideration to be received by the holders of
shares of EWR Common
<PAGE>
pursuant to the Merger was fair from a financial point of view to such
holders. A copy of the written opinion of Morgan Stanley dated August 27, 1997
is included as Appendix D to the Joint Proxy Statement/Prospectus and should
be read carefully in its entirety. Your Board of Directors has approved the
Merger and believes the Merger is in the best interests of EWR and its
shareholders, and recommends that all shareholders vote FOR approval of the
Merger.
The Merger requires the affirmative vote of EWR shareholders holding a
majority of the outstanding shares of EWR Common. Accordingly, whether or not
you plan to attend the EWR Special Meeting, please complete, sign and date the
accompanying proxy card and return it in the enclosed prepaid envelope. You
may revoke your proxy in the manner described in the accompanying Joint Proxy
Statement/Prospectus at any time before it has been voted at the EWR Special
Meeting. If you attend the EWR Special Meeting, you may vote in person even if
you have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated. This solicitation is made on behalf of the Board of
Directors of EWR.
Sincerely,
Stephen O. Evans
Chairman of the Board and Chief
Executive Officer
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("EWR Special
Meeting") of Evans Withycombe Residential, Inc., a Maryland corporation
("EWR"), will be held at , Scottsdale, Arizona, on December 23,
1997 at 9:00 a.m., Arizona time, to consider and vote on a proposal to approve
the merger of EWR into Equity Residential Properties Trust, a Maryland real
estate investment trust ("EQR"), pursuant to an Agreement and Plan of Merger
entered into by EWR and EQR on August 27, 1997.
Only holders of record of shares of Common Stock, $.01 par value per share,
of EWR at the close of business on November 14, 1997 will be entitled to vote
at the EWR Special Meeting.
By Order of the Board of Directors
Paul R. Fannin
Senior Vice President, Chief Financial
Officer and Secretary
Scottsdale, Arizona
November 24, 1997
PLEASE DATE, SIGN AND RETURN YOUR EQR PROXY PROMPTLY IN THE ENCLOSED, SELF-
ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
AND
EVANS WITHYCOMBE RESIDENTIAL, INC.
JOINT PROXY STATEMENT
---------------
EQUITY RESIDENTIAL PROPERTIES TRUST
PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of Equity Residential Properties Trust, a Maryland real estate investment
trust ("EQR"), in connection with the solicitation of proxies on behalf of the
Board of Trustees of EQR ("EQR Board of Trustees") for use at a special
meeting of the holders of common shares of beneficial interest, $.01 par value
per share, of EQR ("EQR Common") to be held on December 23, 1997 and at any
adjournments or postponements thereof ("EQR Special Meeting"). At the EQR
Special Meeting, holders of EQR Common ("EQR Common Shareholders") will be
asked to approve the merger of Evans Withycombe Residential, Inc., a Maryland
corporation ("EWR"), into EQR (the "Merger") pursuant to an Agreement and Plan
of Merger dated as of August 27, 1997 by and between EQR and EWR (the "Merger
Agreement"). A copy of the Merger Agreement is attached hereto as Appendix A.
Certain capitalized terms herein are defined in the Glossary beginning on page
G-1.
This Joint Proxy Statement/Prospectus also is being furnished to the
shareholders of EWR in connection with the solicitation of proxies on behalf
of the Board of Directors of EWR ("EWR Board of Directors") for use at a
special meeting ("EWR Special Meeting" and, together with the EQR Special
Meeting, the "Meetings of Shareholders") of the holders of Common Stock, $.01
par value per share, of EWR ("EWR Common") to be held on December 23, 1997 and
at any adjournments or postponements thereof. At the EWR Special Meeting,
holders of EWR Common ("EWR Common Shareholders") will be asked to approve the
Merger.
In considering whether to approve the Merger, the shareholders of EQR and
EWR voting on the Merger should consider, in addition to the other information
in the Joint Proxy Statement/Prospectus, the matters discussed under "Risk
Factors" on page 15. Such matters include:
. The inability of EQR to maintain the growth rate which it has
experienced since 1993.
. Adverse consequences associated with debt or preferred equity financing,
including the risk that EQR'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.
. Possible change in share prices of EQR Common and EWR Common prior to
the time the Merger becomes effective.
. Possible payment of liquidated damages and expenses: the Merger
Agreement provides for a "Break-Up Fee" of $14 million (the "Break-Up
Fee") plus "Break-Up Expenses" of up to $2.5 million (the "Break-Up
Expenses") payable by EWR to EQR if the Merger Agreement is terminated
by either EQR or EWR under certain circumstances and if EWR enters into
an agreement regarding an "Acquisition Proposal," as defined herein in
"The Merger--Termination Provisions", which is consummated. If the
Merger Agreement is terminated by either EQR or EWR under certain other
circumstances, either EQR or EWR will be required to pay the other
party's Break-Up Expenses of up to $2.5 million. See "The Merger--
Termination Provisions."
. Shareholders of EQR and EWR do not have appraisal rights in connection
with the Merger under Maryland law.
In addition to the matters discussed above, shareholders of EWR should also
consider the matters discussed under "Risk Factors" on page 15, including:
. Possible conflicts of interest due to the fact that certain directors
and members of management of EWR, pursuant to existing agreements, have
certain interests that arise in connection with the Merger that are in
addition to the interests of shareholders of EWR generally, including,
among other things, consulting and employment agreements between EQR and
certain executives of EWR; payments in cash by EQR for the value of
certain options to
<PAGE>
purchase EWR stock and for certain bonuses and the issuance of options
to purchase EQR stock to certain officers of EWR.
. The expectation that the distributions with respect to each share of EQR
Common will be $2.50 per annum compared to $3.18 per annum with respect
to two shares of EWR Common (based upon the distributions per share of
EQR Common and EWR Common declared for the four quarters ending
September 30, 1997).
This Joint Proxy Statement/Prospectus also relates to the shares of EQR
Common issuable to the EWR Common Shareholders upon consummation of the
Merger. On September 12, 1997, the last reported sales price of a share of EQR
Common on the NYSE was $51 1/16. On September 12, 1997, the last reported
sales price of a share of EWR Common on the NYSE was $25 1/8.
This Joint Proxy Statement/Prospectus and the forms of proxy are first being
mailed to all EQR Common Shareholders and EWR Common Shareholders on or about
November 24, 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY SHAREHOLDERS OF EQR AND EWR.
--------------
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATE HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is November 24, 1997.
<PAGE>
AVAILABLE INFORMATION
EQR has filed a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended ("Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering the
shares of EQR Common to be issued in connection with the Merger. As permitted
by the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus omits certain information, exhibits and undertakings
contained in the Registration Statement. For further information pertaining to
the securities offered hereby, reference is made to the Registration
Statement, including the exhibits filed as a part thereof.
EQR, EQR's operating partnership subsidiary, ERP Operating Limited
Partnership, an Illinois limited partnership ("ERP Operating Partnership"),
EWR, and EWR's operating partnership subsidiary, Evans Withycombe Residential,
L.P., a Delaware limited partnership ("EWRLP") are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
("Exchange Act"), and, in accordance therewith, file reports, proxy statements
and other information with the Commission. Reports, proxy statements and other
information filed by EQR and EWR can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at its Regional Offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, Suite 1300, New York, New York 10048. 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. The Commission
maintains a Web site that contains reports, proxy and other information
regarding registrants that file electronically with the Commission. The
address of the Commission's Web site is: http://www.sec.gov. EQR Common and
EWR Common are currently listed on the New York Stock Exchange ("NYSE") and
such reports, proxy statements and other information concerning EQR and EWR
can be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
All information contained in this Joint Proxy Statement/Prospectus with
respect to EWR and its subsidiaries, including EWRLP, has been supplied by
EWR, and all information with respect to EQR and its subsidiaries, including
ERP Operating Partnership, has been supplied by EQR.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus, or
incorporated in it by reference, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint
Proxy Statement/Prospectus, or the solicitation of a proxy, in any
jurisdiction where or from any person to whom it is unlawful to make such
offer, or solicitation of an offer, or proxy solicitation. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of the
securities offered pursuant to this Joint Proxy Statement/Prospectus shall,
under any circumstances, create an implication that there has been no change
in the affairs of EQR or EWR since the date of this Joint Proxy
Statement/Prospectus.
All documents that are incorporated by reference in this Joint Proxy
Statement/Prospectus but which are not delivered herewith are available
without charge (other than exhibits to such documents which are not
specifically incorporated by reference therein) upon request from, in the case
of documents relating to EQR, Two North Riverside Plaza, Suite 400, Chicago,
Illinois 60606, Attention: Cynthia McHugh, telephone (312) 474-1300, and, in
the case of documents relating to EWR, 6991 East Camelback Road, Suite A200,
Scottsdale, Arizona 85251, Attention: Secretary, telephone (602) 840-1040. In
order to insure timely delivery of the documents, any request should be made
by December 7, 1997.
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS
The following documents filed with the Commission by EQR or by EWR pursuant
to the
Exchange Act are hereby incorporated in this Joint Proxy Statement/Prospectus
by reference:
1. EQR's current report on Form 8-K dated May 23, 1996
2. EQR's current report on Form 8-K dated November 15, 1996
3. EQR's current report on Form 8-K/A dated May 23, 1996
4. EQR's current report on Form 8-K/A dated November 15, 1996
5. EQR's current report on Form 8-K dated January 16, 1997
6. EQR's current report on Form 8-K dated March 12, 1997
7. EQR's current report on Form 8-K dated March 17, 1997
8. EQR's current report on Form 8-K dated March 19, 1997
9. EQR's current report on Form 8-K dated March 20, 1997
10. EQR's current report on Form 8-K, dated March 24, 1997
11. EQR's annual report on Form 10-K for the year ended December 31, 1996
12. EQR's Amendment No. 1 to the annual report on Form 10-K for the year ended
December 31, 1996 filed April 3, 1997
13. EQR's quarterly report on Form 10-Q for the quarter ended March 31, 1997
14. EQR's current report on Form 8-K dated May 16, 1997
15. EQR's current report on Form 8-K dated May 20, 1997
16. EQR's current report on Form 8-K dated May 30, 1997, filed June 5, 1997
17. EQR's current report on Form 8-K dated May 30, 1997, filed June 9, 1997
18. EQR's current report on Form 8-K dated June 10, 1997
19. EQR's current report on Form 8-K dated June 23, 1997
20. EQR's quarterly report on Form 10-Q for the quarter ended June 30, 1997
21. EQR's current report on Form 8-K dated August 15, 1997
22. EQR's current report on Form 8-K dated August 27, 1997
23. EQR's current report on Form 8-K dated September 10, 1997
24. EQR's current report on Form 8-K dated September 11, 1997
25. EQR's current report on Form 8-K dated September 17, 1997
26. EQR's current report on Form 8-K dated September 18, 1997
27. EQR's current report on Form 8-K dated October 9, 1997
28. EQR's quarterly report on Form 10-Q for the quarter ended September 30,
1997
29. EQR's current report on Form 8-K/A dated October 9, 1997
30. The information prescribed by Items 12, 13, 14, 15 and 16 of Form S-11
contained in EQR's Registration Statement on Form S-11 (No. 33-80420)
dated July 20, 1994, as amended
31. The description of EQR Common contained in EQR's Registration Statement on
Form 8-A/A dated August 10, 1993
32. EQR's Amendment No. 1 to Form 8-A dated May 30, 1997
33. EQR's Joint Proxy Statement/Prospectus dated April 25, 1997
34. EQR's definitive Proxy Statement relating to EQR's Annual Meeting of the
Shareholders dated June 17, 1997
35. EWR's current report on Form 8-K dated February 14, 1997
36. EWR's Amendment No. 1 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 11, 1997
37. EWR's Amendment No. 2 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 20, 1997
38. EWR's Amendment No. 3 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 25, 1997
I-2
<PAGE>
38. EWR's Amendment No. 4 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 26, 1997
39. EWR's definitive proxy statement for its 1997 Annual Meeting of
Stockholders
40. EWR's quarterly report on Form 10-Q for the quarter ended March 31, 1997
41. EWR's quarterly report on Form 10-Q for the quarter ended June 30, 1997
42. EWR's current report on Form 8-K dated August 26, 1997
43. EWR's current report on Form 8-K dated August 27, 1997
44. EWR's quarterly report on Form 10-Q for the quarter ended September 30,
1997.
45. All documents subsequently filed by EQR or EWR pursuant to Section 13(a),
13(d), 14 or 15(d) of the Exchange Act prior to the date of the Meetings
of Shareholders.
Any statement contained herein or in a document incorporated by reference or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement/Prospectus to the
extent that a statement contained in this Joint Proxy Statement/Prospectus or
in any other subsequently filed document that also is or is deemed to be
incorporated by reference in this Joint Proxy Statement/Prospectus 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 Joint Proxy Statement/Prospectus.
I-3
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 15
Conflicts of Interest................................................... 15
Size and Rapid Growth of EQR............................................ 15
Decrease in Distributions Per Share to EWR Shareholders................. 15
Potential Change in Relative Stock Prices............................... 15
Termination Payments if Merger Fails to Occur........................... 16
Potential Adverse Effects of Combining the Companies.................... 16
Adverse Consequences of Debt Financing and Preferred Shares............. 16
Control and Influence by Significant Shareholders....................... 17
Potential Environmental Liability....................................... 17
General Real Estate Investment Considerations; Changes in Laws.......... 17
Ownership Limit and Limits on Changes in Control........................ 18
Consequences of Failure to Qualify as a REIT............................ 19
Dependence on Key Personnel............................................. 20
No Appraisal Rights under Maryland Law.................................. 20
Distribution Requirements Potentially Increasing Indebtedness of EQR.... 20
Exemptions for Mr. Zell and Others from Maryland Business Combination
Law which Tend to Inhibit Takeovers.................................... 20
THE MEETINGS OF SHAREHOLDERS.............................................. 21
EQR..................................................................... 21
EWR..................................................................... 21
THE MERGER................................................................ 22
Terms of the Merger..................................................... 22
Transactions Relating to the ERP Operating Partnership.................. 22
Background of the Merger................................................ 23
Reasons for the Merger; Recommendation of the EQR Board of Trustees..... 25
Reasons for the Merger; Recommendation of the EWR Board of Directors.... 27
Opinion of Financial Advisor--EQR....................................... 28
Opinion of Financial Advisor--EWR....................................... 31
Effective Time of the Merger............................................ 34
Representations and Warranties; Conditions to the Merger................ 34
No Appraisal Rights..................................................... 35
Regulatory Matters...................................................... 35
Termination Provisions.................................................. 35
Termination Fee and Expenses............................................ 36
No Solicitation of Other Transactions................................... 36
Conversion of Shares.................................................... 37
Appointment of Exchange Agent........................................... 37
Exchange of Certificates................................................ 37
Conduct of Business Pending the Merger.................................. 37
Limitations on the Sale or Refinancing of Certain Properties............ 39
Waiver and Amendment.................................................... 39
Stock Exchange Listing.................................................. 39
Anticipated Accounting Treatment........................................ 40
Shares Available for Resale............................................. 40
FEDERAL INCOME TAX CONSEQUENCES........................................... 40
Federal Income Tax Consequences of Merger............................... 40
Qualification of EQR as a REIT.......................................... 41
Tax Aspect of EQR's Investments in Partnerships......................... 44
Taxation of Shareholders................................................ 46
</TABLE>
i
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<TABLE>
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PAGE
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<S> <C>
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS.......................... 49
Consulting Agreement.................................................... 49
Evans Agreement......................................................... 49
Fannin Consulting....................................................... 49
Berry Employment Agreement.............................................. 49
Berry Deferred Compensation Agreement................................... 49
Senior Officers......................................................... 49
Change in Control Agreements............................................ 49
Restricted Share Grants................................................. 50
EWR Options............................................................. 50
EQR Options............................................................. 50
Unit Contribution Agreement............................................. 50
Sale of Stock........................................................... 50
EQR SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA AND OTHER
REQUIRED FINANCIAL STATEMENTS............................................ 51
POLICIES OF EQR WITH RESPECT TO CERTAIN ACTIVITIES........................ 68
MANAGEMENT AND OPERATION OF EQR AFTER THE MERGER.......................... 70
SECURITY OWNERSHIP OF MANAGEMENT.......................................... 71
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS.............................. 73
COMPARISON OF RIGHTS OF SHAREHOLDERS...................................... 74
LEGAL MATTERS............................................................. 77
EXPERTS................................................................... 77
AUDITORS.................................................................. 78
SHAREHOLDER PROPOSALS..................................................... 78
GLOSSARY.................................................................. G-1
APPENDIX AAGREEMENT AND PLAN OF MERGER.................................... A-1
APPENDIX BARTICLES OF MERGER.............................................. B-1
APPENDIX COPINION OF J.P. MORGAN SECURITIES INC........................... C-1
APPENDIX DOPINION OF MORGAN STANLEY REALTY INCORPORATED................... D-1
</TABLE>
ii
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Summary and under captions "Risk Factors," "The
Merger-Reasons for the Merger; Recommendation of the EQR Board of Trustees,"
"Reasons for the Merger; Recommendation of the EWR Board of Directors,"
"Opinion of Financial Advisor-EQR," "Opinion of Financial Advisor-EWR" and
elsewhere in this Joint Proxy Statement/Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of EQR or EWR or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, which will, among other
things, affect demand for multifamily properties, availability and credit
worthiness of prospective tenants, lease rents and the availability of
financing; adverse changes in the real estate markets including, among other
things, competition with other companies, risks of real estate development and
acquisition; governmental actions and initiatives; environmental/safety
requirements; ability to achieve anticipated cost savings and operating
efficiencies from the Merger; and other changes and factors referenced in this
Joint Proxy Statement/Prospectus and the documents incorporated herein by
reference.
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information and financial
statements contained in this Joint Proxy Statement/Prospectus, the Appendices
hereto and the documents incorporated by reference herein.
Certain capitalized terms used in this summary are defined elsewhere in this
Joint Proxy Statement/Prospectus. As used in this Joint Proxy
Statement/Prospectus, except where the context requires otherwise, "EQR" means
Equity Residential Properties Trust, a Maryland real estate investment trust,
and its subsidiaries, including ERP Operating Partnership (as defined in the
following clause) as the survivor of the merger between Wellsford Residential
Property Trust ("Wellsford") and Equity Residential Properties Trust and both
Equity Residential Properties Trust and Wellsford as predecessors to EQR; "ERP
Operating Partnership" means ERP Operating Limited Partnership, an Illinois
limited partnership of which EQR is the general partner, and its subsidiaries;
"EWR" means Evans Withycombe Residential, Inc., a Maryland corporation, and its
subsidiaries, including EWRLP (as defined in the following clause); and "EWRLP"
means Evans Withycombe Residential, L.P., a Delaware limited partnership of
which EWR is the general partner, and its subsidiaries.
PARTIES TO THE MERGER
EQR. EQR, one of the largest publicly traded REITs (based on the aggregate
market value of its outstanding equity capitalization), is a self-administered
and self-managed equity REIT. EQR was organized in March 1993 and commenced
operations as a publicly traded company on August 18, 1993 upon the completion
of its initial public offering (the "EQR IPO"). EQR was formed to continue the
multifamily property business objectives and acquisition strategies of certain
affiliated entities controlled by Mr. Samuel Zell, Chairman of the Board of
Trustees of EQR. These entities had been engaged in the acquisition, ownership
and operation of multifamily properties since 1969. EQR's senior executives
average over 23 years of experience in the multifamily property business.
EQR is the largest publicly traded REIT owner of multifamily properties
(based on the number of apartment units owned and total revenues earned). As of
September 30, 1997, EQR owned or had interests in a portfolio of 363
multifamily properties containing 103,270 apartment units and managed
approximately 9,067 additional units owned by affiliated entities. As of
September 30, 1997, the properties EQR owned or had interests in had an average
occupancy rate of approximately 95%. These properties are located in the
following 32 states: Arizona, Arkansas, California, Colorado, Florida, Georgia,
Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan,
Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, Nevada, North
Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Utah,
Virginia, Washington and Wisconsin.
All of EQR's interests in its properties are held directly or indirectly by,
and substantially all of its operations relating to the properties are
conducted through, ERP Operating Partnership. EQR controls ERP Operating
Partnership as the sole general partner and, as of September 30, 1997, owned
approximately 91% of ERP Operating Partnership's outstanding common partnership
interests ("ERP OP Units"), which may be exchanged by the holders thereof for
either shares of EQR Common, on a one-for-one basis or, at EQR's option, the
cash equivalent thereof.
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EQR's corporate headquarters and executive offices are located at Two North
Riverside Plaza, Suite 400, Chicago, Illinois 60606, and its telephone number
is (312) 474-1300. In addition, EQR 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 and Houston, Texas;
Irvine and Stockton, California; Ypsilanti, Michigan; Raleigh, North Carolina;
Ft. Lauderdale, Florida; Nashville, Tennessee; and Kansas City, Kansas.
EWR. EWR is a publicly traded, self-administered and self-managed equity
REIT, which commenced operations as a publicly traded company in August 1994.
As of September 30, 1997, EWR owned or had interests in a portfolio of 51
multifamily properties containing 15,700 apartment units (including communities
stabilized and under development) and managed 1,759 additional units owned by
affiliated entities. As of September 30, 1997, the properties EWR owned or had
interests in had an average occupancy rate of 92.2%. These properties are
located in Arizona and Southern California.
All of EWR's interests in its properties are held directly or indirectly by,
and all of EWR's operations are conducted through, EWRLP. EWR is the sole
general partner and also a limited partner of EWRLP and as of September 30,
1997 owned approximately 81.9% of EWRLP's outstanding partnership interests
("EWR OP Units").
EWR's corporate headquarters and executive offices are located at 6991 East
Camelback Road, Suite A200, Scottsdale, Arizona 85251, and its telephone number
is (602) 840-1040.
RISK FACTORS
In considering whether to approve the Merger, the shareholders of EQR and EWR
voting on the Merger should consider, in addition to the other information in
this Joint Proxy Statement/Prospectus, the matters discussed under "Risk
Factors". Such matters include:
. Possible conflicts of interest due to the fact that certain members of
management of EWR, pursuant to existing agreements, have certain
interests that arise in connection with the Merger that are in addition
to the interests of shareholders of EWR generally, including, among
other things, consulting and employment agreements between EQR and
certain executives of EWR; payments in cash by EQR for the value of
certain options to purchase EWR stock and for certain bonuses and the
issuance of options to purchase EQR stock to certain officers of EWR.
. The inability of EQR to maintain the growth rate which it has
experienced since 1993.
. Expectations that the distributions payable to former EWR shareholders
with respect to each share of EQR Common will be $2.50 per annum
compared to $3.18 per annum with respect to two shares of EWR Common
(based upon the distributions per share of EQR Common and EWR Common
declared for the four quarters ending September 30, 1997).
. Adverse consequences associated with debt or preferred equity financing,
including the risk that EQR'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.
. Share prices of EQR Common and EWR Common may change prior to the time
the Merger becomes effective.
. Possible payment of liquidated damages and expenses: the Merger
Agreement provides for a "Break-Up Fee" of $14 million (the "Break-Up
Fee") plus "Break-Up Expenses" of up to $2.5 million (the "Break-Up
Expenses") payable by EWR to EQR if the Merger Agreement is terminated
by either EQR or EWR under certain circumstances and, if EWR, within one
year thereafter, enters into an agreement regarding an "Acquisition
Proposal," as defined herein in "The Merger--Termination Provisions",
which is consummated. If the Merger Agreement is terminated by either
EQR or EWR under certain other circumstances, either EQR or EWR will be
required to pay the other party's Break-Up Expenses of up to $2.5
million. See "The Merger--Termination Provisions."
. Shareholders of neither EQR nor EWR have appraisal rights in connection
with the Merger under Maryland law.
TERMS OF THE MERGER
The Merger Agreement provides that, upon satisfaction or waiver of the
conditions set forth therein, EWR will be merged into EQR. The EQR Board of
Trustees and EWR Board of Directors have each approved the Merger upon the
terms
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<PAGE>
Pre-Merger Structure
--------------------
------------------------- -------------------------
Public Shareholders Public Shareholders
------------------------- -------------------------
------------------------- -------------------------
Equity Residential Evans Withycombe
Properties Trust Residential, Inc.
------------------------- -------------------------
General General Partner
Partner 91% and Limited
Partner 82%*
Limited Limited
Partners 9% Partners 18%
ERP Evans
Operating Withycombe
Limited Partnership Residential, L.P.
103,270 15,700
Apartment Units** Apartment Units**
* Owns 1% as General Partner and approximately 81% as a limited partner.
** As of September 30, 1997. Includes stabilized communities and communities
under development.
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<PAGE>
Merger Transactions
-------------------
------------------------- -------------------------
Equity Residential Merger Evans Withycombe
Properties Trust Residential, Inc.
------------------------- -------------------------
Limited Limited
Partners Partners*
ERP Contribution** Evans
Operating ERP Units Withycombe
Limited Partnership Residential, L.P.
103,270 15,700
Apartment Units*** Apartment Units***
* Immediately following the effectiveness of the Merger, each Limited Partner
of EWRLP may contribute and certain limited partners of EWRLP have agreed
to contribute their limited partnership units in EWRLP to ERP in exchange
for ERP OP Units based on the Exchange Ratio.
** It is the intention of ERP that the Contribution will occur when permitted
under the Asset Contribution Agreement. Subsequent to the effectiveness of
the Merger and consummation of the Contribution, EQR and ERP will be co-
general partners of EWRLP.
*** As of September 30, 1997.
4
<PAGE>
Post-Merger Transactions Structure
----------------------------------
Equity Residential Properties Trust Former Evans Withycombe
Public Shareholders 88%** Residential, Inc. Public Shareholders 12%**
Equity Residential
Properties Trust
General Partner 90%
Former Evans
ERP Operating Withycombe
Limited Partnership Residential, L.P.
Limited Partners 8%** Limited Partners 2%**
ERP
Operating
Limited Partnership
118,970
Apartment Units*
* As of September 30, 1997.
** Assuming all contemplated transactions are consummated.
5
<PAGE>
and conditions set forth in the Merger Agreement. Upon consummation of the
Merger (the "Effective Time"), each outstanding share of EWR Common will be
converted into 0.5 (the "Exchange Ratio") of a share of EQR Common. At the
Effective Time, approximately 2.3% of the outstanding shares of EQR Common will
be beneficially owned by affiliates of EQR (assuming that no outstanding
options are exercised and no ERP OP Units are exchanged for shares of EQR
Common).
TRANSACTIONS RELATING TO ERP OPERATING PARTNERSHIP
By separate prospectus ERP Operating Partnership is offering to each holder
of limited partnership interests in EWRLP (other than EWR) (each an "EWR Unit
Holder") the right to contribute all the EWR OP Units owned by it to ERP
Operating Partnership in exchange for ERP OP Units (the "Unit Exchange Offer").
The number of ERP OP Units to be received by each EWR Unit Holder who elects to
exchange will be equal to the number of EWR OP Units contributed by such EWR
Unit Holder multiplied by the Exchange Ratio. Such offer shall be terminated if
not accepted by the Closing Date of the sale of assets of EWR to ERP described
herein. If such offer is accepted prior to the Effective Time, consummation of
each unit contribution shall be conditioned upon the occurrence of, and shall
not occur until, the Effective Time.
Pursuant to an Asset Contribution Agreement (the "Asset Contribution
Agreement"), dated as of August 27, 1997, between EWRLP and ERP Operating
Partnership, EWRLP agreed, subject to certain conditions, to contribute all of
its assets to ERP Operating Partnership (the "Contribution") in exchange for
ERP OP Units following the Merger. The number of ERP OP Units to be received by
EWRLP in consideration for the Contribution shall equal the number of EWR OP
Units outstanding immediately prior to the Contribution multiplied by the
Exchange Ratio. The Contribution shall occur upon ERP Operating Partnership
giving notice to EWRLP at any time following the first to occur of (i) the date
twelve months after the consummation of the Merger, (ii) the date on which EQR
receives an opinion of a nationally recognized tax counsel satisfactory to it
or a ruling from the Internal Revenue Service (the "IRS") that the Contribution
may be effected without adversely affecting the qualification of the Merger as
a tax-free reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), or (iii) the date on which
regulations are promulgated by the Department of the Treasury which, in the
opinion of a nationally recognized tax counsel satisfactory to EQR, would
permit the Contribution to occur without adversely affecting the qualification
of the Merger as a tax-free reorganization within the meaning of Section 368 of
the Code. If ERP Operating Partnership fails to give such notice by December
31, 1999, the Asset Contribution Agreement shall terminate and EWRLP shall have
no further obligations thereunder. ERP Operating Partnership has no obligation
to give such notice. The failure of ERP Operating Partnership to give such
notice will have no effect on the Merger. The Contribution is also subject to
the approval of the limited partners of EWRLP. EWRLP will be dissolved promptly
following the consummation of the Contribution and such ERP OP Units will be
distributed to the partners of EWRLP in complete liquidation of their
partnership interests in EWRLP. The approval by the EWRLP limited partners of
the Contribution is not a condition to the consummation of the Merger. EWR is a
holder of a majority of the EWR OP Units and has agreed to approve the
Contribution, subject to the approval of the Merger by the holders of EWR
Common.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF EQR AND EWR
The EQR Board of Trustees believes that the Merger, including the
consideration to be paid by EQR, is fair and in the best interests of EQR and
its shareholders. The EQR Trustees who voted on the Merger unanimously approved
the Merger and unanimously recommend that the EQR Common Shareholders vote FOR
the Merger.
The EQR Board of Trustees considered certain potentially negative factors
which could arise from the Merger. These negative factors included the
following: (i) the significant costs involved in connection with consummating
the Merger and the substantial management time and effort required to
effectuate the Merger and integrate the businesses of EQR and EWR, (ii) the
Merger would increase the debt of EQR by the assumption of all of EWR's
outstanding debt of approximately $442,156,000 at September 30, 1997, (iii) the
increase in outstanding debt could adversely affect the ability of EQR to
obtain debt financing for additional growth and would subject EQR to the risks
of higher leverage, (iv) the possible adverse effects upon the market for EQR
Common and upon EQR's ability to raise capital and issue equity in both the
public and private markets which might result if the Merger was not
consummated, (v) the risk that the anticipated benefits of the Merger might not
be fully realized and (vi) the capacity of EQR to manage approximately 16,000
additional apartment units.
The favorable factors the EQR Board of Trustees considered in reaching the
foregoing conclusions were the beliefs that (a) the Merger would solidify EQR's
leadership position in the multifamily property industry and EQR as the largest
publicly traded REIT (based on the aggregate market value of its outstanding
equity capitalization) through the acquisition of a high quality portfolio of
approximately 16,000 apartment units, (b) the Merger would increase operating
efficiencies through economies of scale, (c) the Merger would provide greater
access to the public equity and debt markets, (d) EQR would be a
6
<PAGE>
larger and financially stronger company, which would facilitate combinations
with other entities, (e) the combination of the EWR properties with those of
EQR would expand EQR's operations in Arizona and Southern California, (f) the
Merger would provide EQR with the capability to supervise third-party
development projects and (g) the Merger could be effectuated through the
issuance of new equity rather than through the use of cash or a public offering
of equity or debt securities. The EQR Board of Trustees also received the
written opinion, dated August 27, 1997, of J.P. Morgan Securities Inc. ("J.P.
Morgan") to the effect that, as of such date and based upon and subject to
certain matters stated therein, the consideration to be paid by EQR in
connection with the Merger was fair, from a financial point of view, to EQR.
See "The Merger--Reasons for the Merger; Recommendation of the EQR Board of
Trustees" and "Opinion of Financial Advisor--EQR."
The EWR Board of Directors believes that the Merger is fair to, and in the
best interests of, EWR and its shareholders. By unanimous vote, the EWR Board
of Directors approved the Merger, and the transactions contemplated thereby,
and unanimously recommends that the EWR Common Shareholders vote FOR the
Merger.
The EWR Board of Directors reached its decision after careful consideration
of a wide variety of factors, including certain potentially negative factors.
These negative factors consisted of the following: (i) after the Merger, the
distributions payable to former EWR shareholders with respect to each share of
EQR Common will be $2.50 per annum compared to $3.18 per annum with respect to
two shares of EWR Common based upon the distributions per share of EQR Common
and EWR Common declared for the four quarters ending September 30, 1997, (ii)
the possibility that EWR may be required, if the Merger Agreement is terminated
under certain circumstances, to pay EQR a Break-Up Fee (as defined herein in
"Summary--Risk Factors") of $14 million and to reimburse EQR for Break-Up
Expenses (as defined herein in "Summary--Risk Factors") of up to $2.5 million
and (iii) the substantial management time and effort required to effectuate the
Merger.
In making its determination with respect to the Merger the EWR Board of
Directors also considered, among other things, the following advantages: (a)
the Exchange Ratio was more favorable than the then-current market price of EWR
Common, (b) the Merger would afford shareholders of EWR Common a significant
participation in a much larger and more geographically diversified REIT with
greater potential for long-term appreciation and improved access to capital
markets, (c) the Merger was the best alternative reasonably available to EWR
Common Shareholders, providing the greatest feasibility and potential to
maximize shareholder value, (d) the market capitalization of EQR following the
Merger is expected to be approximately $6,639,000,000 greater than the then-
current market capitalization of EWR, (e) the Exchange Ratio fairly reflected
the relative contributions of both companies to the combined entity and (f) the
Merger would be tax-free. The EWR Board of Directors also received the written
opinion of Morgan Stanley Realty Incorporated ("Morgan Stanley"), dated August
27, 1997, to the effect that, as of such date and based upon certain
assumptions and considerations set forth therein, the consideration to be
received by EWR Common Shareholders pursuant to the Merger was fair from a
financial point of view to such holders. See "The Merger--Reasons for the
Merger" and "Opinion of Financial Advisor--EWR."
OPINIONS OF FINANCIAL ADVISORS
EQR. At the meeting of the Board of Trustees of EQR on August 27, 1997, J.P.
Morgan rendered its oral opinion to the Board of Trustees of EQR that, as of
such date, the consideration to be paid by EQR in connection with the proposed
Merger was fair from a financial point of view to EQR. J.P. Morgan delivered
its written opinion to the Board of Trustees of EQR, dated August 27, 1997,
that, as of such date and subject to the assumptions made, procedures followed,
matters considered and the limits of its review, as set forth in such opinion,
the consideration to be paid by EQR in connection with the proposed merger was
fair from a financial point of view to EQR. No limitations were imposed by
EQR's Board of Trustees upon J.P. Morgan with respect to the investigations
made or procedures followed by it in rendering its opinion. See "The Merger--
Opinion of Financial Advisor--EQR."
EWR. At the meeting of the Board of Directors of EWR on August 27, 1997,
Morgan Stanley delivered its written opinion to the Board of Directors of EWR,
dated August 27, 1997, that as of such date and based upon the assumptions
made, matters considered and the limits of its review, as set forth in such
opinion, the proposed consideration to be received by the holders of EWR Common
pursuant to the Merger was fair to such shareholders from a financial point of
view. No limitations were imposed by EWR's Board of Directors upon Morgan
Stanley with respect to the investigations made or procedures followed by it in
rendering its opinion. See "The Merger--Opinion of Financial Advisor--EWR."
INTERESTS OF CERTAIN PERSONS
In considering whether to approve the Merger, shareholders should be aware
that certain members of the management of EWR and certain members of the EWR
Board of Directors have certain interests that arise in connection with the
Merger that are in addition to the interests of shareholders of EWR generally.
The Board of Directors of EWR considered these interests and deliberated upon
any resulting conflicts of interest, unanimously concluding that the advantages
of the Merger
7
<PAGE>
and the benefits thereof to the shareholders outweighed any conflicts of
interest. These additional interests arise under existing agreements with, and
annual compensation awards from EWR and agreements relating to, among other
things, (i) the Consulting Agreement dated August 27, 1997 between Equity
Residential Properties Management Limited Partnership, an Illinois limited
partnership and an affiliate of EQR ("EQR Properties Management LP"), and
Stephen O. Evans, which will become effective upon completion of the Merger
pursuant to which Mr. Evans will be elected as a Trustee and Executive Vice
President--Strategic Investments of EQR and will provide consulting services to
EQR Properties Management LP until December 31, 1999, subject to certain early
termination provisions provided therein, (ii) the appointment of Richard G.
Berry, President, Chief Operating Officer and Director of EWR, to the office of
Executive Vice President--Development of EQR upon completion of the Merger,
pursuant to the terms of an Employment Agreement which will expire on December
31, 2000, (iii) a Deferred Compensation Agreement between EQR and Mr. Berry
which provides for two semi-annual cash payments plus interest in the event Mr.
Berry terminates employment prior to expiration of the term of his employment
agreement with EQR Properties Management LP, (iv) the Consulting Agreement
dated as of November 14, 1997 between EQR Properties Management LP and Mr. Paul
Fannin, which shall become effective upon completion of the Merger and will
expire on January 2, 2000 pursuant to which Mr. Fannin will provide consulting
services to EQR Properties Management LP and EQR, (v) termination of Change in
Control Agreements between EWR and each of Messrs. Evans, Berry and Fannin,
(vi) amendments to the Change in Control Agreements between EWR and five
officers of EWR which provide that (a) a payment obligation will arise as of
the Closing Date notwithstanding the fact that each officer may perform
services for a transitional period thereafter, (b) payment be made within five
days after termination of employment (or earlier if required by law) unless
such termination occurs during the last two months of a calendar year in which
case payment will be made on January 2 of the immediately following calendar
year (or earlier if required by law), (c) payments of money will be made in
lieu of the vesting of employer contributions to such executives' accounts in
the EWR 401(k) plan, and (d) the definition of "change in control" in the
Change in Control Agreements will be amended to refer only to the Merger of EWR
into EQR and not to any future transactions involving EQR, (vii) an amendment
to the Change in Control Agreement between EWR and a certain officer which
provides that (a) payment of money shall be made in lieu of the vesting of
employer contributions to such executive's account in the EWR 401(k) plan, (b)
the definition of "change in control" in the Change in Control Agreement shall
be amended to refer only to the Merger of EWR into EQR and not to any future
transactions involving EQR and (c) the officer's new position with EQR will not
trigger payments under his Change in Control Agreement and (viii) EQR's
agreement that, with the exception of restricted shares of EWR Common
previously granted to Mr. Berry, all restricted share grants of EWR Common
previously made by EWR will become vested and will participate in the Merger on
the same basis as all other shares of EWR Common.
Certain directors, executive officers and employees of EWR who hold options
to purchase shares of EWR Common will be allowed to exercise those options
which constitute vested incentive share options and will agree not to exercise
their other options in exchange for a cash payment equal to the difference
between (i) the Exchange Ratio multiplied by the closing price of a share of
EQR Common on the New York Stock Exchange ("NYSE") on the Closing Date (the
"Closing Price") and (ii) the applicable exercise price of the option,
multiplied by the number of shares of EWR Common Shares subject to the option
(whether or not vested). After the Effective Date, all employees of EWR who (1)
become employees of EQR, and (2) exercise vested incentive share options to
purchase shares of EWR Common and/or receive a cash payment in exchange for
agreeing not to exercise outstanding options to purchase shares of EWR Common,
will receive a nonqualified option to purchase the number of shares of EQR
Common equal to (a) the number of shares of EWR Common received upon exercise
of vested incentive share options to purchase shares of EWR Common, plus (b)
the number of shares of EWR Common subject to each employee's respective EWR
options which they agreed not to exercise for cash, multiplied by (c) the
Exchange Ratio. Each such option to purchase shares of EQR Common will vest in
three equal annual installments with an exercise price per share equal to the
Closing Price. See "Interests of Certain Persons in the Merger."
In addition, pursuant to the terms of his consulting agreement, Mr. Fannin
will receive his 1997 bonus in cash in 1997 and pursuant to the terms of the
Merger Agreement EQR has agreed to pay 1997 bonuses to certain employees of EWR
under the existing bonus plan of EWR on the date such 1997 bonus would have
been paid by EWR had the Merger not occurred; provided, however, that EQR shall
have no obligation to pay such bonus to (i) any person who voluntarily
terminated his or her employment with EWR prior to the effectiveness of the
Merger or (ii) any person who received payment of a pro rata bonus under the
terms and conditions set forth under any of the Change in Control Agreements
described above.
EQR will indemnify each director and officer of EWR for all actions taken by
such persons on or prior to the Effective Time to the same extent such
individuals were indemnified by EWR prior to the Effective Time and expects to
obtain "tail insurance" providing for the extension of the directors and
officers liability insurance currently maintained by EWR for a period of six
years after the Closing Date.
8
<PAGE>
EFFECTIVE TIME OF THE MERGER AND CLOSING DATE
The closing ("Closing") of the Merger will take place at 10:00 a.m. on the
date to be specified by EQR and EWR, which will be no later than the third
business day after satisfaction or waiver of the conditions set forth in the
Merger Agreement (the "Closing Date"), at the offices of Rudnick & Wolfe, 203
North LaSalle Street, Chicago, Illinois 60601, unless another date or place is
agreed to in writing by the parties. The Merger will become effective at the
Effective time, or at such time as EQR and EWR agree should be specified in the
Articles of Merger (not to exceed 30 days after the Articles of Merger are
accepted for record by the Department). It is currently anticipated that the
Merger will become effective on or about December 19, 1997.
CONDITIONS TO THE MERGER
The obligations of EQR and EWR to consummate the Merger are subject to the
satisfaction or waiver of certain conditions, including, among others, (i)
obtaining the requisite approval of the holders of EQR Common and the EWR
Common Shareholders, (ii) the absence of any material adverse change in the
financial condition, business or operations of EWR or EQR, (iii) the receipt of
certain legal opinions, including opinions with respect to the tax consequences
of the Merger, (iv) the receipt of all material consents, authorizations,
orders and approvals of governmental agencies and third parties and (v) the
execution of certain agreements between each of EWR and EQR and their
respective affiliates. Each of EQR and EWR has the right to waive any
conditions to its obligations to consummate the Merger. See "The Merger--
Conditions of the Merger."
NO APPRAISAL RIGHTS
Neither the shareholders of EWR nor shareholders of EQR are entitled to
dissenting shareholders' appraisal rights under Maryland law. Maryland law does
not provide appraisal rights to shareholders of a REIT or corporation in
connection with a merger if their respective shares are listed on a national
securities exchange, such as the NYSE, on the record date for determining
shareholders entitled to vote on such merger. All of the shares of EQR Common
and EWR Common outstanding on the record date for determining the shareholders
entitled to vote on the Merger were listed on the NYSE.
FEDERAL INCOME TAX CONSEQUENCES OF MERGER
Rudnick & Wolfe, special counsel to EQR in connection with the Merger, has
rendered an opinion to EQR that on the basis of the facts, representations and
assumptions set forth in such opinion (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and EQR and
EWR will each be a party to such reorganization within the meaning of Section
368(b) of the Code; (ii) no gain or loss will be recognized by EQR as a result
of the Merger; and (iii) no gain or loss will be recognized by either the
holders of EQR Common or EQR Preferred as a result of the Merger. Gibson, Dunn
& Crutcher LLP, special counsel to EWR in connection with the Merger, has
rendered an opinion to EWR that on the basis of the facts, representations and
assumptions set forth in such opinion: (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and EQR and
EWR will each be a party to such reorganization within the meaning of Section
368(b) of the Code; (ii) no gain or loss for federal income tax purposes will
be recognized by EWR as a result of the Merger; (iii) no gain or loss will be
recognized by the holders of EWR Common upon the exchange of their EWR Common
solely for EQR Common pursuant to the Merger; (iv) the tax basis of the EQR
Common received by any holder of EWR Common in exchange for EWR Common pursuant
to the Merger will be the same as the tax basis of such EWR Common exchanged
therefor; (v) the holding period for EQR Common received in exchange for EWR
Common pursuant to the Merger will include the period that such shares of EWR
Common were held by the holder, provided that such EWR Common is held as a
capital asset by such holder at the Effective Time; and (vi) a holder of EWR
Common who receives cash in lieu of a fractional share of EWR Common pursuant
to the Merger will recognize gain or loss equal to the difference, if any,
between such shareholder's basis in the fractional share and the amount of cash
received. For a more detailed discussion of the material U.S. Federal income
tax consequences of the Merger and certain other matters related thereto, see
"Federal Income Tax Consequences."
TERMINATION
The Merger Agreement provides that it may be terminated under a number of
circumstances at any time prior to the Effective Time, whether before or after
the approval of the Merger by the shareholders of EQR and shareholders of EWR.
See "The Merger--Termination Provisions."
TERMINATION FEES
Depending on the reason for the termination of the Merger Agreement, EWR may
be required to pay EQR the Break-Up Fee and/or Break-Up Expenses, or EQR may be
required to pay EWR Break-Up Expenses. See "The Merger--Termination Fees and
Expenses."
9
<PAGE>
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16.
NO SOLICITATION OF OTHER TRANSACTIONS
EWR has agreed that it (and its subsidiaries) will not permit its officers,
directors, employees, agents or financial advisors to initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger, acquisition,
tender offer, exchange offer, consolidation, sale of assets or similar
transactions involving all or any significant portion of the assets or any
equity securities of it or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement. The Merger Agreement does not, however,
prohibit EWR from entering into discussions with respect to an unsolicited
proposal if the Board of Directors of EWR determines that such action is
required by its fiduciary duties to its shareholders imposed by law.
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
Each share of EWR Common outstanding immediately prior to the Effective Time
will be converted into 0.5 validly issued, fully paid and nonassessable share
of EQR Common at the Effective Time.
All shares of EWR Common, when converted pursuant to the Merger, will no
longer be outstanding and will automatically be canceled and retired and each
holder of a certificate representing shares of EWR Common will cease to have
any rights with respect thereto, except the right to receive certificates
representing shares of EQR Common, and cash in lieu of any fractional shares of
EQR Common, as well as any distributions declared with respect thereto with a
record date after the Effective Time. EWR Common Shareholders should not tender
their certificates representing shares of EWR Common with their proxies. As
promptly as practicable after the Effective Time, Boston EquiServe LLP, an
affiliate of First National Bank of Boston, as the exchange agent ("Exchange
Agent"), will mail to the shareholders of EWR transmittal materials for use in
exchanging certificates representing shares of EWR Common for certificates
evidencing shares of EQR Common. See "The Merger--Exchange of Certificates."
THE MEETINGS OF SHAREHOLDERS
EQR. The EQR Special Meeting has been called to consider and vote on the
approval of the Merger. The EQR Special Meeting will be held on December 23,
1997 at 10 a.m., local time, at One North Franklin, Chicago, Illinois. Only
holders of record of EQR Common at the close of business on November 14, 1997
will be entitled to vote at the EQR Special Meeting. Each holder of EQR Common
is entitled to one vote per share on the Merger as proposed in the notice of
the EQR Special Meeting. EQR had outstanding 77,546,116 shares of EQR Common as
of the close of business on November 11, 1997, of which 1,184,989 shares (or
approximately 1.6% of the outstanding shares of EQR Common) (including 653,259
shares with respect to which beneficial ownership is disclaimed) were owned
beneficially by the officers and trustees of EQR, and such persons have
indicated their intention to vote such shares in favor of the Merger. Approval
of the Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of EQR Common. EQR Common Shareholders may revoke their
proxies at any time prior to the voting thereof by giving written notice of
such revocation to EQR, by executing and delivering a proxy bearing a later
date or attending the EQR Special Meeting and voting in person.
EWR. The EWR Special Meeting has been called to consider and vote on the
approval of the Merger. The EWR Special Meeting will be held on December 23,
1997, at 9 a.m., Arizona time, at , Scottsdale, Arizona. Only
holders of record of EWR Common at the close of business on November 14 will be
entitled to notice of and to vote at the EWR Special Meeting. Each holder of
EWR Common is entitled to one vote per share as proposed in the notice of the
EWR Special Meeting. EWR had outstanding 20,477,006 shares of EWR Common as of
the close of business on November 7, 1997, of which 854,248 shares (or
approximately 4.2% of the outstanding shares of EWR Common) (excluding
3,422,197 shares with respect to which beneficial ownership is disclaimed) were
owned beneficially by the officers and directors of EWR, and such persons have
indicated their intention to vote such shares in favor of the Merger. Approval
of the Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of EWR Common. EWR Common Shareholders may revoke their
proxies at any time prior to the voting thereof by giving written notice of
such revocation to EWR, by executing and delivering a proxy bearing a later
date or by attending the EWR Special Meeting and voting in person.
10
<PAGE>
Pursuant to the terms and conditions of that certain Voting Agreement dated
August 27, 1997 by and among EQR and Stephen O. Evans, F. Keith Withycombe, EW
Investments Limited Partnership and The Evans Family Limited Liability Company
(the "Voting Agreement"), each of such persons and entities as the beneficial
owners of an aggregate of 5,863,221 shares of EWR Common, representing 22.6% of
the outstanding shares of EWR Common has agreed, among other things, to vote
his or its shares of EWR Common in favor of the Merger.
EQUITY RESIDENTIAL PROPERTIES TRUST SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA
The following tables set forth the summary unaudited pro forma combined
financial data for EQR, giving effect to the Merger as if it had occurred on
the dates indicated herein, after giving effect to the pro forma adjustments
described in the notes to the unaudited pro forma financial statements included
elsewhere in the Joint Proxy Statement/Prospectus.
The summary unaudited pro forma combined operating data are presented as if
the Merger had been consummated at the beginning of the period presented.
The summary unaudited pro forma combined balance sheet is presented as if the
Merger had occurred on September 30, 1997. The Merger has been accounted for
under the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16. In the opinion of management, all significant
adjustments necessary to reflect the effects of the Merger have been made.
The summary pro forma financial information should be read in conjunction
with, and is qualified in its entirety by, the respective historical financial
statements and notes thereto of EQR and EWR incorporated by reference into the
Joint Proxy Statement/Prospectus and the unaudited pro forma financial
statements and notes thereto included elsewhere in the Joint Proxy
Statement/Prospectus.
The summary unaudited pro forma operating and balance sheet data are
presented for comparative purposes only and are not necessarily indicative of
what the actual combined results of EQR and EWR would have been for the period
and dates presented. Nor does such data purport to represent the results of
future periods.
11
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
<TABLE>
<CAPTION>
PRO FORMA NINE PRO FORMA
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
OPERATING DATA: ------------------- -----------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES:
Rental Income............................ $ 753,594 $ 966,942
Fee and asset management................. 4,975 7,906
Interest income-investment in mortgage
notes................................... 15,022 12,819
Interest and other income................ 13,538 14,421
---------- ---------
Total revenues....................... 787,129 1,002,088
---------- ---------
EXPENSES:
Property and maintenance................. 194,532 271,533
Real estate taxes and insurance.......... 75,514 94,670
Property management...................... 26,467 31,539
Fee and asset management................. 2,523 3,837
Depreciation............................. 170,672 218,589
Interest:
Expense incurred....................... 147,365 179,870
Amortization of deferred financing
costs................................. 1,859 4,308
General and administrative............... 12,279 11,363
---------- ---------
Total expenses....................... 631,211 815,709
---------- ---------
Income before gain on disposition of
properties, (loss) on joint venture
communities, extraordinary items and
allocation to Minority Interests........ 155,918 186,379
Gain on disposition of properties....... 11,454 22,336
(Loss) on joint venture communities..... (19) (58)
---------- ---------
Income before extraordinary items and
allocation to Minority Interests........ 167,353 208,657
Extraordinary Items:
Write-off of unamortized costs on
refinanced debt......................... -- (3,512)
(Loss) on early extinguishment of debt.. (1,500) --
---------- ---------
Income before allocation to Minority
Interests............................... 165,853 205,145
(Income) allocated to Minority
Interests............................... (16,420) (21,130)
---------- ---------
Net income............................... 149,433 184,015
Preferred distributions.................. (65,078) (86,771)
---------- ---------
Net income available to Common Shares.... $ 84,355 $ 97,244
========== =========
Net income per weighted average Common
Share outstanding....................... $ .96 $ 1.11
========== =========
Weighted average Common Shares
outstanding............................. 87,737 87,737
========== =========
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997
------------------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
(at end of period)
Real Estate, after accumulated
depreciation............................ $6,400,198
==========
Total assets............................. $6,762,526
==========
Total debt............................... $2,611,825
==========
Minority Interests....................... $ 280,857
==========
Shareholders' Equity..................... $3,644,058
==========
</TABLE>
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following summary presents selected comparative unaudited per share
information for EQR on an historical basis adjusted for additional properties
acquired in 1997 and EQR and EWR on a pro forma combined basis assuming the
combination had been effective throughout the periods presented. EWR pro forma
equivalent per share amounts are presented with respect to pro forma
information. Such per share amounts allow comparison of historical information,
as adjusted, with respect to the value of one share of EWR Common to the
corresponding information with respect to the projected value of one share of
EQR Common as a result of the Merger by multiplying the pro forma amounts by
the Exchange Ratio of .50 to 1.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Net Income Per Common
Share
EQR................... $ 1.28 $ 1.70
EWR................... .88 .84
EQR pro forma combined
(A).................... .96 1.11
EWR pro forma
equivalent (B)......... .48 .56
Cash Distributions
Declared Per Common
Share
EQR................... $ 1.88 $ 2.40
EWR................... 1.19 1.58
EQR pro forma combined
(A).................... 1.88 2.40
EWR pro forma
equivalent (B)......... .94 1.20
Shareholders' Equity Per
Common Share
EQR................... $39.61 $28.52
EWR................... 12.77 12.46
EQR pro forma combined
(A).................... 41.48 N/A
EWR pro forma
equivalent (B)......... 20.74 N/A
</TABLE>
- -------
(A) The pro forma combined Net Income Per Common Share and Shareholders' Equity
Per Common Share data for EQR has been prepared assuming that in the Merger
each share of EWR Common is converted into .50 of a share of EQR Common
resulting in total weighted average outstanding shares of EQR Common of
87,737,000 for the year ended December 31, 1996 and for the nine months
ended September 30, 1997.
(B) The EWR pro forma equivalent is determined by multiplying the Exchange
Ratio (.50) by the EQR pro forma combined per share amounts so that the per
share amounts are equated to the comparative values for each share of EWR
Common.
COMPARATIVE SHARE PRICES
EQR. The EQR Common has been traded on the NYSE under the symbol "EQR" since
August 11, 1993. The following table sets forth the quarterly high and low
sales prices per share of EQR Common reported on the NYSE, as well as the
quarterly distributions declared per share of EQR Common, from January 1, 1995
through November 12, 1997.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
--------- ------- -------------
<S> <C> <C> <C>
1995
First Quarter.......................... $29 1/8 $25 5/8 $ .53
Second Quarter......................... 29 3/4 24 7/8 .53
Third Quarter.......................... 31 3/4 27 3/4 .53
Fourth Quarter......................... 31 7/8 28 .59
1996
First Quarter.......................... 33 3/4 28 1/4 .59
Second Quarter......................... 33 1/2 30 7/8 .59
Third Quarter.......................... 36 1/8 32 7/8 .59
Fourth Quarter......................... 43 3/8 35 5/8 .625
1997
First Quarter.......................... 48 7/8 39 3/4 .625
Second Quarter......................... 47 1/2 41 1/4 .625
Third Quarter.......................... 54 9/16 47 1/8 .625
Fourth Quarter (through November 12,
1997)................................. 54 13/16 49 5/8 --
</TABLE>
13
<PAGE>
On November 12, 1997, the last reported sale price of a share of EQR Common
on the NYSE was $49 5/8 per share. On August 27, 1997, the last full trading
day prior to the public announcement of the Merger, the last reported sale
price of a share of EQR Common on the NYSE was $50 3/8 per share. As of
November 12, 1997, EQR's transfer agent reported 1,051 record holders of EQR
Common and, as of July, 1997, certain depository entities held shares of EQR
Common on behalf of approximately 24,000 beneficial owners at such date.
EWR. The EWR Common has been traded on the NYSE under the symbol "EWR" since
August 11, 1994. The following table sets forth the quarterly high and low
sales prices per share of EWR Common reported on the NYSE, as well as the
quarterly distributions declared per share of EWR Common from January 1, 1995
through November 12, 1997.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1995
First Quarter............................ $20 7/8 $19 1/2 $ .37
Second Quarter........................... 20 7/8 18 3/8 .37
Third Quarter............................ 20 3/8 18 1/2 .38
Fourth Quarter........................... 21 5/8 18 7/8 .38
1996
First Quarter............................ 23 1/4 20 3/4 .39
Second Quarter........................... 23 1/4 20 1/4 .39
Third Quarter............................ 21 7/8 19 3/4 .40
Fourth Quarter........................... 22 1/4 20 1/8 .40
1997
First Quarter............................ 20 1/4 20 3/8 .405
Second Quarter........................... 21 1/8 19 1/2 .405
Third Quarter............................ 27 20 1/2 .38*
Fourth Quarter (through November 12,
1997)................................... 27 3/8 24 1/4 --
</TABLE>
- -------
*In connection with the Merger, EWR reduced its dividend for the third
quarter of 1997 to $0.38 per share and is required to limit its dividends
per share for the fourth quarter of 1997 and thereafter to 50% of the EQR
dividend per share declared for the same quarter.
On November 12, 1997, the last reported sale price of a share of EWR Common
on the NYSE was $24 11/16 per share. On August 27, 1997, the last full trading
day prior to the public announcement of the Merger, the last reported sale
price of a share of EWR Common on the NYSE was $22 1/16. As of September 15,
1997, EWR's transfer agent reported 276 record holders of EWR Common and, as of
September 15, 1997, The Depository Trust Company held shares of EWR Common on
behalf of approximately 9,100 beneficial owners at such date.
BECAUSE THE EXCHANGE RATIO IS FIXED AND THE MARKET PRICE OF EQR COMMON IS
SUBJECT TO FLUCTUATION, THE MARKET VALUE OF EQR COMMON THAT EWR COMMON
SHAREHOLDERS WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO AND
FOLLOWING THE MERGER. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR EQR COMMON AND EWR COMMON.
14
<PAGE>
RISK FACTORS
In considering whether to approve the Merger, the shareholders of EQR and
EWR should consider, in addition to the other information in this Joint Proxy
Statement/Prospectus, the matters described below.
CONFLICTS OF INTEREST
Shareholders should be aware that certain officers, directors and members of
the management of EWR have certain interests that arise in connection with the
Merger and related transactions to be entered into by EWR that are in addition
to the interests of shareholders generally. These interests arise under
existing agreements with, and annual compensation awards from EWR and
agreements relating to, among other things, (i) the Consulting Agreement dated
August 27, 1997 between EQR Properties Management LP, and Stephen O. Evans
pursuant to which Stephen O. Evans will provide consulting services to EQR
Properties Management LP until December 31, 1999 in exchange for $225,000 per
annum and certain additional benefits (see Interests of Certain Persons in the
Transactions), (ii) the appointment of Stephen O. Evans as a Trustee of EQR
and Executive Vice President--Strategic Investments, (iii) the appointment of
Richard G. Berry, President, Chief Operating Officer and Director of EWR, to
the office of Executive Vice President--Development of EQR upon completion of
the Merger pursuant to the terms of an Employment Agreement providing for a
salary of $250,000 per annum and certain additional benefits (see Interests of
Certain Persons in the Transactions) which shall expire on December 31, 2000,
(iv) amendments to certain Change in Control Agreements between EWR and
certain of its executive officers, (iv) the Deferred Compensation Agreement
between EQR and Mr. Berry which provides for two semi-annual cash payments
plus accrued interest at a rate of 9% if Mr. Berry terminates his employment
agreement with EQR Properties Management LP terminates prior to the expiration
of the term of such agreement with the cash payment to be equal to the fair
market value, as of the termination date, of any unvested restricted shares of
EQR Common exchanged for restricted shares of EWR Common or granted in payment
of Mr. Berry's 1997 bonus under existing agreements with EWR (see "Interests
of Certain Persons in the Transactions"), (v) the Consulting Agreement between
EQR Properties Management LP and Mr. Fannin which will be effective as of the
Effective Time and (a) provides for payments of $255,540 on January 7, 1998,
$301,535 on January 1, 1999 and $278,535 on January 1, 2000, (b) is subject to
an aggregate fee cap of $988,000 and (c) provides for certain additional
benefits (see "Interests of Certain Persons in the Transaction"), (vi) the
right to exercise options to purchase shares of EWR Common which right (a) may
be exercised with respect to vested incentive Share options or terminate upon
the Effective Time, and (b) will either be forfeited with respect to all other
options, in exchange for a cash payment in lieu thereof, (vii) the right to
receive an equivalent number (subject to adjustment to take into account the
exchange ratio) of options to purchase EQR Common based on the number of
vested incentive share options exercised and the number of all other options
to purchase EWR Common forfeited in exchange for a cash payment, provided they
become EQR employees or (viii) EQR's agreement that, with the exception of
restricted shares of EWR Common previously granted to Mr. Berry, all
restricted share grants of EWR Common previously made by EWR shall become
vested and will participate in the Merger on the same basis as all other
shares of EWR Common.
SIZE AND RAPID GROWTH OF EQR
EQR has grown rapidly since the completion of the EQR IPO on August 18,
1993, at which time EQR owned or held interests in 69 multifamily properties
containing 21,725 units. Upon completion of the Merger, based upon the number
of properties owned by EQR and EWR as of September 30, 1997, EQR will own or
have interests in and operate 414 properties, consisting of 118,970 units, and
EQR will continue to be the largest publicly traded multifamily REIT. There
can be no assurance that EQR will be able to continue to maintain the growth
rate which it has experienced since 1993.
DECREASE IN DISTRIBUTIONS PER SHARE TO EWR SHAREHOLDERS
Upon the completion of the Merger, it is expected that the distributions
with respect to each share of EQR Common will be $2.50 per annum compared to
$3.18 per annum with respect to two shares of EWR Common, based upon the
distributions per share of EQR Common and EWR Common declared for the four
quarters ending September 30, 1997.
POTENTIAL CHANGE IN RELATIVE STOCK PRICES
In considering whether to approve the Merger, shareholders of EWR should
consider the risks associated with (i) a potential change in the relative
prices of EQR Common and EWR Common prior to the Effective Time and (ii) a
possible reduction in the market price of EQR Common following the Merger, due
to future sales of shares of EQR Common or the availability of such shares for
future sales, government regulatory action, tax laws, interest rates, the
operating performance of EQR and market conditions in general.
Sales of a substantial number of shares of EQR Common or the perception that
such sales could occur could adversely affect prevailing market prices for
shares of EQR Common.
Neither party to the Merger Agreement has the right to terminate such
agreement because of any change in the prevailing market price of EQR Common
or EWR Common.
15
<PAGE>
TERMINATION PAYMENTS IF MERGER FAILS TO OCCUR
The Merger Agreement provides for a Break-Up Fee payable by EWR of $14
million plus Break-Up Expenses of up to $2.5 million if the Merger Agreement
is terminated by either EQR or EWR under certain circumstances and, within one
year after such termination, EWR enters into an agreement regarding an
"Acquisition Proposal" (as defined herein in "The Merger--Termination
Provisions"), which is consummated. In addition, if the Merger Agreement is
terminated for certain reasons, EQR or EWR will be required to pay the other
party's Break-Up Expenses of up to $2.5 million. See "The Merger--Termination
Fee and Expenses."
The obligation to pay the Break-Up Fee and/or Break-Up Expenses may
adversely affect the ability of EWR to engage in another transaction in the
event the Merger is not consummated.
POTENTIAL ADVERSE EFFECTS OF COMBINING THE COMPANIES
EQR and EWR are large enterprises with operations in a number of different
states. There can be no assurance that costs or other factors associated with
the integration of the two companies would not adversely affect future
combined results of operations or the benefits of expected costs savings.
ADVERSE CONSEQUENCES OF DEBT FINANCING AND PREFERRED SHARES
General Risks. As of June 30, 1997, the properties of EQR were subject to
approximately $961 million of mortgage indebtedness and EQR's total debt
equaled approximately $1.7 billion, $361.5 million of which was floating rate
debt. In addition, in June 1995, EQR issued 6,120,000 Series A Preferred
Shares pursuant to a preferred share offering; in November 1995, EQR issued
5,000,000 depository shares each representing a 1/10 fractional interest in a
Series B Preferred Share pursuant to a depository share offering; in September
1996, EQR issued 4,600,000 depository shares each representing a 1/10
fractional interest in a Series C Preferred Share pursuant to a depository
share offering; in May 1997, EQR issued 7,000,000 depository shares each
representing a 1/10 fractional interest in a Series D Preferred Share pursuant
to a depository share offering and also in May 1997, subsequent to the merger
of EQR with Wellsford Residential Property Trust ("Wellsford"), Wellsford's
3,999,800 Series A Cumulative Convertible Preferred Shares of Beneficial
Interest were redesignated as EQR's 3,999,800 Series E Preferred Shares,
Wellsford's 2,300,000 Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest were redesignated as EQR's 2,300,000 Series F Preferred
Shares, and the 1,265,000 7 1/4% Series G Convertible Cumulative Preferred
Shares of Beneficial Interest (collectively, the "Preferred Share Offerings").
EQR used the proceeds from the Preferred Share Offerings to repay indebtedness
and to acquire additional properties. EQR is subject to the risks associated
with debt or preferred equity financing, including the risk that EQR'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 EQR were unable to refinance its indebtedness on acceptable terms,
or at all, EQR might be forced to dispose of one or more of the properties on
disadvantageous terms, which might result in losses to EQR 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, EQR's interest expense would increase, which would
affect EQR's ability to make distributions to its shareholders. Furthermore,
if a property is mortgaged to secure payment of indebtedness and EQR 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 to EQR.
Foreclosures could also create taxable income without accompanying cash
proceeds, thereby hindering EQR's ability to meet the REIT distribution
requirements of the Code.
Restrictions on EQR's Activities. A substantial portion of EQR's debt was
issued pursuant to certain indentures (the "Indentures") which restrict the
amount of indebtedness (including acquisition financing) EQR may incur.
Accordingly, in the event that EQR is unable to raise additional equity or
borrow money because of the debt restrictions in the indentures, EQR's ability
to acquire additional properties may be limited. If EQR is unable to acquire
additional properties, its ability to increase the distributions with respect
to EQR Common, 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 EQR's portfolio at such time.
Bond Compliance Requirements. EQR owns several 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 several
additional properties. EQR 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 EQR's income from certain of these properties if EQR is required
to lower its rental rates to attract low or moderate income tenants, or
eligible/qualified tenants.
16
<PAGE>
CONTROL AND INFLUENCE BY SIGNIFICANT SHAREHOLDERS
As of September 11, 1997, Mr. Zell, certain current holders (the "Zell
Holders") of ERP OP Units issued at the time of the initial public offering of
shares of EQR Common (the "EQR IPO") to certain affiliates of Mr. Zell which
contributed 33 of the properties at the time of the EQR IPO (the "Zell
Original Owners"), Equity Properties Management Corp. ("EPMC") and other
affiliates of Mr. Zell owned in the aggregate approximately 5.8% of the shares
of EQR Common (assuming that all of the partnership interests in ERP OP Units
are exchanged for EQR Common), 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 EQR IPO (the "Starwood Original Owners")
owned in the aggregate approximately 2.3% of EQR Common (assuming that all of
the ERP OP Units are exchanged for EQR Common). The Starwood Original Owners,
together with the Zell Original Owners, shall be referred to collectively as
the "Original Owners." As of September 11, 1997, EQR had options outstanding
to purchase approximately 3.8 million shares of EQR Common which it has
granted to certain officers, employees and trustees of EQR and consultants to
EQR, some of whom are affiliated with Mr. Zell, representing in the aggregate
approximately 4.5% of the shares of EQR Common (assuming that all such options
are exercised for shares of EQR Common and all of the outstanding ERP OP Units
are exchanged for EQR Common). 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 ERP OP'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 EQR, which influence might not be
consistent with the interests of other shareholders, and on the outcome of any
matters submitted to EQR'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 EQR if they
were to act together in the future.
POTENTIAL ENVIRONMENTAL LIABILITY
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, EQR or EWR may
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 for certain
other related costs, including governmental fines and injuries to persons and
property.
All of the properties of EQR and EWR have been the subject of a Phase I and,
in certain cases, a supplemental environmental assessment completed by
qualified independent environmental consultant companies. The most recent
environmental assessments for each of such properties were conducted within
the last five years. Environmental assessments were obtained prior to the
acquisition by EQR and EWR of their respective properties. These environmental
assessments have not revealed, nor is EQR or EWR aware of, any environmental
liability that EQR's or EWR's management believes would have a material
adverse effect on EQR's or EWR's business, results of operations, financial
condition or liquidity.
No assurance can be given that existing environmental assessments with
respect to any of EQR's or EWR's properties reveal all environmental
liabilities, that any prior owner of a property did not create any material
environmental condition not known to EQR or EWR, or that a material
environmental condition does not otherwise exist as to any one or more
properties.
GENERAL REAL ESTATE INVESTMENT CONSIDERATIONS; CHANGES IN LAWS
General. Real property investments are subject to varying degrees of risk
and are relatively illiquid. Income from real property investments and EQR'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 EQR to provide adequate maintenance
and insurance, and increased operating costs (including insurance premiums and
real estate taxes). EQR's income would also be adversely affected if tenants
were unable to pay rent or EQR were unable to
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rent apartment units on favorable terms. If EQR were unable to promptly relet
units 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 EQR'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 EQR
to vary its portfolio promptly in response to changes in economic or other
conditions.
Changes in Laws. Increases in real estate taxes, income taxes and service or
other taxes generally are not passed through to tenants under existing leases
and may adversely affect EQR'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 EQR'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 EQR 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
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")),
of the Starwood Original Owners and Mr. Henry H. Goldberg, a trustee of EQR
(through their potential ownership of EQR Common) together constitute five
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 6.2% of the value of the
outstanding shares of beneficial interest of EQR. Due to such concentration of
ownership of EQR, ownership of more than 5% of the lesser of the number or
value of the outstanding shares of beneficial interest of EQR by any single
shareholder has been restricted, with certain exceptions, for the purpose of
maintaining EQR's qualification as a REIT under the Code. Such restrictions in
EQR's Declaration of Trust do not apply to the ownership of the 5,541,331
shares of EQR Common subject to acquisition by the holders of ERP OP Units and
EPMC through the exchange of Original ERP OP Units. Additionally, EQR's
Declaration of Trust allows certain transfers of such shares of EQR Common
without the transferees being subject to the 5% ownership limit, provided such
transfers do not result in an increased concentration in the ownership of EQR.
EQR'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.
The 5% ownership limit, as well as the ability of EQR to issue additional
shares of EQR Common or other shares of beneficial interest (which may have
rights and preferences senior to shares of EQR Common), may discourage a
change of control of EQR and may also (i) deter tender offers for shares of
EQR Common, which offers may be advantageous to shareholders, and (ii) limit
the opportunity for shareholders to receive a premium for their shares of EQR
Common that might otherwise exist if an investor were attempting to assemble a
block of shares of EQR Common in excess of 5% of the outstanding shares of
beneficial interest of EQR or otherwise effect a change of control of EQR.
Possible Adverse Consequences of Ownership Limit. To maintain its
qualification as a REIT for federal income tax purposes, not more than 50% in
value of the outstanding shares of beneficial interest of EQR may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code,
to include certain entities). See "Federal Income Tax Considerations--Share
Ownership Test." Certain beneficial owners of the Zell Holders (i.e.,
beneficiaries of trusts established for 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 and Mr. Goldberg (through their
potential ownership of EQR Common) together constitute five individuals for
purposes of this test and, under the Service's rules applicable to determining
percentages of ownership, are deemed to own approximately 6.2% of the value of
the outstanding shares of beneficial interest of EQR. To facilitate
maintenance of its qualification as a REIT for federal income tax purposes,
EQR generally will prohibit ownership, directly or by virtue of the
attribution provisions of the Code, by any single shareholder of more than 5%
of the issued and outstanding shares of EQR Common and generally will prohibit
ownership, directly or by virtue of the attribution provisions of the Code, by
any single shareholder of more than 5% of the issued and outstanding shares of
any class or series of EQR Preferred Shares (collectively, the "Ownership
Limit"). The Board of Trustees may, in its reasonable discretion, waive or
modify the Ownership Limit with respect to one or more persons who would not
be treated as "individuals" for purposes of the Code if it is satisfied, based
upon information required to be provided by the party seeking the waiver, that
ownership in excess of this limit will not cause a person who is an individual
to be treated as owning EQR
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Common or EQR Preferred in excess of the Ownership Limit, applying the
applicable constructive ownership rules, and will not otherwise jeopardize
EQR's status as a REIT for federal income tax purposes. EQR's Declaration of
Trust also 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 ERP OP Units for shares of EQR Common, which ERP
OP Units were received by them at the time of the formation of EQR. Absent any
such exemption or waiver, EQR Common or EQR Preferred acquired or held in
violation of the Ownership Limit will be transferred to a trust for the
benefit of a designated charitable beneficiary, with the person who acquired
such EQR Common and/or EQR Preferred in violation of the Ownership Limit not
entitled to receive any distributions thereon, to vote such EQR Common or EQR
Preferred, or to receive any proceeds from the subsequent sale thereof in
excess of the lesser of the price paid therefore or the amount realized from
such sale. A transfer of EQR Common and/or EQR Preferred to a person who, as a
result of the transfer, violates the Ownership Limit may be void under certain
circumstances. See "Description of Shares of Beneficial Interest--Restrictions
on Ownership and Transfer." The Ownership Limit may have the effect of
delaying, deferring or preventing a change in control and, therefore, could
adversely affect the shareholder's ability to realize a premium over the then-
prevailing market price for EQR Common in connection with such transaction.
Staggered Board. The Board of Trustees of EQR has been divided into three
classes of trustees. As the term of each class expires, trustees for that
class will be 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 EQR even if a change in control
were in the shareholders' interest.
Preferred Shares. EQR's Declaration of Trust authorizes the Board of
Trustees to issue up to 100,000,000 preferred shares of beneficial interest,
$.01 par value per share ("EQR Preferred"), and to establish the preferences
and rights (including the right to vote and the right to convert into EQR
Common) of any EQR Preferred issued. The power to issue EQR Preferred could
have the effect of delaying or preventing a change in control of EQR even if a
change in control were in the shareholders' interest. As of October 15, 1997,
15,344,800 shares of EQR Preferred were issued and outstanding.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. EQR 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 EQR 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
EQR's control.
If EQR were to fail to qualify as a REIT in any taxable year, EQR 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, EQR 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 EQR
available for investment or distribution to shareholders because of the
additional tax liability to EQR 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 EQR 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, EQR's management operations, which are conducted through
EQR Properties Management LP and Equity Residential Properties Management
Limited Partnership II (collectively, the "EQR Properties 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. EQR believes that the
ERP Operating Partnership, the EQR Properties 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, EQR 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--Tax Aspects
of EQR's Investments in Partnerships."
Each of EQR and EWR believes it has operated in a manner so as to qualify as
a REIT under the Code for all taxable years ending on or before December 31,
1996 and for the period beginning January 1, 1997 and ending on the date
hereof.
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DEPENDENCE ON KEY PERSONNEL
EQR is dependent on the efforts of its executive officers. While EQR
believes that it could find replacements for these key personnel, the loss of
their services may have a temporary adverse effect on the operations of EQR.
Except for the Consulting Agreement between Stephen O. Evans and EQR
Properties Management LP and the Employment Agreement between Richard G. Berry
and EQR Properties Management LP, none of these officers has entered into
employment agreements with EQR or any affiliate.
NO APPRAISAL RIGHTS UNDER MARYLAND LAW
Neither shareholders of EQR nor shareholders of EWR are entitled to
appraisal rights in connection with the Merger under Maryland law. Maryland
law does not provide appraisal rights to shareholders of a REIT or a
corporation in connection with a merger if their shares are listed on a
national securities exchange, such as the NYSE, on the record date for
determining shareholders entitled to vote on such merger. All of the shares of
EQR Common and EWR Common outstanding on the record date for determining the
shareholders entitled to vote on the Merger were listed on the NYSE.
DISTRIBUTION REQUIREMENTS POTENTIALLY INCREASING INDEBTEDNESS OF EQR
EQR 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 EQR of principal on debt,
EQR could have taxable income without sufficient cash to enable EQR to meet
the distribution requirements of a REIT. Accordingly, EQR could be required to
borrow funds or liquidate investments on adverse terms in order to meet such
distribution requirements. See "Federal Income Tax Considerations--
Distributions from EQR."
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"), as
applicable to real estate investment trusts, certain "business combinations"
(including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification 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 or an affiliate of the trust who, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the trust's then outstanding shares of
beneficial interest (an "Interested Shareholder"), or an affiliate of such
Interested Shareholder, are prohibited for five years after the most recent
date on which the Interested Shareholder becomes an Interested Shareholder.
Thereafter, any such business combination must be recommended by the board of
trustees of such trust and approved by the affirmative vote of at least (a)
80% of the votes entitled to be cast by holders of outstanding voting shares
of beneficial interest of the trust and (b) two-thirds of the votes entitled
to be cast by holders of voting shares of beneficial interest of the trust
other than shares held by the Interested Shareholder with whom (or with whose
affiliate) the business combination is to be effected, (unless, among other
conditions, the holders of the EQR Common 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 EQR Common. As permitted by the MGCL, EQR 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
EQR. 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 EQR, which may not be in the best interest of the
shareholders, without compliance by EQR with the super-majority vote
requirements and other provisions of the MGCL.
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THE MEETINGS OF SHAREHOLDERS
EQR
The EQR Special Meeting has been called by the EQR Board of Trustees for the
purpose of approving the Merger. The EQR Special Meeting will be held on
December 23, 1997, at 10:00 a.m., local time, at One North Franklin, Chicago,
Illinois. Only shareholders of record of EQR Common at the close of business
on November 14, 1997 will be entitled to vote at the EQR Special Meeting. EQR
had outstanding 74,212,865 shares of EQR Common as of the close of business on
October 15, 1997. No shares of beneficial interest of EQR other than EQR
Common are entitled to vote on the Merger. Each holder of EQR Common is
entitled to one vote per share on the Merger. If the accompanying proxy form
is signed and returned, the shares represented thereby will be voted in
accordance with any direction on the proxy form and, in the absence of a
direction, they will be voted FOR the Merger. The shareholder may revoke the
proxy at any time prior to the voting thereof by giving written notice of such
revocation to Bruce C. Strohm, Executive Vice President, Secretary, and
General Counsel of EQR, Two North Riverside Plaza, Suite 400, Chicago, IL
60606, by executing and delivering a proxy bearing a later date or by
attending the EQR Special Meeting and voting in person.
The expenses of the solicitation of shareholders of EQR Common will be paid
by EQR. In addition to the use of the mail, proxies may be solicited by
trustees, officers or regular employees of EQR in person, by telecopy or by
telephone. EQR has retained MacKenzie Partners, Inc. to assist in the
solicitation of proxies. The fee of such firm is estimated to be $6,000, plus
reimbursement for out-of-pocket costs and expenses. Arrangements will also be
made with brokerage firms and other custodians, nominees and fiduciaries to
forward solicitation material to the beneficial owners of the shares of EQR
Common held of record by such persons, and EQR will reimburse such brokerage
firms, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred by them in connection therewith.
The presence at the EQR Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of EQR Common is necessary to
constitute a quorum under Maryland law and the Second Amended and Restated
Bylaws of EQR (the "EQR Bylaws"). Votes cast by proxy or in person at the
meeting will be tabulated by election inspectors appointed for such purpose
and will determine whether or not a quorum is present. The election inspectors
will treat abstentions and "broker non-votes" (i.e., proxies of brokers who
have limited authority to vote on specified proposals) as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum at the meeting. Under the EQR Declaration of Trust, the affirmative
vote of the holders of a majority of the outstanding shares of EQR Common is
required to approve the Merger.
Shareholders of EQR Common may mark the accompanying EQR proxy to vote their
shares FOR or AGAINST, or to ABSTAIN with respect to, the Merger. An
abstention or a broker non-vote will have the effect of a vote against
approval of the Merger.
THE EQR TRUSTEES WHO VOTED ON THE MERGER UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF EQR COMMON VOTE FOR THE MERGER.
Pursuant to the EQR Bylaws, no business may be transacted at the EQR Special
Meeting except that referred to in the accompanying notice of the EQR Special
Meeting.
EWR
The EWR Special Meeting has been called by the EWR Board of Directors for
the purpose of approving the Merger. The EWR Special Meeting will be held on
December 23, 1997, at 9 a.m., Arizona time, at , Scottsdale, Arizona.
Only shareholders of record of EWR Common at the close of business on November
14, 1997 will be entitled to vote at the EWR Special Meeting. EWR had
outstanding 20,477,006 shares of EWR Common as of the close of business on
October 15, 1997, of which 854,248 shares (or approximately 4.2% of the
outstanding shares of EWR Common) (excludes 3,422,197 shares where beneficial
ownership is disclaimed) were owned beneficially by the officers and directors
of EWR, and such persons have indicated their intention to vote such shares in
favor of the Merger. Only shares of EWR Common are entitled to vote on the
matters set forth in the notice of the EWR Special Meeting. Each holder of EWR
Common is entitled to one vote per share on the matters set forth in the
notice of the EWR Special Meeting. If the accompanying proxy form is signed
and returned, the shares represented thereby will be voted in accordance with
any direction on the proxy form, or in the absence of a direction, they will
be voted FOR the Merger. The shareholder may revoke the proxy at any time
prior to the voting thereof by giving written notice of such revocation to
Paul R. Fannin, Senior Vice President, Chief Financial Officer and Secretary
of EWR, 6991 East Camelback Road, Suite A-200, Scottsdale, Arizona 85251, by
executing and delivering a proxy bearing a later date or by attending the EWR
Special Meeting and voting in person.
The expenses of the solicitation of EWR Common Shareholders will be paid by
EWR. In addition to the use of the mail, proxies may be solicited by
directors, officers or regular employees of EWR in person, by telecopy or by
telephone. EWR has retained MacKenzie Partners, Inc. to assist in the
solicitation of proxies. The fee of such firm is estimated to be $6,000, plus
reimbursement for out-of-pocket costs and expenses. Arrangements will also be
made with brokerage firms and
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other custodians, nominees and fiduciaries to forward solicitation material to
the beneficial owners of the shares of EWR Common held of record by such
persons, and EWR will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith.
The presence at the EWR Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of EWR Common is necessary to
constitute a quorum under Maryland law and EWR's Amended and Restated Bylaws
(the "EWR Bylaws"). Votes cast by proxy or in person at the EWR Special
Meeting will be tabulated by election inspectors appointed for such purpose
who will determine whether or not a quorum is present. The election inspectors
will treat abstentions and "broker non-votes" (i.e., proxies of brokers who
have limited authority to vote on specified proposals) as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum at the meeting. Under Maryland law and EWR's Articles of Amendment and
Restatement (the "EWR Articles"), the affirmative vote of the holders of a
majority of the outstanding shares of EWR Common is required to approve the
Merger.
EWR Common Shareholders may mark the accompanying EWR proxy to vote their
shares FOR or AGAINST, or to ABSTAIN from voting with respect to, the Merger.
An abstention or a broker non-vote will have the effect of a vote against
approval of the Merger.
THE EWR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT EWR COMMON
SHAREHOLDERS VOTE FOR THE MERGER.
The EWR Bylaws provide that no business will be transacted at the EWR
Special Meeting except that referred to in the accompanying notice of the EWR
Special Meeting.
THE MERGER
The description of the Merger contained in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the Merger
Agreement, the full text of which is attached as Appendix A, and is
incorporated herein by reference.
TERMS OF THE MERGER
The Merger Agreement provides that, upon satisfaction or waiver of the
conditions set forth therein, EWR will be merged into EQR. At the Effective
Time, each outstanding share of EWR Common will be converted into 0.5 of a
share of EQR Common.
At the Effective Time, each outstanding share of EQR Common will remain
unchanged.
No fractional shares of EQR Common will be issued in connection with the
Merger. In lieu thereof, holders of EWR Common will receive a cash payment
equal to the average per share closing price of EQR Common on the NYSE for the
five trading days immediately preceding the Effective Time, multiplied by the
fraction of a share of EQR to which the holder would otherwise be entitled
under the Merger Agreement.
TRANSACTIONS RELATING TO THE ERP OPERATING PARTNERSHIP
By separate prospectus ERP Operating Partnership is offering to each EWR
Unit Holder the right to contribute all the EWR OP Units owned by it to ERP
Operating Partnership in exchange for ERP OP Units. The number of ERP OP Units
to be received by each EWR Unit Holder who elects to exchange will be equal to
the number of EWR OP Units contributed by such EWR Unit Holder multiplied by
the Exchange Ratio. Such offer shall be terminated if not accepted by the
Closing Date of the sale of assets of EWR to ERP described herein. If such
offer is accepted prior to the Effective Time, consummation of each unit
contribution shall be conditioned upon the occurrence of, and shall not occur
until, the Effective Time.
Pursuant to the Asset Contribution Agreement between EWRLP and ERP Operating
Partnership, EWRLP agreed, subject to certain conditions, to contribute all of
its assets to ERP Operating Partnership (the "Contribution") in exchange for
ERP OP Units following the Merger. The number of ERP OP Units to be received
by EWRLP in consideration for the Contribution shall equal the number of EWR
OP Units outstanding immediately prior to the Contribution multiplied by the
Exchange Ratio. The Contribution shall occur upon ERP Operating Partnership
giving notice to EWRLP at any time following the first to occur of (i) the
date twelve months after the consummation of the Merger, (ii) the date on
which EQR receives an opinion of a nationally recognized tax counsel
satisfactory to it or a ruling from the IRS that the Contribution may be
effected without adversely affecting the qualification of the Merger as a tax-
free reorganization within the meaning of Section 368 of the Code or (iii) the
date on which regulations are promulgated by the Department of the Treasury
which, in the opinion of a nationally recognized tax counsel satisfactory to
EQR, would permit the Contribution to occur without adversely affecting the
qualification of the Merger as a tax-free reorganization within the meaning of
Section 368 of the Code. If ERP Operating Partnership fails to give such
notice by December 31, 1999, the Asset Contribution Agreement shall
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terminate and EWRLP shall have no further obligations thereunder. ERP
Operating Partnership has no obligation to give such notice. The failure of
ERP Operating Partnership to give such notice will have no effect on the
Merger. The Contribution is also subject to the approval of the limited
partners of EWRLP. EWRLP will be dissolved promptly following consummation of
the Contribution and such ERP OP Units shall be distributed to the partners of
EWRLP in complete liquidation of their partnership interests in EWRLP. The
failure of the EWRLP limited partners to approve the Contribution is not a
condition to the consummation of the Merger. EWR is a holder of a majority of
the EWR OP Units and has agreed to approve the Contribution, subject to the
approval of the Merger by the holders of EWR Common.
BACKGROUND OF THE MERGER
Since 1993, Douglas Crocker, the President and Chief Executive Officer of
EQR and Stephen O. Evans, the Chairman of the Board and Chief Executive
Officer of EWR, have had a personal relationship arising out of their
participation in the multifamily property business. Since 1994, Mr. Crocker
and Mr. Evans have discussed the general status of the multifamily property
industry. Messrs. Crocker and Evans each presumed that the multifamily
property industry would be the subject of combinations of existing companies
in the future and separately considered whether their respective companies
should explore a combination with other companies.
On April 16, 1997, Mr. Evans met with Samuel Zell, Chairman of EQR, Mr.
Crocker and Gerald Spector, EQR's Chief Operating Officer, to discuss
preliminarily the possibility of a business combination.
On May 6, 1997, at a regular quarterly meeting of the EWR Board of
Directors, Mr. Evans reported to the Directors on multifamily industry
consolidation trends and his meeting with Mr. Zell, Mr. Crocker and Mr.
Spector on April 16, 1997.
Pursuant to an engagement letter dated May 7, 1997, EWR retained Morgan
Stanley to assist them in a review of strategic alternatives.
On June 10, 1997, at a meeting of EWR's Board of Directors, Morgan Stanley
presented a review of potential strategic alternatives available to EWR. These
alternatives included the continuation of EWR's existing strategy of property
operation and of pursuing acquisition and development opportunities in its
existing markets in Arizona and Southern California, as well as the
possibility of a so-called "merger of equals" or the merger of EWR into a
larger company. Strategic alternatives were analyzed in light of various
characteristics including geographic fit and portfolio quality, as well as the
resulting effect on EWR's cost of capital. While EWR had, in the first half of
1997, very preliminary discussions with a number of companies regarding a
possible business combination, none of such discussions resulted in any
specific proposals or offers. EWR's discussions with EQR as described herein
were the only discussions that resulted in an offer to consummate a business
combination. For the reasons discussed below under "Reasons for the Merger;
Recommendation of the EWR Board of Directors," the EWR Board of Directors
ultimately determined that the merger with EQR was the best strategic
alternative for EWR and its stockholders.
Through early July 1997, Mr. Evans had conversations with members of the EWR
Board of Directors to review the possibility of approaching EQR to assess
EQR's preliminary interest in pursuing a business combination with EWR on
mutually acceptable terms.
On July 7, 1997, Messrs. Crocker and Spector and David J. Neithercut, Chief
Financial Officer of EQR, met with Mr. Evans specifically to discuss each
company's interest in pursuing merger discussions. During such meeting, Mr.
Crocker and Mr. Evans considered whether a merger would be in the best
interests of both companies and their respective shareholders. Among the
issues considered were whether a merger would combine the talents of their
respective companies, reduce corporate overhead by eliminating redundancies,
create a larger company which might be attractive to institutional investors
and increase access to public equity and debt markets and provide EQR with
access to proven development expertise. Concluding that a merger might be in
the best interests of both companies and their shareholders, Mr. Crocker and
Mr. Evans decided to pursue merger discussions.
Subsequent to the meeting on July 7, 1997, Mr. Evans updated the EWR Board
of Directors regarding his discussions with EQR. Members of the EWR Board of
Directors encouraged Mr. Evans to continue these discussions.
On July 24, 1997, Mr. Evans contacted Mr. Crocker and indicated a
willingness to commence substantive discussions of a business combination,
which would occur pursuant to a confidentiality agreement with a 30-day
exclusivity provision. A Confidentiality and Exclusivity Agreement was
executed on July 25, 1997.
On July 31 and August 1, 1997, Mr. Crocker, Mr. Evans, Paul Fannin, Chief
Financial Officer of EWR, Bruce C. Strohm, General Counsel of EQR, Mr.
Neithercut, David Lee, Senior Vice President--Capital Markets of EQR and
representatives of Morgan Stanley and legal representatives of both EQR and
EWR met at Morgan Stanley's offices in New York to discuss the structure of a
possible merger transaction, and the possible pricing matrix for the EWR
Common and EWR OP Units. General terms were discussed. The tentative exchange
ratio was determined by establishing relative values for the EQR Common and
EWR Common. The value for EQR Common was based on its then market value of
$51.25 per
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share. No one specific valuation method was utilized in connection with the
determination of the value of the EWR Common. The value for EWR Common was
negotiated based upon, among other things, (a) its then market price of
$21.125 per share and each party's evaluation of the value of EWR's assets to
be acquired in the merger, which were estimated at approximately $1.1 billion,
(b) the budgeted net operating income, earnings before interest, taxes,
depreciation and amortization and funds from operations for 1997 estimated to
be generated from the assets to be acquired by EQR in the merger which were
approximately $80.1 million, $82.7 million and $53.9 million, respectively,
and (c) the cost savings anticipated from the Merger which were estimated at
$1.1 million per year and the costs associated with the Merger, including
employee severance and retention costs, which were estimated at $17.2 million.
It was tentatively agreed, subject to satisfactory resolution of the material
issues and completion of due diligence, that the exchange ratio would be
determined based upon a value of $26.00 per share for the EWR Common and EWR
OP Units and $52.00 per share for the EQR Common, subject to adjustment in the
event of a decline in the market price of EQR Common. Although discussions
were still ongoing, EQR and EWR requested their legal counsel to prepare a
draft of a merger agreement and other related documents so that management of
the companies could focus on the issues that required resolution.
Reciprocal due diligence commenced on August 4, 1997 and was completed the
week of August 25, 1997 to the satisfaction of both parties.
From August 4, 1997 through August 20, 1997, the management of EQR and EWR
and each company's respective counsel had numerous discussions regarding
various business and legal issues. At a regular meeting of the EWR Board of
Directors on August 6, 1997, the Merger was discussed and the Directors were
advised of the status of negotiation progress to date.
On August 21, 1997, Mr. Crocker, Mr. Neithercut, Mr. Strohm and Fred Tuomi,
Executive Vice President of EQR, met with Mr. Evans, Richard Berry, President
and Chief Operating Officer of EWR, and Tony Pusateri, Senior Vice President--
Operations of EWR, at EQR's corporate offices. The parties discussed the
structure of the transaction, the current operations of the companies,
potential synergies expected by management to result from the proposed
transaction, the structure of existing and future development transactions,
certain governance, tax and employee transition matters and the time table for
completion of the transaction.
On August 22, 1997, Messrs. Crocker and Evans discussed by telephone certain
open issues in connection with the Merger, including the employment
arrangements with certain key employees of EWR after the completion of the
proposed merger.
On August 22, 1997, a special meeting of the EQR Board of Directors was held
at which members of management and representatives of EQR's financial and
legal advisors were present in person or by conference telephone call. At such
meeting, the EQR Trustees were informed of the status of discussions with
EWR's management and the reasons that a combination with EWR would be
beneficial to EQR. In addition, the trustees discussed with management and
EQR's legal advisors the current operations of EQR and EWR, the form of
consideration payable in the proposed transaction, the valuation methodologies
to be utilized by J.P. Morgan for purposes of its opinion (see "The Merger--
Opinion of Financial Advisor--EQR"), potential synergies expected by
management to result from the proposed transaction, certain governance, tax
and due diligence matters and the time table for completion of the
transaction. The EQR Board of Trustees also reviewed the tentative terms of
the proposed merger between EQR and EWR.
Mr. Crocker provided the EQR Board of Trustees with a discussion of the
background and events leading up to the meeting with respect to the proposed
merger with EWR and set forth in detail the reasons he believed a possible
business combination with EWR would be appropriate for EQR. The reasons
discussed included (i) the resulting size of the combined entity as compared
to other REITs, (ii) the combined market capitalization would increase to
approximately $7.6 billion and would not significantly alter EQR's existing
Debt to Total Market Capitalization Ratio, (iii) the merger would improve
access to the public debt and equity markets to support EQR's continued growth
and (iv) the merger would allow EQR access to proven development expertise.
EQR's legal counsel presented and explained the terms of the Merger
Agreement to the EQR Board of Trustees including closing conditions,
termination rights and liquidated damages and expense reimbursement
provisions, and advised the EQR Board of Trustees of its fiduciary
obligations.
A discussion among the EQR Board of Trustees followed concerning the
advantages and disadvantages of the proposed merger, including the factors
raised by Mr. Crocker. The principal negative factors considered by the EQR
Board of Trustees were the significant cost involved in connection with
consummating the merger and the substantial management time and effort
required to effectuate the merger and integrate the businesses of EQR and EWR.
The EQR Board of Trustees did not
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find the negative factors sufficient to outweigh advantages of the merger,
particularly in light of the expected lower payout ratio that EQR would have
following the merger based upon funds from operations and the similar expected
Debt to Total Market Capitalization Ratio that EQR would have following the
merger as compared with EQR's current ratios.
From August 23, 1997 through August 27, 1997, representatives of management
of EQR and EWR and their respective counsel discussed and resolved the
remaining open business and legal issues.
On August 27, 1997, a special meeting of the EQR Board of Trustees was held.
Representatives of J.P. Morgan made a detailed presentation regarding the
proposed merger with EQR. J.P. Morgan's presentation included a discussion of
(i) the fairness from a financial point of view to EQR of the consideration to
be paid by EQR in the proposed merger, (ii) a summary of the financial terms
of the proposed merger, (iii) a valuation analysis and (iv) a discussion of
the impact of the proposed merger on EQR. Also included in J.P. Morgan's oral
presentation of its fairness opinion were (a) an outline of J.P. Morgan's
fairness opinion process, (b) a pro forma merger analysis, (c) a fully loaded
share price analysis, (d) a public trading multiples analysis, (e) a selected
transactions analysis, (f) a share trading history analysis, (g) an historical
exchange ratio analysis and (h) a net asset value analysis.
Following J.P. Morgan's presentation, and after extensive discussion, the
Board of Trustees of EQR concluded that the advantages of the merger
outweighed the potential risks and the EQR Trustees who voted on the merger
unanimously approved the Merger Agreement and the related agreements
contemplated thereby, and authorized EQR management to enter into such
agreements. J.P. Morgan rendered its oral opinion to the effect that, as of
the date and subject to the assumptions made, procedures followed, matters
considered and limits of its review, the consideration to be paid by EQR in
connection with the merger was fair, from a financial point of view to EQR.
J.P. Morgan's written opinion confirming its oral opinion was delivered on
August 27, 1997.
On August 27, 1997, the EWR Board of Directors held a special meeting at
which members of management, representatives of Morgan Stanley and legal
counsel were present. At the meeting, the EWR Board of Directors was updated
on the status of discussions with EQR regarding the potential merger
transaction between EWR and EQR. Mr. Evans and Morgan Stanley reviewed with
the Board of Directors (i) the background of the proposed merger, (ii) the
status of EWR's financial and business plans with and without the proposed
merger, (iii) due diligence findings with respect to EQR and (iv) the
potential benefits as well as the risks of the proposed merger transaction as
described below under "--Reasons for the Merger; Recommendation of the EWR
Board of Directors."
EWR's legal counsel made a presentation to the EWR Board of Directors in
which it explained the material terms of the proposed merger, briefed the
Board of Directors on certain legal issues raised by the proposed merger
transaction and advised the Board of Directors of its fiduciary duties in
connection with such transaction.
Morgan Stanley presented its financial analysis of the merger transaction.
Morgan Stanley concluded its presentation by orally advising the EWR Board of
Directors that as of that date and subject to the assumptions made, factors
considered and limits on the review, the consideration to be received by the
holders of EWR Common, pursuant to the Merger, was fair from a financial point
of view to such holders.
Following such presentations, and after extensive discussion of the
advantages and disadvantages of the proposed merger transaction as described
under "--Reasons for the Merger; Recommendations of the EWR Board of
Directors," the Board of Directors of EWR concluded that the advantages of the
Merger outweighed the potential risks, and unanimously approved the Merger,
the Merger Agreement and all transactions contemplated thereby.
EQR and EWR did not believe that the Merger would have a material adverse
effect on the results of operations, liquidity or capital resources of EQR and
believed that the advantages of such transactions outweighed the
disadvantages.
The Merger Agreement was executed on August 27, 1997.
REASONS FOR THE MERGER; RECOMMENDATION OF THE EQR BOARD OF TRUSTEES
The Board of Trustees of EQR believes that the Merger, including the
consideration, is fair and in the best interests of EQR and its shareholders.
Accordingly, the EQR Trustees who voted on the Merger unanimously approved the
Merger. In reaching this determination, the EQR Board of Trustees consulted
with EQR management, as well as its financial advisors, J.P. Morgan, legal
counsel and accountants, and considered a number of factors. The material
factors that the EQR Board of Trustees considered in approving the Merger and
unanimously recommending approval of the Merger are that:
(i) the EQR Board of Trustees believes that the Merger would solidify
EQR's leadership position in the multifamily property industry. The EQR
Board of Trustees viewed this as favorable because, based upon the number
of properties
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owned by EQR and EWR as of June 30, 1997, EQR would own or have interests
in and operate approximately 398 multifamily properties consisting of
approximately 116,079 apartment units; would have FFO (as such term is
defined "Opinion of Financial Advisor--EQR" herein) on a pro forma basis
for the six months ended June 30, 1997 of approximately $134.9 million and
would have a combined market capitalization, as of the Effective Time, of
approximately $7.6 billion with an initial Debt to Total Market
Capitalization Ratio of approximately 28%.
(ii) the EQR Board of Trustees believes that the Merger would increase
operating efficiency through economies of scale, which the EQR Board of
Trustees viewed as favorable as the combined entity would realize
significant savings in overhead and expenses (such savings are initially
estimated to be approximately $1.1 million per annum).
(iii) the EQR Board of Trustees believed that the Merger would provide
greater access to the public equity and debt markets. The EQR Board of
Trustees viewed this favorably because of management's belief, based in
part on discussions with advisors, investment banking firms and lenders,
that it would provide holders of EQR Common with enhanced liquidity and
make EQR Common a more attractive investment for institutional investors.
(iv) the EQR Board of Trustees believes that as a result of the Merger,
EQR would be a larger and financially stronger company, which would
facilitate combinations with other public or private entities. The EQR
Board of Trustees viewed this as favorable because it would provide another
efficient and attractive means of growth.
(v) the EQR Board of Trustees believes that the combination of the EWR
properties (15,443 units as of June 30, 1997) with those of EQR will expand
EQR's ownership and operation of properties and enhance EQR's operations in
the areas of Arizona and Southern California. The EQR Board of Trustees
viewed this as favorable particularly because the EQR Board of Trustees
believes that the properties located in these markets should increase in
value.
(vi) the EQR Board of Trustees believes that the Merger will enhance
EQR's ability to supervise development projects undertaken by third-party
developers because the EWR executive officers joining EQR have substantial
experience in the area of property development.
(vii) the Merger could be effectuated through the issuance of new equity
valued at $595 million (based upon a market price of $50.44 per share of
EQR Common on August 25, 1997), rather than through the use of cash or a
public offering of equity or debt securities, which the EQR Board of
Trustees viewed as favorable.
(viii) J.P. Morgan delivered a written opinion dated August 27, 1997 to
the effect that, as of such date and based upon and subject to certain
matters stated therein, the consideration to be paid by EQR in connection
with the Merger was fair, from a financial point of view, to EQR. The EQR
Board of Trustees viewed such opinion as favorable not only because of the
conclusion reached by J.P. Morgan, but also because such conclusion was
consistent with the opinion of EQR's management.
(ix) the EQR Board of Trustees believes the terms of the Merger to be
fair to EQR and its shareholders.
(x) Under generally accepted accounting principles, the Merger will be
accounted for as a purchase, and for federal income tax purposes the Merger
will be a tax-free transaction, which the EQR Board of Trustees viewed as
favorable because, with certain possible exceptions, no gain or loss will
be recognized by EQR, EWR or shareholders of EWR who receive shares of EQR
Common for shares of EWR Common exchanged therefor (except with respect to
any cash received in lieu of a fractional interest in a share of EQR
Common).
The EQR Board of Trustees also considered certain potentially negative
factors which could result from the Merger. These included, among others, the
significant costs involved in connection with consummating the Merger and the
substantial management time and effort required to effectuate the Merger and
integrate the businesses of EQR and EWR. The EQR Board of Trustees considered
that the Merger would increase the debt of EQR. EQR will assume all of EWR's
outstanding debt which, at June 30, 1997, was approximately $445,441,000. The
EQR Board of Trustees recognized this increase could adversely affect the
ability of EQR to obtain debt financing for additional growth and would
subject EQR to the risks of higher leverage. Overall, however, the EQR Board
of Trustees concluded that the increase in debt and increase the ratio of Debt
to Total Market Capitalization for EQR as of June 30, 1997 from approximately
26% to approximately 28% on pro forma basis would be within EQR's policies
with respect to the incurrence of debt. In addition, the EQR Board of Trustees
considered the possible adverse effects upon the market for EQR Common and
upon EQR's ability to raise capital and issue equity in both the public and
private markets which might result if the Merger was not consummated. The EQR
Board of Trustees also considered the risk that the anticipated benefits of
the Merger might not be fully realized. Finally, the EQR Board of Trustees
considered the ability of EQR to manage approximately 16,000 additional
apartment units. The EQR Board of Trustees did not believe that the negative
factors were sufficient, either individually or collectively, to outweigh the
advantages of the Merger.
The EQR Board of Trustees viewed as adequate the conditions to the closing
in the Merger Agreement, including the condition that no change in the
financial condition, business or operations of EWR will have occurred that
would have a material adverse effect, other than a change which affects EQR
and EWR in a substantially similar manner.
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In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the EQR Board of Trustees did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weight to the specific factors considered in reaching its determination.
The EQR Board of Trustees view the indemnification provisions relating to
EWR directors and officers as a continuing responsibility and approved of the
continuation of the indemnification of the EWR directors and officers as part
of the negotiated transaction.
The EQR Board of Trustees believes that the Merger is fair to and in the
best interests of EQR and its shareholders.
In the event the Merger is not consummated for any reason, EQR will continue
to pursue its business objectives.
REASONS FOR THE MERGER; RECOMMENDATION OF THE EWR BOARD OF DIRECTORS
At a special meeting of the EWR Board of Directors held on August 27, 1997,
members of EWR management, representatives of Morgan Stanley and legal counsel
made presentations concerning the business and prospects of EWR and EQR. As
part of its deliberations, the EWR Board of Directors considered, among other
factors, the age, condition and geographic diversification of EQR's assets,
the depth and experience of its management and its credit rating and analyzed
its capital structure, funds from operations and Debt to Total Market
Capitalization Ratio, as well as its future prospects and opportunities for
growth as a combined company with EWR. The EWR Board of Directors also
reviewed the terms of the Merger Agreement with EWR's management and EWR's
financial and legal advisors. By unanimous vote, the EWR Board of Directors
determined that the Merger was fair to, and in the best interests of, EWR and
its shareholders, approved and adopted the Merger Agreement and the
transactions contemplated thereby and resolved to recommend that EWR's
shareholders approve the Merger.
The EWR Board of Directors believes that the Merger offers EWR's
shareholders an opportunity to take advantage of the general trend in the real
estate industry towards consolidation, by affording shareholders a significant
participation in a much larger and more geographically diversified REIT with
greater potential for long-term appreciation and improved access to capital
markets.
In making its determination with respect to the Merger, the EWR Board of
Directors also considered, among other things:
(i) that the Merger represents offers the greatest potential to maximize
shareholder value. In this regard, the Board considered the discussions
management conducted with its advisor, Morgan Stanley, other investment
banking firms and other publicly traded REITs regarding industry
consolidation, as well as EQR's size, financial, resources, geographic
diversification and credit rating and the expertise and experience of EQR's
management;
(ii) that after reviewing the Company's strategic alternatives, the
Merger was the best alternative reasonably available to EWR's shareholders.
The Board believed that, after management's discussions with investment
banking firms and other publicly traded REITs, there were no other
prospective purchasers that had both the financial ability to complete the
transaction and would be willing to pay an aggregate consideration greater
than that to be paid by EQR in the Merger;
(iii) the terms of the Merger Agreement, which the EWR Board of Directors
viewed as favorable because it believed them to be fair to EWR and its
shareholders and because the terms were reached through extensive arms-
length negotiations. In this regard, the EWR Board of Directors noted that
the Exchange Ratio represented an attractive opportunity for shareholders
to continue their investment and maintain their receipt of quarterly
dividends (albeit at a reduced level), but with significantly expanded
geographic diversification;
(iv) that the structure of the Merger, particularly the fact that the
Merger, as a "stock-for-stock" transaction, rather than a "cash-for-stock"
transaction, will provide an opportunity for EWR's shareholders to
participate in any future appreciation of EQR; and
(v) the opinion, analyses and presentations of Morgan Stanley, including
the opinion that, subject to certain considerations, the consideration to
be received by EWR Common Shareholders pursuant to the Merger was fair from
a financial point of view to such holders.
The EWR Board of Directors also considered certain potentially negative
factors in its deliberations concerning the Merger, including, among others:
(i) the risk that the anticipated benefits of the Merger might not be
fully realized;
(ii) the significant costs involved in connection with consummating the
Merger;
(iii) the substantial management time and effort required to effectuate
the Merger;
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(iv) the possibility that EWR may be required, if the Merger Agreement is
terminated under certain circumstances, to pay EQR a Break-Up Fee of $14.0
million and to reimburse EQR Break-Up Expenses of up to $2.5 million; and
(v) that the dividend rate payable with respect to the EQR Common is less
than the dividend rate payable with respect to the EWR Common.
In addition to the above factors, the Board of Directors was mindful of and
evaluated the actual and potential conflicts of interest. In view of the wide
variety of factors considered by the EWR Board of Directors, the Board of
Directors did not quantify or otherwise attempt to assign relative weights to
the specific factors considered in making its determination. However, after
due consideration of its fiduciary obligations, in the unanimous view of the
EWR Board of Directors, the potential conflicts of interest and potentially
negative factors considered by it were not sufficient, either individually or
collectively, to outweigh the positive factors considered by it in its
deliberations relating to the Merger.
OPINION OF FINANCIAL ADVISOR--EQR
At the meeting of the Board of Trustees of EQR on August 27, 1997, J.P.
Morgan rendered its oral opinion to the Board of Trustees of EQR that, as of
such date, the consideration to be paid by EQR in connection with the proposed
Merger was fair from a financial point of view to EQR. J.P. Morgan confirmed
its August 27, 1997 oral opinion by delivering its written opinion to the
Board of Trustees of EQR, dated August 27, 1997, that, as of such date, the
consideration to be paid by EQR in connection with the proposed merger was
fair from a financial point of view to EQR. J.P. Morgan did not make a
recommendation to EQR with respect to the amount of consideration to be paid
by EQR in connection with the proposed merger. J.P. Morgan has not been
requested to, and will not, update its opinion prior to the Closing Date. No
limitations were imposed by EQR's Board of Trustees upon J.P. Morgan, and no
instructions were given by EQR's Board of Trustees to J.P. Morgan with respect
to the investigations made or procedures followed by it in rendering its
opinions.
The full text of the written opinion of J.P. Morgan, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached as Appendix C to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. Shareholders of EQR Common are urged to read
the opinion in its entirety. J.P. Morgan's written opinion is addressed to the
Board of Trustees of EQR, is directed only to the consideration to be paid in
connection with the Merger and does not constitute a recommendation to any
shareholder of EQR as to how such shareholder should vote at the EQR Special
Meeting. The summary of the opinion of J.P. Morgan set forth in this Joint
Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion. The summary of the opinion of J.P. Morgan set forth
in this Joint Proxy Statement/Prospectus also constitutes a summary of the
material analyses presented by J.P. Morgan at the meeting of the Board of
Trustees of EQR on August 27, 1997. In the opinion of EQR, no events or
significant changes in information have occurred that would have altered the
opinion of J.P. Morgan.
In arriving at its opinion, J.P. Morgan reviewed, among other things, the
Merger Agreement, certain publicly available information concerning the
business of EWR and of certain other companies engaged in businesses
comparable to those of EWR, and the reported market prices for certain other
companies' securities deemed comparable; publicly available terms of certain
transactions involving companies comparable to EWR and the consideration
received for such companies; current and historical market prices of the EQR
Common and EWR Common; the audited financial statements contained in the
Annual Report on Form 10-K of EQR and EWR for the fiscal year ended December
31, 1996, and the unaudited financial statements contained in the Quarterly
Report on Form 10-Q of EQR and EWR for the six months ended June 30, 1997;
certain agreements with respect to outstanding indebtedness or obligations of
EQR and EWR; certain internal financial analyses and estimates of budgeted
1998 funds from operations ("FFO") and net operating income ("NOI") prepared
by EQR and EWR and their respective managements; and the terms of other
business combinations deemed relevant by J.P. Morgan. J.P. Morgan also held
discussions with certain members of the managements of EQR and EWR with
respect to certain aspects of the Merger, and the past and current business
operations of EQR and EWR, the financial condition and future prospects and
operations of EQR and EWR, and certain other matters believed necessary or
appropriate to J.P. Morgan's inquiry. In addition, J.P. Morgan reviewed such
other financial studies and analyses and considered such other information as
it deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or
that was furnished to it by EQR and EWR or otherwise reviewed by J.P. Morgan,
and J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P.
Morgan, J.P. Morgan has assumed that they have been reasonably prepared based
on assumptions reflecting the best currently available estimates and judgments
by management as to the expected future results of operations and financial
condition of EQR and EWR to which such analyses or forecasts relate. J.P.
Morgan
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has also assumed that the Merger will have the tax consequences described in
discussions with, and materials furnished to J.P. Morgan by, representatives
of EQR, and that the other transactions contemplated by the Merger Agreement
will be consummated as described in the Merger Agreement.
The projections of (i) total rental revenues, (ii) NOI, (iii) earnings
before interest, taxes, depreciation and amortization ("EBITDA") and (iv) FFO
utilized by J.P. Morgan in connection with its opinion were, in the case of
EQR, based on estimates prepared by J.P. Morgan's equity research department,
as augmented by discussions with management of EQR, and, in the case of EWR,
based on estimates prepared by EQR. The projections of FFO per share for EQR
were provided by First Call, an online data service available to subscribers
which compiles earnings estimates by research analysts and, in the case of
EWR, based on estimates prepared by EQR. This resulted in projected 1998 total
rental revenues, NOI, EBITDA, FFO and FFO per share of approximately $1,089.5
million, $648.9 million, $666.3 million, $379.2 million, and $4.10 per share,
respectively, for EQR, and approximately $117.5 million, $78.4 million, $80.0
million, $49.3 million and $1.98 per share, respectively, for EWR.
No representation or warranty was or is made by any party with respect to
these projections. Financial projections are subject to contingencies beyond
management's control, and realization of the projections depends on numerous
factors, including among other things, the cost of integrating the companies,
the completion of pending developments, the actual cost in relation to such
projects and decisions by management to modify business plans to address
changing needs and a changing operating environment. All material events and
circumstances cannot be predicted and unanticipated events and circumstances
are likely to occur. Accordingly, there may be differences between the
projected results of operations and the actual results of operations of the
respective companies, and such differences could be material. In the event
that the financial projections prove to be materially different, the
conclusions reached in the opinion of J.P. Morgan could be materially
affected.
J.P. Morgan's opinions are based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated August 27, 1997, and J.P. Morgan does not have any obligation to update,
revise, or reaffirm such opinion. J.P. Morgan expressed no opinion as to the
price at which the EQR Common or EWR Common will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material analyses utilized by J.P. Morgan in
connection with providing its opinion.
Pro Forma Merger Analysis. J.P. Morgan analyzed the effect of the Merger on,
among other things, the estimated First Call FFO per share of EQR Common for
the year ended December 31, 1998. In doing so, J.P. Morgan combined the
estimated 1998 operating results for EWR and EQR and assumed certain savings
in accounting and general and administrative expense per estimates provided by
the management of EQR. J.P. Morgan observed a total projected post-Merger
incremental accretion of 0.5% to EQR's First Call 1998 FFO estimates of $4.10
per share. The analysis assumed the August 25, 1997 closing price of $50.44
per share for EQR Common in calculating the purchase price for EWR Common.
J.P. Morgan also analyzed the effect of the Merger on EQR's pro forma equity
market capitalization and total capitalization immediately following the
Merger. In this regard, J.P. Morgan noted that the pro forma equity market
capitalization for EQR would be approximately $4.72 billion, assuming a share
price of $50.44 (EQR's closing share price on August 25, 1997) and 93.6
million shares of EQR Common outstanding after completion of the Merger, and a
total post-transaction pro forma capitalization of approximately $7.63
billion. J.P. Morgan further analyzed EQR's 1998 pro forma leverage ratios and
dividend payout ratio and noted that (i) EQR's ratio of debt to total
capitalization would increase slightly, upon completion of the Merger, from
26.3% prior to the Merger to 28.6% after the assumption of EWR's outstanding
debt plus the incremental debt incurred from the payment of certain
transaction costs and (ii) the ratio of debt plus preferred stock to total
capitalization would also increase from 37.4% to 38.1%.
Fully-Loaded Share Price. J.P. Morgan calculated the fully-loaded share
price being paid by EQR for EWR Common. The fully-loaded share price adjusts
the implied share price of $25.22 (calculated as the August 25, 1997 closing
price of $50.44 per share for EQR Common multiplied by the 0.5 exchange ratio)
for certain additional amounts being paid by EQR for share options. These
additional payments are more particularly described in the Merger Agreement.
J.P. Morgan calculated that these additional amounts create a fully-loaded
price of $25.43 per share of EWR Common. Based on the fully-loaded share
price, J.P. Morgan calculated a range of estimated FFO multiples being paid
for EWR from a high of 12.9x (excluding synergies and accounting) to a low of
11.9x (including synergies and accounting).
Public Trading Multiples Analysis. Using publicly available information,
J.P. Morgan compared selected financial and stock market data of EWR with
similar data for selected publicly traded companies (each, a "Comparable
Company" and,
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collectively, the "Comparable Companies") engaged in businesses which J.P.
Morgan judged to be analogous to that of EWR's. The companies selected by J.P.
Morgan were Security Capital Pacific Trust, United Dominion Realty Trust,
Inc., Post Properties, Inc., Avalon Properties, Inc., Merry Land & Investment
Company, Inc., Security Capital Atlantic, Inc., Gables Residential Trust,
Camden Property Trust, Irvine Apartment Communities, Inc., Summit Properties,
Inc., and Oasis Residential, Inc. These companies were selected, among other
reasons, because of their specialization in the multifamily REIT sector.
For each Comparable Company, publicly available financial performance data
through the six months ended June 30, 1997 was measured. J.P. Morgan
calculated the multiples of current stock price, as of August 25, 1997, to
analysts' estimates for 1998 consensus FFO as reported by First Call for each
of the Comparable Companies to determine the 1998 FFO trading multiples. J.P.
Morgan's calculations resulted in a range of 1998 FFO multiples from 9.3x to
13.0x. These multiples were then applied to EWR's 1998 FFO per share estimate
prepared by EQR, yielding a range of implied trading values for EQR's common
stock of approximately $18.34 to $25.76 per share.
Selected Transaction Analysis. Using publicly available information, J.P.
Morgan examined selected multi-family REIT transactions with respect to
purchase price per share to calculate FFO transaction multiples. Specifically,
J.P. Morgan reviewed the following eight transactions (collectively, the
"Transaction Comparables") that it deemed relevant: Post Properties,
Inc./Columbus Realty Trust, Equity Residential Properties Trust/Wellsford
Residential Property Trust, Camden Property Trust/Paragon Group, Inc., United
Dominion Realty Trust, Inc./South West Property Trust, Inc., BRE Properties,
Inc./California Real Estate Investment Trust, Mid-America Apartment
Communities, Inc./America First REIT, Inc., Property Trust of America/Security
Capital Pacific Trust, and Wellsford Residential Property Trust/Holly
Residential Properties, Inc. J.P. Morgan observed a range of transaction
multiples from 8.3x to 12.4x based on consensus First Call FFO estimates for
the acquired companies. This range was then applied to EQR's estimate of EWR's
1998 FFO per share, resulting in a range of equity values for EWR's common
stock of between $16.41 and $24.53 per share. J.P. Morgan noted that this
range was below both the implied and fully-loaded prices for EWR Common.
J.P. Morgan also noted that when certain other transactions from REIT
sectors other than the multi-family REIT sector were included in the
transaction analysis, the range of FFO multiples became 8.2x to 13.4x,
resulting in a range of $16.32 to $26.47 per share for EWR's common stock.
These additional transactions were Highwoods Properties Inc./Crocker Realty
Investors, Inc., Simon Property Group, Inc./DeBartolo Realty Corporation,
Horizon Outlet Centers, Inc./McArthur/Glen Realty Corp., and Omega Healthcare
Investors, Inc./Health Equity Properties, Inc.
Average Transaction Premia Analysis. J.P. Morgan reviewed mergers and
acquisitions of U.S. public companies in negotiated transactions with values
over $50 million to derive a range of premia paid over the public trading
prices per share five days prior to the announcement of such transactions for
the periods from 1988 to 1992 and from 1993 to 1996. J.P. Morgan noted that
the reasons for, and circumstances surrounding, each of the transactions
analyzed were diverse and that premia fluctuate among different industry
sectors and based on perceived growth, synergies, strategic value and the type
of consideration utilized in the transaction.
The analyses indicated that the medians of premia paid over the public
trading prices were 46.7% in the period from 1988-1992 and 29.2% in the period
from 1993 to 1996. J.P. Morgan applied these median premia to EWR's closing
price of $20.50 on August 25, 1997, to derive implied prices per EWR share of
$30.07 and $26.49, respectively.
Historical Exchange Ratio Analysis. J.P. Morgan reviewed the historical
exchange ratio of the daily closing price per share of EWR Common to the daily
closing price per share of EQR Common for the period from August 22, 1996 to
August 25, 1997. J.P. Morgan noted a one-year low to high range of between
0.40 and 0.61, and an average one-year exchange ratio of 0.49. In addition,
such analysis implied a one-year historical share price range for EWR of
$20.18 to $30.77, as calculated by multiplying EQR's Common August 25, 1997
closing price of $50.44 by the 52-week low and high values for the exchange
ratios, respectively.
Net Asset Value Analysis. Using the publicly available unaudited results for
each company for the period ending June 30, 1997, J.P. Morgan calculated the
Net Asset Value ("NAV") per share for both EWR Common and EQR Common. In so
doing, J.P. Morgan applied a range of capitalization rates from 8.0% to 9.0%
to projections for the stabilized 1997 NOI of the properties, in order to
calculate a gross real estate value, to which was added the book value of
other assets, less each company's respective outstanding debt and liabilities,
to arrive at an equity NAV. The equity NAV per share was then calculated by
dividing the equity NAV by the number of common shares outstanding for each
company as of June 30, 1997. This analysis indicated an NAV exchange ratio
range for the two companies of between 0.43 to 0.53, and an implied range for
the price of EWR Common of $21.82 to $26.67 per share, assuming an August 25,
1997 closing price of $50.44 per share for EQR Common.
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Discounted Cash Flow Analysis. J.P. Morgan performed discounted cash flow
analysis (i.e., an analysis of the present value of the projected levered cash
flows for the periods and using the discount rates indicated) of EWR based
upon projections provided by management of EQR of EWR's funds available for
distribution ("FAD") for the years 1998 through 2002, inclusive, using
discount rates reflecting an equity cost of capital ranging from 14.0% to
16.0% and terminal value multiples of calendar year 2003 FAD ranging from
11.5x to 13.0x. Based upon EQR's projection of EWR's FAD per share of $1.86 in
1998 increasing gradually to $2.88 in 2003, the range of present values per
EWR share was $23.90 to $27.35.
Contribution Analysis. J.P. Morgan reviewed certain estimated future
operating and financial information (including, among other things, total
rental revenues, NOI, EBITDA and FFO) for EQR and EWR for 1997 and 1998.
Financial statistics for 1997 were derived, for EQR, by annualizing EQR pro
forma results for the six months ended June 30, 1997 from EQR's Quarterly
Report on Form 10-Q, as supplemented by EQR, and, for EWR, from financial
results for the six months ended June 30, 1997, from EWR's Quarterly Report on
Form 10-Q, as supplemented by EWR's budget for the third and fourth quarters
of 1997. J.P. Morgan analyzed the relative contributions of EWR and EQR to the
combined entity based upon these time periods. These analyses indicated that,
based upon EQR's and EWR's contribution in 1997, excluding synergies and
accounting adjustments, EWR would contribute 13.8% of total rental revenues,
14.2% of NOI, 14.6% of EBITDA, and 12.3% of FFO, while having a 13.3% equity
ownership in the combined entity. Based upon 1998 contribution, including
synergies and accounting adjustments, EWR would contribute 9.4% of total
rental revenues, 10.9% of NOI, 11.0% of EBITDA and 12.3% of FFO, while
maintaining an 11.9% equity ownership in the combined entity.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set
forth above and its analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. J.P.
Morgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and industry-
specific factors. The other principal assumptions upon which J.P. Morgan based
its analyses are set forth above under the description of each such analysis.
J.P. Morgan's analyses are not necessarily indicative of actual values or
actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do
not purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. J.P. Morgan was selected to deliver an opinion to EQR's
Board of Trustees with respect to the Merger on the basis of such experience
and its familiarity with EQR.
For the delivery of its opinion, J.P. Morgan received a fee of $500,000 from
EQR. In addition, EQR reimbursed J.P. Morgan for its reasonable expenses
incurred in connection with its services, including the fees and disbursements
of counsel, and agreed to indemnify J.P. Morgan against certain liabilities,
including liabilities arising under the Federal securities laws.
J.P. Morgan and its affiliates (including Morgan Guaranty Trust Company of
New York) maintain banking and other business relationships with EQR and its
affiliates pursuant to which J.P. Morgan has received an aggregate of
approximately $1,374,000 in fees over the past two years, and with EWR and its
affiliates pursuant to which J.P. Morgan has received an aggregate of
approximately $300,000 in fees over the past two years. In the ordinary course
of their businesses, affiliates of J.P. Morgan may actively trade the debt and
equity securities of EQR or EWR for their own accounts or for the accounts of
customers and, accordingly, they may at any time hold long or short positions
in such securities.
OPINION OF FINANCIAL ADVISOR--EWR
EWR retained Morgan Stanley to act as EWR's financial advisor in connection
with the Merger and related matters based upon Morgan Stanley's
qualifications, reputation and expertise. At the Board of Directors meeting of
EWR on August 27, 1997, Morgan Stanley rendered its oral opinion to the EWR
Board of Directors, subsequently confirmed in writing on August 27, 1997 (the
"Morgan Stanley Opinion"), that as of such date, the consideration to be
received by the holders of EWR Common pursuant to the Merger Agreement is fair
from a financial point of view to such holders. No instructions were given by
the EWR Board of Directors regarding the preparation of the Morgan Stanley
Opinion. Morgan Stanley did not make a recommendation with respect to the
amount of consideration to be paid to holders of EWR Common in connection with
the proposed merger. Morgan Stanley has not been requested to, and will not,
update its opinion prior to the Closing Date.
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THE FULL TEXT OF THE MORGAN STANLEY OPINION DATED THE DATE OF THIS JOINT
PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX D
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF EWR COMMON ARE URGED TO, AND SHOULD, READ THE MORGAN
STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY OPINION IS
ADDRESSED TO THE EWR BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF EWR
COMMON PURSUANT TO THE MERGER AGREEMENT AND DOES NOT CONSTITUTE, A
RECOMMENDATION TO ANY HOLDER OF EWR COMMON AS TO HOW SUCH HOLDER SHOULD VOTE
AT THE EWR SPECIAL MEETING. THE SUMMARY OF THE MORGAN STANLEY OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED AS APPENDIX D.
For purposes of the Morgan Stanley Opinion, Morgan Stanley, among other
things: (i) analyzed certain publicly available financial statements and other
information relating to EWR and EQR; (ii) analyzed certain internal financial
statements and other financial and operating data concerning EWR and EQR
prepared by the managements of EWR and EQR; (iii) discussed the past and
current operations and financial condition and the prospects of EWR and EQR
and certain of the real property assets of each company with senior executives
of EWR and EQR; (iv) reviewed the reported prices and trading activity of EWR
Common and EQR Common; (v) compared the financial performance of EWR and the
prices and trading activity of EWR Common with that of certain other
comparable publicly-traded companies and their securities; (vi) compared the
financial performance of EQR and the prices and trading activity of EQR Common
with that of certain other comparable publicly-traded companies and their
securities; (vii) discussed with senior management of each of EWR and EQR
their estimates for the synergies and other cost savings to be realized
pursuant to the Merger; (viii) participated in discussions and negotiations
among representatives of EWR and EQR and their financial and legal advisors;
(ix) reviewed drafts of the Merger Agreement and drafts of certain related
documents; and (x) performed such other analyses and considered such other
factors as Morgan Stanley deemed appropriate.
In rendering the Morgan Stanley Opinion, Morgan Stanley assumed and relied
upon without independent verification the accuracy and completeness of the
information reviewed by Morgan Stanley for the purposes of its opinion. With
respect to the financial projections, Morgan Stanley assumed that such
information has been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial
performance of EWR and of EQR. Further, Morgan Stanley relied upon EWR's and
EQR's estimates of the synergies and other cost savings to be realized
pursuant to the Merger. Morgan Stanley did not make any independent valuation
or appraisal of the assets or liabilities of EWR or of EQR, nor was Morgan
Stanley provided with any such appraisals. The Morgan Stanley Opinion is
necessarily based on economic, market and other conditions as in effect on,
and the information made available to Morgan Stanley as of, such date. In the
opinion of EWR, no events or significant changes in information have occurred
that would have altered the opinion of Morgan Stanley.
At the meeting of the EWR Board held on August 27, 1997, Morgan Stanley
presented certain financial analyses accompanied with written materials in
connection with the delivery of the Morgan Stanley Opinion. The following is a
summary of the material financial and comparative analyses performed by Morgan
Stanley in arriving at its August 27, 1997 opinion.
Stock Trading History. Morgan Stanley reviewed the historical trading prices
for the common stock of EWR and noted that the average of the daily closing
prices of the company since the time of EWR's initial public offering (the
"EWR IPO") through August 22, 1997 was $20.47, with a low and a high of $18.00
and $23.25, respectively, and that the average for the 12 months ended August
22, 1997 was $20.91, with a low and high of $18.375 and $23.25, respectively.
Morgan Stanley also reviewed the historical trading prices for the common
stock of EQR and noted that the average of the daily closing prices of the
company from the EWR IPO through August 22, 1997 was $33.72, with a low and a
high of $25.00 and $52.50, respectively, and that the average for the 12
months ended August 22, 1997 was $43.24, with a low and a high of $28.00 and
$52.50, respectively.
Morgan Stanley reviewed the premium obtained by computing the percentage
excess of the product of the closing prices of EQR Common and 0.5 over the
closing prices of EWR Common for each day of the six-month period ended August
22, 1997 and computed the average values of these premia for the entire period
and for the last one and three months of this period. This premium ranged from
approximately 4% to 24% and averaged 20.5%, 16.1% and 12.9% for the one, three
and six months ended on August 22, 1997, and was 23.0% on August 27, 1997.
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Historical Implied Exchange Ratios. Morgan Stanley computed the historical
ratios of the closing share prices of EWR to EQR from the beginning of 1995
through August 22, 1997 and noted that the approximate averages of such ratios
were 0.70 in 1995, 0.63 in 1996 and 0.46 in 1997 through August 22, 1997 as
compared to the Exchange Ratio of 0.5.
Analyses of Selected Comparable Publicly Traded Companies. Morgan Stanley
reviewed the trading statistics of selected comparable publicly traded
apartment REITs, selected on the basis of size, portfolio characteristics and
geographic diversity. For EWR, comparable companies selected consisted of Bay
Apartment Communities, BRE Properties, Gables Residential, Irvine Apartment
Communities, Oasis Residential, Post Properties and Summit Properties. Based
on consensus security analyst estimates for 1998, as reported by First Call,
and August 22, 1997 closing share prices, the trading multiples of 1998
projected FFO per share ranged from 9.5x to 13.4x, with an average of 11.4x.
Morgan Stanley selected a range of multiples of 1998 FFO of 9.5x to 12.5x,
noting that all multiples in excess of 11.3x represented California-based
apartment companies. Applying this range of multiples to the First Call
consensus 1998 FFO for EWR of $2.03 resulted in a range of values for each
share of EWR Common from $19.29 to $25.38.
For EQR, comparable companies selected consisted of Security Capital Pacific
Trust and Security Capital Atlantic Trust. Based on consensus security analyst
estimates for 1998, as reported by First Call, and August 22, 1997 closing
share prices, the trading multiples of 1998 projected FFO per share ranged
from 11.4x to 12.4x, with an average of 11.9x. Applying this range of
multiples to the First Call consensus 1998 FFO for EQR of $4.10, and
multiplying this result by the Exchange Ratio, resulted in a range of values
from $23.58 to $25.63.
Analyses of Selected Comparable Transactions. Morgan Stanley compared the
principal terms of the Merger with those of selected other comparable
transactions. These transactions, all involving combinations of two public
apartment REITs, were the mergers of REIT of California with BRE Properties in
1996, of South West Property Trust with United Dominion Realty in 1996, of
Paragon Group with Camden Property Trust in 1996, of Wellsford Residential
with EQR in 1997, and the pending merger of Columbia Realty with Post
Properties. Based on the average trading prices for the ten trading days
ending five trading days before the public announcement of each of these
transactions, the average premium paid for the company being acquired by the
surviving company was 11.7%, and ranged from 7.0% to 14.2% for the selected
transactions. On the same computation basis, the premium to be paid by EQR
pursuant to the Merger for EWR is 20.7%.
No transaction utilized as a comparison in a comparable transaction analysis
is identical to the Merger in both timing and size and, accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgements concerning financial and operating
characteristics of EWR and other factors that would affect the acquisition
value of companies to which it is being compared. In evaluating the selected
comparable transactions, Morgan Stanley made judgements and assumptions with
regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of EWR, such as the absence of any adverse material change in the financial
conditions and prospects of EWR or the industry or in the financial markets in
general.
Discounted Cash Flow. Morgan Stanley performed discounted cash flow analyses
of EQR based upon projections and assumptions provided by EQR's management of
EQR's FFO and dividends per share of EQR Common for the years ending December
31, 1998 through December 31, 2002, using discount rates reflecting an
expected equity total return of 12.0% to 16.0% and terminal multiples of 2002
FFO of 12.0x to 15.0x. The range of present values per EQR share, multiplied
by the Exchange Ratio was $22.28 to $31.19, with a present value at the
midpoint of the discount rate and multiple ranges of $26.42.
Pro Forma Merger Analysis. Morgan Stanley performed an analysis of the
effect of the Merger on EQR's Pro Forma FFO per share for the projected years
ended December 31, 1997 and December 31, 1998, which assumed that the Merger
had been consummated on January 1, 1997. Morgan Stanley combined the projected
operating results of EWR and EQR and estimated cost savings, based on internal
estimates provided by each company, to arrive at the pro forma projected FFO.
Morgan Stanley's analysis was based upon the exchange ratio of 0.5 and
estimated annual expense savings resulting from the Merger and expected to
arise primarily from savings in duplicative public company and general and
administrative expenses. Morgan Stanley then compared this result with the
stand-alone FFO per share to determine the projected pro forma impact of the
Merger on the pro forma FFO per share of EQR Common per share. This analysis
indicated that the pro forma EQR FFO per share in each of 1997 and 1998 would
be higher than the stand-alone projections for EQR of FFO for each such year
were the Merger not to occur.
Morgan Stanley noted that the Merger resulted in a slight increase in the
leverage ratios and slight decrease in the debt service coverage ratios for
EQR, and an improvement in these ratios for EWR shareholders in the surviving
entity. Specifically, EQR's ratio of debt to total market capitalization as of
June 30, 1997 increased from 26.1% to 28.0% on a pro forma basis. On a pro
forma basis, EWR's debt to total market capitalization decreased from 46.1% to
28.0%.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be taken as a whole and that selecting
portions of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for a particular
analysis described above should not be taken to be Morgan Stanley's view of
EWR and EQR.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of EWR and EQR. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of whether the consideration to be received by the holders
of EWR Common pursuant to the Merger is fair from a financial point of view to
such holders, and were conducted in connection with the delivery of the Morgan
Stanley Opinion. The analyses do not purport to be appraisals or to reflect
the prices at which EWR might actually be sold. Because such estimates are
inherently subject to uncertainty, none of EWR, Morgan Stanley or any other
person assumes responsibility for their accuracy. The Morgan Stanley analyses
described above should not be viewed as determinative of the opinion of the
EWR Board of Directors or the management of EWR with respect to the value of
EWR or of whether Morgan Stanley would have rendered an opinion of fairness
with respect to, or the EWR Board of Directors or the management of EWR would
have been willing to agree to, any consideration other than the consideration
to be received by EWR's shareholders pursuant to the Merger.
The EWR Board of Directors retained Morgan Stanley based upon its experience
and expertise. Morgan Stanley is an internationally recognized investment
banking and advisory firm. As part of its investment banking business, Morgan
Stanley is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuation for estate, corporate and other
purposes. In the ordinary course of its business, Morgan Stanley and its
affiliates may actively trade the debt and equity securities of EWR and EQR
for their own account and for the accounts of customers and, accordingly, may
at any time hold long or short positions in such securities or senior loans.
Pursuant to the terms of a May 7, 1997 letter agreement, as amended, Morgan
Stanley is entitled to total fees for its representation of EWR in the Merger
of approximately $5.15 million, which is contingent and payable upon
consummation of the Merger, as well as to reimbursement for reasonable
expenses. In addition, EWR has agreed to indemnify Morgan Stanley and certain
related persons against certain liabilities arising out of or in conjunction
with its rendering of services under its engagement, including liabilities
under federal securities laws.
EFFECTIVE TIME OF THE MERGER
If the Merger is approved by the requisite vote of shareholders of EWR and
shareholders of EQR, and the other conditions to the Merger are satisfied or
waived, the Merger will become effective at the time the Department accepts
the Articles for record or at a different time established in the Articles,
not to exceed 30 days after the Articles are accepted for record by the
Department. It is presently anticipated that such filing and acceptance will
be made on or about December 23, 1997, and that the Effective Time of the
Merger will occur on such date unless a different date is specified in the
Articles, as discussed above, although there can be no assurance as to whether
or when the Merger will occur. The Articles are attached hereto as Appendix B.
See "--Representations and Warranties; Conditions to the Merger."
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER
The Merger Agreement contains representations and warranties by EQR and EWR
regarding, among other things, their organization and good standing,
capitalization, ownership and capitalization of their subsidiaries,
qualification to do business, authority to enter into the Merger Agreement and
related agreements, filings with the Commission, reliability of financial
statements, compliance with applicable laws and regulations, taxation and
qualification as a REIT, properties, development rights (with respect to EWR
only), environmental matters, contracts, debt instruments, employee benefit
plans (with respect to EWR only), undisclosed liabilities and the absence of
certain legal proceedings and other events, including material adverse changes
in the parties' businesses, financial condition or results of operations.
These representations and warranties will not survive the Effective Time.
The respective obligations of EQR and EWR to effect the Merger are subject
to the following conditions: (i) approval of the Merger Agreement, and the
transactions contemplated therein, by the shareholders of EWR and EQR, (ii)
approval by the NYSE of the listing of the shares of EQR Common to be issued
in connection with the Merger, (iii) the Registration Statement shall not be
the subject of any stop order or proceeding by the Commission seeking a stop
order, (iv) no
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injunctions or restraints issued by any court of competent jurisdiction
preventing the consummation of the Merger shall be in effect on the Closing
Date, (v) all necessary state securities permits or authorizations shall have
been received by EQR, (vi) delivery of the opinion of Ballard Spahr Andrews
and Ingersoll to the effect that the Merger Agreement and Articles of Merger
are enforceable under Maryland law.
The obligations of EQR to effect the Merger are subject to the following
additional conditions: (i) the voting shares of Evans Withycombe Management,
Inc. shall have been transferred in accordance with the Stock Purchase
Agreement dated August 27, 1997 among Stephen O. Evans ("Evans") and F. Keith
Withycombe ("Withycombe") and David Neithercut ("Neithercut") and Bruce C.
Strohm ("Strohm") (collectively, the "Stock Purchase Agreement"), (ii) the
Consulting Agreement between EQR Properties Management LP and Evans, currently
an employee and owner of direct and indirect equity interest in EWR shall
remain in full force and effect, (iii) the Employment Agreement by and between
EQR Properties Management LP and Richard G. Berry ("Berry"), currently an
employee and owner of direct and indirect equity interest in EWR and EWRLP
shall remain in full force and effect, (iv) the Voting Agreement shall remain
in full force and effect and no default shall have occurred thereunder, (v)
the amendment of certain Change in Control Agreements and (vi) the delivery of
the Affiliates Letter from each of the affiliates of EWR.
The obligations of EWR and EQR to effect the Merger are subject to the
following additional conditions: (i) all representations and warranties made
by the parties shall be true and correct in all material respects as of the
Closing Date, (ii) each party shall have performed in all material respects
its obligations under the Merger Agreement, (iii) as of the Closing Date,
neither party will have suffered a material adverse change in its business,
financial condition or results of operations taken as a whole (a "Material
Adverse Change"), (iv) EWR shall have received an opinion of counsel from
EQR's counsel stating that commencing with its taxable year ended December 31,
1993, EQR was organized and has operated in conformity with the requirements
for qualification as a REIT under the Code, (v) EQR shall have received an
opinion of counsel from EWR's counsel stating that commencing with its taxable
year end December 31, 1994, EWR was organized and has operated in conformity
with the requirements for REIT under the Code, (vi) each party shall have
received an opinion of counsel dated as of the Closing Date, to the effect
that the Merger will qualify as a reorganization under the provisions of
Section 368(a) of the Code, (vii) each party shall have received an opinion
from counsel to the other party addressing certain issues as set forth in the
Merger Agreement, and (viii) the receipt of all consents and waivers from
third parties necessary to consummate the transactions contemplated by the
Merger Agreement.
NO APPRAISAL RIGHTS
Neither shareholders of EWR nor shareholders of EQR are entitled to
dissenting shareholders' appraisal rights under Maryland law. Maryland law
does not provide appraisal rights to shareholders of a real estate investment
trust or corporation in connection with a merger if their respective shares
are listed on a national securities exchange, such as the NYSE, on the record
date for determining shareholders entitled to vote on such merger. All of the
shares of EQR Common and EWR Common outstanding on the record date for
determining the shareholders entitled to vote on the Merger were listed on the
NYSE.
REGULATORY MATTERS
EQR and EWR believe that the Merger may be consummated without notification
being given or certain information being furnished to the Federal Trade
Commission (the "FTC") or the Antitrust Division of the Department of Justice
(the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and that no waiting period
requirements under the HSR Act are applicable to the Merger. However, at any
time before or after the Effective Time, either the Antitrust Division or the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, or certain other persons could take action
under the antitrust laws, including seeking to enjoin the Merger. EQR and EWR
believe that consummation of the Merger would not violate any antitrust laws.
However, there can be no assurance that a challenge to the Merger on antitrust
grounds will not be made or, if a challenge is made, what the result will be.
TERMINATION PROVISIONS
The Merger Agreement provides that it may be terminated at any time prior to
the filing of the Articles with the Department, whether before or after
approval of the Merger by the shareholders of EWR and EQR, by mutual written
consent, duly authorized by the Board of Trustees of EQR and the Board of
Directors of EWR. In addition, the Merger Agreement may be terminated by
either EQR or EWR (i) if the Merger has not been consummated before February
15, 1998 (provided the terminating party will not have breached in any
material respect its obligations under the Merger Agreement in any manner that
will have proximately contributed to the occurrence of such failure), (ii)
upon a breach of any
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representation, warranty, covenant, obligation or agreement on the part of the
non-terminating party set forth in the Merger Agreement, such that certain
conditions set forth in the Merger Agreement would be incapable of being
satisfied by February 15, 1998, (iii) if the requisite vote of the
shareholders of EQR or EWR will not have been obtained at the meeting of such
shareholders, or (iv) if a judgment, injunction, order, decree, ruling or
other action by a governmental entity of competent jurisdiction pertaining to
the consummation of the Merger will have become final and non-appealable.
The Merger Agreement may be terminated by EWR, if prior to the EWR Special
Meeting, the EWR Board of Directors withdraws or modifies its approval or
recommendation of the Merger or Merger Agreement in connection with, or
approves or recommends, a Superior Acquisition Proposal (as defined in the
following paragraph). The Merger Agreement may be terminated by EQR if (i)
prior to the EWR Special Meeting, the EWR Board of Directors withdraws or
modifies in any manner adverse to EQR its approval or recommendation of the
Merger or the Merger Agreement in connection with, or approves or recommends,
a Superior Acquisition Proposal or (ii) EWR enters into a definitive agreement
with respect to any Acquisition Proposal (as defined in the following
paragraph). The Merger Agreement may also be terminated by EQR if (i) Stephen
O. Evans terminates his Consulting Agreement (other than by his death) (ii)
Richard G. Berry terminates his Employment Agreement (other than by his
death), or (iii) any of Stephen O. Evans, F. Keith Withycombe or their
respective affiliates defaults in the performance of his or its obligations
under the Voting Agreement.
The Merger Agreement defines an "Acquisition Proposal" as a merger,
acquisition, tender offer, exchange offer, consolidation, sale of assets or
similar transaction involving all or any significant portion of the assets or
any equity securities of EWR or any of its subsidiaries, other than the
transactions contemplated by the Merger Agreement. The Merger Agreement
defines a "Superior Acquisition Proposal" as a bona fide Acquisition Proposal
by a third party which a majority of the members of the EWR Board of Directors
determines in good faith to be more favorable to EWR's shareholders from a
financial point of view than the Merger and which the Board of Directors of
EWR determines is reasonably capable of being consummated.
TERMINATION FEE AND EXPENSES
The Merger Agreement provides for certain payments by EWR or EQR in
connection with the termination of the Merger Agreement. These payments
include (i) a Break-Up Fee of $14 million plus Break-Up Expenses (as defined
in the following clause) and/or (ii) Break-Up Expenses equal to the
recipient's out-of-pocket expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereunder, up to a maximum of
$2.5 million. If the Merger Agreement is terminated because, prior to the EWR
Special Meeting, the EWR Board of Directors withdraws or modifies its approval
or recommendation of the Merger or the Merger Agreement in connection with, or
approve or recommends, a Superior Acquisition Proposal, or if EWR enters into
a definitive agreement with respect to any Acquisition Proposal, EWR is
obligated to pay EQR the Break-Up Fee and Break-Up Expenses. Additionally, if
the Merger Agreement is terminated due to a breach of any representation,
warranty, covenant, obligation or agreement by EWR or EQR set forth in the
Merger Agreement, or failure by either EWR or EQR to obtain the required
shareholder approval of the Merger, then the breaching party, or the party
which failed to obtain such shareholder approval shall pay to the other party
an amount equal to the Break-Up Expenses. If the Merger is not consummated
(other than due to the termination of the Merger Agreement by (i) mutual
written consent duly authorized by the Board of Trustees of EQR and Board of
Directors of EWR, (ii) either party, upon the failure by EQR to obtain the
required shareholder approval of the Merger, or (iii) EWR, upon a material
breach of the representations, warranties, covenants, obligations or
agreements of EQR) as set forth in the Merger Agreement and at the time of the
termination of the Merger Agreement an Acquisition Proposal has been received
by EWR and either prior to the termination of the Merger Agreement or within
12 months thereafter, EWR or any of its subsidiaries enters into any written
Acquisition Proposal which is subsequently consummated, EWR is required to pay
the Break-Up Fee and Break-Up Expenses to EQR. The payment of the Break Up Fee
shall be compensation and liquidated damages for the loss suffered by EQR as a
result of the failure of the Merger to be consummated and to avoid the
difficulty of determining damages under the circumstances. Neither party shall
have any liability to the other after payment of the Break-Up Fee.
Except as described above, each party shall assume its own costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby.
NO SOLICITATION OF OTHER TRANSACTIONS
EWR has agreed that (i) it and its subsidiaries will not, and it will not
permit its officers, employees, agents or financial advisors to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to an Acquisition
Proposal, (ii) it will not engage in any negotiations concerning or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate an effort
or attempt to make or implement an Acquisition Proposal and (iii) it will
notify EQR immediately if it receives any such inquiries or proposals, or any
requests
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for such information, or if any negotiations or discussions are sought to be
initiated or continued with it with respect to any of the foregoing. The
Merger Agreement does not, however, prohibit EWR from furnishing information
to or entering into discussions or negotiations with any person or entity that
makes an unsolicited proposal if the Board of Directors of EWR determines that
such action is required by its fiduciary duties to its shareholders imposed by
law provided that EWR provides written notice to EQR prior to engaging in such
activities and keeps EQR informed of the status of such discussions or
negotiations.
CONVERSION OF SHARES
Each share of EWR Common outstanding immediately prior to the Effective Time
will at the Effective Time be converted into 0.5 of a share of EQR Common. All
such shares of EWR Common, when so converted, will cease to be outstanding and
will automatically be cancelled and retired and each holder of a certificate
representing any such shares will cease to have any rights with respect
thereto, except the right to receive certificates representing the shares of
EQR Common and any cash, without interest, in lieu of fractional shares to be
issued or paid in consideration therefor upon the surrender of such
certificate in accordance with the Merger Agreement, as well as dividends and
distributions declared with a record date after the Effective Time.
The issuance, terms and conditions of EQR Common will be governed by EQR's
Declaration of Trust. For a detailed description of the provisions of EQR's
Declaration of Trust, see "The Second Amended and Restated Declaration of
Trust of EQR."
APPOINTMENT OF EXCHANGE AGENT
In order to facilitate the distribution of certificates representing shares
of EQR Common to EWR shareholders, EQR will appoint Boston EquiServe LLP, an
affiliate of First National Bank of Boston, to act as Exchange Agent in
connection with the Merger. The Exchange Agent will enter into an agreement
with EQR and EWR pursuant to which it will agree to act as agent for purposes
of distributing the certificates representing shares of EQR Common to EWR
shareholders.
EXCHANGE OF CERTIFICATES
EWR shareholders should not tender their certificates representing shares of
EWR Common with their proxy. Promptly after the Effective Time, the Exchange
Agent will mail to all EWR shareholders transmittal materials, including a
letter of transmittal (the "Letter of Transmittal") for use in exchanging
certificates evidencing shares of EWR Common for certificates evidencing
shares of EQR Common. As soon as practicable after the Letter of Transmittal
is properly completed and returned, along with the certificates evidencing
shares of EWR Common, to the Exchange Agent, the person specified in the
Letter of Transmittal will receive certificates for the number of whole shares
of EQR Common and, to the extent applicable, any cash in lieu of fractional
shares of EQR Common, to which such person is entitled as a result of the
Merger. The Letter of Transmittal will provide instructions for shareholders
who have lost or misplaced their certificates and wish to tender their shares.
Each share of EQR Common for which shares of EWR Common are exchanged in the
Merger will be deemed to have been issued at the Effective Time. Accordingly,
EWR shareholders who receive shares of EQR Common in the Merger will be
entitled to receive any dividends or other distributions which may be payable
to all holders of record of EQR Common with respect to any record date after
the Effective Time. No holder of EWR Common will be entitled to receive shares
of EQR Common or cash in lieu of fractional shares of EQR Common, and no
dividends or other distributions will be paid with respect to any shares of
EQR Common, until the certificate or certificates formerly representing such
holder's shares of EWR Common have been surrendered in accordance with the
procedures described above. At the time such surrender has been accomplished,
a certificate representing the appropriate number of shares of EQR Common will
be issued and accrued dividends and other distributions on such shares of EQR
Common will be paid without interest.
Existing shareholders of EQR are not required to tender their certificates
representing their shares of EQR Common. After the Merger, certificates for
shares of EQR Common will represent the same number and type of shares of EQR
Common as they did prior to the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
EWR. Prior to the Effective time except as (i) contemplated by the Merger
Agreement, (ii) disclosed to EQR or (iii) consented to in writing by EQR, EWR
will, and will cause each of its subsidiaries to: (a) conduct its business
only in the usual, regular and ordinary course and in substantially the same
manner as before the date of the Merger Agreement and take all actions
necessary to continue to qualify as a REIT, (b) preserve intact its business
organizations and goodwill and
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use its reasonable efforts to keep available the services of its officers and
employees, (c) confer on a regular basis with one or more representatives of
EQR to report operational matters of materiality and, subject to certain
qualifications, any proposals to engage in material transactions, (d) promptly
notify EQR of any material emergency or other material change in the condition
(financial or otherwise), business, properties, assets, liabilities, or the
normal course of its businesses or in the operation of its properties, or of
any material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), (e) promptly
deliver to EQR true and correct copies of any report, statement or schedule
filed with the Commission subsequent to the date of the Merger Agreement, (f)
maintain its books and records in accordance with generally accepted
accounting principles ("GAAP") consistently applied and not change in any
material manner any of its methods, principles or practices of accounting in
effect at the "Financial Statement Date" (as defined in the Merger Agreement),
except as may be required by the Commission, applicable law or GAAP, (g) duly
and timely file all reports, tax returns and other documents required to be
filed with Federal, state, local and other authorities, subject to extensions
permitted by law, provided EWR notifies EQR that it is availing itself of such
extensions and provided such extensions do not adversely affect EWR's status
as a qualified REIT under the Code, (h) not make or rescind any express or
deemed election relative to taxes (unless required by law or necessary to
preserve EWR's status as a REIT or the status of any EWR subsidiaries as a
partnership for Federal income tax purposes), (i) not acquire, enter into any
option to acquire, or exercise an option or contract to acquire, additional
real property, incur additional indebtedness except for working capital under
its revolving line(s) of credit, encumber assets or commence construction of,
or enter into any agreement or commitment to develop or construct, other real
estate projects, except in the ordinary course of business, which shall
include all activities necessary to proceed with the acquisition, ownership
and construction of the multi-family residential projects described in the EWR
SEC Documents as being under development as well as projects which have been
budgeted and previously disclosed in the EWR Capital Budget, as defined in the
Merger Agreement, in accordance with the agreements in existence on the date
of the Merger Agreement and previously furnished to EQR, (j) not amend its
Charter or Bylaws, or the articles or certificate of incorporation, bylaws,
code of regulations, partnership agreement or joint venture agreement or
comparable charter or organization document of any subsidiary; provided that
EQR will not unreasonably withhold or delay its consent to non-material
amendments to organizational documents of such subsidiaries, (k) make no
change in the number of shares of or capital stock, membership interests of
units of limited partnership interest issued and outstanding other than
pursuant to (A) the exercise of outstanding options, (B) the conversion of EWR
OP Units pursuant to the EWRLP Partnership Agreement dated August 17, 1994
(the "EWRLP Partnership Agreement") for shares of EWR Common and (C) the
issuance of shares of EWR Common to Paul Fannin in payment of the bonus to
which he is entitled as approved by the Compensation Committee of the Board of
Directors of EWR on July 11, 1997, (l) grant no options or other right or
commitment relating to its shares capital stock, of membership interests or
units of limited partnership interest or any security convertible into its
shares of capital stock, membership interests or units of limited partnership
interest, or any security the value of which is measured by shares of capital
stock, or any security subordinated to the claim of its general creditors and
not amend or waive any rights under any of the EWR Options, (m) except as
provided in the Merger Agreement and in connection with the use of shares of
EWR Common to pay the exercise price or tax withholding in connection with
equity-based employee benefit plans, not (A) authorize, declare, set aside or
pay any dividend or make any other distribution or payment with respect to any
shares of its EWR Common or EWR OP Units, (B) directly or indirectly redeem,
purchase or otherwise acquire any shares of capital stock, membership
interests or units of limited partnership interest or any option, warrant or
right to acquire, or security convertible into, shares of capital stock,
membership interests or units of partnership interest, except for redemptions
of shares of EWR Common in order to preserve the status of EWR as a REIT under
the Code, (n) not sell, lease, mortgage, subject to lien or otherwise dispose
of any of its properties except the sale of properties which are the subject
of binding contracts to sell in existence on the date of the Merger Agreement
and disclosed to EQR, (o) not sell, lease, mortgage subject to lien or
otherwise dispose of any of its personal or intangible property, except sales
equipment which are not material and which are made in the ordinary course of
business, (p) not make loans, advances or capital contributions to or
investments in any other person or entity, other than loans, advances and
capital contributions to subsidiaries, (q) not pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against in,
or contemplated by, the most recent consolidated financial statements (or the
notes thereto) furnished to EQR or incurred in the ordinary course of business
consistent with past practice, (r) not enter into any commitment, contractual
obligation, capital expenditure or transaction (each, a "Commitment") which
may result in total payments or liability by or to it in excess of $500,000 or
aggregate Commitments in excess of $1 million, except (A) purchases of real
estate necessary to complete a like kind exchange, provided such purchase has
been approved by EQR, and (B) capital expenditures disclosed in the EWR
Capital Budget, as defined in the Merger Agreement, (s) not guarantee the
indebtedness of another person or entity, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person or
entity or enter into any arrangement having the economic effect of any of the
foregoing, (t) not enter into any Commitment with any officer, director,
consultant or affiliate of EWR or any of EWR's subsidiaries, (u) not increase
any compensation or enter into or amend any employment agreement with any of
its officers, directors or employees earning more than $50,000 per annum,
other than waivers by
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employees of benefits under such agreements, (v) not adopt any new employee
benefit plan or amend any existing plans or rights, except for changes which
are required by law and changes which are not more favorable to participants
than provisions presently in effect, (w) not settle any shareholder derivative
or class action claims arising out of or in connection with any of the
transactions contemplated by the Merger Agreement, (x) not change the
ownership of any of its subsidiaries, except changes which arise as a result
of the conversion of EWR OP Units into shares of EWR Common and (y) not accept
a promissory note in payment of the exercise price payable under any option to
purchase shares of EWR Common.
The Merger Agreement provides that any contract, transaction or other event
will be deemed to be material if it would result or is expected to result in a
net impact on EWR's consolidated income statement in excess of $500,000, or on
EWR's consolidated balance sheet in excess of $1 million.
EQR. Prior to the Effective Time, except as (i) contemplated by the Merger
Agreement or (ii) consented to in writing by EWR, EQR will, and will cause
each of its subsidiaries to: (a) use its reasonable efforts to preserve intact
its business organizations and goodwill and keep available the services of its
officers and employees, (b) confer on a regular basis with one or more
representatives of EWR to report operational matters of materiality which
could have an EQR Material Adverse Effect (as defined in the Merger
Agreement), (c) promptly notify EWR of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of its
businesses or in the operation of its properties, or of any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), (d) promptly deliver to EWR
true and correct copies of any report, statement or schedule filed with the
Commission subsequent to the date of the Merger Agreement, (e) maintain its
books and records in accordance with GAAP consistently applied, and (f) duly
and timely file all reports, tax returns and other documents required to be
filed with Federal, state, local and other authorities.
For purposes of this Section, an emergency, change, complaint, investigation
or hearing shall be deemed material if it would reasonably be expected to have
an EQR Material Adverse Effect.
LIMITATIONS ON THE SALE OR REFINANCING OF CERTAIN PROPERTIES
The Merger Agreement provides that EQR will not sell, transfer or otherwise
dispose of any of 42 EWR properties (or any property acquired in a like-kind
exchange under Section 1031 or 1033 of the Code in replacement of any such
properties) in a transaction resulting in the recognition of gain for federal
income tax purposes on or before January 1, 2003, unless and until the first
to occur of (a) the date on which an aggregate of at least 50% of the ERP OP
Units issued to EWRLP Unitholders have been transferred in taxable
transactions or (b) the date on which an amendment to the Code is enacted
which eliminates tax-free transfers, exchanges, conveyances or other
dispositions of real property under Section 1031 or 1033 of the Code. EQR has
also agreed that it will not voluntarily prepay the securitized debt of EWR
Finance Partnership L.P. or the fixed rate loan from Northwestern Mutual Life
Insurance Company to EWR Partnership (each a "EWR Debt") until the date the
EWR Debt in question can be prepaid without penalty or premium.
WAIVER AND AMENDMENT
The Merger Agreement provides that, at any time prior to the Effective Time,
either party may, to the extent legally allowed and set forth in a written
instrument signed on behalf of such party, (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant thereto, or (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained in the Merger Agreement.
The Merger Agreement provides that it may be amended by the parties in
writing by action taken by the Board of Trustees of EQR and the Board of
Directors of EWR, at any time before or after approval of the Merger and
Merger Agreement by the shareholders of EQR or EWR and prior to the filing of
the Articles of Merger with the Department. After any such approval by the
shareholders of EQR or EWR, no amendment modification or supplement may be
made which by law requires the further approval of shareholders or partners
without obtaining such further approval.
STOCK EXCHANGE LISTING
EQR will apply to list the EQR Common issuable in connection with the Merger
on the NYSE. Approval of the listing of such shares on the NYSE, subject to
official notice of issuance, is a condition to the respective obligations of
the parties to consummate the Merger.
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ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Purchase accounting for a merger is the same
as the accounting treatment used for the acquisition of any group of assets.
The fair market value of the consideration given by EQR in the Merger will be
used as the valuation basis of the combination. The assets acquired and
liabilities assumed of EWR will be recorded at their relative fair market
values as of the Effective Date. The financial statements of EQR will reflect
the combined operations of EQR and EWR from the date of the Merger.
SHARES AVAILABLE FOR RESALE
The issuance of EQR Common upon consummation of the Merger will be
registered under the Securities Act. Such shares may be traded freely and
without restriction by those shareholders not deemed to be "affiliates" of EWR
as that term is defined in the rules and regulations promulgated pursuant to
the Securities Act. "Affiliates" are generally defined as persons who control,
are controlled by or are under common control with an issuer. This Joint Proxy
Statement/Prospectus does not cover any resales of EQR received by affiliates
of EWR.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material United States Federal
income tax consequences of the Merger to EQR, EWR and their respective
shareholders. The following summary is based upon current provisions of the
Code, temporary and final regulations thereunder, and current administrative
rulings and court decisions, all of which are subject to change (possibly on a
retroactive basis). No attempt has been made to comment on all United States
Federal income tax consequences of the Merger that may be relevant to
particular holders of EWR Common, EQR Common and EQR Preferred, including
holders that are subject to special tax rules such as dealers in securities,
mutual funds, insurance companies, tax-exempt entities, holders who do not
hold their EWR Common, EQR Common or EQR Preferred as capital assets and
holders that, for United States Federal income tax purposes, are non-resident
alien individuals, foreign corporations, foreign partnerships or foreign
estates or trusts.
THE TAX DISCUSSION SET FORTH BELOW IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF EWR COMMON,
EQR COMMON OR EQR PREFERRED. BECAUSE OF THE PARTICULAR TAX ATTRIBUTES OF
HOLDERS OF EWR COMMON, EQR COMMON OR EQR PREFERRED, THE MERGER MAY HAVE
DIFFERING TAX IMPLICATIONS FOR SUCH HOLDERS. ACCORDINGLY, HOLDERS OF EWR
COMMON, EQR COMMON OR EQR PREFERRED ARE URGED TO CONSULT WITH THEIR OWN LEGAL
AND TAX ADVISERS REGARDING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND ANY OTHER CONSEQUENCES TO THEM OF THE MERGER UNDER STATE,
LOCAL AND FOREIGN TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF MERGER
Rudnick & Wolfe, special counsel to EQR in connection with the Merger, has
rendered an opinion to EQR that on the basis of the facts, representations and
assumptions set forth in such opinion:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and EQR and EWR will each be a party to such
reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by EQR as a result of the Merger;
(iii) no gain or loss will be recognized by either the holders of EQR
Common or EQR Preferred as a result of the Merger;
(iv) subsequent to the Merger, the proposed method of operation described
in this Joint Proxy Statement/Prospectus and as represented by EQR will
enable EQR to satisfy the requirements under the Code to qualify as a REIT
for federal income tax purposes; and
(v) ERP Operating Partnership will be classified as a partnership for
federal income tax purposes.
Gibson, Dunn & Crutcher LLP, special counsel to EWR in connection with the
Merger, has rendered an opinion to EWR that on the basis of the facts,
representations and assumptions set forth in such opinion:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and EQR and EWR will each be a party to such
reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss for federal income tax purposes will be recognized
by EWR as a result of the Merger;
(iii) no gain or loss will be recognized by the holders of EWR Common
upon the exchange of their EWR Common solely for EQR Common pursuant to the
Merger;
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(iv) the tax basis of the EQR Common received by any holder of EWR Common
in exchange for EWR Common pursuant to the Merger will be the same as the
tax basis of such EWR Common exchanged therefor;
(v) the holding period for EQR Common received in exchange for EWR Common
pursuant to the Merger will include the period that such shares of EWR
Common were held by the holder, provided that such EWR Common is held as a
capital asset by such holder at the Effective Time; and
(vi) a holder of EWR Common who receives cash in lieu of a fractional
share of EWR Common pursuant to the Merger will recognize gain or loss
equal to the difference, if any, between such shareholder's basis in the
fractional share and the amount of cash received.
(vii) EWRLP will be classified as a partnership for federal tax purposes.
Shareholders of EQR and EWR should be aware that such opinions of counsel
are not binding on the IRS, and no assurance can be given that the IRS will
not adopt a contrary position or that such position will not be sustained by a
court.
QUALIFICATION OF EQR AS A REIT
General. EQR elected REIT status commencing with its taxable year ending
December 31, 1993. In the opinion of Rudnick & Wolfe, special counsel to EQR,
EQR was organized and has operated in conformity with the requirements for
qualification and taxation as a REIT under the Code, and its method of
operation has enabled it and will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code. Rudnick
& Wolfe has opined that, subsequent to the Merger, EQR's proposed method of
operation described in this Joint Proxy Statement/Prospectus and as
represented by EQR will enable it to meet the requirements for qualification
and taxation as a REIT.
EWR elected REIT status commencing with its taxable year ending December 31,
1994. In the opinion of Gibson, Dunn & Crutcher LLP which has acted as special
counsel to EWR, commencing with its taxable year ended December 31, 1994, EWR
was organized in conformity with the requirements for qualification and
taxation as a REIT under the Code, and its method of operation has enabled it
(and will enable it up to the Effective Time of the Merger) to continue to
meet the requirements for qualification and taxation as a REIT under the Code.
It must be emphasized that these opinions are based on various assumptions
relating to the organization and operation of various entities. In general,
Rudnick & Wolfe's opinion is based on various assumptions relating to the
organization and operation of various entities, including EQR, ERP Operating
Partnership, EQR Properties Management, LP, and Equity Residential Properties
Management, L.P. II ("EQR Properties Management, LP II") (collectively, the
"EQR Properties Management Partnerships"), Equity Residential Properties
Management, Inc. ("EQR Management Corp.") and Equity Residential Properties
Management, Inc. II ("EQR Management Corp. II") (collectively, the "EQR
Management Corps."), the limited partnerships and limited liability companies
that own the beneficial interest of certain properties encumbered by mortgage
financing (the "EQR Financing Partnerships") and various qualified REIT
subsidiaries wholly owned by EQR (each a "QRS Corporation") (collectively, the
EQR Properties Management Partnerships, the EQR Management Corps., the EQR
Financing Partnerships and the QRS Corporations may be referred to as the
"Subsidiary Entities"), and is conditioned upon certain representations made
by EQR and ERP Operating Partnership as to factual matters relating to the
organization, operation, income, assets, distributions and share ownership of
EQR and ERP Operating Partnership. EQR's qualification as a REIT depends on
its having met and continuing to meet, through actual operating results,
distribution levels and diversity of share ownership, the various
qualifications tests imposed under the Code that are discussed below, the
results of which have not been and will not be reviewed by Rudnick & Wolfe.
Accordingly, no assurance can be given that the actual results of EQR's
operations for any particular taxable year have satisfied or will satisfy such
requirements.
Gibson, Dunn & Crutcher's opinion is based on various assumptions relating
to the organization and operation of various entities, including EWR, EWRLP,
Evans Withycombe Management, Inc. ("EW Management, Inc."), Evans Withycombe
Finance, Inc. ("EW Finance, Inc."), and Evans Withycombe Finance Partnership,
L.P. ("EW Finance LP"), and is conditioned upon the accuracy of certain
representations made by EWR and EWRLP as to factual matters relating to the
organization, operation, income, assets, distributions and stock ownership of
EWR and EWRLP. EWR's qualification as a REIT depends on its having met and
continuing to meet, through actual operating results, distribution levels and
diversity of stock ownership, the various qualifications tests imposed under
the Code that are discussed below, the results of which have not been and will
not be reviewed by Gibson, Dunn & Crutcher LLP. Accordingly, no assurance can
be given that the actual results of EWR's operations for any particular
taxable year have satisfied or will satisfy such requirements.
An opinion of counsel is not binding on the IRS or the courts, and no
assurance can be given that the IRS will not challenge EQR's or EWR's
eligibility for taxation as a REIT. Further, the federal income tax treatment
described herein may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time.
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In any year in which EQR 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" that generally results from the
use of corporate investment vehicles. EQR may, however, be subject to tax at
normal corporate rates upon any taxable income or capital gain not
distributed.
If EQR 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. EQR will also
be subject to a 100% tax on net income derived from any "prohibited
transaction," as described below. In addition, if EQR 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,
EQR would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. EQR may also be subject to
the corporate "alternative minimum tax," as well as tax in certain situations
and on certain transactions not presently contemplated. EQR will use the
calendar year both for Federal income tax purposes and for financial reporting
purposes.
In order to qualify as a REIT, EQR must meet, among others, the following
requirements:
Share Ownership Test. Shares of beneficial interest of EQR must be held by a
minimum of 100 persons for at least 335 days of a taxable year that is 12
months, or during a proportionate part of a taxable year of less than 12
months. In addition, no more than 50% in value of the shares of beneficial
interest of EQR may be owned, directly or indirectly and by applying certain
constructive ownership rules, by five or fewer individuals during the last
half of each taxable year. EQR and EWR believe that they have each satisfied
both of these tests, and EQR believes EQR will continue to do so. In order to
comply with the second of these tests, EQR has placed certain restrictions on
the transfer of the EQR Common and EQR Preferred that are intended to prevent
further concentration of share ownership.
Asset Tests. At the close of each quarter of EQR's taxable year, EQR must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of EQR'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 EQR's assets generally may be invested without
restriction, securities in this class may not exceed either (i) 5% of the
value of EQR's total assets as to any one issuer, or (ii) 10% of the
outstanding voting securities of any one issuer. Where EQR invests in a
partnership, it will be deemed to own a proportionate share of the
partnership's assets. EQR believes that its investment in the properties of
EWR through its interest in EWRLP and ERP Operating Partnership will
constitute qualified assets for purposes of the 75% asset test.
ERP Operating Partnership will own 1% of the voting stock of the EW
Management, Inc. ERP Operating Partnership will also own 100% of the non-
voting stock of EW Management, Inc., the EQR Management Corps. and Wellsford
Real Properties, Inc. By virtue of its partnership interest in ERP Operating
Partnership, EQR will be deemed to own its pro rata share of the assets of ERP
Operating Partnership, including the stock of the EQR Management Corps., EW
Management, Inc. and Wellsford Real Properties, Inc., as described above. ERP
Operating Partnership has not and does not intend to own more than 10% of the
voting securities of any of the above mentioned corporations.
In addition, based upon its analysis of the estimated value of the stock of
the EW Management, Inc., the EQR Management Corps. and Wellsford Real
Properties, Inc. owned by ERP Operating Partnership relative to the estimated
value of the other assets owned by ERP Operating Partnership, EQR believes
that its pro rata share of the stock of each of the following entities, EW
Management, Inc., the EQR Management Corps. and Wellsford Real Properties,
Inc. held by ERP Operating Partnership will not exceed 5% of the total value
of EQR'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 EQR first acquires stock of EW Management, Inc., but also at the end
of each quarter in which EQR increases its interest in EW Management, Inc. or
any other interest in an issuer of securities (including as a result of
increasing its interest in ERP Operating Partnership as the holders of
operating partnership Units exercise their exchange rights). Although EQR
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
ERP Operating Partnership's overall interest in EW Management, Inc., the EQR
Management Corps. or Wellsford Real Properties, Inc.
EQR's indirect interest in EW Finance LP will be held through EWRLP and EW
Finance, Inc., which is organized and operated as a "qualified REIT
subsidiary" ("QRS") 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 EQR.
The QRS Corporation, therefore, will not be
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subject to Federal corporate income taxation, although it may be subject to
state or local taxation. In addition, EQR's ownership of the voting stock of
the 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 EQR's gross income which must be satisfied for each taxable
year. For purposes of these tests, where EQR invests in a partnership, EQR
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 EQR as it has in the hands of the partnership.
1. The 75% Test. At least 75% of EQR'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 EQR'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 a 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 EQR in exchange for
its shares (including the Securities offered hereby) 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 EQR, or an owner of 10% or more of EQR, 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, EQR generally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent contractor"
from whom EQR derives no revenue. The "independent contractor" requirement,
however, does not apply to the extent that the services provided by EQR are
"usually or customarily rendered" in connection with the rental of space for
occupancy only, and are not otherwise considered "rendered to the occupant."
EQR, through its Management Partnerships, the EQR Management Corps. and EW
Management, Inc. will provide certain services with respect to the properties
of EQR and any newly acquired multifamily residential properties. EQR believes
that the services provided by the EQR Properties Management Partnerships, the
EQR Management Corps. and EW Management, Inc. are usually or customarily
rendered in connection with the rental of space for occupancy only, and
therefore 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 EQR'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 EQR's share of dividends
paid by the EQR Management Corps. and EW Management, Inc.) and interest on any
obligations not collateralized by an interest in real property and any
payments made on behalf of EQR 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 EQR complies with the 75% and 95% income tests, qualifying
income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain dealer property
held by EQR for at least four years and excluding foreclosure property.
EQR's investment in its properties, through ERP Operating Partnership, in
major part will give rise to rental income qualifying under the 75% and 95%
gross income tests. Gains on sales of the properties or of EQR's interest in
ERP Operating Partnership and EWRLP will generally qualify under the 75% and
95% gross income tests. EQR believes that the income on its other investments,
including its indirect investment in the EQR Management Corps. and EW
Management, Inc., will not cause EQR to fail the 75% or 95% gross income test
for any year, and EQR anticipates that this will continue to be the case.
Even if EQR 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 be available if: (i) EQR's failure to comply was due
to reasonable cause and not to willful neglect; (ii) EQR reports the
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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, EQR, 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. EQR 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. EQR does not anticipate that it will
have any substantial difficulty in complying with this test.
Annual Distribution Requirements. EQR, in order to qualify as a REIT, is
required to make dividend distributions (other than capital gain dividends) to
its shareholders each year in an amount at least equal to (A) the sum of (i)
95% of EQR's REIT taxable income (computed without regard to the dividends
paid deduction and EQR'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 EQR
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 EQR 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.
EQR has made and intends to continue to make timely distributions sufficient
to satisfy the annual distribution requirements. In this regard, the
partnership agreements of ERP Operating Partnership and EWRLP authorize EQR,
as general partner, to take such steps as may be necessary to cause ERP
Operating Partnership and EWRLP, respectively, to distribute to its partners
an amount sufficient to permit EQR to meet these distribution requirements. It
is possible that EQR may not have sufficient cash or other liquid assets to
meet the 95% dividend 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 EQR's REIT taxable income on the other hand. To
avoid any problem with the 95% distribution requirement, EQR will closely
monitor the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds (or cause ERP Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
Failure to Qualify. If EQR fails to qualify for taxation as a REIT in any
taxable year and the relief provisions do not apply, EQR 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
EQR fails to qualify will not be required and, if made, will not be deductible
by EQR. 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, EQR 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 EQR'S INVESTMENTS IN PARTNERSHIPS
General. EQR will hold direct or indirect interests in ERP Operating
Partnership, EWRLP, the EQR Properties Management Partnerships, EW Finance LP
and the EQR Financing Partnerships (each individually a "Partnership" and,
collectively, the "Partnerships"). EQR 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 EQR's assets and items of gross income would change, which
would preclude EQR from satisfying the asset tests and possibly the income
tests (see "--Qualification of EQR as a REIT--Asset Tests" and "--Gross Income
Tests"), and in turn would prevent EQR from qualifying as a REIT.
Publicly Traded Partnerships. Code Section 7704 provides that publicly
traded partnerships will be taxed as corporations, unless a certain percentage
of their income consists of "qualifying income." A partnership is "a publicly
traded partnership" if interests in such partnership are either traded on an
established securities market or are "readily tradable on a secondary market
(or the substantial equivalent thereof)." Under the Regulations promulgated
under Code Section 7704, interests in a partnership are readily tradable on a
secondary market or substantial equivalent thereof if, "taking into account
all of the facts and circumstances, the partners are readily able to buy,
sell, or exchange their partnership interests in a manner that is comparable,
economically, to trading on an established securities market." Furthermore,
interests in a partnership are tradable as such if (i) interests in the
partnership are regularly quoted by any person, such as a broker or dealer,
making a market in the interests; (ii) any person regularly makes available to
the public (including customers or subscribers) bid or offer quotes with
respect to interests in the partnership and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf of others; (iii) the
holder of an interest in the partnership has a readily available, regular, and
ongoing opportunity to sell or exchange the interest through a public means of
obtaining or providing
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information of offers to buy, sell, or exchange interests in the partnership;
or (iv) prospective buyers and sellers otherwise have the opportunity to buy,
sell, or exchange interests in the partnership in a time frame and with the
regularity and continuity that is comparable to that described in (i), (ii) or
(iii). ERP believes that it will not be a publicly traded partnership at the
Effective Time nor upon consummation of the Asset Contribution.
Even if ERP Operating Partnership were deemed to be a publicly traded
partnership, depending on circumstances at the time, it still might avoid
taxation as a corporation under Code Section 7704, based on the nature of its
income. A publicly traded partnership is not taxed as a corporation if at
least 90% of its gross income for each taxable year consists of certain
passive income, including interest, dividends, real property rents, and gains
from the sale or other disposition of real property. These are predominantly
the types of income that ERP Operating Partnership expects to earn. If ERP
Operating Partnership satisfied the 90% gross income test but was classified
as a publicly traded partnership, it would not be taxed as a corporation but
would be subject to certain special rules under Code Section 469(k). In such
event, a holder of ERP OP Units would be unable to use losses from other
passive activities against his allocable share of ERP passive activity losses
allocable to a holder of ERP OP Units could be offset only against his
allocable share of ERP passive activity income or gains, and not against
income or gains from other passive activities.
If ERP Operating Partnership at any time were considered a publicly traded
partnership and did not satisfy the qualifying income test, then it will be
considered as having transferred its assets at that time to a corporation, and
would be taxed as a corporation for federal income tax purposes, which would
result in adverse consequences to the holders of ERP OP Units and would
jeopardize EQR's status as a REIT for federal income tax purposes. This deemed
transfer of assets to a corporation may also result in the recognition of
taxable income to ERP Operating Partnership and its partners, to the extent
that its liabilities at that time have exceeded the adjusted tax bases of its
assets, without the receipt of any cash with which to pay the income tax
liability resulting from such income.
Tax Termination of EWRLP. Pursuant to Section 708(b)(1)(B) of the Code, if
within a twelve-month period, there is a sale or exchange of 50 percent or
more of the total interest in a partnership's capital and profits, the
partnership terminates for federal income tax purposes. EWRLP will terminate
as a result of the Merger. Recently finalized Treasury Regulations under Code
Section 708(b)(1)(B) (the "Section 708 Regulations") provide that if a
partnership is deemed terminated by a sale or exchange of an interest, the
following is deemed to occur: (a) the partnership contributes all of its
assets and liabilities to a new partnership in exchange for an interest in the
new partnership; and (b) immediately thereafter, the terminated partnership
distributes interests in the new partnership to the purchasing partner and the
other remaining partners in proportion to the respective interests in the
terminated partnership in liquidation of the terminated partnership, for the
continuation of the business by the new partnership. Neither EWRLP nor its
partners will recognize any taxable income upon the termination of EWRLP as a
result of the Merger. Also under the Section 708 Regulations the deemed
contribution of assets to a new partnership and the distributions of new
partnership interests to the partners of the terminated partnership are
disregarded for purposes of maintaining capital accounts. Therefore, a new
layer of Section 704(c) built-in gain or loss is not created by virtue of the
deemed contribution. The property of the terminated partnership will be
considered Section 704(c) property only to the extent the property was so
treated in the hands of the terminated partnership.
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 properties contributed to
ERP Operating Partnership and EWRLP in connection with their initial public
offering and the interests in EWRLP contributed to ERP Operating Partnership
in connection with the Merger) (the "Contributed 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 initial 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 ERP Operating Partnership Agreement (as well as the EWRLP, the
EQR Financing Partnerships and EW Finance LP Partnership Agreements) require
such allocations to be made in a manner consistent with Section 704(c). As a
result, certain limited partners of ERP Operating Partnership and EWRLP will
be allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by these partnerships of contributed
assets with Book-Tax Differences (including certain of the Contributed
Properties). These allocations will tend to eliminate the Book-Tax Difference
associated with such assets over the lives of these partnerships. However, the
special allocation rules of Section 704(c) as applied by EQR will 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 these partnerships will cause EQR 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 EQR to recognize taxable income in excess of cash
proceeds, which might adversely affect EQR's ability to comply with the REIT
distribution requirements. See "--Qualification of EQR as a REIT--Annual
Distribution Requirements."
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Sale of the Properties. EQR's share of any gain realized by ERP Operating
Partnership and EWRLP 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 "--Qualification of EQR as a REIT--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 ERP Operating Partnership, EWRLP and the
EQR Financing Partnerships have held and intend to continue to hold their
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning and operating their properties
and other multifamily residential properties and to make such occasional sales
of the properties as are consistent with EQR's investment objectives. Based
upon such investment objectives, EQR believes that in general its properties
should not be considered dealer property and that the amount of income from
prohibited transactions, if any, will not be material.
TAXATION OF SHAREHOLDERS
Taxation of Taxable U.S. Shareholders.
General. As long as EQR qualifies as a REIT, distributions made to EQR's
taxable "U.S. Shareholders" (as defined in the immediately following
paragraph), with respect to their 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 Securities are out of
current or accumulated earnings and profits, the earnings and profits of EQR
will be allocated first to the holders of EQR Preferred and second to the
holders of EQR Common. There can be no assurance, however, that EQR will have
sufficient earnings and profits to cover distributions on the EQR Preferred.
Dividends that are designated as capital gain dividends will be taxed as
capital gains without regard to the period for which the shareholder has held
its securities. However, corporate shareholders may be required to treat up to
20% of certain capital gain dividends as ordinary income. To the extent that
EQR 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 securities 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
Securities are held as a capital asset). In addition, any dividend declared by
EQR in October, November or December of any year and payable to a shareholder
of record on a specific date in any such month will be treated as both paid by
EQR and received by the shareholder on December 31 of such year, provided that
the dividend is actually paid by EQR 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 EQR.
As used herein, the term "U.S. Shareholder" means a holder of EQR Common or
EQR Preferred who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) is an estate, the income of
which is subject to United States federal income taxation regardless of its
source or (iv) is a trust, if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust. Pursuant to the Taxpayer Relief Act of 1997 (the
"Act"), for taxable years of EQR that begin on or after January 1, 1998, EQR
may elect to retain and pay income tax on its net long-term capital gain
attributable to such taxable year. If EQR makes this election, its U.S.
Shareholders will be required to include in their income as long-term capital
gain their proportionate share of such amount so designated by EQR. A U.S.
Shareholder will be treated as having paid his or her share of the tax paid by
EQR in respect of such amount so designated by EQR, for which such U.S.
Shareholder will be entitled to a credit or refund. Additionally, each U.S.
Shareholder's adjusted basis in EQR Common will be increased by the excess of
the amount so includible in income over the tax deemed paid on such amount.
EQR must pay tax on its designated long-term capital gain within 30 days of
the close of any taxable year in which it designates long-term capital gain
pursuant to this rule, and it must mail a written notice of its designation to
its shareholders within 60 days of the close of the taxable year.
Distributions made by EQR and gain arising from the sale or exchange by a
U.S. Shareholder of EQR Common will not be treated as passive activity income,
and, as a result, U.S. Shareholders will not be able to apply any "passive
losses" against such income or gain. Distributions made by EQR (to the extent
that they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment income limitation.
Gain arising from the sale or other disposition of EQR Common (and
distributions treated as such), however, will not be treated as investment
income unless a U.S. Shareholder so elects, in which case such capital gains
will be taxed at ordinary income rates.
Upon any sale or other disposition of EQR Common, a U.S. Shareholder will
recognize gain or loss for Federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of EQR Common for tax
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purposes. Such gain or loss will be capital gain or loss if the shares have
been held by the U.S. Shareholder as a capital asset, and will be mid-term or
long-term gain or loss if such shares have been held for more than one year or
eighteen months, respectively. In general, any loss recognized by a U.S.
Shareholder upon the sale or other disposition of shares of EQR Common that
have been held for six months or less (after applying certain holding period
rules) will be treated as a long-term capital loss, to the extent of capital
gain dividends received by such U.S. Shareholders from EQR which were required
to be treated as long-term capital gains.
As a result of other changes made by the Act to the Code, capital gains of
non-corporate taxpayers derived in respect of capital assets held for at least
one year are eligible for reduced rates of taxation. Although the Act did not
make conforming changes to other provisions of the Code, the Act authorizes
the IRS to issue regulations coordinating these capital gains provisions with
other rules involving the treatment of sales and exchanges by "pass-through"
entities, such as REITs and partnerships, and of sales and exchanges of
interests therein. Due to the complexity of these provisions and in the
absence of the coordinating regulations, each prospective investor should
consult his or her own tax advisor concerning the tax consequences to him or
her of the changes made by the Act.
Backup Withholding. EQR reports to its U.S. Shareholders and the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such shareholder (a) is a corporation or comes within one of the
exempt categories and, when required, demonstrates this fact, or (b) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. shareholder that does not provide EQR with
its correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Backup withholding is not an additional tax. Any amount
paid as backup withholding will be creditable against the shareholder's income
tax liability. In addition, EQR may be required to withhold a portion of
capital gain distributions to any shareholders who fail to certify their non-
foreign status to EQR. See "--Taxation of Shareholders--Taxation of Foreign
Shareholders".
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
EQR to a shareholder that is a tax-exempt entity will not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
securities with "acquisition indebtedness" within the meaning of the Code and
the securities 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. EQR has not been and does not expect to be treated as a
pension-held REIT for purposes of this rule.
Taxation of Foreign Shareholders.
The following is a discussion of certain anticipated U.S. Federal income tax
consequences of the ownership and disposition of securities applicable to Non-
U.S. Holders of such securities. 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 includible 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.
1. Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of EQR's earnings and profits which are not attributable to
capital gains of EQR or of ERP 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
securities. In cases where the dividend income from a Non-U.S. Holder's
investment in securities 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 EQR which are not dividends
out of the earnings and profits of EQR 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 EQR's current and
accumulated earnings and profits, the entire distribution will
47
<PAGE>
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 IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of EQR.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), a distribution made by EQR 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 EQR
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, EQR will be required to
withhold tax equal to 35% of the amount of dividends to the extent such
dividends constitute gains from any USRPI. 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.
4. Dispositions of Securities. Unless securities constitute a USRPI, a sale
of securities by a Non-U.S. Holder generally will not be subject to U.S.
taxation under FIRPTA. The securities will not constitute a USRPI if EQR 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 securities is held directly or indirectly by Non-U.S. Holders. EQR
believes that it has been and anticipates that it will continue to be a
domestically controlled REIT, and therefore that the sale of securities will
not be subject to taxation under FIRPTA. Because the securities will be
publicly traded, however, no assurance can be given EQR will continue to be a
domestically controlled REIT. If EQR does not constitute a domestically
controlled REIT, a Non-U.S. Holder's sale of securities generally will still
not be subject to tax under FIRPTA as a sale of a USRPI provided that (i) the
securities 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 EQR's outstanding securities at all times during a
specified testing period. If gain on the sale of securities 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 securities
could be required to withhold 10% of the purchase price and remit such amount
to the IRS. 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 securities 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.
Tax Legislation.
The Taxpayer Relief Act of 1997 (H.R. 2014), signed by President Clinton on
August 5, 1997, will modify certain REIT-related Code provisions for tax years
beginning on or after January 1, 1998.
Some of the potentially significant changes contained in the legislation
relating to REITs include: (i) the rule disqualifying a REIT for any year in
which it fails to comply with certain regulations requiring the REIT to
monitor its stock ownership is replaced with an intermediate financial
penalty; (ii) the rule disqualifying a REIT in any year that it is "closely-
held" will not apply if during such year the REIT complied with certain
regulations which require the REIT to monitor its stock ownership, and the
REIT did not know or have reason to know that it was closely-held; (iii) a
REIT is permitted to render a de minimus amount of impermissible services to
tenants in connection with the management of property and still treat amounts
received with respect to such property (other than certain amounts relating to
such services) as qualified rent; (iv) the 30% gross income test is repealed;
(v) any corporation wholly-owned by a REIT is permitted to be treated as a
qualified REIT subsidiary regardless of whether such subsidiary has always
been owned by the REIT; and (vi) certain other Code provisions relating to
REIT's are amended.
Some or all of the provisions could affect both EQR's operations and its
ability to maintain its REIT status for its taxable years beginning in 1998.
Other Tax Considerations.
EW Management, Inc. and the EQR Management Corps. A portion of the cash to
be used by ERP Operating Partnership to fund distributions to its partners,
including EQR, is expected to come from EW Management, Inc. and the EQR
Management Corps. through payments of dividends on the stock of the EW
Management, Inc. and the EQR Management Corps. held by ERP Operating
Partnership. The EW Management, Inc. and the EQR Management Corps. will pay
Federal and state income tax at the full applicable corporate rates on their
taxable income. To the extent that such companies are required to pay Federal,
state or local taxes, the cash available for distribution by EQR, among its
shareholders will be reduced accordingly.
48
<PAGE>
State and Local Taxes. EQR 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 EQR 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 beneficial interest of EQR.
INTERESTS OF CERTAIN PERSONS
IN THE TRANSACTIONS
Certain executive officers, directors and key employees of EWR have been
granted stock options and/or restricted shares and/or have entered agreements
providing them with certain rights upon a change in control of EWR. The
following sets forth the cash payments and other benefits which will be
provided to key executives, directors and key employees of EWR in connection
with the Merger.
EVANS CONSULTING AGREEMENT
EQR Properties Management LP, an affiliate of EQR, has entered into a
consulting agreement with Mr. Evans to be effective as of the Effective Time,
which will expire on December 31, 1999 providing for cash compensation to be
paid to him of $225,000 per annum. Mr. Evans will also receive an option (an
"EQR Option") to purchase 115,500 shares of EQR Common. The EQR Option will
vest in three equal annual installments and will have an exercise price equal
to the closing price for a share of EQR Common on the Closing Date. Mr. Evans
will receive the following additional benefits under his consulting agreement:
(1) consideration for an option award under EQR's Second Amended and Restated
Share Option and Share Award Plan, (2) payment in shares of EQR Common valued
at the time of payment equal to the value of the bonus he would have received
for the 1997 calendar year under his existing employment agreement with EWR,
(3) eligibility for a performance bonus under EQR's Incentive Compensation
Plan and (4) eligibility to participate in other EQR employee benefit plans in
which persons in comparable positions (treating Mr. Evans as an employee)
participate.
FANNIN CONSULTING AGREEMENT
EQR Properties Management LP has entered into a consulting agreement with
Mr. Fannin to be effective as of the Effective Time which will expire on
January 2, 2000. The agreement provides for Mr. Fannin to provide certain
financial consulting services in exchange for payments of cash compensation in
the following amounts: $225,540 on January 1, 1998, $301,535 on January 1,
1999 and $278,535 on January 1, 2000. The agreement provides for certain
payments to Mr. Fannin in the event that he incurs excise taxes as a result of
the Merger. The maximum fees payable to Mr. Fannin under the agreement are
$988,000. The agreement also provides that Mr. Fannin will receive health
insurance coverage.
BERRY EMPLOYMENT AGREEMENT
EQR Properties Management LP has entered into an employment agreement with
Mr. Berry to be effective as of the Effective Time which will expire on
December 31, 2000, providing for cash compensation to be paid to him of
$250,000 per annum. Mr. Berry will also receive an EQR Option to purchase
77,500 shares of EQR Common. The EQR Option will vest in three equal annual
installments and will have an exercise price equal to the closing price of a
share of EQR Common on the Closing Date. The agreement provides that Mr. Berry
will exchange all unvested restricted shares of EWR Common at the time of the
Merger for restricted shares of EQR Common, which will be issued under EQR's
Second Amended and Restated Share Option and Share Award Plan (the "EQR Share
Plan"), and will vest on December 31, 2000 and will receive his 1997 bonus in
restricted shares of EQR Common. Mr. Berry will also receive the following
benefits under his employment agreement: (1) consideration for an option award
under the EQR Share Plan, (2) payment in shares of EQR Common valued at the
time of payment equal to the value of the bonus he would have received for the
1997 calendar year under his existing employment agreement with EWR, (3)
eligibility for a performance bonus under EQR's Incentive Compensation Plan
and (4) eligibility to participate in other EQR employee benefit plans in
which persons in comparable positions participate and five (5) payments to
cover any excise taxes incurred by Mr. Berry as a result of the Merger.
BERRY DEFERRED COMPENSATION AGREEMENT
Mr. Berry has entered into a deferred compensation agreement with EQR which
will become effective as of the Effective Time and will only pay benefits in
the event Mr. Berry terminates his employment with EQR prior to January 1,
2000. The amount payable under this agreement will equal the value of any
restricted shares of EQR Common received in exchange for EWR Common or in
payment of Mr. Berry's 1997 bonus which are forfeited upon his termination of
employment. The payment will be made in two semi-annual installments over the
one year period following termination of employment and interest of 9% per
annum will accrue on the balance over the one year payment period.
49
<PAGE>
SENIOR OFFICERS
Mr. J. Donald Couvillion, a Vice President of EWR, will be the Vice
President--Development of ERP upon the Effective Time. Other officers of EWR,
including Mr. Anthony V. Pusateri, a Senior Vice-President of EWR, and Mr. G.
Edward O'Clair, a Senior Vice President of EWR, are expected to continue as
employees of ERP, but will not be subject to employment agreements.
CHANGE IN CONTROL AGREEMENTS
Messrs. Evans, Berry, Fannin, O'Clair, Couvillion, Mr. Kevin M. Burnett, a
Vice President and Controller of EWR, Mr. Gail B. Peterson, a Vice President
of EWR, and Mr. G. Grant Lyon, a Vice President of EWR, have entered into
agreements dated June 18, 1997 and Mr. Pusateri has entered into an agreement
dated July 21, 1997 ("Change in Control Agreements") with EWR which provide
that change in control payments and pro rata bonus payments shall be paid to
and the vesting of certain options and restricted stock held by such
individuals shall occur upon a termination of employment following a change in
control (as defined in the Change in Control Agreements) of EWR. Messrs.
Evans, Berry and Fanin will terminate their respective Change in Control
Agreements as of the Effective Date. Mr. Couvillion will amend his Change in
Control Agreement to (1) eliminate vesting of employer contributions under the
EWR 401(k) plan in exchange for a cash payment increased to cover income taxes
on the cash payment, (2) acknowledge that his new position with EQR will not
trigger the payments provision under his Change in Control Agreement and (3)
acknowledge that the term "change in control" applies only to EWR. Messrs.
Burnett, Peterson, Pusateri, O'Clair and Lyon will amend their Change in
Control Agreements to (1) eliminate vesting of employer contributions under
the EWR 401(k) Plan in exchange for a cash payment increased to cover income
taxes on the cash payment, (2) impose the payment obligation as of the Closing
Date notwithstanding the fact that each officer may perform services for a
transitional period thereafter, (3) acknowledge that the term "change in
control" applies only to EWR and (4) require payment be made within 5 days of
termination of employment (or earlier if required by law) unless such
termination occurs during the last two months of a calendar year in which case
payment will be made on January 2 of the immediately following calendar year
(or earlier if required by law). Messrs. Burnett, Peterson, Pusateri, O'Clair
and Lyon will receive cash payments under their Change in Control Agreements
of $197,000, $206,300, $392,000, $246,990 and $190,000, respectively. Messrs.
Evans, Berry and Fannin will not receive a payment of cash or property under
their respective Change in Control Agreements. Mr. Couvillion will receive a
payment only if his employment is terminated within two years of the Effective
Date.
RESTRICTED SHARE GRANTS
Outstanding restricted share grants were previously made to Messrs. Evans,
Berry, Pusateri, O'Clair, Fannin and other employees of EWR. In connection
with the Merger, except with respect to Mr. Berry as of the Effective Time all
restricted shares of EWR Common will become vested and will participate in the
Merger on the same basis as all other shares of EWR Common. As described above
under "--Berry Employment Agreement," Mr. Berry will exchange unvested
restricted shares of EWR Common for restricted shares of EQR Common as of the
Effective Time.
In the second quarter of 1997, Messrs. Evans and Berry elected to receive
restricted shares of EWR Common in lieu of salary and bonuses for 1997. In
July, 1997, approximately 13,000 and 12,000 restricted shares of EWR Common
were issued to Messrs. Evans and Berry in lieu of their 1997 salary. The
restricted shares of EWR Common issued to Mr. Evans will vest in connection
with the Merger and any unvested restricted shares held by Mr. Berry will be
exchanged for restricted shares of EQR Common at the time of the Merger. In
accordance with his employment agreement the restricted shares of EQR Common
received by Mr. Berry will vest on December 31, 2000 if Mr. Berry is an
employee of EQR at that time. No restricted shares of EWR Common have been
issued to either Mr. Evans or Mr. Berry for their 1997 bonuses since the
amount of their respective bonuses has not yet been determined.
EWR OPTIONS
As of the Effective Time, all rights under all existing vested and nonvested
options to purchase shares of EWR Common will terminate unless each holder of
options to purchase shares of EWR Common shall have entered into an agreement
(an "Option Cash Out Agreement") with EWR not to exercise such option in
consideration for a cash payment equal to the difference between (i) the
Exchange Ratio multiplied by the closing price of a share of EQR Common on the
NYSE on the Closing Date and (ii) the applicable exercise price of such
option, multiplied by the number of shares of EWR Common subject to such
option.
Assuming a share price of $51.0625 for EQR Common on the Closing Date, the
cash payments which will be made to key executives, directors and key
employees of EWR who enter into an Option Cash Out Agreement are as follows:
50
<PAGE>
$1,158,469 for Mr. Evans, $717,844 for Mr. Berry, $100,781 for Mr. Pusateri,
$317,734 for Mr. O'Clair, $417,813 for Mr. Fannin, $182,484 for Mr. Couvillion,
$47,531 for Mr. Lyon, $127,375 for Mr. Burnett, $109,531 for Mr. Peterson,
$989,922 for Mr. Withycombe, $49,038 for Mr. Bidstrup, $49,038 for Mr.
Theobald, $49,038 for Mr. O'Connor and $526,662 for all other employees.
EQR OPTIONS
After the Effective Time, all employees including key employees of EWR or its
subsidiaries who (1) become employees of EQR or its subsidiaries, and (2)
exercise vested incentive share options, and/or receive a cash payment in
consideration for their agreement not to exercise their other outstanding
options to purchase shares of EWR Common will receive a nonqualified option to
purchase a number of shares of EQR Common equal to (a) the number of shares of
EWR Common received upon exercise of vested incentive share options to purchase
shares of EWR Common, plus (b) the number of shares of EWR Common subject to
their EWR Option Cash Out Agreement, multiplied by the Exchange Ratio. The new
EQR option shall vest in three equal annual installments and have an exercise
price per share to equal the closing price of a share of EQR Common on the
Closing Date. Assuming all holders of options to purchase shares of EWR Common
elect to receive a cash payment in consideration for their agreement not to
exercise such options, the number of shares of EQR Common subject to option
which will be issued is as follows: 115,500 for Mr. Evans pursuant to his
consulting agreement, 77,500 for Mr. Berry pursuant to his employment
agreement, 12,500 for Mr. Pusateri, 33,750 for Mr. O'Clair, 21,750 for Mr.
Couvillion and 283,188 for all other employees.
UNIT CONTRIBUTION AGREEMENT
Mr. Evans and Mr. Withycombe and certain of their respective affiliates hold
an aggregate of 3,309,762 units of limited partnership interests in EWRLP which
will be contributed to ERP Operating Partnership in exchange for 1,654,881
units of limited partnership interest in ERP Operating Partnership pursuant to
a Unit Contribution Agreement.
SALE OF STOCK
Messrs. Evans and Withycombe shall sell all their respective shares of Evans
Withycombe Management Inc. to Messrs. Neithercut and Strohm for an aggregate
consideration of $10,000.
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<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth the selected unaudited pro forma combined
financial data for EQR, giving effect to the Merger as if it had occurred on
the dates indicated herein, after giving effect to the pro forma adjustments
described in the notes to the unaudited pro forma financial statements
included elsewhere in the Joint Proxy Statement/Prospectus.
The selected unaudited pro forma combined operating data are presented as if
the Merger had been consummated at the beginning of the period presented.
The selected unaudited pro forma combined balance sheet is presented as if
the Merger had occurred on September 30, 1997. The Merger has been accounted
for under the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16. In the opinion of management, all significant
adjustments necessary to reflect the effects of the Merger have been made.
The selected pro forma financial information should be read in conjunction
with, and is qualified in its entirety by, the respective historical financial
statements and notes thereto of EQR and EWR incorporated by reference into the
Joint Proxy Statement/Prospectus and the unaudited pro forma financial
statements and notes thereto included elsewhere in the Joint Proxy
Statement/Prospectus.
The selected unaudited pro forma operating and balance sheet data are
presented for comparative purposes only and are not necessarily indicative of
what the actual combined results of EQR and EWR would have been for the period
and dates presented. Nor does such data purport to represent the results of
future periods.
52
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
OPERATING DATA:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES:
Rental Income............................. $ 753,594 $ 966,942
Fee and asset management.................. 4,975 7,906
Interest income-investment in mortgage
notes.................................... 15,022 12,819
Interest and other income................. 13,538 14,421
---------- ---------
Total revenues........................ 787,129 1,002,088
---------- ---------
EXPENSES:
Property and maintenance.................. 194,532 271,533
Real estate taxes and insurance........... 75,514 94,670
Property management....................... 26,467 31,539
Fee and asset management.................. 2,523 3,837
Depreciation.............................. 170,672 218,589
Interest:
Expense incurred........................ 147,365 179,870
Amortization of deferred financing
costs.................................. 1,859 4,308
General and administrative................ 12,279 11,363
---------- ---------
Total expenses........................ 631,211 815,709
---------- ---------
Income before gain on disposition of
properties, (loss) on joint venture
communities, extraordinary items and
allocation to Minority Interests......... 155,918 186,379
Gain on disposition of properties........ 11,454 22,336
(Loss) on joint venture communities...... (19) (58)
---------- ---------
Income before extraordinary items and
allocation to Minority Interests......... 167,353 208,657
Extraordinary items:
Write-off of unamortized costs on
refinanced debt.......................... -- (3,512)
(Loss) on early extinguishment of debt... (1,500) --
---------- ---------
Income before allocation to Minority
Interests................................ 165,853 205,145
(Income) allocated to Minority Interests. (16,420) (21,130)
---------- ---------
Net income................................ 149,433 184,015
Preferred distributions................... (65,078) (86,771)
---------- ---------
Net income available to Common Shares..... $ 84,355 $ 97,244
========== =========
Net income per weighted average Common
Share outstanding........................ $ .96 $ 1.11
========== =========
Weighted average Common Shares
outstanding.............................. 87,737 87,737
========== =========
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997
------------------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
(at end of period)
Real Estate, after accumulated
depreciation............................. $6,400,198
==========
Total assets.............................. $6,762,526
==========
Total debt................................ $2,611,825
==========
Minority Interests........................ $ 280,857
==========
Shareholders' Equity...................... $3,644,058
==========
</TABLE>
53
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
The Unaudited Pro Forma Combined Balance Sheet has been prepared as if the
proposed Merger of Equity Residential Properties Trust ("EQR") and Evans
Withycombe Residential, Inc. ("EWR") had occurred on September 30, 1997. The
Company has also included (i) the sale of 1,650,000 depositary shares (the
"Series G Depositary Shares") on October 3, 1997 and the net proceeds
therefrom of $39.6 million, (ii) the issuance of $150,000,000 million of 7
1/8% unsecured fixed rate notes (the "2017 Notes") in a public debt offering
(the "Fourth Public Debt Offering") which occurred on October 8, 1997 and the
net proceeds therefrom of $147.4 million, (iii) the acquisition in October
1997 of 17 properties containing 5,015 units for a total purchase price of
$292.4 million which included the assumption of $136 million of mortgage
indebtedness and the issuance of 3,315,500 Common Shares and (iv) the
acquisition in October 1997 of 21 properties and the probable acquisition of
an additional 24 properties for a total purchase price of $607.5 million,
including the assumption of $218.5 million of mortgage indebtedness. All of
these events have been presented as if they had occurred on September 30,
1997. The Unaudited Pro Forma Combined Balance Sheet gives effect to the
Merger under the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16. In the opinion of management, all significant
adjustments necessary to reflect the effects of the Merger have been made.
The Unaudited Pro Forma Combined Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual combined
financial position of EQR and EWR would have been at September 30, 1997, nor
does it purport to represent the future combined financial position of EQR and
EWR. This Unaudited Pro Forma Combined Balance Sheet should be read in
conjunction with, and is qualified in its entirety by, the respective
historical financial statements and notes thereto of EQR and EWR incorporated
by reference into the Joint Proxy Statement/Prospectus and the financial
statements and notes thereto in the Form 8-K, as amended by Form 8-K/A, as
applicable, dated September 17, 1997 and October 9, 1997.
54
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 MOST
RECENT
ACQUIRED AND EQR PRO FORMA EQR PRO
EQR PROBABLE PRE-MERGER EWR MERGER FORMA
HISTORICAL PROPERTIES (A) PRO FORMA HISTORICAL (B) ADJUSTMENTS (C) COMBINED
---------- -------------- ---------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Rental property, cost... $4,822,779 $905,502 $5,728,281 $806,472 $320,404 (D) $6,855,157
Less: Accumulated
Depreciation........... (400,550) -- (400,550) (54,409) -- (454,959)
Rental property, net.... 4,422,229 905,502 5,327,731 752,063 320,404 6,400,198
Real Estate held for
disposition............ 3,948 -- 3,948 -- -- 3,948
Construction in
progress............... -- -- -- 36 -- 36
Investment in mortgage
notes, net............. 176,051 -- 176,051 7,188 -- 183,239
Cash and cash
equivalents............ 277,997 (207,541) 70,456 2,488 (73,834)(E) (890)
Rents receivable........ 2,614 -- 2,614 -- -- 2,614
Deposits--restricted.... 7,761 -- 7,761 15,305 -- 23,066
Escrows deposits--
mortgage............... 31,702 -- 31,702 -- -- 31,702
Deferred financing
costs, net............. 14,168 1,313 15,481 4,503 (4,503)(F) 15,481
Other assets............ 97,544 -- 97,544 5,588 -- 103,132
---------- -------- ---------- -------- -------- ----------
Total assets......... $5,034,014 $699,274 $5,733,288 $787,171 $242,067 $6,762,526
========== ======== ========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.. $ 963,819 $354,496 $1,318,315 $261,922 $ -- $1,580,237
Line of credit.......... -- -- -- 56,000 (56,000)(G) --
Notes, net.............. 754,292 148,703 902,995 124,234 4,359 (H) 1,031,588
Accounts payable and
accrued expenses....... 56,864 -- 56,864 14,268 -- 71,132
Accrued interest
payable................ 20,493 -- 20,493 5,327 -- 25,820
Due to affiliates....... 783 -- 783 -- -- 783
Rents received in
advance and other
liabilities............ 28,928 -- 28,928 838 -- 29,766
Security deposits....... 21,196 -- 21,196 2,617 -- 23,813
Distributions payable... 66,707 -- 66,707 7,765 -- 74,472
---------- -------- ---------- -------- -------- ----------
Total liabilities.... 1,913,082 503,199 2,416,281 472,971 (51,641) 2,837,611
---------- -------- ---------- -------- -------- ----------
Commitments and
contingencies
Minority Interests...... 181,884 -- 181,884 53,351 50,199 (I) 285,434
---------- -------- ---------- -------- -------- ----------
Shareholders' equity:
Common shares.......... 742 34 776 204 (102)(J) 878
Preferred shares....... 1,000,495 41,250 1,041,745 -- -- 1,041,745
Employee notes......... (5,173) -- (5,173) -- -- (5,173)
Unamortized employee
restricted stock
compensation.......... -- -- -- (1,691) 1,691 (K) --
Paid in capital........ 2,066,973 154,791 2,221,764 294,177 210,079 (L) 2,726,020
Distributions in
excess of accumulated
earnings.............. (123,989) -- (123,989) (31,841) 31,841 (M) (123,989)
---------- -------- ---------- -------- -------- ----------
Total Shareholders'
Equity.............. 2,939,048 196,075 3,135,123 260,849 243,509 3,639,481
---------- -------- ---------- -------- -------- ----------
Total liabilities and
shareholders'
equity.............. $5,034,014 $699,274 $5,733,288 $787,171 $242,067 $6,762,526
========== ======== ========== ======== ======== ==========
</TABLE>
55
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
The Unaudited Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1997 is presented as if the Merger, the Wellsford Merger,
the March 1997 Common Share Offerings, the Series D Preferred Share Offering,
the June 1997 Common Share Offerings, the September 1997 Common Share
Offering, the issuance of the Series G Depositary Shares, the Fourth Public
Debt Offering, the acquisition of an additional 47 properties, which occurred
between January 1997 and October 1997, including the assumption of $193.5
million of mortgage indebtedness and the probable acquisition of an additional
24 properties, including the assumption of $218.5 million of mortgage
indebtedness had occurred on January 1, 1997. The Unaudited Pro Forma Combined
Statement of Operations gives effect to the Merger under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16,
and the combined entity qualifying as a REIT, distributing at least 95% of its
taxable income, and therefore, incurring no federal income tax liability for
the period presented. In the opinion of management, all significant
adjustments necessary to reflect the effects of these transactions have been
made.
The Unaudited Pro Forma Combined Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
combined results of EQR and EWR would have been for the nine months ended
September 30, 1997, nor does it purport to be indicative of the results of
operations in future periods. The Unaudited Pro Forma Combined Statement of
Operations should be read in conjunction with, and are qualified in their
entirety by, the respective historical financial statements and notes thereto
of EQR and EWR incorporated by reference into this Joint Proxy
Statement/Prospectus and the financial statements included in Forms 8-K, as
amended by Forms 8-K/A, as applicable, dated March 17, 1997, May 20, 1997,
August 15, 1997, September 17, 1997 and October 9, 1997.
56
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
1997 ACQUIRED EQR PRE- EQR
EQR AND PROBABLE MERGER EWR MERGER PRO FORMA
HISTORICAL PROPERTIES(N) PRO FORMA HISTORICAL(Z) ADJUSTMENTS COMBINED
---------- ------------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental Income......... $482,980 $187,332 (O) $670,312 $83,282 $ -- $753,594
Fee and asset
management........... 4,364 -- 4,364 611 -- 4,975
Interest income-
investment in
mortgage notes....... 14,821 -- 14,821 201 -- 15,022
Interest and other
income............... 7,513 248 (P) 7,761 5,777 -- 13,538
-------- -------- -------- ------- ------- --------
Total revenues.... 509,678 187,580 697,258 89,871 -- 787,129
-------- -------- -------- ------- ------- --------
EXPENSES
Property and
maintenance.......... 117,681 54,708 (Q) 172,389 22,143 -- 194,532
Real estate taxes and
insurance............ 48,560 19,667 (R) 68,227 7,287 -- 75,514
Property management... 18,765 5,174 (S) 23,939 2,328 200 (AA) 26,467
Fee and asset
management........... 2,523 -- 2,523 -- -- 2,523
Depreciation.......... 106,114 40,428 (T) 146,542 19,338 4,792 (BB) 170,672
Interest:
Expense incurred.... 82,775 42,461 (U) 125,236 22,534 (405)(CC) 147,365
Amortization of
deferred financing
costs.............. 1,810 49 (V) 1,859 741 (741)(DD) 1,859
General and
administrative....... 10,037 1,485 (W) 11,522 1,311 (554)(EE) 12,279
-------- -------- -------- ------- ------- --------
Total expenses.... 388,265 163,972 552,237 75,682 3,292 631,211
-------- -------- -------- ------- ------- --------
Income before gain on
disposition of
properties, (loss) on
joint venture
communities,
extraordinary item and
allocation to Minority
Interests.............. 121,413 23,608 145,021 14,189 (3,292) 155,918
Gain on disposition of
properties........... 3,923 -- 3,923 7,531 -- 11,454
(Loss) on joint
venture communities.. -- (19) (19) -- -- (19)
-------- -------- -------- ------- ------- --------
Income before
extraordinary item and
allocation to Minority
Interests.............. 125,336 23,589 148,925 21,720 (3,292) 167,353
Extraordinary item:
(Loss) on early
extinguishment of
debt................. -- -- -- (1,500) -- (1,500)
-------- -------- -------- ------- ------- --------
Income before allocation
to Minority Interests.. 125,336 23,589 148,925 20,220 (3,292) 165,853
(Income) loss
allocated to Minority
Interests............ (9,431) -- (9,431) (3,723) (3,266)(FF) (16,420)
-------- -------- -------- ------- ------- --------
Net income.............. 115,905 23,589 139,494 16,497 (6,558) 149,433
Preferred distributions. (37,287) (27,791)(X) (65,078) -- -- (65,078)
-------- -------- -------- ------- ------- --------
Net income available to
Common Shares.......... $ 78,618 $ (4,202) $ 74,416 $16,497 $(6,558) $ 84,355
======== ======== ======== ======= ======= ========
Net income per weighted
average Common Share
outstanding............ $ 1.28 $ (.26) $ .96 $ 0.82 $ .67 $ .96
======== ======== ======== ======= ======= ========
Weighted average Common
Shares outstanding..... 61,577 15,943 (Y) 77,520 19,998 (9,781)(GG) 87,737
======== ======== ======== ======= ======= ========
</TABLE>
57
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1996 is presented as if the Merger, the Wellsford Merger, the
March 1997 Common Share Offerings, the Series D Preferred Share Offering, the
June 1997 Common Share Offerings, the September 1997 Common Share Offering,
the issuance of the Series G Depositary Shares, the Fourth Public Debt
Offering, which occurred on October 8, 1997, the acquisition of an additional
47 properties, including the related assumption of $193.5 million of mortgage
indebtedness and the probable acquisition of an additional 24 properties,
including the assumption of $218.5 million of mortgage indebtedness had
occurred on January 1, 1996. The Unaudited Pro Forma Combined Statement of
Operations gives effect to the Merger under the purchase method of accounting
in accordance with Accounting Principles Board Opinion No. 16, and the
combined entity qualifying as a REIT, distributing at least 95% of its taxable
income, and therefore, incurring no federal income tax liability for the year.
In the opinion of management, all significant adjustments necessary to reflect
the effects of these transactions have been made.
The Unaudited Pro Forma Combined Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
combined results of EQR and EWR would have been for the year ended December
31, 1996, nor does it purport to be indicative of the results of operations in
future periods. The Unaudited Pro Forma Combined Statement of Operations
should be read in conjunction with, and are qualified in their entirety by,
the respective historical financial statements and notes thereto of EQR and
EWR incorporated by reference into this Joint Proxy Statement/Prospectus and
the financial statements included in Forms 8-K, as amended by Forms 8-K/A, as
applicable, dated March 17, 1997, May 20, 1997, August 15, 1997, September 17,
1997 and October 9, 1997.
58
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL 1997
ACQUIRED AND EQR EQR
EQR 1996 ACQUIRED PROBABLE PRE-MERGER EWR MERGER PRO FORMA
HISTORICAL PROPERTIES (HH) PROPERTIES (RR) PRO FORMA HISTORICAL (BBB) ADJUSTMENTS COMBINED
---------- --------------- --------------- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental Income.......... $454,412 $ 71,359 (II) $346,821(SS) $872,592 $ 94,350 $ -- $ 966,942
Fee and asset
management............ 6,749 -- -- 6,749 1,157 -- 7,906
Interest income-
investment in
mortgage notes........ 12,819 -- -- 12,819 -- -- 12,819
Interest and other
income................ 4,405 (2,942)(JJ) 6,763(TT) 8,226 6,195 -- 14,421
-------- -------- -------- -------- -------- -------- ----------
Total revenues..... 478,385 68,417 353,584 900,386 101,702 -- 1,002,088
-------- -------- -------- -------- -------- -------- ----------
EXPENSES
Property and
maintenance........... 127,172 17,292 (KK) 101,908(UU) 246,372 25,161 -- 271,533
Real estate taxes and
insurance............. 44,128 7,614 (LL) 34,807(VV) 86,549 8,121 -- 94,670
Property management.... 17,512 1,099 (MM) 9,557(WW) 28,168 3,225 146 (CCC) 31,539
Fee and asset
management............ 3,837 -- -- 3,837 -- -- 3,837
Depreciation........... 93,253 13,217 (NN) 79,772(XX) 186,242 20,885 11,462 (DDD) 218,589
Interest:
Expense incurred..... 81,351 4,376 (OO) 71,222(YY) 156,949 23,460 (539)(EEE) 179,870
Amortization of
deferred financing
costs............... 4,242 -- 66(ZZ) 4,308 765 (765)(FFF) 4,308
General and
administrative......... 9,857 -- 496(AAA) 10,353 1,515 (505)(GGG) 11,363
-------- -------- -------- -------- -------- -------- ----------
Total expenses..... 381,352 43,598 297,828 722,778 83,132 9,799 815,709
-------- -------- -------- -------- -------- -------- ----------
Income before gain on
disposition of
properties, (loss) on
joint venture
communities,
extraordinary item and
allocation to Minority
Interests.............. 97,033 24,819 55,756 177,608 18,570 (9,799) 186,379
Gain on disposition of
properties............ 22,402 -- (66) 22,336 -- -- 22,336
(Loss) on joint
venture communities... -- -- (58) (58) -- -- (58)
-------- -------- -------- -------- -------- -------- ----------
Income before
extraordinary item..... 119,435 24,819 55,632 199,886 18,570 (9,799) 208,657
Extraordinary item:
Write-off of
unamortized costs on
refinanced debt....... (3,512) -- -- (3,512) -- -- (3,512)
-------- -------- -------- -------- -------- -------- ----------
Income before allocation
to Minority Interests.. 115,923 24,819 55,632 196,374 18,570 (9,799) 205,145
(Income) loss
allocated to Minority
Interests............. (14,299) -- (1,407) (15,706) (4,010) (1,414)(HHH) (21,130)
-------- -------- -------- -------- -------- -------- ----------
Net income.............. 101,624 24,819 54,225 180,668 14,560 (11,213) 184,015
Preferred distributions. (29,015) (45,208)(PP) (12,548) (86,771) -- -- (86,771)
-------- -------- -------- -------- -------- -------- ----------
Net income available to
Common Shares.......... $ 72,609 $(20,389) $ 41,677 $ 93,897 $ 14,560 $(11,213) $ 97,244
======== ======== ======== ======== ======== ======== ==========
Net income per weighted
average Common Share
outstanding............ $ 1.70 $ (.84) $ 3.88 $ 1.21 $ 0.84 $ (1.56) $ 1.11
======== ======== ======== ======== ======== ======== ==========
Weighted average Common
Shares outstanding..... 42,586 24,203 (QQ) 10,731 77,520 17,410 (7,193)(III) 87,737
======== ======== ======== ======== ======== ======== ==========
</TABLE>
59
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(A) Includes the most recent multifamily properties acquired in October 1997
and probable properties anticipated to be acquired in December 1997.
Atrium, Burwick Farms, Carolina Crossing, Chimneys, Clarion, Concorde
Bridge, Creekwood, Eastland on the Lake, Garden Lake, Glen Eagle, Grey
Eagle, Hickory Ridge, Hidden Oaks, Highland Grove, Mariners Wharf,
Northlake, Silver Springs, Tamarind at Stoneridge, Tivoli Lakes Club,
Village of Sycamore Ridge, Woodland Meadows, which were acquired in October
1997, as reported on Form 8-K, as amended by Form 8-K/A, dated October 9,
1997; Hidden Palms, Idlewood, Riverside Park, Sycamore Creek, Blue Swan,
Autumn Creek, Governor's Point, Northwoods Village, Preakness, Trinity
Lakes, Larkspur Woods, Brookridge, Chantecleer Lakes, Orchard of Landen,
Crescent at Cherry Creek, Jefferson at Walnut Creek, Kirby Place, which
were acquired in October 1997, as reported on Form 8-K dated September 17,
1997, (collectively the "1997 Most Recent Acquired Properties"); and
Arbor Glen, Breckinridge Court, Ethans Glen III, Ethans Ridge I, Ethans
Ridge II, Farmington Gates, Fountain Place I, Fountain Place II, Geary
Courtyard, James Street Crossing, Ocean Walk, Regency Woods, Ridgeway
Commons, River Oaks, Royal Oaks, The Cedars, Trailway Pond I, Trailway Pond
II, Valley Creek I, Valley Creek II, Westwood Pines, White Bear Woods,
Woodcrest Villa, and Woodlane Place, (collectively the "Probable
Properties") as reported on Form 8-K, as amended by Form 8-K/A, dated
October 9, 1997.
In connection with these transactions the amounts presented include the
initial purchase price of $905.5 million, the assumption of $354.5 million
of mortgage indebtedness, the issuance of 3,315 Common Shares with a value
of approximately $154.8 million, the issuance of Preferred Shares with a
value of $41.3 million, as well as the cash portion of these transactions
which were or will be financed primarily through proceeds raised from the
issuance of the Series G Depositary Shares and the Fourth Public Debt
Offering.
(B) Certain reclassifications have been made to EWR's historical balance sheet
to conform to EQR's balance sheet presentation.
(C) Represents adjustments to record the Merger (including the consolidation
of ERP) in accordance with the purchase method of accounting, based upon
the assumed total purchase price of $1,103,072 assuming a market value of
$48.75 per share of EQR's Common Shares, as follows:
<TABLE>
<S> <C>
Issuance of 10,217 EQR Common Shares, based on the .50 Exchange
Ratio, in exchange for 20,434 EWR Common Shares............... $ 498,079
Assumption of EWR's minority interest, adjusted to fair value.. 110,029
Assumption of EWR's liabilities................................ 472,971
Adjustment to increase the assumed EWR debt to its fair value
(see Note H).................................................. 4,359
Merger costs (see calculation below)........................... 17,634
----------
$1,103,072
==========
The following is a calculation of the estimated fees and other expenses
related to the Merger:
Employee termination costs..................................... $ 2,220
Buyout of stock options........................................ 4,843
Investment Banking Fees........................................ 5,650
Legal and accounting fees...................................... 2,120
Other, including printing, filing, title and transfer costs.... 2,801
----------
Total estimated merger costs................................. $ 17,634
==========
(D)Represents the estimated increase in EWR's rental property, net based upon
EQR's purchase price and the adjustment to eliminate the basis of EWR's net
assets acquired:
Purchase Price (see Note C).................................... $1,103,072
Less: Historical basis of EWR's net assets acquired
Rental property, net........................................... 752,063
Construction in progress....................................... 36
Investment in mortgage notes, net.............................. 7,188
Cash and cash equivalents...................................... 2,488
Restricted deposits............................................ 15,305
Other assets................................................... 5,588
----------
Step-up to record fair value of EWR's rental property.......... $ 320,404
==========
</TABLE>
60
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(E)Decrease to Cash and cash equivalents reflects the following:
<TABLE>
<S> <C>
The expected payment for Merger costs (see Note C) and
registration costs
(see Note L)..................................................... $17,834
Repayment of EWR's line of credit................................. 56,000
-------
$73,834
=======
</TABLE>
(F) Decrease due to elimination of EWR's deferred loan costs in connection
with the Merger.
(G) Reflects the repayment of EWR's line of credit from EQR's cash balances.
(H) Increase to Notes, net reflects the premium required to adjust EWR's notes
to their estimated fair value.
(I) The pro forma allocation to the Minority Interests is based upon the
percentage owned by such minority interests as follows:
<TABLE>
<S> <C>
Total Shareholders' Equity and Minority Interests............. $3,924,915
Less: Preferred shares........................................ (1,041,745)
----------
$2,883,170
Minority Interests percentage ownership in ERP Operating
Partnership
(see Note L)................................................. 9.9%
----------
Pro Forma Combined Minority Interests ownership in ERP
Operating Partnership........................................ 285,434
EQR pre-merger pro forma Minority Interests ownership in ERP
Operating Partnership........................................ (181,884)
EWR historical Minority Interests............................. (53,351)
----------
Adjustment to Minority Interests ownership in ERP Operating
Partnership.................................................. $ 50,199
==========
</TABLE>
(J) Decrease results from elimination of EWR's common shares at $.01 par value
($204) net of the issuance of EQR common shares at $.01 par value $102
(see Note C).
(K) Reflects the elimination of EWR's restricted stock as a result of the
Merger.
(L) Increase to paid in capital to reflect the following:
<TABLE>
<S> <C>
Issuance of EQR Common Shares and fair value of EWRLP of Units
exchanged pursuant to the Asset Contribution Agreement (see
Note C)....................................................... $ 608,108
Par value of common shares issued.............................. (102)
Registration costs incurred in connection with the Merger...... (200)
EWR's historical Paid in capital and Minority Interests........ (347,528)
Adjustment to Minority Interests ownership in ERP Operating
Partnership
(see Note I).................................................. (50,199)
---------
$ 210,079
=========
</TABLE>
The 9.9% Minority Interests ownership in EQR, is calculated as follows:
<TABLE>
<S> <C> <C>
SHARES UNITS
------ ------
EWR's historical Shares outstanding........................ 20,434 24,948
====== ======
EQR's Shares/Units to be issued based on the .50 Merger
exchange ratio............................................ 10,217 12,474
EQR's historical Shares/Units outstanding as adjusted (see
Note A)................................................... 77,520 84,944
------ ------
EQR's proforma Shares/Units outstanding.................... 87,737 97,418
====== ======
EQR ownership percentage of ERP Operating Partnership...... 90.1%
======
Minority Interests ownership percentage of ERP Operating
Partnership............................................... 9.9%
======
</TABLE>
(M) Reflects the elimination of EWR's distribution in excess of accumulated
earnings to paid in capital, as a result of the Merger.
(N) Reflects the historical results of operations for the properties acquired
in the merger between EQR and Wellsford on May 30, 1997, the 1997 Most
Recent Acquired and Probable Properties (see Note A) as well as the
following groups of properties acquired from January through October, 1997
(collectively, the "Additional 1997 Acquired and Probable Properties"):
61
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Town Center, Harborview, The Cardinal, Trails at Dominion, Dartmouth Woods,
Rincon, Waterford at the Lakes, Junipers at Yarmouth, Lincoln Harbor,
Sedona Ridge, Club at the Green and Knight's Castle, which were acquired
during the first quarter of 1997, as reported on Form 8-K dated May 20,
1997; and
Country Gables, Indigo Springs, Watermark Square, The Willows, Summit
Chase, Willow Brook, Highline Oaks, Mountain Brook, Ridgemont, Preston
Bend, Spinnaker Cove, Windemere and Wyndridge II and III, which were
acquired during the second quarter of 1997, as reported on Form 8-K dated
May 20, 1997; and
Foxchase, La Mirage, Bay Ridge, Boynton Place, Gates of Redmond, Cambridge
Village, Crosswinds, Gates of Redmond II, Cascade at Landmark, Sabal Palm
Club, Tamarlane, Banyan Lake, Hunters Ridge, South Pointe, Club at
Tanasbourne and Wood Creek, which were acquired during the third quarter of
1997, as reported on Form 8-K dated August 15, 1997; and
Paces on the Green and Paces Station, which were acquired during the third
quarter of 1997, as reported on Form 8-K dated September 17, 1997; and
Hidden Palms, Idlewood, Riverside Park, Sycamore Creek, Blue Swan, Autumn
Creek, Governor's Point, Northwoods Village, Preakness, Trinity Lakes,
Larkspur Woods, Brookridge, Chantecleer Lakes, Orchard of Landen, Crescent
at Cherry Creek, Jefferson at Walnut Creek, Kirby Place, which were
acquired in October 1997, as reported on Form 8-K dated September 17,
1997).
(O) Reflects rental income for the Additional 1997 Acquired and Probable
Properties for the periods indicated as follows:
<TABLE>
<S> <C>
Properties acquired during the first quarter of 1997 as
reported on Form 8-K dated
May 20, 1997 for the period from January 1, 1997 through the
respective acquisition dates for each property............... $ 4,645
Properties acquired during the second quarter of 1997 as
reported on Form 8-K dated May 20, 1997 for the three months
ended March 31, 1997......................................... 6,586
Properties acquired during the second quarter of 1997 as
reported on Form 8-K dated May 20, 1997 for the period from
April 1, 1997 through the respective acquisition dates for
each property................................................ 2,982
Properties acquired during the third quarter of 1997, as
reported on Form 8-K dated August 15, 1997 for the six months
ended June 30, 1997.......................................... 19,662
Properties acquired during the third quarter of 1997, as
reported on Form 8-K dated August 15, 1997 for the period
from July 1, 1997 through the respective acquisition dates
for each property............................................ 1,767
Properties acquired during the third and fourth quarters of
1997, as reported on Form 8-K dated September 17, 1997 for
the six months ended June 30, 1997........................... 22,438
Properties acquired during the third quarter of 1997, as
reported on Form 8-K dated September 17, 1997 for the period
from July 1, 1997 through the respective acquisition dates
for each property............................................ 762
Properties acquired during the fourth quarter of 1997, as
reported on Form 8-K dated September 17, 1997 for the period
from July 1, 1997 through September 30, 1997................. 10,118
Properties acquired during the fourth quarter of 1997 and
probable acquisitions, as reported on Form 8-K dated October
9, 1997 for the nine months ended September 30, 1997......... 63,654
Properties acquired in merger between EQR and Wellsford on May
30, 1997 for the period from January 1, 1997 through May 30,
1997......................................................... 54,718
--------
$187,332
========
(P) Reflects the following for the periods indicated:
Reduction of interest income due to the use of working capital
for property acquisitions as reported on Form 8-K dated
October 9, 1997 for the nine months ended September 30, 1997. $ (3,332)
Interest and other income in connection with the Wellsford
merger for the nine months ended September 30, 1997 3,580
--------
$ 248
========
</TABLE>
62
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(Q) Reflects property and maintenance expense, which includes the elimination
of third party management fees where the Company is providing onsite
property management services, for the Additional 1997 Acquired and Probable
Properties for the periods indicated as follows:
<TABLE>
<S> <C>
Properties acquired during the first quarter of 1997 as reported
on Form 8-K dated
May 20, 1997 for the period from January 1, 1997 through the
respective acquisition dates for each property.................. $ 948
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated May 20, 1997 for the three months ended March
31, 1997........................................................ 1,804
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated May 20, 1997 for the period from April 1, 1997
through the respective acquisition dates for each property...... 773
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the six months ended June
30, 1997........................................................ 5,158
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property. 468
Properties acquired during the third and fourth quarters of 1997,
as reported on Form 8-K dated September 17, 1997 for the six
months ended June 30, 1997...................................... 6,437
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated September 17, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property. 318
Properties acquired during the fourth quarter of 1997, as
reported on Form 8-K dated September 17, 1997 for the period
from July 1, 1997 through September 30, 1997.................... 2,838
Properties acquired during the fourth quarter of 1997 and
probable acquisitions, as reported on Form 8-K dated October 9,
1997 for the nine months ended September 30, 1997............... 18,707
Properties acquired in merger between EQR and Wellsford on May
30, 1997 for the period from January 1, 1997 through May 30,
1997............................................................ 17,257
-------
$54,708
=======
</TABLE>
(R) Reflects real estate tax and insurance expense for the Additional 1997
Acquired and Probable Properties for the periods indicated as follows:
<TABLE>
<S> <C>
Properties acquired during the first quarter of 1997 as reported
on Form 8-K dated
May 20, 1997 for the period from January 1, 1997 through the
respective acquisition dates for each property.................. $ 517
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated May 20, 1997 for the three months ended March
31, 1997........................................................ 557
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated May 20, 1997 for the period from April 1, 1997
through the respective acquisition dates for each property...... 177
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the six months ended June
30, 1997........................................................ 1,865
Properties acquired during the third and fourth quarters of 1997,
as reported on Form 8-K dated September 17, 1997 for the six
months ended June 30, 1997...................................... 2,642
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated September 17, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property. 87
Properties acquired during the fourth quarter of 1997, as
reported on Form 8-K dated September 17, 1997 for the period
from July 1, 1997 through September 30, 1997.................... 1,214
Properties acquired during the fourth quarter of 1997 and
probable acquisitions, as reported on Form 8-K dated October 9,
1997 for the nine months ended September 30, 1997............... 7,764
Properties acquired in merger between EQR and Wellsford on May
30, 1997 for the period from January 1, 1997 through May 30,
1997............................................................ 4,844
-------
$19,667
=======
</TABLE>
63
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(S) Reflects incremental cost associated with self management of the
Additional 1997 Acquired Properties for the periods indicated as follows:
<TABLE>
<S> <C>
Properties acquired during the first quarter of 1997 as reported
on Form 8-K dated
May 20, 1997 for the period from January 1, 1997 through the
respective acquisition dates for each property................... $ 89
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated
May 20, 1997 for the three months ended March 31, 1997........... 159
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated
May 20, 1997 for the period from April 1, 1997 through the
respective acquisition dates for each property................... 75
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the six months ended June
30, 1997......................................................... 492
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property.. 44
Properties acquired during the third and fourth quarters of 1997,
as reported on Form 8-K dated September 17, 1997 for the six
months ended June 30, 1997....................................... 561
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated September 17, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property.. 19
Properties acquired during the fourth quarter of 1997, as reported
on Form 8-K dated September 17, 1997 for the period from July 1,
1997 through September 30, 1997.................................. 253
Properties acquired during the fourth quarter of 1997 and probable
acquisitions, as reported on Form 8-K dated October 9, 1997 for
the nine months ended September 30, 1997......................... 1,591
Properties acquired in merger between EQR and Wellsford on May 30,
1997 for the period from January 1, 1997 through May 30, 1997.... 1,891
------
$5,174
======
</TABLE>
(T) Reflects depreciation based on the total investment of $2.7 billion for
the Additional 1997 Acquired and Probable Properties less amounts
allocated to land, generally 10%, and depreciated over a 30-year life for
real property for the periods indicated as follows:
<TABLE>
<S> <C>
Properties acquired during the first quarter of 1997 as reported
on Form 8-K dated
May 20, 1997 for the period from January 1, 1997 through the
respective acquisition dates for each property.................. $ 972
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated May 20, 1997 for the three months ended March
31, 1997........................................................ 1,774
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the six months ended June
30, 1997........................................................ 4,706
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property. 197
Properties acquired during the third and fourth quarters of 1997,
as reported on Form 8-K dated September 17, 1997 for the six
months ended June 30, 1997...................................... 5,032
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated September 17, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property. 156
Properties acquired during the fourth quarter of 1997, as
reported on Form 8-K dated September 17, 1997 for the period
from July 1, 1997 through September 30, 1997.................... 2,145
Properties acquired during the fourth quarter of 1997 and
probable acquisitions, as reported on Form 8-K dated October 9,
1997 for the nine months ended
September 30, 1997.............................................. 13,680
Properties acquired in merger between EQR and Wellsford on May
30, 1997 for the period from January 1, 1997 through May 30,
1997............................................................ 11,766
-------
$40,428
=======
</TABLE>
64
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(U) Reflects interest expense on mortgage indebtedness totaling $618.5 million
assumed in connection with the Additional 1997 Acquired and Probable
Properties, $250 million in unsecured notes assumed in connection with the
Wellsford merger at various interest rates and $150 million associated
with the Fourth Public Debt Offering at a rate of 7.125% per annum for the
periods indicated as follows:
<TABLE>
<S> <C>
Properties acquired during the first quarter of 1997 as reported
on Form 8-K dated
May 20, 1997 for the period from January 1, 1997 through the
respective acquisition dates for each property.................. $ 528
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated May 20, 1997 for the three months ended March
31, 1997........................................................ 1,704
Properties acquired during the second quarter of 1997 as reported
on Form 8-K dated May 20, 1997 for the period from April 1, 1997
through the respective acquisition dates for each property...... 822
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the six months ended June
30, 1997........................................................ 801
Properties acquired during the third quarter of 1997, as reported
on Form 8-K dated August 15, 1997 for the period from July 1,
1997 through the respective acquisition dates for each property. 87
Properties acquired during the third and fourth quarters of 1997,
as reported on Form 8-K dated September 17, 1997 for the six
months ended June 30, 1997...................................... 4,420
Properties acquired during the fourth quarter of 1997, as
reported on Form 8-K dated September 17, 1997 for the period
from July 1, 1997 through September 30, 1997.................... 2,210
Properties acquired during the fourth quarter of 1997 and
probable acquisitions, as reported on Form 8-K dated October 9,
1997 for the nine months ended
September 30, 1997.............................................. 11,950
Properties acquired in merger between EQR and Wellsford on May
30, 1997 for the period from January 1, 1997 through May 30,
1997............................................................ 11,923
Fourth Public Debt Offering...................................... 8,016
-------
$42,461
=======
</TABLE>
(V) Reflects amortization of financing costs associated with the Fourth Public
Debt Offering in the amount of $1.3 million over 20 years.
(W) Reflects historical G & A costs for Wellsford for the period from January
1 through May 30, 1997.
(X) Reflects the allocation of net income based on the distributions payable
to Series D Preferred Shares, Series E Preferred Shares, Series F
Preferred Shares at the rates of 8.60%, 7.00%, 9.65%, respectively, for
the period from January 1, 1997 through their respective dates of issuance
and Series G Preferred Shares at the rate of 7.25% for the nine months
ended September 30, 1997.
(Y) Reflects the increase in pro forma Common Shares outstanding resulting
from the March 1997 Common Share Offerings, the June 1997 Common Share
Offerings, the September 1997 Common Share Offering and Common Shares
issued in connection with properties acquired in October 1997 as if they
had occurred on January 1, 1997.
(Z) Certain reclassifications have been made to EWR's Historical Statement of
Operations to conform to EQR's Statement of Operations presentation.
(AA) Increase results from additional costs expected to be incurred as a
result of the Merger.
(BB) Represents the net increase in depreciation of real estate owned as a
result of recording EWR's real estate assets at fair value versus
historical cost. Depreciation is computed on a straight-line basis over
the estimated useful lives of the related assets which have a useful life
of approximately 30 years.
65
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The calculation of the fair value of depreciable real estate assets at
September 30, 1997 is as follows:
<TABLE>
<S> <C>
Historical basis of EWR's rental property..................... $ 752,063
Plus: Step up to EWR's rental property, net (see Note D)...... 320,404
----------
Pro forma basis of EWR's rental property at fair value........ 1,072,467
Less: Fair value allocated to land............................ (107,247)
----------
Pro forma basis of EWR's depreciable rental property at fair
value........................................................ $ 965,220
==========
</TABLE>
Calculation of depreciation of rental property for the nine months ended
September 30, 1997 is as follows:
<TABLE>
<S> <C>
Depreciation expense based upon an estimated useful life of
approximately 30 years........................................ $ 24,130
Less: EWR's historic depreciation of rental property........... (19,338)
--------
Pro forma adjustment........................................... $ 4,792
========
</TABLE>
(CC) Decrease results from the amortization of the premium required to record
EWR's debt at its estimated fair value.
(DD)Decrease results from the elimination of amortization of EWR's deferred
financing costs, which costs would be eliminated in connection with the
Merger.
(EE) Decrease results from identified historic costs of certain items which
are anticipated to be eliminated or reduced as a result of the Merger as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses............................... $ 87
Net reduction in salary, benefits and occupancy...................... 467
----
Total.............................................................. $554
====
</TABLE>
(FF) A portion of income was allocated to minority interests representing
interests in ERP Operating Partnership not owned by EQR and interests in
EWRLP not owned by EWR. The pro forma allocation to minority interests
(represented by OP Units) is based upon the percentage estimated to be
owned by such Minority Interests as a result of the pro forma
transactions.
(GG) Decrease of Weighted Average Common Shares Outstanding based on the
conversion of EWR's Common Shares to EQR Common Shares at a conversion
ratio of .50 EWR Common Shares per EQR Common Share.
(HH) Reflects the results of operations for Desert Park, 7979 Westheimer,
Sabal Pointe (fka: Vinings at Coral Springs), Woodbridge (fka: The
Plantations), Heron Landing (fka: Oxford & Sussex), The Pines of
Cloverlane, Regency Palms, Port Royale II, 2900 on First, Woodland Hills,
Ivy Place (fka: Post Place), Ridgetree, Country Ride, Rosehill Pointe,
Forest Ridge, Canyon Sands Village, Desert Sands Village, Chandler Court,
Lands End, Mallard Cove, Sunny Oak Village, Pine Meadow, Summer Ridge,
Promenade Terrace, South Creek, Pueblo Villas, Brixworth, Brierwood,
Woodscape, Park Place, Canterchase, Eagle Canyon, Summerset Village,
Songbird, Willowglen, Merrimac Woods, Casa Capricorn, Hunter's Glen,
Marbrisa, Cedar Crest, Lakeville Resort, Rock Creek, Village Oaks,
Creekside Oaks, Gatehouse on the Green, Gatehouse at Pine Lake, Wilde
Lake, Spice Run and Mountain Terrace (collectively the "1996 Acquired
Properties"). The amounts presented represent the historical amounts for
certain revenues and expenses for the periods from January 1, 1996
through the respective acquisition dates for each property.
(II) Reflects rental income for the 1996 Acquired Properties for the period
from January 1, 1996 through the respective acquisition dates for each
property.
(JJ) Reflects the reduction of interest income due to the use of working
capital for property acquisitions.
(KK) Reflects property and maintenance expense, which includes the elimination
of third party management fees where the Company is providing onsite
property management services, for the 1996 Acquired Properties for the
period from January 1, 1996 through the respective acquisition dates for
each property.
66
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(LL) Reflects real estate tax and insurance expense for the 1996 Acquired
Properties for the period from January 1, 1996 through the respective
acquisition dates for each property.
(MM) Reflects incremental cost associated with self management of the 1996
Acquired Properties for the period from January 1, 1996 through the
respective acquisition dates for each property.
(NN) Reflects depreciation based on the total investment of $789.4 million for
the 1996 Acquired Properties less amounts allocated to land, generally
10%, and depreciated over a 30-year life for real property for the period
from January 1, 1996 through the respective acquisition dates for each
property.
(OO) Reflects interest expense on mortgage indebtedness totaling $134.1
million assumed in connection with the 1996 Acquired Properties at
various interest rates for the period from January 1, 1996 through the
respective acquisition dates for each property.
(PP) Reflects distributions payable to Series C Preferred Shares at the rate
of 9.125% for the period from January 1, 1996 through the date of
issuance; and Series D Preferred Shares, Series E Preferred Shares,
Series F Preferred Shares and Series G Preferred Shares at the rates of
8.60%, 7.00%, 9.65% and 7.25%, respectively, for the year ended December
31, 1996 as if they had occurred on January 1, 1996.
(QQ) Reflects the increase in pro forma Common Shares outstanding resulting
from the January 1996 Common Share Offering, the February 1996 Common
Share Offering, the May 1996 Common Share Offerings, the September 1996
Common Share Offering, the December 1996 Common Share Offering, March
1997 Common Share Offerings, the June 1997 Common Share Offerings, and
the September 1997 Common Share Offering as if they had occurred on
January 1, 1996.
(RR) Reflects the historical results of operations for the properties acquired
in the merger between EQR and Wellsford on May 30, 1997, the 1997 Most
Recent Acquired and Probable Properties (see Note A) as well as the
following groups of properties acquired from January through October,
1997 (collectively, the "Additional 1997 Acquired and Probable
Properties"):
Town Center, Harborview, The Cardinal, Trails at Dominion, Dartmouth
Woods, Rincon, Waterford at the Lakes, Junipers at Yarmouth, Lincoln
Harbor, Sedona Ridge, Club at the Green, Knight's Castle, Country Gables,
Indigo Springs, Watermark Square, The Willows, Summit Chase, Willow Brook,
Highline Oaks, Mountain Brook, Ridgemont, Preston Bend, Spinnaker Cove,
Windemere, Wyndridge II and III (collectively, the properties reported on
in Form 8-K dated May 20, 1997);
Foxchase, La Mirage, Bay Ridge, Boynton Place, Gates of Redmond, Cambridge
Village, Crosswinds, Gates of Redmond II, Cascade at Landmark, Sabal Palm
Club, Tamarlane, Banyan Lake, Hunters Ridge, South Pointe, Club at
Tanasbourne, Wood Creek (collectively, the properties reported on in Form
8-K dated August 15, 1997) and;
Hidden Palms, Idlewood, Riverside Park, Sycamore Creek, Blue Swan, Autumn
Creek, Governor's Point, Northwoods Village, Preakness, Trinity Lakes,
Larkspur Woods, Brookridge, Chantecleer Lakes, Orchard of Landen, Crescent
at Cherry Creek, Jefferson at Walnut Creek, Kirby Place, Paces on the
Green and Paces Station (collectively, the properties reported on in Form
8-K dated September 17, 1997).
(SS) Reflects rental income for the Additional 1997 Acquired and Probable
Properties for the year ended December 31, 1996 as follows:
<TABLE>
<S> <C>
Acquired properties reported on Form 8-K dated May 20, 1997..... $ 54,659
Acquired properties reported on Form 8-K dated August 15, 1997.. 40,694
Acquired properties reported on Form 8-K dated September 17,
1997........................................................... 44,619
Acquired and probable properties reported on Form 8-K dated
October 9, 1997................................................ 82,441
Properties acquired in merger between EQR and Wellsford on May
30, 1997....................................................... 124,408
--------
$346,821
========
</TABLE>
67
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(TT) Reflects the following for the year ended December 31, 1996:
<TABLE>
<S> <C>
Interest and other income in connection with the Wellsford
merger.......................................................... $6,763
======
</TABLE>
(UU) Reflects property and maintenance expense, which includes the elimination
of third party management fees where the Company is providing onsite
property management services, for the Additional 1997 Acquired and
Probable Properties for the year ended December 31, 1996 as follows:
<TABLE>
<S> <C>
Acquired properties reported on Form 8-K dated May 20, 1997..... $ 14,310
Acquired properties reported on Form 8-K dated August 15, 1997.. 10,814
Acquired properties reported on Form 8-K dated September 17,
1997........................................................... 12,408
Acquired and probable properties reported on Form 8-K dated
October 9, 1997................................................ 24,022
Properties acquired in merger between EQR and Wellsford on May
30, 1997....................................................... 40,354
--------
$101,908
========
</TABLE>
(VV) Reflects real estate tax and insurance expense for the Additional 1997
Acquired and Probable Properties for the year ended December 31, 1996 as
follows:
<TABLE>
<S> <C>
Acquired properties reported on Form 8-K dated May 20, 1997...... $ 5,953
Acquired properties reported on Form 8-K dated August 15, 1997... 4,111
Acquired properties reported on Form 8-K dated September 17,
1997............................................................ 5,013
Acquired and probable properties reported on Form 8-K dated
October 9, 1997................................................. 9,848
Properties acquired in merger between EQR and Wellsford on May
30, 1997........................................................ 9,882
-------
$34,807
=======
</TABLE>
(WW) Reflects incremental cost associated with self management of the
Additional 1997 Acquired and Probable Properties for the year ended
December 31, 1996 as follows:
<TABLE>
<S> <C>
Acquired properties reported on Form 8-K dated May 20, 1997....... $1,367
Acquired properties reported on Form 8-K dated August 15, 1997.... 1,017
Acquired properties reported on Form 8-K dated September 17, 1997. 1,115
Acquired and probable properties reported on Form 8-K dated
October 9, 1997.................................................. 2,064
Properties acquired in merger between EQR and Wellsford on May 30,
1997............................................................. 3,994
------
$9,557
======
</TABLE>
(XX) Reflects depreciation based on the total investment of $2.7 billion for
the Additional 1997 Acquired and Probable Properties less amounts
allocated to land, generally 10%, and depreciated over a 30-year life for
real property for the year ended December 31, 1996 as follows:
<TABLE>
<S> <C>
Acquired properties reported on Form 8-K dated May 20, 1997...... $10,569
Acquired properties reported on Form 8-K dated August 15, 1997... 9,942
Acquired properties reported on Form 8-K dated September 17,
1997............................................................ 10,063
Acquired and probable properties reported on Form 8-K dated
October 9, 1997................................................. 18,240
Properties acquired in merger between EQR and Wellsford on May
30, 1997........................................................ 30,958
-------
$79,772
=======
</TABLE>
68
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(YY) Reflects interest expense on mortgage indebtedness totaling $618.5
million assumed in connection with the Additional 1997 Acquired and
Probable Properties, $250 million in unsecured notes assumed in
connection with the Wellsford Merger at various interest rates and $150
million associated with the Fourth Public Debt Offering at a rate of
7.125% per annum for the year ended December 31, 1996 as follows:
<TABLE>
<S> <C>
Acquired properties reported on Form 8-K dated May 20, 1997...... $11,873
Acquired properties reported on Form 8-K dated August 15, 1997... 1,701
Acquired properties reported on Form 8-K dated September 17,
1997............................................................ 8,840
Acquired and probable properties reported on Form 8-K dated
October 9, 1997................................................. 15,933
Properties acquired in merger between EQR and Wellsford on May
30, 1996........................................................ 22,187
Fourth Public Debt Offering...................................... 10,688
-------
$71,222
=======
</TABLE>
(ZZ) Reflects amortization of financing costs associated with the Fourth
Public Debt Offering in the amount of $1.3 million over 20 years.
(AAA) Reflects incremental G & A costs as a result of the Wellsford Merger.
(BBB) Certain reclassifications have been made to EWR's Historical Statement
of Operations to conform to EQR's Statement of Operations presentation.
(CCC)Increase results from additional costs expected to be incurred as a
result of the Merger.
(DDD) Represents the net increase in depreciation of real estate owned as a
result of recording EWR's real estate assets at fair value versus
historical cost. Depreciation is computed on a straight-line basis over
the estimated useful lives of the related assets which have a useful
life of approximately 30 years.
The calculation of the fair value of depreciable real estate assets at
September 30, 1997 is as follows:
<TABLE>
<S> <C>
Historical basis of EWR's rental property.................... $ 752,063
Plus: Step up to EWR's rental property, net (see Note D)..... 320,404
----------
Pro forma basis of EWR's rental property at fair value....... 1,072,467
Less: Fair value allocated to land........................... (107,247)
----------
Pro forma basis of EWR's depreciable rental property at fair
value....................................................... $ 965,220
==========
</TABLE>
Calculation of depreciation of rental property for the year ended
December 31, 1996 is as follows:
<TABLE>
<S> <C>
Depreciation expense based upon an estimated useful life of
approximately 30 years....................................... $ 32,174
Less: EWR's historic depreciation of rental property.......... (20,712)
--------
Pro forma adjustment.......................................... $ 11,462
========
</TABLE>
(EEE) Decrease results from the amortization of the premium required to record
EWR's debt at it's estimated fair value.
(FFF) Decrease results from the elimination of amortization of EWR's deferred
financing costs, which costs would be eliminated in connection with the
Merger.
69
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(GGG) Decrease results from identified historic costs of certain items which
are anticipated to be eliminated or reduced as a result of the Merger as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses.............................. $ 30
Net reduction in salary, benefits and occupancy..................... 475
----
Total............................................................... $505
====
</TABLE>
(HHH) A portion of income was allocated to minority interests representing
interests in ERP Operating Partnership not owned by EQR and interests in
Evans Withycombe Residential, LP not owned by EWR. The pro forma
allocation to minority interests (represented by OP Units) is based upon
the percentage estimated to be owned by such Minority Interests as a
result of the pro forma transactions.
(III) Decrease of Weighted Average Common Shares Outstanding is based on the
conversion of EWR's Common Shares to EQR Common Shares at a conversion
ratio of .50 EWR Common Shares per EQR Common Share.
70
<PAGE>
POLICIES OF EQR
WITH RESPECT TO CERTAIN ACTIVITIES
The following section sets forth the policies implemented by EQR upon the
effectiveness of the Merger with respect to certain matters. These policies may
be amended or revised from time to time at the discretion of the Board of
Trustees of EQR without a vote of the shareholders of EQR.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
EQR will seek to maximize both current income and long-term growth in income.
EQR will focus on acquiring multifamily properties that have strong cash flow
potential with the intent to hold such properties for long-term investment and
capital appreciation.
EQR's primary business objectives are to increase distributions on a per
share of EQR Common basis, to increase the value of its properties and to
increase shareholders' value.
EQR's strategies for accomplishing these objectives will be:
. maintaining and increasing property occupancy while increasing rental
rates;
. controlling expenses, providing regular preventive maintenance, making
periodic renovations and enhancing amenities;
. maintaining a Debt to Total Market Capitalization Ratio of less than
50%;
. pursuing acquisitions that: (i) are available at prices below estimated
replacement costs; (ii) have potential for rental rate and/or occupancy
increases; (iii) have attractive locations in their respective markets;
and (iv) provide anticipated total returns that will increase EQR's
distributions per share of EQR Common and EQR's overall market value;
and
. expanding EQR's relationships with third-party developers who will build
multifamily properties for EQR to purchase upon completion.
EQR will be committed to tenant satisfaction by striving to anticipate
industry trends and implementing strategies and policies consistent with
providing quality tenant services. In addition, EQR will continuously survey
rental rates of competing properties and conduct satisfaction surveys of
residents to determine the factors they consider most important in choosing a
particular apartment unit.
ACQUISITION STRATEGIES
EQR anticipates that future property acquisitions will be located in the
continental United States. Management will use market information to evaluate
acquisition opportunities. EQR's market data base will allow it to review the
primary economic indicators of the markets where EQR currently manages
properties and where it expects to expand its operations. Acquisitions may be
financed from various sources of capital, which may include undistributed funds
from operations, issuance of additional equity securities, sales of properties
and collateralized and uncollateralized borrowings. In addition, EQR may
acquire additional multifamily properties in transactions that include the
issuance of ERP OP Units as consideration for the acquired properties. Such
transactions may, in certain circumstances, partially defer the sellers' tax
consequences.
When evaluating potential acquisitions, EQR will consider: (i) the geographic
area and type of community; (ii) the location, construction quality, condition
and design of the property; (iii) the current and projected cash flow of the
property and the ability to increase cash flow; (iv) the potential for capital
appreciation of the property; (v) the terms of resident leases, including the
potential for rent increases; (vi) the potential for economic growth and the
tax and regulatory environment of the community in which the property is
located; (vii) the occupancy and demand by residents for properties of a
similar type in the vicinity (the overall market and submarket); (viii) the
prospects for liquidity through sale, financing or refinancing of the property;
and (ix) competition from existing multifamily properties and the potential for
the construction of new multifamily properties in the area. EQR expects to
purchase multifamily properties with physical and market characteristics
similar to the properties.
DISPOSITION STRATEGIES
Management will use market information to evaluate dispositions. EQR intends
to dispose of its properties in cities or markets where the level of new
construction is increasing or the economy is expected to decline substantially.
EQR will also dispose of properties in markets where it does not intend to
establish long-term concentrations. EQR will reinvest the
71
<PAGE>
proceeds received from property dispositions to fund property acquisitions. In
addition, when feasible EQR will structure these transactions as tax deferred
exchanges.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. EQR's investment
objectives will be to increase cash flow and the value of the properties, and
to acquire established income-producing multifamily properties with cash flow
growth potential. Additionally, where prudent and possible, EQR will seek to
upgrade its existing properties and any newly acquired multifamily properties.
EQR's business is focused on multifamily properties, although such properties
may include retail and recreational facilities. EQR's policy will be to acquire
assets primarily for current income generation and long-term value
appreciation; however, where appropriate, EQR will sell certain of its
properties.
EQR expects to pursue its investment objectives through the direct and
indirect ownership of properties and the ownership of interests in other
entities. EQR will focus on properties in those markets where EQR currently has
operations and in new markets targeted by management. Future investments,
including the activities described below, will not be limited to any geographic
area or to a specified percentage of EQR's assets. EQR also may participate
with other entities in property ownership through joint ventures or other types
of co-ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness or such financing or indebtedness may be
incurred in connection with acquiring investments. Any such financing or
indebtedness will have priority over EQR's equity interest in such property.
Investments in Real Estate Mortgages. While EQR will emphasize equity real
estate investments in multifamily properties, it may, in its discretion, invest
in mortgages and other interests related to multifamily properties. EQR does
not intend to invest to a significant extent in mortgages or deeds of trust,
but may acquire mortgages as a strategy for acquiring a property, subject to
the investment restrictions applicable to REITs. The mortgages in which EQR may
invest may be either first mortgages or junior mortgages, and may or may not be
insured by a governmental agency. EQR may also invest in mortgage-related
securities. Furthermore, EQR may seek to issue securities representing interest
in such mortgage-related securities as a method of raising additional funds.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the gross income and asset tests for
REIT qualification, EQR also may invest in securities of entities engaged in
real estate activities or securities of other issuers, including for the
purpose of exercising control over such entities. EQR may acquire all or
substantially all of the securities or assets of other REITs or similar
entities where such investments would be consistent with EQR's investment
policies. In any event, EQR does not intend that its investments in securities
will require it to register as an "investment company" under the Investment
Company Act of 1940, and EQR would intend to divest securities before any such
registration would be required.
FINANCING POLICIES
EQR intends to maintain a Debt to Total Market Capitalization Ratio of 50% or
less. EQR, however, may from time to time re-evaluate this policy and decrease
or increase such ratio in light of then current economic conditions, relative
costs to EQR of debt and equity capital, market values of the properties,
growth and acquisition opportunities and other factors. There will be no limit
on EQR's Debt to Total Market Capitalization Ratio imposed by EQR's Declaration
of Trust or Bylaws. To the extent that the Board of Trustees of EQR determines
to obtain additional capital, EQR may issue debt or equity securities, or cause
ERP Operating Partnership to issue additional ERP OP Units, or retain earnings
(subject to provisions in the Code requiring distributions of income to
maintain REIT status), or a combination of these methods. As long as ERP
Operating Partnership is in existence, the proceeds of all equity capital
raised by EQR will be contributed to ERP Operating Partnership in exchange for
additional interests in ERP Operating Partnership, which will dilute the
ownership interest of holders of ERP OP Units. It is EQR's policy that it shall
not incur indebtedness other than short-term trade, employee compensation,
dividends payable or similar indebtedness that will be paid in the ordinary
course of business, and that indebtedness shall instead be incurred by the ERP
Operating Partnership to the extent necessary to fund the business activities
conducted by the ERP Operating Partnership.
EQR owns several properties that are subject to restrictive covenants or deed
restrictions relating to current or previous tax-exempt bond financings and
owns the bonds collateralized by several additional properties. EQR 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 EQR's income from
these properties if EQR is required to lower its rental rates to attract low or
moderate income tenants, or eligible qualified tenants.
To the extent that the Board of Trustees determines to obtain debt financing
EQR intends to do so generally through mortgages on its properties and through
lines of credit; however, EQR may also issue additional debt securities in the
future.
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<PAGE>
Such indebtedness may be recourse, non-recourse or cross-collateralized and may
contain cross-default provisions. EQR will not have a policy limiting the
number or amount of mortgages that may be placed on any particular property,
but mortgage financing instruments usually limit additional indebtedness on
such properties. In the future, EQR may seek to extend, expand, reduce or renew
its lines of credit, or obtain new credit facilities or lines of credit,
subject to its general policy on debt capitalization, for the purpose of making
acquisitions or capital improvements or providing working capital to EQR or
meeting the taxable income distribution requirements for REITs under the Code
if EQR has taxable income without receipt of cash sufficient to enable EQR to
meet such distribution requirements.
LENDING POLICIES
Although it is not presently contemplated, EQR may consider offering purchase
money financing in connection with the sale of multifamily properties where the
provision of such financing will increase the value received by EQR for the
property sold.
DEVELOPMENT POLICIES
EQR intends to expand its relationships with third-party developers who will
build multifamily properties for EQR to purchase upon completion through the
utilization of the skills and experience in the area of development project
supervision of executives joining EQR.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
Although it is not presently contemplated, EQR may make investments other
than as previously described. All investments will be related to the
multifamily residential business. EQR will have authority to offer EQR Common
or other equity or debt securities in exchange for property or other REITs and
to repurchase or otherwise reacquire EQR Common or any other securities and may
engage in such activities in the future. Similarly, EQR may offer additional
ERP OP Units or other equity interests in ERP Operating Partnership that are
exchangeable into EQR Common in exchange for property. EQR may also make loans
to joint ventures in which it may participate in the future. EQR will not
engage in trading, underwriting or the agency distribution or sale of
securities of other issuers. At all times, EQR intends to make investments in
such a manner as to be consistent with the requirements of the Code to qualify
as a REIT unless, because of circumstances or changes in the Code (or the
regulations promulgated thereunder), the EQR Board of Trustees determines that
it is no longer in the best interests of EQR to continue to have EQR qualify as
a REIT. EQR's policies with respect to such activities may be reviewed and
modified from time to time by the EQR Board of Trustees without notice to or
the vote of the shareholders.
MANAGEMENT AND OPERATION OF EQR
AFTER THE MERGER
Upon the consummation of the Merger the executive officers and trustees of
EQR shall continue to serve for the balance of their unexpired terms or their
earlier death, resignation or removal. In addition, Stephen O. Evans shall
become a trustee on the EQR Board of Trustees for a term expiring at the annual
meeting of shareholders of EQR held in the year 2000 and shall be appointed as
Executive Vice President--Strategic Investments and Richard G. Berry shall be
appointed as Executive Vice President--Development.
Stephen O. Evans, age 52 as of September 11, 1997, served as the Chairman of
the Board and Chief Executive Officer of EWR since its formation in May 1994.
Mr. Evans founded the predecessor of EWR in 1977 and served as Chairman of the
Board and Chief Executive Officer. From 1973 to 1977, Mr. Evans was Investment
Vice President of W.R. Schulz & Associates, at that time Arizona's largest
apartment development company. He earned his Bachelor of Science in Business
Administration and Masters of Business Administration degrees from Arizona
State University. He also served as an officer in the United States Air Force
for four years. Mr. Evans' affiliations include National Multi-Housing Council;
National Association for Real Estate Investment Trusts (NAREIT); Lambda Alpha,
a National Land Economic Fraternity; and the Urban Land Institute.
Richard G. Berry, age 53 as of September 11, 1997, served as a director on
the Board of Directors of EWR since EWR's formation in May 1994 and was
appointed President and Chief Operating Officer of EWR on January 21, 1997.
Prior to that time, Mr. Berry served as the Executive Vice President of EWR
since May 1994 and served as the Executive Vice President of Evans Withycombe,
Inc. since 1992. From 1983 to 1992, Mr. Berry served as Chairman of the Board
of Berry and Boyle, a real estate investment and development management
company. Prior to 1983, Mr. Berry served as Executive Vice President
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<PAGE>
of Hutton Real Estate Services and was responsible for that firm's real estate
investment and management activities. Mr. Berry earned a Bachelor of
Architecture degree and a Masters of Business Administration degree from the
University of Michigan. He served as an officer of a United States Navy mobile
construction battalion for three years.
ANTICIPATED EFFECTS OF THE MERGER ON RESULTS OF OPERATIONS, LIQUIDITY AND
CAPITAL RESOURCES.
As a result of the Merger the Company expects to experience a significant
increase in net income available to Common Shares as well as an increase in
total revenues, property and maintenance expenses, real estate taxes and
insurance, property management expenses depreciation expense interest expense
and general and administrative expenses.
Also in connection with the Merger the Company expects to assume liabilities
for financial statement purposes of approximately $418 million and issue
approximately 10.2 million EQR Common Shares as well as 2.3 million ERP OP
Units to consummate the Merger. The Company also anticipates to fund
approximately $77 million to pay for related merger Costs and the repayment of
amounts outstanding on EWR's line of credit. After the close of the Merger the
Company will terminate EWR's line of credit facility but will continue to
maintain EQR's line of credit facility which was recently increased to $500
million. EQR and ERP may also guarantee or assume debt obligations of EWR and
EWRLP.
The Company expects to meet its short-term liquidity requirements including
capital expenditures relating to maintaining its existing properties and EWR's
stabilized communities generally through its working capital, net cash provided
by operating activities and borrowings under its line of credit. The Company
considers its cash provided by operating activities to be adequate to meet
operating requirements and payments of distributions. The Company also expects
to meet its long-term liquidity requirements, such as scheduled mortgage debt
maturities, reduction of outstanding amounts under its line of credit, property
acquisitions, financing of construction and development activities related to
EWR and capital improvements through the issuance of unsecured notes and equity
securities including additional OP Units as well as from undistributed FFO and
proceeds received from the disposition of certain Properties.
LOAN TO EWR AND 1031 EXCHANGE
On November 4, 1997 EQR made a demand loan to EWR in the aggregate principal
amount of $70,000,000 bearing interest at the rate of LIBOR plus 1.15% per
annum. EWR used the proceeds from the loan to pay off its revolving credit line
of the same amount bearing interest at LIBOR plus 1.5%. In the event that the
Merger is not consummated and EQR demands payment under the terms of the loan,
EWR intends to re-borrow the necessary funds for such payment under its
revolving credit facility.
In addition, ERP Operating Partnership assigned its rights under a contract
to purchase a multifamily property to EWRLP to allow EWRLP to consummate an
exchange pursuant to Section 1031 of the Code. In the event that the Merger is
not consummated, EWRLP has agreed to sell said property to ERP Operating
Partnership at cost.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of June 9, 1997, information regarding the
beneficial ownership of EQR Common by each trustee of EQR, EQR's five most
highly compensated executive officers at year end, and the trustees and named
executive officers as a group.
<TABLE>
<CAPTION>
SHARES
ISSUABLE
UPON
NUMBER OF EXERCISE PERCENT
COMMON OF OF
NAME SHARES(1) OPTIONS(2) TOTAL(1) CLASS(1)
- ---- --------- ---------- --------- --------
<S> <C> <C> <C> <C>
John W. Alexander.................. 154 18,334 18,488 *
Douglas Crocker II................. 204,969(3) 186,666 391,635 *
Henry H. Goldberg.................. 396,087(4) 8,334 404,421 *
Errol R. Halperin.................. 2,334(5) 18,334 20,668 *
James D. Harper, Jr................ 2,150 18,334 20,484 *
Edward Lowenthal................... 127,733(6) 0 127,733 *
Jeffery H. Lynford................. 122,544(7) 0 122,544 *
Sheli Z. Rosenberg................. 15,488(8) 65,334 80,822 *
Gerald A. Spector.................. 52,803(9) 90,167 142,970 *
Barry S. Sternlicht................ 1,871,554(10) 18,334 1,889,888 2.84%
B. Joseph White.................... 3,439 18,334 21,773 *
Samuel Zell........................ 4,679,645(11) 151,667 4,831,312 7.08%
Frederick C. Tuomi................. 13,457 54,999 68,456 *
David J. Neithercut................ 15,401(12) 56,332 71,733 *
Gregory Smith...................... 4,475 29,999 34,474 *
All trustees and executive officers
as a group including the above-
named persons (18 persons)........ 7,530,239 847,665 8,377,904 11.77%
</TABLE>
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<PAGE>
- -------
* Less than 1%.
(1) The amount of EQR Common beneficially owned is reported on the basis of
regulations of the SEC governing the determination of beneficial ownership
of securities. The percentage of EQR Common beneficially owned by a person
assumes that all ERP OP Units or Series E Cumulative Convertible Preferred
Shares of Beneficial Interest, $.01 par value per share, of the Trust
("Series E Preferred Shares") held by the person are exchanged for EQR
Common, that none of the ERP OP Units or Series E Preferred Shares held by
other persons are so exchanged, that all options exercisable within sixty
days of June 9, 1997 to acquire EQR Common held by the person are exercised
and that no options to acquire EQR Common held by other persons are
exercised.
(2) The amounts shown in this column reflect EQR Common subject to options
granted under the Option and Award Plan, as defined in "Restrictions on
the Ownership, Transfer or Issuance of Shares", which are currently
exercisable or exercisable within 60 days of the date of this table.
(3) Includes 8,825 shares of EQR Common beneficially owned by Mr. Crocker's
spouse. Mr. Crocker disclaims beneficial ownership of the 8,825 EQR Common
Shares. Also includes 175,000 Shares of EQR Common beneficially owned by
MWC Partners, L.P., an Illinois limited partnership ("MWC"). Mr. Crocker
is sole general partner of MWC. The sole limited partner is a trust
created for the benefit of Mr. Crocker's wife and Mr. Crocker's children.
(4) Includes 263,347 ERP OP Units held by Mr. Goldberg, which are exchangeable
on a one-for-one basis into 263,347 Shares of EQR Common; 48,078 ERP OP
Units held by Mr. Goldberg's spouse, which are exchangeable on a one-for-
one basis into 48,078 shares of EQR Common and 75,714 ERP OP Units held by
GGL Investment Partners #1 ("GGL"), a Maryland general partnership, which
are exchangeable on a one-for-one basis into 75,714 shares of EQR Common.
Mr. Goldberg is a general partner of GGL with a 66.67% percentage
interest. Mr. Goldberg disclaims beneficial ownership of the interests
held by his spouse and 33.33% of the interests held by GGL.
(5) Includes 1,000 Shares of EQR Common beneficially owned by Mr. Halperin's
spouse. Mr. Halperin disclaims beneficial ownership of the 1,000 shares of
EQR Common.
(6) Includes 726 Shares of EQR Common beneficially owned by Mr. Lowenthal's
spouse. Also includes 374 shares of EQR Common beneficially owned by Mr.
Lowenthal as custodian for his minor child. Mr. Lowenthal disclaims
beneficial ownership of the 1,100 shares of EQR Common.
(7) Includes 19,832 shares of EQR Common beneficially owned by the Lynford
Family Charitable Trust. Mr. Lynford disclaims beneficial ownership of the
19,832 shares of EQR Common.
(8) Includes 1,528 ERP OP Units which are exchangeable on a one-for-one basis
into 1,528 shares of EQR Common. Ms. Rosenberg may be deemed to control or
share control of the power to invest such shares of EQR Common (assuming
exchange into EQR Common shares). Ms. Rosenberg is a trustee or co-trustee
of certain trusts created for the benefit of Mr. Zell and his family and
trusts created for the benefit of the family of Mr. Robert Lurie, a
deceased partner of Mr. Zell. Such trusts are indirect owners of certain
partnerships which own shares of EQR Common and indirect partners of the
ERP Operating Partnership. Ms. Rosenberg disclaims beneficial ownership of
all such shares of EQR Common and ERP OP Units.
(9) Includes 33,500 shares of EQR Common beneficially owned by Mr. Spector's
spouse. Also includes 2,200 Shares of EQR Common beneficially owned by Mr.
Spector, as custodian for his minor children and 1,150 shares of EQR
Common beneficially owned by Mr. Spector as trustee of his daughter's
trust. Mr. Spector disclaims beneficial ownership of the 36,850 shares of
EQR Common. Also includes 1,683 ERP OP Units which are exchangeable on a
one-for-one basis into 1,683 shares of EQR Common.
(10) Includes 1,871,407 ERP OP Units which are exchangeable on a one-for-one
basis into 1,871,407 shares of EQR Common. Mr. Sternlicht may be deemed to
be the beneficial owner of the 1,871,407 shares of EQR Common (assuming
exchange of 1,871,407 ERP OP Units) because Mr. Sternlicht controls or
shares control of the power to vote and invest such shares of EQR Common.
Mr. Sternlicht disclaims beneficial ownership of 1,573,122 shares of EQR
Common (assuming the exchange of 1,573,122 ERP OP Units) because the
economic benefits with respect to such shares of EQR Common are
attributable to other persons.
(11) Includes 3,436,060 shares of EQR Common (assuming exchange of 3,436,060
ERP OP Units). Mr. Zell may be deemed to be the beneficial owner of these
3,436,060 shares of EQR Common (assuming the exchange of 3,436,060 ERP OP
Units) because Mr. Zell controls or shares control of the power to vote
and invest such Shares of EQR Common, either directly, or as the general
partner of partners of the Operating Partnership or as a shareholder of a
corporate general partner which owns shares of EQR Common. Mr. Zell
disclaims beneficial ownership of 2,191,045 shares of EQR Common (assuming
the exchange of 1,557,561 ERP OP Units) because the economic benefits with
respect to such shares of EQR Common are attributable to other persons.
See "Security Ownership of Principal Shareholders."
(12) Includes 2,000 shares of EQR Common beneficially owned by Mr. Neithercut,
as custodian for his minor children. Also includes 1,112 shares of EQR
Common (assuming conversion of 2,000 Series E Preferred Shares)
beneficially owned by Mr. Neithercut, as custodian for his minor children.
Mr. Neithercut disclaims beneficial ownership of the 3,112 shares of EQR
Common.
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<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth information as of March 1, 1997 (except as
otherwise noted), with respect to persons who were known by EQR to be the
beneficial owner of more than 5% of outstanding EQR Common as of such date.
<TABLE>
<CAPTION>
PERCENT
PERCENT OF
AMOUNT AND OF CLASS CLASS
NATURE OF AS OF AS OF
BENEFICIAL MARCH 1, JUNE 9,
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) 1997(1) 1997(2)
- ------------------------------------ ------------ -------- -------
<S> <C> <C> <C>
FMR Corp.(3)..................................... 6,551,185 11.26% 10.13%
82 Devonshire Street
Boston, MA 02109-3615
Samuel Zell and entities controlled by Samuel
Zell and Ann Lurie(4)........................... 4,827,979 8.72% 7.08%
Two North Riverside Plaza
Chicago, IL 60606
The Prudential Insurance Company of America(5)... 3,816,500 6.56% 5.90%
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Merrill Lynch & Co., Inc.(6)..................... 3,220,425 5.54% 4.98%
800 Scudders Mill Road
Plainsboro, NY 08536
</TABLE>
- -------
(1) The amount of EQR Common beneficially owned is reported on the basis of
regulations of the SEC governing the determination of beneficial ownership
of securities. The percentage of EQR Common beneficially owned by a person
assumes that all ERP OP Units or Series E Preferred Shares held by the
person are exchanged for EQR Common, that none of the ERP OP Units or
Series E Preferred Shares held by other persons are so exchanged, that all
options exercisable within sixty days of March 1, 1997 to acquire EQR
Common held by the person are exercised and that no options to acquire EQR
Common held by other persons are exercised.
(2) Pursuant to the Merger, on May 30, 1997 all of the outstanding common
shares of beneficial interest of Wellsford ("Wellsford Common") were
converted into EQR Common of EQR at the conversion ratio of .625 Shares of
EQR Common for each share of Wellsford Common and, as a result, the number
of shares of EQR Common outstanding increased significantly. EQR,
therefore, is presenting supplementally the most recently reported
ownership of each named beneficial owner as a percentage of the total EQR
Common outstanding as of June 9, 1997 for informational purposes only,
calculated as described in footnote (1) above. There can be no assurances
that the named beneficial owner did not receive EQR Common pursuant to the
Merger or that the number of EQR Common owned by each such beneficial owner
has not increased or decreased between the date of the required filings
made by each such beneficial owner with the SEC and June 9, 1997; these
percentages, therefore, may not accurately reflect the percentage of EQR
Common owned by each such beneficial owner as of such date.
(3) Pursuant to a Schedule 13G filed with the SEC, as of December 31, 1996, FMR
Corp. ("FMR") may have direct or indirect voting and/or investment
discretion over these EQR Common which are held for the benefit of its
clients by its separate accounts, externally managed accounts, registered
investment companies, subsidiaries and/or other affiliates. FMR is
reporting the combined holdings of the entities for the purpose of
administrative convenience.
(4) Includes 3,436,060 ERP OP Units which are exchangeable on a one-for-one
basis into 3,436,060 EQR Common. Also included are options to purchase
151,667 shares of EQR Common which are currently exercisable or exercisable
within sixty days and beneficially owned by Mr. Zell. Also includes 30,000
shares of EQR Common beneficially owned by the Samuel Zell Foundation. Mr.
Zell disclaims beneficial ownership of 2,191,045 shares of EQR Common
(assuming the exchange of 1,557,561 ERP OP Units) because the economic
benefits with respect to such shares of EQR Common are attributable to
other persons. Ms. Lurie disclaims beneficial ownership of 2,518,600 shares
of EQR Common (assuming the exchange of 1,878,499 ERP OP Units).
(5) Pursuant to a Schedule 13G filed with the SEC, as of December 31, 1996, The
Prudential Insurance Company of America ("Prudential") may have direct or
indirect voting and/or investment discretion over these shares of EQR
Common which are held for the benefit of its clients by its separate
accounts, externally managed accounts, registered investment companies,
subsidiaries and/or other affiliates. Prudential is reporting the combined
holdings of the entities for the purpose of administrative convenience.
(6) Pursuant to a Schedule 13G filed with the SEC dated February 14, 1997,
Merrill Lynch and Co., Inc. ("Merrill Lynch") may have direct or indirect
voting and/or investment discretion over these shares of EQR Common which
are held for the benefit of its clients by its separate accounts,
externally managed accounts, registered investment companies, subsidiaries
and/or other affiliates. Merrill Lynch is reporting the combined holdings
of the entities for the purpose of administrative convenience.
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<PAGE>
COMPARISON OF RIGHTS OF SHAREHOLDERS
At the Effective Time, the shareholders of EWR will become shareholders of
EQR. The rights of EWR's shareholders are governed by the MGCL, the EWR
Charter, and the EWR Bylaws. The rights of EQR's shareholders are governed by
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland ("Title 8"), the EQR Declaration and the EQR Bylaws. After the Merger
the former EWR Common Shareholders will be subject Title 8 to the EQR
Declaration and the EQR Bylaws and Title 8.
AUTHORIZED AND ISSUED SHARES
The EWR Charter authorizes the issuance of 100,000,000 shares of Common
Stock, $.01 par value per share, and 10,000,000 shares of Preferred Stock,
$.01 par value per share. The aggregate par value of all authorized shares of
EWR is $1,100,000.
The EQR Declaration authorizes the issuance of 300,000,000 shares of
beneficial interest, of which 200,000,000 are EQR Common. EQR has established
the following series of preferred shares: (i) 6,900,000 shares of 9 3/8%
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $.01 per share, (ii) 575,000 shares of 9 1/8% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share;
(iii) 460,000 shares of 9 1/8% Series C Cumulative Redeemable Preferred Shares
of Beneficial Interest, par value $.01 per share, (iv) 805,000 shares of 8.60%
Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $.01 per value, (v) 4,600,000 shares of Series E Convertible Preferred
Shares of Beneficial Interest, par value $.01 per share, (vi) 2,300,000 shares
of Series F Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $.01 per share, and (vii) 1,265,000 shares of 7 1/4% Series G
Convertible Cumulative Preferred Shares of Beneficial Interest, par value $.01
per share.
SPECIAL MEETINGS
The EWR Bylaws provide that the president, the chief executive officer or
Board of Directors of EWR may call a special meeting of EWR's shareholders. A
special meeting shall also be called by the secretary of EWR upon the written
request of holders of shares entitled to cast not less than 25% of all the
votes entitled to be cast at such meeting.
The EQR Bylaws provide that the chairman, the president or one-third of the
trustees of EQR may call a special meeting of EQR's shareholders. A special
meeting shall be called by the secretary of EQR upon the written request of
EQR Shareholders entitled to cast not less than a majority of all the votes
entitled to be cast at such meeting.
BOARD OF DIRECTORS/TRUSTEES
Pursuant to the EWR Charter the directors of EWR are divided into classes
with terms of three years, with the term of one class of directors expiring at
the annual meeting of shareholders in each year. Each director shall hold
office for the term for which he is elected and until his successor is elected
and qualified, or until his resignation, removal or death. The EWR Charter
provides that a director may be removed with or without cause by the
affirmative vote of at least two-thirds of the votes entitled to be cast in
the election of directors, and by the vote required to elect a director, the
shareholders may fill a vacancy on the Board resulting from removal. Section
2-406(b) of the MGCL permits a director to be removed with or without cause,
but neither the MGCL nor the EWR Charter defines "cause" in connection
therewith. Because the term "cause" is not defined, there may be uncertainty
as to the circumstances in which shareholders have the right to remove a
director.
Pursuant to the EQR Declaration the trustees of EQR are divided into classes
with terms of three years, with the term of one class of trustees expiring at
the annual meeting of shareholders in each year. The EQR Declaration provides
that a trustee may be removed only with cause, by the vote of the holders of
not less than two-thirds of the shares of beneficial interest then outstanding
and entitled to vote in the election of trustees. The EQR Declaration defines
cause as (i) material theft, fraud or embezzlement or active and deliberate
dishonesty by a trustee, (ii) habitual neglect of duty by a trustee having a
material and adverse significance to the trust, or (iii) the conviction of a
trustee of a felony or of any crime involving moral turpitude.
DECLARATION PROVISIONS
The EQR Declaration provides that the affirmative vote of the holders of a
majority of the outstanding shares of EQR Common is required to approve the
Merger. The affirmative vote of the holders of a majority of the outstanding
shares of EWR Common is also required to approve the Merger.
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<PAGE>
STATUTORY RESTRICTIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland REIT
or a Maryland corporation and (i) any person who beneficially owns 10% or more
of the voting power of the REIT's or the corporation's shares or an affiliate
of the REIT or corporation who, at any time within the two-year period prior to
the date in question, was the beneficial owner of 10% or more of the voting
power of the then outstanding voting shares of beneficial interest of the REIT
or voting stock of the corporation (an "Interested Shareholder) or (ii) an
affiliate of an Interested Shareholder are prohibited for five years after the
most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the Board of Trustees or Directors of such REIT or corporation and approved by
the affirmative vote of at least (a) 80% of the votes entitled to be cast by
holders of outstanding shares of the REIT or corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting shares of the REIT or
corporation other than shares held by the Interested Shareholder with whom (or
with whose affiliate) the business combination is to be effected, unless, among
other conditions, the REIT's or the corporation's common shareholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form previously paid by the Interested
Shareholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the board of
trustees of the REIT or the board of directors of the corporation prior to the
time that the Interested Shareholder becomes an Interested Shareholder. EQR has
exempted any business combination involving Mr. Zell, the Zell Holders, 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
EQR. As a result Mr. Zell, the Zell Holders, EPMC and their respective
affiliates and associates, present or future, or any person acting in concert
or as a group with any of the foregoing persons may be able to enter into
business combinations with EQR that may not be in the best interest of its
shareholders without compliance by EQR with the supermajority vote requirements
and other provisions of the MGCL.
In addition to the restrictions on certain business combinations, the MGCL
also provides that "control shares" of a Maryland REIT or Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror, by officers or by directors who
are employees of the REIT or corporation. "Control Shares" are voting shares
which, if aggregated with all other such shares previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing trustees within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions. Despite these
restrictions on Control Share acquisitions, the MGCL provides that a REIT or a
corporation may effectively exempt itself from such restrictions by a provision
contained in its declaration, charter or bylaws. The EQR Bylaws contain
provisions stating that the restrictions regarding Control Shares will not
apply to any acquisition of its shares by any person. The EWR Bylaws contain
provisions stating that the restrictions regarding Control Shares will not
apply to any acquisition of its shares by Evans and certain other persons.
RESTRICTIONS ON THE OWNERSHIP, TRANSFER OR ISSUANCE OF SHARES
The EQR Declaration, 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 "EQR Ownership Limit") of the lesser of the number of
shares or value of the issued and outstanding shares of beneficial interest of
EQR. The EQR Board of Trustees, upon receipt of a ruling from the IRS, an
opinion of counsel or other evidence satisfactory to the EQR Board of Trustees
and upon such other conditions as the EQR Board of Trustees may direct, may
also exempt a proposed transferee from the EQR Ownership Limit. As a condition
of such exemption, the intended transferee must give written notice to EQR 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 EQR Ownership Limit. Any transfer of EQR Common or EQR Preferred
that would (i) create a direct or indirect ownership of shares of beneficial
interest in excess of the EQR Ownership Limit, (ii) result in the shares of
beneficial interest being owned by fewer than 100 persons, or (iii) result in
EQR 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 EQR Board of Trustees determines that it is
no longer in the best interests of EQR to attempt to qualify, or to continue to
qualify, as a REIT.
EQR's Declaration exempts from the EQR Ownership Limit certain persons and
entities who would exceed the EQR Ownership Limit as a result of the exchange
of the ERP OP Units for EQR Common, which ERP OP Units were received
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by them at the time of the formation of EQR. These persons may also acquire
additional EQR Common through EQR'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 EQR Common such that
the five largest beneficial owners of EQR Common hold more than 50% in number
or value of the total outstanding EQR Common.
Any shares of EQR Common the transfer of which would result in a person
owning shares of beneficial interest in excess of the EQR Ownership Limit or
cause EQR to become "closely held" under Section 856(h) of the Code that is not
otherwise permitted as provided above will automatically be transferred to a
charitable trust (the "Charitable Trust"), the trustee of which shall be
unaffiliated with EQR.
The shares held in the Charitable Trust shall be issued and outstanding, but
the prohibited owner shall have no rights to such shares or benefits therefrom.
The shares, and any distributions or dividends paid thereon shall be held for
the benefit of the charitable beneficiary. Within twenty (20) days after the
shares are transferred to the Charitable Trust, the trustee shall sell the
shares and pay the proceeds of such sale to the prohibited owner; provided,
however, that if the price paid by the prohibited owner is less than the
proceeds received by the trustee, the prohibited owner shall receive such
lesser amount.
All certificates representing shares of beneficial interest of EQR bear a
legend referring to the restrictions described above or state that a copy of
such restrictions may be obtained from EQR.
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 EQR
must give a written notice to EQR by January 31 of each year. In addition, each
shareholder will upon demand be required to disclose to EQR in writing such
information with respect to the direct, indirect and constructive ownership of
EQR Shares as the EQR 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.
STANDARD OF CONDUCT FOR DIRECTORS AND TRUSTEES
The MGCL requires a director of a Maryland corporation, such as EWR, to
perform his duties as a director in good faith, in a manner he reasonably
believes to be in the best interest of the corporation and with the care that
an ordinarily prudent person in a like position would use under similar
circumstances.
Title 8 contains no statutory standard of conduct for trustees of a Maryland
real estate investment trust such as EQR.
BOARD COMMITTEES
The MGCL permits the board of directors of a Maryland corporation, such as
EWR, to delegate to a committee of one or more directors any of its powers
except the powers to declare dividends, issue stock in certain situations,
recommend to the stockholders any action which requires stockholder approval,
amend the bylaws or approve any merger or share exchange which does not require
stockholder approval.
Title 8 contains no provision for or limitation on the composition of or
delegation of powers to committees of the board of trustees of a Maryland real
estate investment trust, such as EQR.
AMENDMENT OF CHARTER OR DECLARATION OF TRUST
The MGCL requires the approval of stockholders of a Maryland corporation,
such as EWR, for any amendment to the charter, except for minor changes in the
corporate name.
Title 8 requires the approval of shareholders of a Maryland real estate
investment trust, such as EQR, for any amendment to the declaration of trust,
with certain exceptions. The declaration of trust may permit the board of
trustees, without any action by the shareholders, to amend the declaration of
trust to increase or decrease the aggregate number of shares of beneficial
interest or the number of shares of beneficial interest of any class that the
trust has authority to issue. The EQR Declaration contains no such provision.
However, as permitted by Title 8, the EQR Declaration permits the Board of
Trustees, by a two-thirds vote, to amend the EQR Declaration from time to time
to enable EQR to qualify as a real estate investment trust under the Code or
under Title 8.
DIVIDENDS AND OTHER DISTRIBUTIONS
The MGCL provides that no dividend or other distribution may be paid to
stockholders of a Maryland corporation, such as EWR, unless, after payment of
the distribution, the corporation is able to pay its debts as they become due
in the
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usual course of business and the corporation's total assets at least equal the
sum of its liabilities and, unless the charter permits otherwise (which the
charter of EWR does not), the amount that would be needed to satisfy the
preferential rights on dissolution of stockholders whose preferential rights
on dissolution are superior to the stockholders receiving the distribution.
Title 8 contains no limitations on the payment of dividends or other
distributions by a Maryland real estate investment trust, such as EQR.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
Title 8 requires that EQR hold, either directly or indirectly, at least 75% of
the value of its assets in real estate assets, mortgages or mortgage-related
securities, government securities, cash and cash equivalent items, including
high-grade short-term securities and receivables. Title 8 also prohibits using
or applying land for farming, agricultural, horticultural or similar purposes.
There is no such requirement for a Maryland corporation, such as EWR.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon for
EQR by Rudnick & Wolfe, Chicago, Illinois and Rosenberg & Liebentritt, P.C.,
Chicago, Illinois. Errol R. Halperin, a partner of Rudnick & Wolfe, is a
trustee of EQR. Attorneys of Rudnick & Wolfe beneficially own less than 1% of
the outstanding EQR Common, either directly or upon the exercise of options.
Sheli Z. Rosenberg, a principal of Rosenberg & Liebentritt, P.C., is a trustee
of EQR. Attorneys of Rosenberg & Liebentritt, P.C. beneficially own less than
1% of the outstanding EQR Common, either directly or upon the exercise of
options. Certain legal matters in connection with the Merger will be passed
upon for EWR by Gibson, Dunn & Crutcher LLP, Los Angeles, California. Ballard
Spahr Andrews & Ingersoll, Baltimore, Maryland, will pass upon certain matters
of Maryland law relating to the Merger Agreement and Articles under Maryland
law.
EXPERTS
The consolidated financial statements of EWR and its subsidiaries appearing
in EWR's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended by Form 10-K/A, and appearing in the Current Report of EQR on Form 8-
K, dated September 10, 1997; the consolidated financial statements of
Wellsford Residential Property Trust and its subsidiaries incorporated by
reference in EQR's Current Report on Form 8-K, dated March 17, 1997 and
incorporated by reference in EQR's Joint Proxy Statement/Prospectus dated
April 25, 1997; the consolidated financial statements of EQR appearing in
EQR's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended by Form 10-K/A, and incorporated by reference in EQR's Joint Proxy
Statement/Prospectus dated April 25, 1997 at December 31, 1996 and for the
year ended December 31, 1996; and the Statements of Revenue and Certain
Expenses of certain properties acquired or expected to be acquired in 1996 or
1997, appearing in the Current Reports of EQR on Forms 8-K or 8-K/A dated May
23, 1996, November 15, 1996, May 20, 1997, August 15, 1997, September 17, 1997
and October 9, 1997; have all been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon and incorporated herein by
reference, and are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of EQR and its subsidiaries appearing
in EQR's Annual Report (on Form 10-K for the year ended December 31, 1996, as
amended by Form 10-K/A), at December 31, 1995 and for the years ended December
31, 1995 and 1994 incorporated herein by reference have been audited by Grant
Thornton LLP, independent public accountants, as indicated in their report
with respect thereto, and are incorporated in this Joint Proxy
Statement/Prospectus in reliance upon the authority of said firm as experts in
accounting and auditing.
AUDITORS
Representatives of Ernst & Young LLP shall be present at the EQR Special
Meeting and shall have the opportunity to make a statement to the EQR
Shareholders should they so desire. In addition, the representatives of Ernst
& Young LLP shall be available to respond to appropriate questions of EQR
Shareholders.
Representatives of Ernst & Young LLP shall be present at the EWR Special
Meeting and shall have the opportunity to make a statement to the EWR
Shareholders should they so desire. In addition, the representatives of Ernst
& Young LLP shall be available to respond to appropriate questions of EWR
Shareholders.
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SHAREHOLDER PROPOSALS
Any proposal which a shareholder of EQR intends to present at the 1998 Annual
Meeting of Shareholders of EQR, if the Merger has not been consummated prior to
the date such meeting is to be held, must have been received by the Secretary
of EQR no later than November 26, 1997 to have been eligible for inclusion in
EQR's proxy statement and proxy form relating to such meeting.
Any proposal which a shareholder of EWR intends to present at the 1998 Annual
Meeting of Shareholders of EWR, if the Merger has not been consummated prior to
the date such meeting is to be held, must have been received by EWR at its
principal executive offices on or before January 7, 1998 to have been eligible
for inclusion in EWR's proxy statement and proxy form relating to such meeting.
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GLOSSARY
The following list of capitalized terms used in this Joint Proxy
Statement/Prospectus are defined as follows: See Summary, Page 1 for
definition of the principals involved in the Transaction.
"ACMS" means asbestos containing materials.
"Act" means the Taxpayer Relief Act of 1997.
"Acquisition Proposal" means a merger, acquisition, tender offer, exchange
offer, consolidation, sale of assets or similar transaction involving all or
any significant portion of the assets or any equity securities of, EWR or any
of its subsidiaries, other than the transactions contemplated by the Merger
Agreement.
"Additional 1997 Acquired Properties" means the historical results of
operations for the properties acquired in the merger between EQR and Wellsford
on May 30, 1997 as well as the properties acquired from January through
October 1997.
"Affiliates" means persons who control, are controlled by or are under the
common control with an issuer.
"Antitrust Division" means the Antitrust Division of the Department of
Justice.
"Articles" means the Articles of Merger with respect to the Merger
Agreement.
"Asset Contribution Agreement" means the Asset Contribution Agreement dated
August 27, 1997 by and between ERP and EWRLP.
"Berry" means Richard G. Berry, an individual.
"Book-Tax Difference" means the difference between the fair market value of
property contributed to ERP and its tax basis at the time of contribution.
"Break-up Expenses" means the out-of-pocket expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereunder, up to
a maximum of $2.5 million.
"Break-up Fee" means an amount equal to the lesser of (i) $14 million plus
Break-up Expenses (the "Base Amount") and (ii) the sum of (A) the maximum
amount that can be paid to EQR without causing it to fail to meet the
requirements of Section 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute income described in Sections
856(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants of EQR, and (B) in the event EQR
receives a letter from outside counsel indicating that EQR has received a
ruling from the IRS holding that EQR's base receipt of the Base Amount would
either constitute Qualifying Income or would be excluded from gross income
within the meaning of Sections 856(c)(2) and (3) of the Code or that the
receipt by EQR of the remaining balance of the Base Amount following the
receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Base Amount less the amount payable under clause
(A) above.
"Charitable Trust" means shares of EQR Common the transfer of which would
result in a person owning shares of beneficial interest in excess of the EQR
Ownership Limit or cause EQR to become "closely held" under section 856(h) of
the Code that is not otherwise provided.
"Change in Control Agreements" means agreements entered to by certain
officers of EWR which provide severance payments, pro rata bonus, payments,
vesting of stock options and restricted shares, vesting of employer
contributions to the EWR 401(k) Plan, and tax payments to offset the impact of
any excise tax resulting from the above payments upon a termination of
employment following a change in control.
"Closing" means the closing of the Merger as set forth in the Merger
Agreement.
"Closing Date" means the third business day after the satisfaction or waiver
of the conditions set forth in the Merger Agreement.
"Closing Price" means the closing price of a share of EQR Common as reported
on the NYSE on the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
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"Commitment" means any commitment, contractual obligation, capital
expenditure or transaction.
"Comparable Companies" means companies engaged in businesses which J. P.
Morgan judged to be analogous to that of EWR's.
"Consulting Agreement" means the Consulting Agreement dated August 27, 1997
between EQR Properties Management LP and Stephen O. Evans.
"Contributed Properties" means the properties contributed to ERP pursuant to
the Asset Contribution.
"Contribution" means that EWRLP has agreed, subject to certain conditions,
to contribute all of its assets to ERP Operating Partnership.
"Control Share Acquisition" means the acquisition of control shares, subject
to certain exceptions.
"Control Shares" means voting shares which, if aggregated with all other
such shares previously acquired by the acquiror, or in respect of which the
acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power in electing trustees within one of the following ranges of voting power
(i) one-fourth or more but less than one-third, (ii) one-third or more but
less than a majority, or (iii) a majority or more of all voting power.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"Effective Time" means the consummation of the Merger.
"EMPC" means Equity Properties Management Corp.
"EQR Board of Trustees" means the Board of Trustees of EQR.
"EQR Bylaws" means the Second Amended and Restated Bylaws of EQR.
"EQR Common" means common shares of beneficial interest, par value $0.01 per
share, of EQR.
"EQR Common Shareholders" means holders of EQR Common.
"EQR Declaration"
"EQR Financing Partnerships" means the limited partnerships and limited
liability companies that own the beneficial interest of certain properties
encumbered by mortgage financing.
"EQR IPO" means the initial public offering of EQR Common by EQR.
"EQR Management Corp." means Equity Residential Properties Management, Inc.
"EQR Management Corp. II" means Equity Residential Properties Management,
Inc. II
"EQR Management Corps." means Equity Residential Properties Management, Inc.
a Delaware corporation, and Equity Residential Properties Management, Inc. II,
a Delaware corporation, collectively.
"EQR Management Partnerships" means EQR Properties Management LP and Equity
Residential Properties Management Limited Partnership II.
"EQR Option" means Mr. Evans will receive an option to purchase 115,500
shares of EQR Common.
"EQR Ownership Limit" means that no holder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 5% of the lesser
of the number of shares or value of the issued and outstanding shares of
beneficial interest of EQR.
"EQR Preferred" means 100,000,000 preferred shares of beneficial interest,
$.01 par value per share, of EQR.
"EQR Properties Management LP" means Equity Residential Properties
Management Limited Partnership, an Illinois limited partnership and affiliate
of EQR.
"EQR Properties Management, LP II" means Equity Residential Properties
Management, L.P. II, an Illinois limited partnership.
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"EQR Properties Management Partnerships" means EQR Properties Management, LP,
and EQR Properties Management, LP II, collectively.
"EQR Share Plan" means EQR's Second Amended and Restated 1993 Share Option
and Share Award Plan.
"EQR Special Meeting" means a special meeting of shareholders of EQR to be
held at One North Franklin, Chicago, Illinois, on December 23, 1997, at 10
a.m., local time.
"ERP OP Units" means ERP Operating Partnership's outstanding partnership
interests (excluding preference units).
"Evans" means Stephen O. Evans, an individual.
"EW Finance, Inc." means Evans Withycombe Finance, Inc., a Delaware
corporation.
"EW Finance LP" means Evans Withycombe Finance Partnership, LP, a Delaware
limited partnership.
"EW Management, Inc." means Evans Withycombe Management, Inc., an Arizona
corporation.
"EWR Articles" means EWR's Articles of Amendment and Restatement.
"EWR Bylaws" means EWR's Amended and Restated Bylaws.
"EWR Board of Directors" means the board of directors of EWR.
"EWR Common" means common shares of beneficial interest, par value $0.01 per
share, of EWR.
"EWR Common Shareholders" means holders of EWR Common.
"EWR Debt" means that EQR has agreed that it will not voluntarily prepay the
securitized debt of EWR Finance Partnership, L.P. or the fixed rate loan from
Northwestern Mutual Life Insurance Company to EWR Partnership.
"EWR IPO" means EWR's initial public offering.
"EWR OP Units" means EWRLP's outstanding partnership interests.
"EWR Unit Holder" means each holder of limited partnership interests in
EWRLP.
"EWR Special Meeting" means a special meeting of shareholders of EWR to be
held at , Scottsdale, Arizona, on December 23, 1997, at 9:00 a.m.,
Arizona time.
"EWRLP Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of EWRLP dated as of August 17, 1994 by and among EWR and
certain limited partners.
"EWRLP Unitholder" means holders of limited partnership units in EWRLP.
"EWRLP Units" means units of limited partnership interest in EWRLP.
"Excess Shares" means shares of EQR Common, the transfer of which would
result in a person owning shares of beneficial interest in excess of the EQR
Ownership Limit or cause EQR to become "closely held" under Section 856(h) of
the Code that is not otherwise permitted.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Boston EquiServe LLP, an affiliate of First National
Bank of Boston.
"Exchange Ratio" means the ratio of 0.5 at which outstanding shares of EWR
Common will be converted into shares of EQR Common pursuant to the Merger.
"FAD" means funds available for distribution.
"FFO" or "funds from operations" means net income (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments from
unconsolidated partnerships and joint ventures.
"FIRPTA" means the Foreign Investment in Real Property Tax Act, as amended.
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"FMR" means FMR Corp.
"FTC" means the Federal Trade Commission.
"GAAP" means generally accepted accounting principles.
"GGL" means GGL Investment Partners #1.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland REIT's or corporation's shares of beneficial
interest or an affiliate of the trust who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more
of the voting power of the REIT's shares of beneficial interest.
"Indentures" means a substantial portion of EQR's debt issued pursuant to
certain indentures which restrict the amount of indebtedness EQR may incur.
"IRS" means the Internal Revenue Service.
"J.P. Morgan" means J.P. Morgan Securities, Inc., EQR's financial advisor.
"Letter of Transmittal" means the letter that the Exchange Agent will mail
to all EWR shareholders, at the Effective Time, for use in exchanging
certificates evidencing shares of EWR Common for Certificates evidencing
shares of EQR Common.
"Lurie Family Trusts" means trusts established for the benefit of the family
of Mr. Robert Lurie, as deceased partner of Mr. Sam Zell.
"Material Adverse Change" means a material adverse change in business,
financial condition or results of operations taken as a whole.
"Meetings of Shareholders" means the EWR Special Meeting and EQR Special
Meeting, collectively.
"MGCL" means the Maryland General Corporation Law, as amended.
"Merger" means the acquisition of the multifamily property business of EWR
by EQR through the tax-free merger of EWR into EQR.
"Merger Agreement" means the Agreement and Plan of Merger dated August 27,
1997 by and between EQR and EWR.
"Morgan Stanley" means Morgan Stanley Realty Incorporated.
"Morgan Stanley Opinion" means the oral opinion of Morgan Stanley rendered
to the EWR Board of Directors and confirmed in writing on August 27, 1997.
"MWC" means MWC Partners, L.P.
"NAV" means net asset value.
"Neithercut" means David Neithercut, an individual.
"Non-U.S. Holders" means 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 includible in gross
income for U.S. Federal income tax purposes regardless of its source.
"NOI" means net operating income equal to total revenues less certain
operating expenses.
"NYSE" means the New York Stock Exchange.
"Option Cash Out Agreement" means an agreement entered into by the holders
of options to purchase shares of EWR Common not to exercise such option in
consideration for a cash payment equal to the difference between (i) the
Exchange Ratio multiplied by the closing price of a share of EQR Common on the
NYSE on the Closing Date and (ii) the applicable exercise price of such
option, multiplied by the number of shares of EWR Common subject to such
option.
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"Ownership Limit" means to facilitate maintenance of its qualification as a
REIT for federal income tax purposes, EQR generally will prohibit ownership,
directly or by virtue of the attribution provisions of the Code, by any single
shareholder of more than 5% of the issued and outstanding shares of EQR Common
and generally will prohibit ownership, directly or by virtue of the
attribution provisions of the Code, by any single shareholder of more than 5%
of the issued and outstanding shares of any class or series of EQR Preferred
Shares (collectively, the "Ownership Limit").
"Partnerships" means ERP Operating Partnership, EWRLP, the EQR Properties
Management Partnership, EW Finance LP, and EQR Financing Partnerships.
"Partnership Agreement" means ERPOP's Fourth Amendment and Restated ERP
Operating Limited Partnership Agreement of Limited Partnership.
"Preferred Share Offerings" means in June 1995, EQR issued 6,120,000 Series
A Preferred Shares pursuant to a preferred share offering; in November 1995,
EQR issued 5,000,000 depository shares each representing a 1/10 fractional
interest in a Series B Preferred Share pursuant to a depository share
offering; in September 1969, EQR issued 4,600,000 depository shares each
representing a 1/10 fractional interest in a Series C Preferred Share pursuant
to a depository share offering; in May 1996, EQR issued 7,000,000 depository
shares each representing a 1/10 fractional interest in a Series D Preferred
Share pursuant to a depository share offering and also in May 1997, subsequent
to the merger of EQR with Wellsford Residential Property Trust ("Wellsford"),
Wellsford's 3,999,800 Series A Cumulative Convertible Preferred Shares of
Beneficial Interest were redesignated as EQR's 3,999,800 Series E Preferred
Shares and Wellsford's 2,300,000 Series B Cumulative Redeemable Preferred
Shares of Beneficial Interest were redesignated as EQR's 2,300,000 Series F
Preferred Shares.
"Prudential" means the Prudential Insurance Company of America.
"QRS" means qualified REIT subsidiaries.
"QRS Corporation" means qualified REIT subsidiary.
"Registration Statement" means the registration statement on form S-4 filed
by ERP.
"REIT" means a real estate investment trust, as such term is defined in the
Code.
"Section 708 Regulations" means Code Section 708(b)(1)B of the Treasury
Regulations.
"Securities Act" means the Securities Act of 1933, as amended.
"Series E Preferred Shares" means Series E Cumulative Convertible Preferred
Shares of Beneficial Interest, $.01 par value per share.
"Service" means the Internal Revenue Service.
"Starwood" means Starwood Capital Partners L.P.
"Starwood Original Owners" means Starwood and its affiliates which
contributed 23 of the properties at the time of the EQR IPO.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated August
27, 1997 among Evans, Withycombe, Neithercut and Strohm.
"Strohm" means Bruce C. Strohm, an individual.
"Subsidiary Entities" means the EQR Properties Management Partnerships, the
EQR Management Corps., the EQR Financing Partnerships and the QRS
Corporations.
"Superior Acquisition Proposal" means a bona fide acquisition proposal by a
third party in which a majority of the members of the EWR Board of Directors
determines in good faith to be more favorable to EWR's shareholders from a
financial point of view than the Merger and which the Board of Directors of
EWR determines is reasonably capable of being consummated.
"Title 8" means Title 8 of the Corporation and Article of the Annotated Code
of Maryland, as amended.
"Transaction Comparables" means transactions selected by J.P. Morgan with
respect to purchase price per share to calculate FFO transaction multiples.
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"UBTI" means unrelated business taxable income, as defined in Section 512(a)
of the Code.
"Unit Exchange Offer" means the right to contribute all the EWR OP Units
owned by it to ERP Operating Partnership in exchange for ERP OP Units.
"USRPIs" means united States Real Property Interests.
"U.S. Shareholder" means a holder of EQR Common or EQR Preferred (for United
States federal income tax purposes).
"Voting Agreement" means the Voting Agreement dated August 27, 1997 by and
among EQR and Stephen O. Evans, F. Keith Withycombe, EW Investments Limited
Partnership and the Evans Family United Liability Company.
"Wellsford" means Wellsford Residential Property Trust.
"Wellsford Common" means all of the outstanding common shares of beneficial
interest of Wellsford.
"Withycombe" means F. Keith Withycombe, an individual.
"Zell Holders" means certain beneficial holders affiliated with Mr. Sam
Zell.
"Zell Original Owners" means certain affiliates of Mr. Sam Zell which
contributed 33 of the properties to EQR at the time of the EQR IPO.
G-6
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
EQUITY RESIDENTIAL PROPERTIES TRUST
AND
EVANS WITHYCOMBE RESIDENTIAL, INC.
DATED AS OF AUGUST 27, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<C> <C> <S> <C>
1 The Merger............................................................ A-1
1.1 The Merger...................................................... A-1
1.2 Closing......................................................... A-2
1.3 Effective Time.................................................. A-2
1.4 Effect of Merger on Declaration of Trust and By-Laws............ A-2
1.5 Trustees........................................................ A-2
1.6 Effect on Shares and Options.................................... A-2
1.7 Exchange Ratio.................................................. A-2
1.8 Transactions Relating To EWR Partnership........................ A-2
1.9 No Appraisal Rights............................................. A-3
2 Representations and Warranties of EWR................................. A-3
2.1 Organization, Standing and Power of EWR......................... A-3
2.2 EWR Subsidiaries................................................ A-3
2.3 Capital Structure............................................... A-4
2.4 Other Interests................................................. A-5
2.5 Authority; Noncontravention; Consents........................... A-5
2.6 SEC Documents; Financial Statements; Undisclosed Liabilities.... A-6
2.7 Absence of Certain Changes or Events............................ A-6
2.8 Litigation...................................................... A-6
2.9 Properties...................................................... A-7
2.10 Environmental Matters........................................... A-8
2.11 Related Party Transactions...................................... A-8
2.12 Employee Benefits............................................... A-8
2.13 Employee Policies............................................... A-9
2.14 Taxes........................................................... A-9
2.15 No Payments to Employees, Officers or Directors................. A-10
2.16 Brokers; Schedule of Fees and Expenses.......................... A-10
2.17 Compliance with Laws............................................ A-10
2.18 Contracts; Debt Instruments..................................... A-10
2.19 Opinion of Financial Advisor.................................... A-11
2.20 State Takeover Statutes......................................... A-11
2.21 Registration Statement.......................................... A-11
2.22 Investment Company Act of 1940.................................. A-12
2.23 Definition of Knowledge of EWR.................................. A-12
3 Representations and Warranties of EQR................................. A-12
3.1 Organization, Standing and Power of EQR......................... A-12
3.2 Capital Structure............................................... A-12
3.3 Organization, Standing and Power of ERP Operating Partnership... A-13
3.4 Capital Structure of ERP Operating Partnership.................. A-13
3.5 Authority; Noncontravention; Consents........................... A-13
3.6 SEC Documents; Financial Statements; Undisclosed Liabilities.... A-14
3.7 Absence of Certain Changes or Events............................ A-14
3.8 Litigation...................................................... A-15
3.9 Properties...................................................... A-15
3.10 Environmental Matters........................................... A-15
3.11 Taxes........................................................... A-16
3.12 Brokers; Schedule of Fees and Expenses.......................... A-16
3.13 Compliance with Laws............................................ A-16
3.14 Contracts; Debt Instruments..................................... A-16
3.15 Opinion of Financial Advisor.................................... A-16
3.16 State Takeover Statutes......................................... A-16
3.17 Registration Statement.......................................... A-17
3.18 Investment Company Act of 1940.................................. A-17
3.19 Employee Policies............................................... A-17
3.20 Definition of Knowledge of EQR.................................. A-17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<C> <C> <S> <C>
3.21 EQR Not an Interested Stockholder............................. A-17
4 Covenants........................................................... A-17
4.1 Acquisition Proposals......................................... A-17
4.2 Conduct of EWR's Business Pending Merger...................... A-18
4.3 Conduct of EQR's Business Pending Merger...................... A-19
4.4 Compliance with the Securities Act............................ A-20
4.5 Filing of Certain Reports..................................... A-20
4.6 Other Actions................................................. A-20
5 Additional Covenants................................................ A-20
5.1 Preparation of the Registration Statement and the Proxy
Statement; EWR Shareholders Meeting and EQR Shareholders
Meeting...................................................... A-20
5.2 Access to Information: Confidentiality........................ A-22
5.3 Best Efforts; Notification.................................... A-22
5.4 Tax Treatment................................................. A-22
5.5 Public Announcements.......................................... A-22
5.6 Listing....................................................... A-23
5.7 Transfer and Gains Taxes...................................... A-23
5.8 Benefit Plans and Other Employee Arrangements................. A-23
5.9 Indemnification............................................... A-24
5.10 Declaration of Dividends and Distributions.................... A-24
5.11 Employment and Consulting Agreements.......................... A-24
5.12 Transfer of Management Company Shares......................... A-25
5.13 Notices....................................................... A-25
5.14 Options....................................................... A-25
5.15 Resignations.................................................. A-25
5.16 Third Party Management Agreements and Outside Property A-25
Management Agreements........................................
5.17 Intentionally Omitted......................................... A-25
5.18 Restrictions on Resale of Certain EWR Properties.............. A-25
6 Conditions.......................................................... A-25
6.1 Conditions to Each Party's Obligation to Effect the Merger.... A-25
6.2 Conditions to Obligations of EQR.............................. A-26
6.3 Conditions to Obligations of EWR.............................. A-27
7 Termination, Amendment and Waiver................................... A-27
7.1 Termination................................................... A-27
7.2 Certain Fees and Expenses..................................... A-28
7.3 Effect of Termination......................................... A-29
7.4 Amendment..................................................... A-29
7.5 Extension; Waiver............................................. A-29
8 General Provisions.................................................. A-29
8.1 Nonsurvival of Representations and Warranties................. A-29
8.2 Notices....................................................... A-30
8.3 Interpretation................................................ A-30
8.4 Counterparts.................................................. A-30
8.5 Entire Agreement; No Third-Party Beneficiaries................ A-30
8.6 Governing Law................................................. A-31
8.7 Assignment.................................................... A-31
8.8 Enforcement................................................... A-31
8.9 Severability.................................................. A-31
8.10 Non-Recourse.................................................. A-31
</TABLE>
ii
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit
"A" --Articles of Merger
Exhibit
"B" --Opinion of Gibson, Dunn & Crutcher LLP
Exhibit
"C" --Opinion of Rudnick & Wolfe
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -----------
<S> <C>
Acquisition Proposal................................................ 4.1(a)
Affiliate........................................................... 2.11
Affiliates.......................................................... 4.4
Agreement........................................................... Preamble
Applicable Units.................................................... 5.18
Asset Contribution.................................................. 1.8(c)
Asset Contribution Agreement........................................ 1.8(a)
Average Closing Price............................................... 5.8(c)
Base Amount......................................................... 7.2
Benefit Liabilities................................................. 2.12(g)
blue sky............................................................ 2.5(b)
Break-Up Expenses................................................... 7.2
Break-Up Fee........................................................ 7.2
Break-Up Fee Tax Opinion............................................ 7.2
Capital Expenditure Budget.......................................... 2.9(c)
CIC Agreements...................................................... 5.8(h)
Closing............................................................. 1.2
Closing Date........................................................ 1.2
Code................................................................ Recital C
Commitment.......................................................... 4.2(r)
Company Options..................................................... 5.8(c)
Confidentiality Agreement........................................... 5.2
Consent Solicitation Statement...................................... 5.1(a)(iii)
Consulting Agreement................................................ 5.11
Controlled Group Member............................................. 2.12
Corporate Registration Statement.................................... 5.1(a)
Department.......................................................... 1.3
Development Agreements.............................................. 4.2(i)
Director Designation Agreement...................................... 5.17
Effective Time...................................................... 1.3
employee benefit plan............................................... 5.8(a)
Employee Plan....................................................... 2.12
Employee Share Award and Option Plan................................ 3.2(a)
Employment Agreement................................................ 5.11
Encumbrances........................................................ 2.9(a)
EQR................................................................. Preamble
EQR Common Share.................................................... 1.7
EQR Disclosure Letter............................................... Article 3
EQR Employee Share Plans............................................ 3.2(a)
EQR Financial Statement Date........................................ 3.7
EQR Material Adverse Change......................................... 3.7
EQR Material Adverse Effect......................................... 3.1
EQR Options......................................................... 3.2(a)
EQR Preferred Shares................................................ 3.2(a)
EQR Properties...................................................... 3.9(a)
EQR SEC Documents................................................... 3.6
EQR Series A Preferred Shares....................................... 3.2(a)
EQR Series B Preferred Shares....................................... 3.2(a)
EQR Series C Preferred Shares....................................... 3.2(a)
EQR Series D Preferred Shares....................................... 3.2(a)
EQR Series E Preferred Shares....................................... 3.2(a)
EQR Series F Preferred Shares....................................... 3.2(a)
EQR Shareholder Approvals........................................... 3.5(a)
EQR Shareholders Meeting............................................ 5.1(b)
EQR Subsidiaries.................................................... 3.1
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -----------
<S> <C>
ERISA............................................................... 2.12
ERP OP Units........................................................ 1.8(a)
ERP Operating Partnership........................................... Recital F
ERP Operating Partnership Agreement................................. 3.2(a)
EWR................................................................. Preamble
EWR Capital Budget.................................................. 2.9(c)
EWR Common Share.................................................... 1.7
EWR Disclosure Letter............................................... Article 2
EWR Financial Statement Date........................................ 2.7
EWR Material Adverse Change......................................... 2.7
EWR Material Adverse Effect......................................... 2.1
EWR OP Units........................................................ 1.8(a)
EWR Options......................................................... 2.3(b)
EWR Partner Approvals............................................... 1.8(e)
EWR Partnership..................................................... Recital F
EWR Partnership Agreement........................................... 1.8(a)
EWR Properties...................................................... 2.9(a)
EWR SEC Documents................................................... 2.6
EWR Shareholder Approvals........................................... 2.5(a)
EWR Shareholders Meeting............................................ 5.1(c)
EWR Subsidiaries.................................................... 2.2(a)
EWR Unit Holder..................................................... 1.8(a)
Exchange Act........................................................ 2.6
Exchange Ratio...................................................... 1.7
Flow-Through Entity................................................. 2.14(b)
GAAP................................................................ 2.6
Governmental Entity................................................. 2.5(b)
Hazardous Materials................................................. 2.10
include, includes or including...................................... 8.3
Indebtedness........................................................ 2.18(b)
Indemnified Parties................................................. 5.9(a)
Knowledge of EQR.................................................... 3.20
Knowledge of EWR.................................................... 2.23
Laws................................................................ 2.5(b)
Liens............................................................... 2.2(b)
Management Corp..................................................... Recital G
Management Corp. Stock Purchase Agreement........................... Recital G
Merger.............................................................. Recital A
Merger Agreement.................................................... Recital B
MGCL................................................................ 1.1
Non-Employee Directors Plan......................................... 2.3(a)
1940 Act............................................................ 2.22
1994 Plan........................................................... 2.3(a)
Outside Property Management Agreements.............................. 2.18(f)
Partnership Registration Statement.................................. 5.1(a)
Payor............................................................... 7.2
PBGC................................................................ 2.12(d)
Pension Plan........................................................ 2.12
Person.............................................................. 2.2(a)
prohibited transaction.............................................. 2.12(c)
Property Restrictions............................................... 2.9(a)
Property Transfer................................................... 5.18
Proxy Statement..................................................... 5.1(a)
Qualifying Income................................................... 7.2
Recipient........................................................... 7.2
Registration Rights Agreement....................................... 1.8(b)
Registration Statements............................................. 5.1(a)(iii)
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ ---------
<S> <C>
REIT.................................................................. 2.14(b)
REIT Requirements..................................................... 7.2
rents from real property.............................................. 2.14(b)
Reportable Event...................................................... 2.12(d)
Restricted Share Grants............................................... 2.3(b)
Retention Program..................................................... 5.8(e)
Retention Program Letter.............................................. 5.8(e)
Schedule 5.8 Employees................................................ 5.8(e)
SEC................................................................... 2.5(b)
Securities Act........................................................ 1.8(a)(i)
Shareholder Approvals................................................. 3.5(a)
Subsidiary............................................................ 2.2(a)
Superior Acquisition Proposal......................................... 4.1
Surviving Trust....................................................... 1.1
Takeover Statute...................................................... 2.20
Taxable Transaction................................................... 5.18
Taxes................................................................. 2.14(a)
Third Party Management Agreements..................................... 2.18(e)
Third Party Provisions................................................ 8.5
Title 8............................................................... 1.1
Trading Day........................................................... 5.8(c)
Transfer and Gains Taxes.............................................. 5.7
Transfer Date......................................................... 1.8(d)
Unit Contribution Agreement........................................... Recital F
Voting Agreement...................................................... Recital H
Welfare Plan.......................................................... 2.12
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 27,
1997 by and between EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real
estate investment trust ("EQR"), and EVANS WITHYCOMBE RESIDENTIAL, INC., a
Maryland corporation ("EWR").
RECITALS:
A. The Board of Trustees of EQR and the Board of Directors of EWR deem it
advisable and in the best interests of their respective shareholders, subject
to the conditions and other provisions contained herein, that EWR shall merge
with and into EQR (the "Merger").
B. Upon the terms and conditions set forth herein, EQR and EWR shall execute
Articles of Merger (the "Articles of Merger") in substantially the form
attached hereto as Exhibit "A" and shall file such Articles of Merger in
accordance with Maryland law to effectuate the Merger.
C. For federal income tax purposes, it is intended that the Merger shall
qualify as a tax-free reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement constitutes a
plan of reorganization under Section 368 of the Code.
D. EQR and EWR have each received a fairness opinion relating to the
transactions contemplated hereby as more fully described herein.
E. EQR and EWR desire to make certain representations, warranties and
agreements in connection with the Merger.
F. Promptly following the execution of this Agreement, ERP Operating Limited
Partnership, an Illinois limited partnership ("ERP Operating Partnership"),
desires to offer to each holder of units of limited partnership interests in
Evans Withycombe Residential, L.P., a Delaware limited partnership (the "EWR
Partnership"), other than EWR, the right to contribute the units of limited
partnership interests in EWR Partnership held by such partner to ERP Operating
Partnership solely in exchange for units of limited partnership interest in
ERP Operating Partnership pursuant to a Unit Contribution Agreement in the
form agreed upon by the parties (the "Unit Contribution Agreement").
G. Concurrently with the execution of this Agreement and as an inducement to
EQR to enter into this Agreement, each of the holders of voting capital stock
of Evans Withycombe Management, Inc., an Arizona corporation ("Management
Corp."), other than EWR, has entered into a Stock Purchase Agreement (the
"Management Corp. Stock Purchase Agreement") providing for the sale of all the
outstanding capital stock of Management Corp. to such individuals as shall be
designated by EQR.
H. Concurrently with the execution of this Agreement and as an inducement to
EQR to enter into this Agreement, each of Stephen O. Evans, F. Keith
Withycombe, EW Investments Limited Partnership and The Evans Family Limited
Liability Company has entered into a voting agreement (the "Voting Agreement")
pursuant to which such person or entity has agreed, among other things, to
vote his or its shares of EWR in favor of this Agreement, the Merger and any
other matter which requires his or its vote in connection with the
transactions contemplated by this Agreement, to contribute his or its limited
partnership interests in EWR Partnership for units of limited partnership
interest of EQR pursuant to the Unit Contribution Agreement and to vote his or
its limited partnership interests in EWR Partnership in favor of the matters
described in this Agreement as the EWR Partner Approvals (as hereinafter
defined).
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
The Merger
1.1. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended ("Title 8"), and the
Maryland General Corporation Law ("MGCL"), EWR shall be merged with and into
EQR, with EQR as the surviving real estate investment trust (the "Surviving
Trust").
A-1
<PAGE>
1.2. CLOSING. The closing of the Merger ("Closing") will take place at 10:00
a.m., local time in Chicago, Illinois on the date to be specified by the
parties, which (subject to satisfaction or waiver of the conditions set forth
in Article 6) shall be no later than the third business day after satisfaction
or waiver of the conditions set forth in Section 6.1(a) (the "Closing Date"),
at the offices of Rudnick & Wolfe, 203 North LaSalle Street, Chicago, Illinois
60601, unless another date or place is agreed to in writing by the parties.
1.3. EFFECTIVE TIME. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article 6, the parties shall execute and
file the Articles of Merger, executed in accordance with Title 8 and the MGCL,
with the State Department of Assessments and Taxation of Maryland (the
"Department"), and shall make all other filings and recordings required under
Title 8 and the MGCL. The Merger shall become effective ("Effective Time") at
such time as the Department accepts the Articles of Merger for record, or at
such time as EQR and EWR shall agree should be specified in the Articles of
Merger (not to exceed thirty (30) days after the Articles of Merger are
accepted for record by the Department). Unless otherwise agreed, the parties
shall cause the Effective Time to occur on the Closing Date.
1.4. EFFECT OF MERGER ON DECLARATION OF TRUST AND BY-LAWS. The Amended and
Restated Declaration of Trust, as amended, of EQR and the Amended and Restated
By-laws of EQR, as in effect immediately prior to the Effective Time, shall
continue in full force and effect after the Merger until further amended in
accordance with applicable Maryland law.
1.5. TRUSTEES. The trustees of the Surviving Trust shall be the trustees of
EQR immediately prior to the Effective Time, who shall continue to serve for
the balance of their unexpired terms or their earlier death, resignation or
removal, and Stephen O. Evans, for a term expiring at the annual meeting of
shareholders of EQR held in the year 2000.
1.6. EFFECT ON SHARES AND OPTIONS. The effect of the Merger on the shares,
options and restricted share awards of EWR shall be as provided in the
Articles of Merger. The Merger shall not change the shares of beneficial
interest, options and restricted share awards of EQR outstanding immediately
prior to the Merger.
1.7. EXCHANGE RATIO. The exchange ratio to be set forth in the Articles of
Merger ("Exchange Ratio") shall be 0.5 of a common share of beneficial
interest of EQR, $0.01 par value per share ("EQR Common Share"), for each
common share, $0.01 par value per share, of EWR ("EWR Common Share")
outstanding immediately prior to the Effective Time.
1.8. TRANSACTIONS RELATING TO EWR PARTNERSHIP.
(a) ERP Operating Partnership shall offer to all holders of limited
partnership interests in EWR Partnership (other than EWR) (the "EWR Unit
Holders") the right to contribute all the EWR OP Units (as hereinafter
defined) owned by the EWR Unit Holders, respectively, to ERP Operating
Partnership in exchange for units of limited partnership interest of ERP
Operating Partnership ("ERP OP Units"). The exact number of ERP OP Units to be
received by each EWR Unit Holder who elects to exchange will be equal to the
number of EWR OP Units contributed by such EWR Unit Holder pursuant to the
Unit Contribution Agreement multiplied by the Exchange Ratio. Such offer shall
be terminated if not accepted by the Closing Date unless extended by ERP
Operating Partnership in its sole discretion. If such offer is accepted, the
consummation of each accepted Unit Contribution Agreement shall be conditioned
upon the occurrence of, and shall not occur until, the Effective Time. As used
in this Agreement, "EWR OP Units" shall have the same meaning as the
definition of Partnership Unit set forth in the Amended and Restated Agreement
of Limited Partnership dated as of August 14, 1994, of EWR (the "EWR
Partnership Agreement").
(b) At the Effective Time, EQR and each EWR Unit Holder who executed a Unit
Contribution Agreement shall enter into a Registration Rights Agreement in the
form previously approved by the parties hereto (the "Registration Rights
Agreement") pursuant to which EQR shall agree to register for resale pursuant
to the Securities Act any EQR Common Shares issued to such EWR Unit Holders
upon redemption of the ERP OP Units issued to such EWR Unit Holders pursuant
to the Unit Contribution Agreements.
(c) After the Closing Date, but not sooner than the Transfer Date (as
hereinafter defined), EQR may (but shall not be obligated to) cause EWR
Partnership to (i) contribute or transfer all the assets of EWR Partnership,
subject to the liabilities of EWR Partnership, to ERP Operating Partnership or
any other existing or newly-formed EQR Subsidiary (as hereinafter defined)
which is wholly-owned by either or both EQR or ERP Operating Partnership
pursuant to the form of Asset Contribution Agreement in the form agreed upon
by the parties (the "Asset Contribution Agreement"), subject to obtaining
consents as required pursuant to the Asset Contribution Agreement, or (ii)
merge or consolidate with an existing or newly-formed EQR direct or indirect
Subsidiary which is wholly-owned by either or both EQR or ERP Operating
Partnership. If the assets of EWR Partnership are contributed to ERP Operating
Partnership, EWR Partnership shall receive in exchange for
A-2
<PAGE>
such transfer that number of ERP OP Units equal to the number of EWR OP Units
then outstanding multiplied by the Exchange Ratio. It is contemplated that if
such transaction consists of the contribution of the assets of EWR
Partnership, subject to its liabilities, in exchange for ERP OP Units, EWR
Partnership will be dissolved promptly thereafter and such ERP OP Units shall
be distributed to the partners of EWR Partnership in complete liquidation of
their partnership interests in EWR Partnership. If such transaction is
structured as a merger or consolidation, the partners of EWR Partnership shall
receive in exchange for their EWR OP Units that number of ERP OP Units equal
to the number of EWR OP Units held by them multiplied by the Exchange Ratio.
Prior to the Closing Date, EWR shall obtain the approval of the requisite
holders of EWR Units necessary to effectuate the transactions contemplated by
this subsection (c) (the transactions contemplated by this paragraph (c) being
referred to as the "Asset Contribution").
(d) As used in this Agreement, "Transfer Date" shall mean the first to occur
of (i) the date twelve months after the Closing Date, (ii) the date on which
EQR receives an opinion of Rudnick & Wolfe or other nationally recognized tax
counsel satisfactory to it or a ruling from the Internal Revenue Service that
the Asset Contribution may be effected without adversely affecting the
qualification of the Merger as a tax-free reorganization within the meaning of
Section 368 of the Code or (iii) the date on which regulations are promulgated
by the Department of the Treasury which, in the opinion of Rudnick & Wolfe or
other nationally recognized tax counsel satisfactory to EQR, would permit the
Asset Contribution to occur without adversely affecting the qualification of
the Merger as a tax-free reorganization within the meaning of Section 368 of
the Code.
(e) EWR shall seek the requisite approval of the partners of EWR Partnership
to (i) the Merger (if required), (ii) EQR becoming the general partner of EWR
Partnership, (iii) the Asset Contribution, (iv) the distribution of ERP OP
Units to the partners of EWR Partnership upon dissolution of EWR Partnership,
(v) the deletion of Section 11.2(c) of the EWR Partnership Agreement and any
actual or purported amendment to said Section, (vi) the amendment to the EWR
Partnership Agreement to provide that 1% of the EWR OP Units contributed to
ERP Operating Partnership pursuant to the Unit Contribution Agreements shall
constitute units of general partnership interest in EWR, so that ERP Operating
Partnership shall become a co-general partner of EWR Partnership, and (vii)
any other matters reasonably requested by either party to effectuate the
transactions contemplated by this Agreement (the "EWR Partner Approvals").
1.9 NO APPRAISAL RIGHTS. The holders of EWR Common Shares shall not be
entitled to appraisal rights as a result of the Merger.
ARTICLE 2
Representations and Warranties of EWR
Except as set forth in the letter of even date herewith signed by the
Chairman of the Board or President of EWR and delivered to EQR prior to the
execution hereof (the "EWR Disclosure Letter"), EWR represents and warrants to
EQR as follows:
2.1 ORGANIZATION, STANDING AND POWER OF EWR. EWR is a corporation duly
organized and validly existing under the laws of Maryland. EWR has the
requisite corporate power and authority to carry on its business as now being
conducted. EWR is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed, individually or in the aggregate,
would not have a material adverse effect on the business, properties, assets,
financial condition or results of operations of EWR and the EWR Subsidiaries
(as defined below), taken as a whole (a "EWR Material Adverse Effect"). EWR
has delivered to EQR complete and correct copies of EWR's charter and Amended
and Restated Bylaws, in each case, as amended to the date of this Agreement.
2.2 EWR SUBSIDIARIES.
(a) Schedule 2.2 to the EWR Disclosure Letter sets forth (i) each Subsidiary
(as defined below) of EWR (the "EWR Subsidiaries"), (ii) the ownership
interest therein of EWR, (iii) if not wholly-owned by EWR, the identity and
ownership interest of each of the other owners of such EWR Subsidiary and (iv)
each apartment community owned by such Subsidiary. As used in this Agreement,
"Subsidiary" of any Person (as defined below) means any corporation,
partnership, limited liability company, joint venture, trust or other legal
entity of which such Person (either directly or through or together with
another Subsidiary of such Person) owns any of the capital stock or other
equity interests of such corporation, partnership, limited liability company,
joint venture or other legal entity. As used herein, "Person" means an
individual, corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization or other entity.
A-3
<PAGE>
(b) Except as set forth in Schedule 2.2 to the EWR Disclosure Letter, (i)
all the outstanding shares of capital stock of each EWR Subsidiary that is a
corporation have been validly issued and are (A) fully paid and nonassessable,
(B) owned by EWR or by another EWR Subsidiary and (C) owned free and clear of
all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens") and (ii) all equity
interests in each EWR Subsidiary that is a partnership, joint venture, limited
liability company or trust which are owned by EWR, by another EWR Subsidiary
or by EWR and another EWR Subsidiary are owned free and clear of all Liens.
Each EWR Subsidiary that is a corporation is duly incorporated and validly
existing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted, and each EWR Subsidiary that is a partnership, limited liability
company or trust is duly organized and validly existing under the laws of its
jurisdiction of organization and has the requisite power and authority to
carry on its business as now being conducted. Each EWR Subsidiary is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other than
in such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a EWR Material Adverse
Effect. Copies of the Articles of Incorporation, Bylaws, organization
documents and partnership, joint venture and operating agreements of each EWR
Subsidiary, as amended to the date of this Agreement, have been previously
delivered or made available to EQR. No effective amendment has been made to
the EWR Partnership Agreement since August 14, 1994.
2.3 CAPITAL STRUCTURE.
(a) The authorized shares of stock of EWR consist of 10,000,000 shares of
preferred stock, $0.01 par value per share, none of which is issued or
outstanding, and 100,000,000 EWR Common Shares, of which 20,372,163 were
issued and outstanding as of August 15, 1997, which includes 146,166 EWR
Common Shares issued pursuant to Restricted Share Grants (as hereinafter
defined), of which 54,038 EWR Common Shares have become vested. On August 15,
1997, (i) 1,830,000 EWR Common Shares have been reserved for issuance under
the 1994 Stock Incentive Plan of EWR (the "1994 Plan"), under which options in
respect of 1,130,775 EWR Common Shares have been granted and are outstanding
on August 15, 1997, (ii) 100,000 EWR Common Shares were reserved for issuance
under the Non-Employee Directors Stock Plan of EWR (the "Non-Employee
Directors Plan"), under which no options have been granted, and (iii)
4,551,423 EWR Common Shares were reserved for issuance upon conversion of EWR
OP Units.
(b) Set forth in Schedule 2.3 of the EWR Disclosure Letter is a true and
complete list of the following: (i) each qualified or nonqualified option to
purchase EWR Common Shares granted under the 1994 Plan or any other formal or
informal arrangement ("EWR Options"); (ii) each grant of EWR Common Shares to
employees which are subject to any risk of forfeiture ("Restricted Share
Grants"); and (iii) all other warrants or other rights to acquire stock, all
limited stock appreciation rights, phantom stock, dividend equivalents,
performance units and performance shares granted under the 1994 Plan which are
outstanding on August 15, 1997 or on the date of this Agreement. Schedule 2.3
of the EWR Disclosure Letter sets forth for each EWR Option the name of the
grantee, the date of the grant, status of the option as qualified or
nonqualified under Section 422 of the Code, the number of EWR Common Shares
subject to such option, the number of shares subject to options that are
currently exercisable, the exercise price per share, and the number of such
shares subject to share appreciation rights. For each Restricted Share Grant,
Schedule 2.3 of the EWR Disclosure Letter sets forth the name of the grantee,
the date of the grant and the number of EWR Common Shares granted and the date
any risk of forfeiture with respect to such shares lapses. No director of EWR
has elected to receive EWR Common Shares in lieu of director's fees pursuant
to the Non-Employee Directors Stock Plan. On the date of this Agreement,
except as set forth in this Section 2.3 or Schedule 2.3 of the EWR Disclosure
Letter, no shares of stock of EWR were outstanding or reserved for issuance.
(c) All outstanding shares of stock of EWR are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness of EWR having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which shareholders of EWR may vote.
(d) Except (i) as set forth in this Section 2.3 or in Schedule 2.3 of the
EWR Disclosure Letter and (ii) EWR OP Units (as hereinafter defined), which
may be redeemed for EWR Common Shares, as of August 15, 1997 and as of the
date of this Agreement, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which EWR or any EWR Subsidiary is a party or by which such
entity is bound, obligating EWR or any EWR Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock, voting securities or other ownership interests of EWR or any EWR
Subsidiary or obligating EWR or any EWR Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking (other than to EWR or a EWR Subsidiary).
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(e) As of the date hereof, 24,923,586 EWR OP Units are validly issued and
outstanding, fully paid and nonassessable, of which 20,372,163 are owned by
EWR. Schedule 2.3 of the EWR Disclosure Schedule sets forth the name of each
EWR Unit Holder and the number of EWR OP Units owned by each such EWR Unit
Holder as of the date of this Agreement. The EWR OP Units are subject to no
restriction except as set forth in the Partnership Agreement. EWR Partnership
has not issued or granted and is not a party to any outstanding commitments of
any kind relating to, or any presently effective agreements or understandings
with respect to, interests in EWR Partnership, whether issued or unissued, or
securities convertible into interests in EWR Partnership.
(f) All dividends on EWR Common Shares and distributions on EWR OP Units
which have been declared prior to the date of this Agreement have been paid in
full.
2.4 OTHER INTERESTS. Except for interests in the Subsidiaries of EWR
Partnership and certain other entities as set forth in Schedule 2.4 or 2.5 of
the EWR Disclosure Letter, neither EWR nor any of its Subsidiaries owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust or entity (other
than investments in short-term investment securities). With respect to such
other interests, EWR or EWR Partnership is a partner or stockholder in good
standing, and owns such interests free and clear of all liens, pledges,
security interests, claims, options or other encumbrances. Neither EWR nor any
of the EWR Subsidiaries is in breach of any provision of any agreement,
document or contract governing its rights in or to the interests owned or held
by it, all of which agreements, documents and contracts are (a) set forth on
the EWR Disclosure Letter, (b) unmodified except as described therein and (c)
in full force and effect. To the Knowledge of EWR (as defined in Section
2.23), the other parties to such agreements, documents or contracts are not in
breach of any of their respective obligations under such agreements, documents
or contracts.
2.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) EWR has the requisite corporate power and authority to enter into this
Agreement and, subject to the requisite shareholder approval of the Merger
(the "EWR Shareholder Approvals"), to consummate the transactions contemplated
by this Agreement to which EWR is a party. The execution and delivery of this
Agreement by EWR and the consummation by EWR of the transactions contemplated
by this Agreement to which EWR is a party have been duly authorized by all
necessary action on the part of EWR, except for and subject to the EWR
Shareholder Approvals and the EWR Partner Approvals. This Agreement has been
duly executed and delivered by EWR and constitutes a valid and binding
obligation of EWR, enforceable against EWR in accordance with and subject to
its terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 2.5 to the EWR Disclosure Letter, the
execution and delivery of this Agreement by EWR do not, and the consummation
of the transactions contemplated by this Agreement to which EWR is a party and
compliance by EWR with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit under,
or result in the creation of any Lien upon any of the properties or assets of
EWR or any EWR Subsidiary under, (i) the charter or the Amended and Restated
Bylaws of EWR or the comparable charter or organizational documents or
partnership or similar agreement (as the case may be) of any EWR Subsidiary,
each as amended or supplemented, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, reciprocal easement agreement, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
EWR or any EWR Subsidiary or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation (collectively, "Laws") applicable to EWR or any EWR Subsidiary,
or their respective properties or assets, other than, in the case of clause
(ii) or (iii), any such conflicts, violations, defaults, rights, loss or Liens
that individually or in the aggregate would not (x) have a EWR Material
Adverse Effect or (y) prevent the consummation of the transactions
contemplated by this Agreement. No consent, approval, order or authorization
of, or registration, declaration or filing with, any federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity"), is required by or with respect to EWR or any EWR Subsidiary in
connection with the execution and delivery of this Agreement by EWR or the
consummation by EWR of the transactions contemplated by this Agreement, except
for (i) the filing with the Securities and Exchange Commission (the "SEC") of
the Proxy Statement (as defined in Section 5.1), (ii) the acceptance for
record of the Articles of Merger by the Department and (iii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings (A) as are set forth in Schedule 2.5 to the EWR Disclosure Letter, (B)
as may be required under (y) federal, state or local environmental laws or (z)
the "blue sky" laws of various states, to the extent applicable or (C) which,
if not obtained or made, would not prevent or delay in any material respect
the consummation of any of the transactions contemplated by this Agreement or
otherwise prevent EWR from performing its obligations under this Agreement in
any material respect or have, individually or in the aggregate, a EWR Material
Adverse Effect.
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(c) For purposes of determining compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, EWR confirms that the conduct
of its business consists solely of investing in, owning, developing and
operating real estate for the benefit of its shareholders.
2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. EWR and
EWR Partnership have filed all required reports, schedules, forms, statements
and other documents with the SEC since August 17, 1994 through the date hereof
(the "EWR SEC Documents"). Schedule 2.6 of the EWR Disclosure Letter contains
a complete list of all EWR SEC Documents filed by EWR or EWR Partnership with
the SEC since January 1, 1997 and on or prior to the date of this Agreement.
All of the EWR SEC Documents (other than preliminary material), as of their
respective filing dates, complied in all material respects with all applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in each case, the rules and regulations
promulgated thereunder applicable to such EWR SEC Documents. None of the EWR
SEC Documents at the time of filing contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
such statements have been modified or superseded by later EWR SEC Documents
filed and publicly available prior to the date of this Agreement. The
consolidated financial statements of EWR included in the EWR SEC Documents or
of EWR Partnership included in the EWR SEC Documents complied as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles ("GAAP")
(except, in the case of unaudited statements, as permitted by the applicable
rules and regulations of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
presented, in accordance with the applicable requirements of GAAP and the
applicable rules and regulations of the SEC, the consolidated financial
position of EWR and its Subsidiaries or EWR Partnership and its Subsidiaries,
as the case may be, in each case taken as a whole, as of the dates thereof and
the consolidated results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in Schedule 2.7 of the EWR Disclosure
Letter, EWR has no Subsidiaries which are not consolidated for accounting
purposes. Except for liabilities and obligations set forth in the EWR SEC
Documents or in Schedule 2.6 to the EWR Disclosure Letter, neither EWR nor any
of the EWR Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be
set forth on a consolidated balance sheet of EWR or in the notes thereto and
which, individually or in the aggregate, would have a EWR Material Adverse
Effect.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the EWR SEC
Documents or the EWR Disclosure Letter, since the date of the most recent
audited financial statements included in EWR SEC Documents (the "EWR Financial
Statement Date"), EWR and its Subsidiaries have conducted their business only
in the ordinary course (taking into account prior practices, including the
acquisition of properties and issuance of securities) and there has not been
(a) any material adverse change in the business, financial condition or
results of operations of EWR and its Subsidiaries taken as a whole (a "EWR
Material Adverse Change"), nor has there been any occurrence or circumstance
that with the passage of time would reasonably be expected to result in a EWR
Material Adverse Change, (b) except for regular quarterly distributions not in
excess of $0.41 per EWR Common Share or EWR Partnership Unit, respectively (or
as necessary to maintain REIT status), in each case with customary record and
payment dates, any authorization, declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the EWR Common Shares or the EWR OP Units, (c) any split,
combination or reclassification of the EWR Common Shares or the EWR OP Units
or any issuance or the authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for, or giving the right to
acquire by exchange or exercise, shares of stock of EWR or partnership
interests in EWR partnerships or any issuance of an ownership interest in, any
EWR Subsidiary, (d) any damage, destruction or loss, whether or not covered by
insurance, that has or would have a EWR Material Adverse Effect, (e) any
change in accounting methods, principles or practices by EWR or any EWR
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in EWR SEC Documents or required by a
change in GAAP, (f) any amendment of any employment, consulting, severance,
retention or any other agreement between EWR and any officer or director of
EWR or (g) any acquisition or disposition of any real property, or any
commitment to do so, made by EWR or any of its Subsidiaries.
2.8 LITIGATION. Except as disclosed in the EWR SEC Documents or in Schedule
2.8 to the EWR Disclosure Letter, and other than personal injury and other
routine tort litigation arising from the ordinary course of operations of EWR
and its Subsidiaries (a) which are covered by adequate insurance or (b) for
which all material costs and liabilities arising therefrom are reimbursable
pursuant to common area maintenance or similar agreements, there is no suit,
action or proceeding pending (in which service of process has been received by
an employee of EWR or an EWR Subsidiary) or, to the Knowledge of EWR (as
hereinafter defined), threatened in writing against or affecting EWR or any
EWR Subsidiary that, individually or in the aggregate, could reasonably be
expected to (i) have a EWR Material Adverse Effect or (ii) prevent the
consummation
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of any of the transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any court or Governmental
Entity or arbitrator outstanding against EWR or any of its Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future would
have, any such effect. Notwithstanding the foregoing, (y) Schedule 2.8 to the
EWR Disclosure Letter sets forth each and every uninsured claim, equal
employment opportunity claim and claim relating to sexual harassment and/or
discrimination pending or, to the Knowledge of EWR, threatened as of the date
hereof, in each case with a brief summary of such claim or threatened claim
and (z) no claim has been made under any directors' and officers' liability
insurance policy maintained at any time by EWR or any of the EWR Subsidiaries.
2.9 PROPERTIES.
(a) Except as provided in Schedule 2.9 of the EWR Disclosure Letter, EWR or
the EWR Subsidiary set forth on Schedule 2.2 of the EWR Disclosure Letter owns
fee simple title to each of the real properties identified in Schedule 2.2 of
the EWR Disclosure Letter (the "EWR Properties"), which are all of the real
estate properties owned by them, in each case (except as provided below) free
and clear of liens, mortgages or deeds of trust, claims against title, charges
which are liens, security interests or other encumbrances on title
("Encumbrances"). Except as set forth in Schedule 2.2 of the EWR Disclosure
Letter, no other Person has any ownership interest in any of the EWR
Properties, and any such ownership interest so scheduled does not materially
detract from the value of, or materially interfere with the present use of,
any of the EWR Properties subject thereto or affected thereby. Except as set
forth in Schedule 2.9 of the EWR Disclosure Letter, none of the EWR Properties
is subject to any restriction on the sale or other disposition thereof or on
the financing or release of financing thereon. The EWR Properties are not
subject to any rights of way, written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an
interest in title (collectively, "Property Restrictions") or Encumbrances,
except for (i) Property Restrictions and Encumbrances set forth in the EWR
Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or
any governmental body or authority with respect to real property, including
zoning regulations, which do not materially adversely affect the current use
of any EWR Property, (iii) Property Restrictions and Encumbrances disclosed on
existing title reports or existing surveys (in either case copies of which
title reports and surveys have been delivered or made available to EQR and
listed in the EWR Disclosure Letter), which Property Restrictions and
Encumbrances, in any event, do not materially detract from the value of, or
materially interfere with the present use of, any of the EWR Properties
subject thereto or affected thereby and (iv) mechanics', carriers', workmen's,
repairmen's liens and other Encumbrances and Property Restrictions, if any,
which, individually or in the aggregate, do not materially detract from the
value of or materially interfere with the present use of any of the EWR
Property subject thereto or affected thereby, and do not otherwise materially
impair business operations conducted by EWR and the EWR Subsidiaries at such
EQR Property. Except as provided in Schedule 2.9 of the EWR Disclosure Letter
or as reflected in the applicable title report, a true and correct copy of
which has been provided to EQR, no portion of any of the EWR Properties is
located in a flood zone area "V". Schedule 2.9 lists each of the EWR
Properties which are under development as of the date of this Agreement and
describes the status of such development as of the date hereof.
(b) Except as provided in Schedule 2.9 of the EWR Disclosure Letter, valid
policies of title insurance have been issued insuring the applicable EWR
Subsidiary's fee simple title to the EWR Properties owned by it in amounts at
least equal to the purchase price therefor paid by such EWR Subsidiary,
subject only to the matters disclosed above and on the EWR Disclosure Letter.
Such policies are, at the date hereof, in full force and effect. No claim has
been made against any such policy.
(c) Except as provided in Schedule 2.9 of the EWR Disclosure Letter or in
EWR's capital budget attached to the EWR Disclosure Letter (the "EWR Capital
Budget"), EWR has no Knowledge (i) that, any certificate, permit or license
from any governmental authority having jurisdiction over any of the EWR
Properties or any agreement, easement or other right which is necessary to
permit the lawful use and operation of the buildings and improvements on any
of the EWR Properties or which is necessary to permit the lawful use and
operation of all driveways, roads and other means of egress and ingress to and
from any of the EWR Properties has not been obtained and is not in full force
and effect, or of any pending threat of modification or cancellation of any of
same; (ii) of any written notice of any violation of any federal, state or
municipal law, ordinance, order, regulation or requirement materially and
adversely affecting any of the EWR Properties issued by any governmental
authority; (iii) of any material structural defects relating to any EWR
Property which costs more than $100,000 to repair; (iv) of any EWR Property
whose building systems are not in working order in any material respect and
costs more than $100,000 to repair; (v) of any physical damage to any EWR
Property in excess of $100,000 for which there is no insurance in effect
covering the cost of the restoration; (vi) of any current renovation or
uninsured restoration to any EWR Property the cost of which exceeds $100,000;
or (vii) of items referred to in Section 2.9(c)(iii)-(vi) which aggregate for
EWR and its Subsidiaries more than $5,000,000.
(d) Neither EWR nor any of the EWR Subsidiaries has received any written or
published notice to the effect that (i) any condemnation or rezoning
proceedings are pending or threatened with respect to any of the EWR
Properties or (ii) any
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zoning, building or similar law, code, ordinance, order or regulation is or
will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of the EWR Properties or by the
continued maintenance, operation or use of the parking areas. Except as set
forth in Schedule 2.9 of the EWR Disclosure Letter, all work to be performed,
payments to be made and actions to be taken by EWR or the EWR Subsidiaries
prior to the date hereof pursuant to any agreement entered into with a
governmental body or authority in connection with a site approval, zoning
reclassification or other similar action relating to any EWR Properties (e.g.,
Local Improvement District, Road Improvement District, Environmental
Mitigation) have been performed, paid or taken, as the case may be, and EWR
has no Knowledge of any planned or proposed work, payments or actions that may
be required after the date hereof pursuant to such agreements.
2.10 ENVIRONMENTAL MATTERS. None of EWR, any of the EWR Subsidiaries or, to
EWR's Knowledge, any other Person has caused or permitted (a) the unlawful
presence of any hazardous substances, hazardous materials, toxic substances or
waste materials (collectively, "Hazardous Materials") on any of the EWR
Properties or (b) any unlawful spills, releases, discharges or disposal of
Hazardous Materials to have occurred or be presently occurring on or from the
EWR Properties as a result of any construction on or operation and use of such
properties, which presence or occurrence would, individually or in the
aggregate, have a EWR Material Adverse Effect; and in connection with the
construction on or operation and use of the EWR Properties, EWR and the EWR
Subsidiaries have not failed to comply in any material respect with all
applicable local, state and federal environmental laws, regulations,
ordinances and administrative and judicial orders relating to the generation,
recycling, reuse, sale, storage, handling, transport and disposal of any
Hazardous Materials, except to the extent such failure to comply, individually
or in the aggregate, would not have a EWR Material Adverse Effect. EWR has
previously delivered or made available to EQR complete copies of all
environmental investigations and testing or analysis made by or on behalf of
EWR or any of the EWR Subsidiaries that are in the possession of any of them
with respect to the environmental condition of the EWR Properties, all of
which are listed in the EWR Disclosure Letter.
2.11 RELATED PARTY TRANSACTIONS. Set forth in Schedule 2.11 of the EWR
Disclosure Letter is a list of all arrangements, agreements and contracts
entered into by EWR or any of the EWR Subsidiaries with (a) any consultant,
(b) any person who is an officer, director or Affiliate (as defined below) of
EWR or any of its Subsidiaries, any relative of any of the foregoing or any
entity of which any of the foregoing is an Affiliate or (c) any person who
acquired EWR Common Shares or EWR OP Units in a private placement, except
those of a type available to EWR employees generally. Such documents, copies
of all of which have previously been delivered or made available to EQR, are
listed in Schedule 2.11 of the EWR Disclosure Letter. As used in this
Agreement, the term "Affiliate" shall have the same meaning as such term is
defined in Rule 405 promulgated under the Securities Act.
2.12 EMPLOYEE BENEFITS. As used herein, the term "Employee Plan" includes
any pension, retirement, savings, disability, medical, dental, health, life,
death benefit, group insurance, profit sharing, deferred compensation, stock
option, bonus, incentive, vacation pay, tuition reimbursement, severance pay,
or other employee benefit plan, trust, agreement, contract, agreement, policy
or commitment (including, without limitation, any pension plan, as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended and the rules and regulations promulgated thereunder ("ERISA")
("Pension Plan"), and any welfare plan as defined in Section 3(1) of ERISA
("Welfare Plan")), whether any of the foregoing is funded, insured or self-
funded, written or oral, (i) sponsored or maintained by EWR or its
Subsidiaries (each a "Controlled Group Member") and covering any Controlled
Group Member's active or former employees (or their beneficiaries), (ii) to
which any Controlled Group Member is a party or by which any Controlled Group
Member (or any of the rights, properties or assets thereof) is bound or (iii)
with respect to which any current Controlled Group Member may otherwise have
any material liability (whether or not such Controlled Group Member still
maintains such Employee Plan). Each Employee Plan is listed on Schedule 2.12.
With respect to the Employee Plans:
(a) Except as disclosed in the EWR SEC Documents or in Schedule 2.12 of
the EWR Disclosure Letter, no Controlled Group Member has any continuing
liability under any Welfare Plan which provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after such
participant's termination of employment, except as may be required by
section 4980B of the Code or Section 601 (et seq.) of ERISA, or under any
applicable state law, and at the expense of the participant or the
beneficiary of the participant.
(b) Each Employee Plan complies in all material respects with the
applicable requirements of ERISA and any other applicable law governing
such Employee Plan, and each Employee Plan has at all times been properly
administered in all material respects in accordance with all such
requirements of law, and in accordance with its terms and the terms of any
applicable collective bargaining agreement to the extent consistent with
all such requirements of law. Each Pension Plan which is intended to be
qualified is qualified under Section 401(a) of the Code, has received a
favorable determination letter from the IRS stating that such Plan meets
the requirements of Section 401(a) of the Code and that the trust
associated with such Plan is tax-exempt under Section 501(a) of the Code
and no event has occurred which would jeopardize the qualified status of
any such plan or the tax exempt status of any such trust under Sections
401(a) and Section 501(a) of the Code, respectively. No lawsuits, claims
(other than routine claims for benefits) or complaints
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to, or by, any person or governmental entity have been filed or are pending
and, to the Knowledge of EWR, there is no fact or contemplated event which
would be expected to give rise to any such lawsuit, claim (other than
routine claims for benefits) or complaint with respect to any Employee
Plan. Without limiting the foregoing, the following are true with respect
to each Employee Plan:
(i) all Controlled Group Members have filed or caused to be filed
every material return, report statement, notice, declaration and other
document required by any law or governmental agency, federal, state and
local (including, without limitation, the IRS and the Department of
Labor) with respect to each such Employee Plan, each of such filings has
been complete and accurate in all material respects and no Controlled
Group Member has incurred any material liability in connection with such
filings;
(ii) all Controlled Group Members have delivered or caused to be
delivered to every participant, beneficiary and other party entitled to
such material, all material plan descriptions, returns, reports,
schedules, notices, statements and similar materials, including, without
limitation, summary plan descriptions and summary annual reports, as are
required under Title I of ERISA, the Code, or both, and no Controlled
Group Member has incurred any material liability in connection with such
deliveries;
(iii) all contributions and payments with respect to Employee Plans
that are required to be made by a Controlled Group Member with respect
to periods ending on or before the Closing Date (including periods from
the first day of the current plan or policy year to the Closing Date)
have been, or will be, made or accrued before the Closing Date in
accordance with the appropriate plan document, actuarial report,
collective bargaining agreements or insurance contracts or arrangements
or as otherwise required by ERISA or the Code;
(iv) with respect to each such Employee Plan, to the extent
applicable, EWR has delivered to or has made available to EQR true and
complete copies of (A) plan documents, or any and all other documents
that establish the existence of the plan, trust, arrangement, contract,
policy or commitment and all amendments thereto, (B) the most recent
determination letter, if any, received from the IRS, (C) the three most
recent Form 5500 Annual Report (and all schedules and reports relating
thereto) and actuarial reports and (D) all related trust agreements,
insurance contract or other funding agreements that implement each such
Employee Plan.
(c) With respect to each Employee Plan, there has not occurred, and no
person or entity is contractually bound to enter into, any "prohibited
transaction" within the meaning of Section 4975(c) of the Code of Section
406 of ERISA, which transaction is not exempt under Section 4975(d) of the
Code or Section 408 of ERISA.
(d) Except as disclosed in Schedule 2.12A, no Controlled Group Member has
maintained or been obligated to contribute to any Employee Plan subject to
Code Section 412 or Title IV of ERISA. With respect to each Employee Plan
set forth on Schedule 2.12A, EWR represents that each such Employee Plan
has been completely terminated in accordance with all Code and ERISA
requirements for a "standard termination" (as defined in 4041(b) of ERISA),
as applicable on the termination date.
(e) With respect to each pension plan maintained by any Controlled Group
Member, such Plans provide the Plan Sponsor the authority to amend or
terminate the plan at any time, subject to applicable requirements of ERISA
and the Code.
2.13 EMPLOYEE POLICIES. Schedule 2.13 of the EWR Disclosure Letter lists the
employee handbooks of EWR and each of the EWR Subsidiaries currently in
effect. A copy of each such employee handbook has previously been made
available to EQR. Except as set forth in Schedule 2.13 of the EWR Disclosure
Letter, such handbooks fairly and accurately summarize all material employee
policies, vacation policies and payroll practices of EWR and the EWR
Subsidiaries.
2.14 TAXES.
(a) Each of EWR and the EWR Subsidiaries has filed all tax returns and
reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to do so)
and has paid (or EWR has paid on its behalf) all Taxes (as defined below)
shown on such returns and reports as required to be paid by it except (i) as
set forth in Schedule 2.14 of the EWR Disclosure Letter or (ii) taxes that are
being contested in good faith by appropriate proceedings and for which EWR or
the applicable EWR Subsidiary shall have set aside on its books adequate
reserves. The most recent audited financial statements contained in the EWR
SEC Documents reflect an adequate reserve for all material Taxes payable by
EWR and the EWR Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements. Since the EWR Financial
Statement Date, EWR has incurred no liability for taxes under Sections 857(b),
860(c) or 4981 of the Code, including without limitation any tax arising from
a prohibited transaction described in Section 857(b)(6) of the Code, and
neither EWR nor any EWR Subsidiary has incurred any liability for taxes other
than in the ordinary course of business. No event has occurred, and no
condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon EWR. To
the Knowledge of EWR, no
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deficiencies for any Taxes have been proposed, asserted or assessed against
EWR or any of the EWR Subsidiaries, and no requests for waivers of the time to
assess any such Taxes are pending. As used in this Agreement, "Taxes" shall
include all federal, state, local and foreign income, property, sales,
franchise, employment, excise and other taxes, tariffs or governmental charges
of any nature whatsoever, together with penalties, interest or additions to
Tax with respect thereto.
(b) EWR (i) for all taxable years commencing with 1994 through December 31,
1996 has been subject to taxation as a real estate investment trust (a "REIT")
within the meaning of Section 856 of the Code and has satisfied all
requirements to qualify as a REIT for such years, (ii) has operated since
December 31, 1996 to the date of this representation, and intends to continue
to operate, in such a manner as to qualify as a REIT for the taxable year
ending December 31, 1997 or the Closing Date, whichever is earlier, and (iii)
has not taken or omitted to take any action which would reasonably be expected
to (A) result in any rents paid by the tenants of the EWR Properties to be
excluded from the definition of "rents from real property" under Section
856(d)(2)(C) of the Code (except for certain rents derived from the rental of
apartments to winter visitors and corporate clients, which, if not treated as
"rents from real property", will not result in the disqualification of EWR as
a REIT under Section 856 of the Code) or (B) otherwise result in a challenge
to its status as a REIT, and to EWR's Knowledge, no such challenge is pending
or threatened. Each EWR Subsidiary which is a partnership, joint venture or
limited liability company (i) has been since its formation and continues to be
treated for federal income tax purposes as a partnership and not as a
corporation or an association taxable as a corporation and (ii) has not since
its formation owned any assets (including, without limitation, securities)
that would cause EWR to violate Section 856(c)(5) of the Code. Each EWR
Subsidiary which is a corporation (other than Management Corp.) has been since
its formation a qualified REIT subsidiary under Section 856(i) of the Code.
EWR Partnership is not a publicly traded partnership within the meaning of
Section 7704 of the Code, and the interests in the EWR Partnership are not
considered to be (i) traded on an established securities market or (ii)
readily tradeable on a secondary market or the substantial equivalent thereof
under either IRS Notice 88-75 or Treasury Regulation Section 1.7704-1. In the
case of a partner of EWR Partnership that is a Flow-Through Entity (as defined
below), no person owning an interest in such Flow-Through Entity (directly or
through another Flow-Through Entity) is treated as a partner of the EWR
Partnership under either IRS Notice 88-75 or Treasury Regulation Section
1.7704-1(h)(3). For purposes of this Section 2.14(b), "Flow-Through Entity"
means an entity classified as a partnership, a grantor trust or an S
corporation for federal income tax purposes.
2.15 NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Schedule 2.15 of the
EWR Disclosure Letter contains a true and complete list of all cash and non-
cash payments which will become payable to each employee, officer or director
of EWR or any EWR Subsidiary as a result of the Merger. Except as described in
Schedule 2.15 to the EWR Disclosure Letter, or as otherwise provided for in
this Agreement, there is no employment or severance contract, or other
agreement requiring payments, cancellation of indebtedness or other obligation
to be made on a change of control or otherwise as a result of the consummation
of any of the transactions contemplated by this Agreement, with respect to any
employee, officer or director of EWR or any EWR Subsidiary.
2.16 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Morgan Stanley Realty
Incorporated, the fees and expenses of which are as described in the
engagement letter dated May 7, 1997 between Morgan Stanley Realty Incorporated
and EWR, a true and correct copy of which has previously been given to EQR, is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of EWR or any EWR Subsidiary.
2.17 COMPLIANCE WITH LAWS. Neither EWR nor any of the EWR Subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation,
rule, judgment, decree or order of any Governmental Entity applicable to its
business, properties or operations, except to the extent that such violation
or failure would not have a EWR Material Adverse Effect.
2.18 CONTRACTS; DEBT INSTRUMENTS.
(a) Neither EWR nor any EWR Subsidiary has received a written notice that
EWR or any EWR Subsidiary is in violation of or in default under (nor to the
Knowledge of EWR does there exist any condition which upon the passage of time
or the giving of notice or both would cause such a violation of or default
under) any material loan or credit agreement, note, bond, mortgage, indenture,
lease, permit, concession, franchise, license or any other material contract,
agreement, arrangement or understanding, to which it is a party or by which it
or any of its properties or assets is bound, except as set forth in Schedule
2.18 to the EWR Disclosure Letter, nor to the Knowledge of EWR does such a
violation or default exist, except to the extent that such violation or
default, individually or in the aggregate, would not have a EWR Material
Adverse Effect.
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(b) Except for any of the following expressly identified in EWR SEC
Documents, Schedule 2.18 of the EWR Disclosure Letter sets forth a list of
each loan or credit agreement, note, bond, mortgage, indenture and any other
agreement and instrument pursuant to which any Indebtedness of EWR or any of
EWR Subsidiaries, other than Indebtedness payable to EWR or a EWR Subsidiary
is outstanding or may be incurred. For purposes of this Section 2.18,
"Indebtedness" shall mean (i) indebtedness for borrowed money, whether secured
or unsecured, (ii) obligations under conditional sale or other title retention
agreements relating to property purchased by such person, (iii) capitalized
lease obligations, (iv) obligations under interest rate cap, swap, collar or
similar transaction or currency hedging transactions (valued at the
termination value thereof) and (v) guarantees of any such indebtedness of any
other person.
(c) To the extent not set forth in response to the requirements of Section
2.18(b), Schedule 2.18 of the EWR Disclosure Letter sets forth each interest
rate cap, interest rate collar, interest rate swap, currency hedging
transaction, and any other agreement relating to a similar transaction to
which EWR or any EWR Subsidiary is a party or an obligor with respect thereto.
(d) Except as set forth in Schedule 2.18 of the EWR Disclosure Letter,
neither EWR nor any of the EWR Subsidiaries is party to any agreement which
would restrict any of them from prepaying any of their Indebtedness without
penalty or premium at any time or which requires any of them to maintain any
amount of Indebtedness with respect to any of the EWR Properties.
(e) Neither EWR nor any of the EWR Subsidiaries is a party to any agreement
relating to the management of any of the EWR Properties by any Person other
than EWR Management, Inc., except the agreements described in Schedule 2.18 to
the EWR Disclosure Letter (the "Third Party Management Agreements"). True and
complete copies of the Third Party Management Agreements have previously been
furnished to EQR.
(f) Neither EWR nor any of the EWR Subsidiaries is a party to any agreement
pursuant to which EWR or any EWR Subsidiary manages any real properties other
than EWR Properties, except for the agreements described in Schedule 2.18 to
the EWR Disclosure Letter (the "Outside Property Management Agreements").
(g) Except for budgeted construction disclosed in the EWR Capital Budget,
Schedule 2.18 of the EWR Disclosure Letter lists all agreements entered into
by EWR or any of the EWR Subsidiaries relating to the development or
construction of, or additions or expansions to, any EWR Real Properties which
are currently in effect and under which EWR or any of the EWR Subsidiaries
currently has, or expects to incur, an obligation in excess of $250,000. True
and correct copies of such agreements have previously been delivered or made
available to EQR.
(h) Schedule 2.18 of the EWR Disclosure Letter lists all agreements entered
into by EWR or any of the EWR Subsidiaries providing for the sale of, or
option to sell, any EWR Properties or the purchase of, or option to purchase,
any real estate which are currently in effect.
(i) Except as set forth in Schedule 2.18 of the EWR Disclosure Letter,
neither EWR nor any EWR Subsidiary has any continuing contractual liability
(i) for indemnification or otherwise under any agreement relating to the sale
of real estate previously owned, whether directly or indirectly, by EWR or any
EWR Subsidiary or (ii) to pay any additional purchase price for any of the EWR
Properties.
(j) The two Consulting Agreements dated 1991 between Management Corp. and
Evans Western Joint Venture with respect to Phase II and Phase III of Acacia
Creek have terminated and neither EWR nor any EWR Subsidiary has any liability
thereunder.
2.19 OPINION OF FINANCIAL ADVISOR. EWR has received the opinion of Morgan
Stanley Realty Incorporated or an affiliate thereof, dated August 27, 1997,
satisfactory to EWR, a signed copy of which will be provided to EQR, to the
effect that the proposed consideration to be received by the holders of EWR
Common Shares pursuant to the Merger is fair to such holders from a financial
point of view.
2.20 STATE TAKEOVER STATUTES. EWR has taken all action necessary to exempt
the transactions contemplated by this Agreement between EQR and EWR and its
Affiliates from the operation of any "fair price," "moratorium," "control
share acquisition" or any other anti-takeover statute or similar statute
enacted under the state or federal laws of the United States or similar
statute or regulation (a "Takeover Statute").
2.21 REGISTRATION STATEMENT. The information relating to EWR and the EWR
Subsidiaries included in the Registration Statement (as defined in Section
5.1) will not, as of the effective date of the Registration Statement, contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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2.22 INVESTMENT COMPANY ACT OF 1940. Neither EWR nor any of EWR Subsidiaries
is, or at the Effective Time will be, required to be registered under the
Investment Company Act of 1940, as amended (the "1940 Act").
2.23 DEFINITION OF KNOWLEDGE OF EWR. As used in this Agreement, the phrase
"Knowledge of EWR" (or words of similar import) means the knowledge of those
individuals identified in Schedule 2.23 of the EWR Disclosure Letter.
ARTICLE 3
Representations and Warranties of EQR
Except as set forth in the letter of even date herewith signed by the
President or an Executive Vice President of EQR and delivered to EWR prior to
the execution hereof (the "EQR Disclosure Letter"), EQR represents and
warrants to EWR as follows:
3.1 ORGANIZATION, STANDING AND POWER OF EQR. EQR is a real estate investment
trust duly organized and validly existing under the laws of Maryland and has
the requisite power and authority to carry on its business as now being
conducted. EQR is duly qualified or licensed to do business as a foreign trust
and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed, individually or in the aggregate,
would not have a material adverse effect on the business, properties, assets,
financial condition or results of operations of EQR and the Subsidiaries of
EQR ("EQR Subsidiaries"), taken as a whole ("EQR Material Adverse Effect").
EQR has delivered to EWR complete and correct copies of its Amended and
Restated Declaration of Trust and Amended and Restated Bylaws as amended or
supplemented to the date of this Agreement.
3.2 CAPITAL STRUCTURE.
(a) The authorized shares of beneficial interest of EQR consist of
200,000,000 EQR Common Shares and 100,000,000 preferred shares of beneficial
interest ("EQR Preferred Shares"), of which (i) 6,120,000 EQR Preferred Shares
have been designated as 9 3/8% Series A Cumulative Redeemable Preferred Shares
of Beneficial Interest, $0.01 par value per share (the "EQR Series A Preferred
Shares"), (ii) 500,000 EQR Preferred Shares have been designated as 9 1/8%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01
par value per share, that are represented by 5,000,000 depository shares (the
"EQR Series B Preferred Shares"), (iii) 460,000 EQR Preferred Shares have been
designated as 9 1/8% Series C Cumulative Redeemable Preferred Shares of
Beneficial Interest, $0.01 par value per share, that are represented by
4,600,000 depository shares (the "EQR Series C Preferred Shares"), (iv)
805,000 EQR Preferred Shares have been designated as 8.60% Series D Cumulative
Redeemable Preferred Shares of Beneficial Interest (Liquidation Preference
$250.00 Per Share) (the "EQR Series D Preferred Shares"), (v) 4,600,000 EQR
Preferred Shares have been designated as Series E Cumulative Convertible
Preferred Shares of Beneficial Interest, $0.01 par value per share (the "EQR
Series E Preferred Shares") and (vi) 2,300,000 EQR Preferred Shares have been
designated as Series F Cumulative Redeemable Preferred Shares of Beneficial
Interest, $0.01 par value per share (the "EQR Series F Preferred Shares"). As
of August 15, 1997, (i) 73,663,502 EQR Common Shares, 6,120,000 EQR Series A
Preferred Shares, 500,000 EQR Series B Preferred Shares (represented by
5,000,000 depositary shares), 460,000 EQR Series C Preferred Shares
(represented by 4,600,000 depositary shares), 700,000 EQR Series D Preferred
Shares (represented by 7,000,000 depositary shares), 3,999,800 EQR Series E
Preferred Shares and 2,300,000 EQR Series F Preferred Shares were outstanding,
(ii) 889,288 EQR Common Shares were available for issuance under EQR's 1996
Non-Qualified Employee Share Purchase Plan (the "EQR Employee Share Plans"),
(iii) 3,804,404 EQR Common Shares were issuable upon exercise of outstanding
share options (the "EQR Options") to purchase EQR Common Shares and 1,272,376
EQR Common Shares were available for grant, under EQR's Second Amended and
Restated 1993 Share Option and Share Award Plan (the "Employee Share Award and
Option Plan"), and (iv) 7,425,715 EQR Common Shares were reserved for issuance
upon redemption of ERP OP Units (as defined below) for EQR Common Shares
pursuant to the Fourth Amended and Restated Agreement of Limited Partnership
(the "ERP Operating Partnership Agreement") of ERP Operating Partnership. On
August 15, 1997, except as set forth in this Section 3.2, no shares of
beneficial interest or other voting securities of EQR were issued, reserved
for issuance or outstanding.
(b) All outstanding shares of beneficial interest of EQR are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, except that the shareholders may be subject to further
assessment with respect to certain claims for tort, contract, taxes, statutory
liability and otherwise in some jurisdictions to the extent such claims are
not satisfied by EQR. There are no bonds, debentures, notes or other
indebtedness of EQR having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of EQR may vote.
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(c) Except (i) for options granted under the plans described in Section
3.2(a), (ii) the units ("ERP OP Units") of partnership interest held by
partners in the ERP Operating Partnership (which, subject to certain
restrictions, may be exchanged by the holders thereof for either EQR Common
Shares on a one-for-one basis or, at EQR's option, cash) or (iii) as set forth
in Schedule 3.2 to the EQR Disclosure Letter, as of the date of this Agreement
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which EQR
or any EQR Subsidiary is a party or by which such entity is bound, obligating
EQR or any EQR Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of beneficial interest, voting securities
or other ownership interests of EQR or of any EQR Subsidiary or obligating EQR
or any EQR Subsidiary to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking (other than to EQR or an EQR Subsidiary). Except as set forth on
Schedule 3.2 to the EQR Disclosure Letter or as required under the ERP
Operating Partnership Agreement, there are no outstanding contractual
obligations of EQR or any EQR Subsidiary to repurchase, redeem or otherwise
acquire any shares of beneficial interest of EQR or any capital stock, voting
securities or other ownership interests in any EQR Subsidiary or make any
material investment (in the form of a loan, capital contribution or otherwise)
in any person (other than an EQR Subsidiary).
(d) EQR owns all of its partnership interests in ERP Operating Partnership
free and clear of all Liens.
3.3 ORGANIZATION, STANDING AND POWER OF ERP OPERATING PARTNERSHIP. ERP
Operating Partnership is a limited partnership duly organized and validly
existing under the laws of Illinois and has the requisite power and authority
to carry on its business as now being conducted. ERP Operating Partnership is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other than
in such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have an EQR Material Adverse
Effect. EQR has delivered to EWR complete and correct copies of the ERP
Operating Partnership Agreement as amended or supplemented to the date of this
Agreement.
3.4. CAPITAL STRUCTURE OF ERP OPERATING PARTNERSHIP. As of August 15, 1997,
the number of outstanding units of partnership interest in ERP Operating
Partnership consists of (a) 73,663,502 units of general partnership interest,
(b) 7,425,715 units of limited partnership interest, (c) 6,120,000 9 3/8%
Series A Cumulative Redeemable Preference Units, (d) 500,000 9 1/8% Series B
Cumulative Redeemable Preference Units, (e) 460,000 9 1/8% Series C Cumulative
Redeemable Preference Units, (f) 700,000 8.60% Series D Cumulative Redeemable
Preference Units, (g) 3,999,800 Series E Cumulative Convertible Preference
Units and (h) 2,300,000 Series F Cumulative Redeemable Preference Units.
Except for the units of limited partnership interest, all of the units of
partnership interest in ERP Operating Partnership are owned by EQR.
3.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) EQR has the requisite power and authority to enter into this Agreement
and, subject to the requisite shareholder approval of the Merger (the "EQR
Shareholder Approvals" and, together with the EWR Shareholder Approvals, the
"Shareholder Approvals"), to consummate the transactions contemplated by this
Agreement to which EQR is a party. The execution and delivery of this
Agreement by EQR and the consummation by EQR of the transactions contemplated
by this Agreement to which EQR is a party have been duly authorized by all
necessary action on the part of EQR, except for and subject to the EQR
Shareholder Approvals. This Agreement has been duly executed and delivered by
EQR and constitutes a valid and binding obligation of EQR, enforceable against
EQR in accordance with and subject to its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 3.5 to the EQR Disclosure Letter, the
execution and delivery of this Agreement by EQR do not, and the consummation
of the transactions contemplated by this Agreement to which EQR is a party and
compliance by EQR with the provisions of this Agreement will not, conflict
with, or result in any violation of or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of EQR or any EQR Subsidiary under, (i) the Amended and
Restated Declaration of Trust or Amended and Restated Bylaws of EQR or the
comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any other EQR Subsidiary, each as amended or
supplemented to the date of this Agreement, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, reciprocal easement agreement, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
EQR or any EQR Subsidiary or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any Laws applicable to EQR or
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any EQR Subsidiary or their respective properties or assets, other than, in
the case of clause (ii) or (iii), any such conflicts, violations, defaults,
rights, loss or Liens that individually or in the aggregate would not (x) have
an EQR Material Adverse Effect or (y) prevent the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to EQR or any EQR
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation by EQR of any of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of (x) the Registration
Statement (as defined in Section 5.1) and (y) such reports under Section 13(a)
of the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated by this Agreement, (ii) the acceptance for
record of the Articles of Merger by the Department, (iii) such filings as may
be required in connection with the payment of any transfer and gains taxes and
(iv) such other consents, approvals, orders, authorizations, registrations,
declarations and filings (A) as are set forth in Schedule 3.5 to the EQR
Disclosure Letter or (B) as may be required under (x) federal, state or local
environmental laws or (y) the securities laws of the State of Maryland or (C)
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or otherwise prevent EQR from performing its obligations under this
Agreement in any material respect or have, individually or in the aggregate,
an EQR Material Adverse Effect.
(c) For purposes of determining compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, EQR confirms that the conduct
of its business consists solely of investing in, owning and operating real
estate for the benefit of its shareholders.
3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. EQR and
ERP Operating Partnership have filed all required reports, schedules, forms,
statements and other documents with the SEC since August 18, 1993 through the
date hereof (the "EQR SEC Documents"). Schedule 3.6 of the EQR Disclosure
Letter contains a complete list of all EQR SEC Documents filed by EQR under
the Exchange Act since January 1, 1997 and on or prior to the date of this
Agreement. All of the EQR SEC Documents (other than preliminary material), as
of their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in
each case, the rules and regulations promulgated thereunder applicable to such
EQR SEC Documents. None of the EQR SEC Documents at the time of filing
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except to the extent such statements have been modified or
superseded by later EQR SEC Documents filed and publicly available prior to
the date of this Agreement. The consolidated financial statements of EQR and
the EQR Subsidiaries included in the EQR SEC Documents complied as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by the applicable rules and regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP and the applicable rules and regulations of the SEC, the
consolidated financial position of EQR and the EQR Subsidiaries, taken as a
whole, as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except for liabilities and
obligations set forth in the EQR SEC Documents or in Schedule 3.6 to the EQR
Disclosure Letter, neither EQR nor any EQR Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth on a consolidated balance sheet of EQR or in
the notes thereto and which, individually or in the aggregate, would have an
EQR Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the EQR SEC
Documents or in Section 3.7 to the EQR Disclosure Letter, since the date of
the most recent audited financial statements included in the EQR SEC Documents
(the "EQR Financial Statement Date"), EQR and the EQR Subsidiaries have
conducted their business only in the ordinary course (taking into account
prior practices, including the acquisition of properties and issuance of
securities) and there has not been (a) any material adverse change in the
business, financial condition or results of operations of EQR and the EQR
Subsidiaries taken as a whole (a "EQR Material Adverse Change"), nor has there
been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in an EQR Material Adverse Change, (b) except
for regular quarterly distributions (in the case of EQR) not in excess of
$.625 per EQR Common Share, $.5859 per EQR Series A Preferred Share, $5.703
per EQR Series B Preferred Share, $5.703 per EQR Series C Preferred Share,
$.5375 per EQR Series D Preferred Share, $.4375 per EQR Series E Preferred
Share, and $.603125 per EQR Series F Share, in each case subject to rounding
adjustments as necessary and with customary record and payment dates, any
authorization, declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of EQR's
shares of beneficial interest, (c) any split, combination or reclassification
of any of EQR's shares of beneficial interest, (d) any damage, destruction or
loss, whether or not covered by insurance, that has or would have an EQR
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Material Adverse Effect or (e) any change made prior to the date of this
Agreement in accounting methods, principles or practices by EQR or any EQR
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the EQR SEC Documents or required by a
change in GAAP.
3.8 LITIGATION. Except as disclosed in the EQR SEC Documents or in Schedule
3.8 to the EQR Disclosure Letter, and other than personal injury and other
routine tort litigation arising from the ordinary course of operations of EQR
and the EQR Subsidiaries (a) which are covered by adequate insurance or (b)
for which all material costs and liabilities arising therefrom are
reimbursable pursuant to common area maintenance or similar agreements, there
is no suit, action or proceeding pending (in which service of process has been
received by an employee of EQR or an EQR Subsidiary) or, to the Knowledge of
EQR (as defined in Section 3.20), threatened in writing against or affecting
EQR or any EQR Subsidiary that, individually or in the aggregate, could
reasonably be expected to (i) have an EQR Material Adverse Effect or (ii)
prevent the consummation of any of the transactions contemplated by this
Agreement, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against EQR or any EQR
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
3.9 PROPERTIES.
(a) EQR or one of the EQR Subsidiaries owns fee simple title to each of the
real properties listed in the EQR SEC Filings as owned by it (the "EQR
Properties"), except where the failure to own such title would not have an EQR
Material Adverse Effect.
(b) The EQR Properties are not subject to any Encumbrances or Property
Restrictions which could cause an EQR Material Adverse Affect.
(c) Valid policies of title insurance have been issued insuring EQR's or the
applicable EQR Subsidiaries' fee simple title to the EQR Properties in amounts
at least equal to the purchase price thereof paid by EQR or the applicable EQR
Subsidiaries therefor, except where the failure to obtain such title insurance
would not have an EQR Material Adverse Effect.
(d) EQR has no Knowledge (i) that it has failed to obtain a certificate,
permit or license from any governmental authority having jurisdiction over any
of the EQR Properties where such failure would have an EQR Material Adverse
Effect or of any pending threat of modification or cancellation of any of the
same which would have an EQR Material Adverse Effect, (ii) of any written
notice of any violation of any federal, state or municipal law, ordinance,
order, rule, regulation or requirement affecting any of the EQR Properties
issued by any governmental authorities which would have an EQR Material
Adverse Effect or (iii) of any structural defects relating to EQR Properties,
EQR Properties whose building systems are not in working order, physical
damage to any EQR Property for which there is no insurance in effect covering
the cost of restoration, any current renovation or uninsured restoration,
except such structural defects, building systems not in working order,
physical damage, renovation and restoration which, in the aggregate, would not
have an EQR Material Adverse Effect.
(e) Neither EQR nor any of the EQR Subsidiaries has received any written
notice to the effect that (i) any condemnation or rezoning proceedings are
pending or threatened with respect to any of the EQR Properties or (ii) any
zoning, building or similar law, code, ordinance, order or regulation is or
will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of the EQR Properties or by the
continued maintenance, operation or use of the parking areas, other than such
notices which, in the aggregate, would not have an EQR Material Adverse
Effect.
(f) All work to be performed, payments to be made and actions to be taken by
EQR or the EQR Subsidiaries prior to the date hereof pursuant to any agreement
entered into with a governmental body or authority in connection with a site
approval, zoning reclassification or similar action relating to any EQR
Properties (e.g., Local Improvement District, Road Improvement District,
Environmental Mitigation), has been performed, paid or taken, as the case may
be, except where the failure to do so would, in the aggregate, not have an EQR
Material Adverse Effect, and EQR has no Knowledge of any planned or proposed
work, payments or actions that may be required after the date hereof pursuant
to such agreements which would have an EQR Material Adverse Effect.
3.10 ENVIRONMENTAL MATTERS. None of EQR, any of the EQR Subsidiaries or, to
EQR's Knowledge, any other Person has caused or permitted (a) the unlawful
presence of any Hazardous Materials on any of the EQR Properties or (b) any
unlawful spills, releases, discharges or disposal of Hazardous Materials to
have occurred or be presently occurring on or from the EQR Properties as a
result of any construction on or operation and use of such properties, which
presence or occurrence would, individually or in the aggregate, have an EQR
Material Adverse Effect; and in connection with the construction on or
operation and use of the EQR Properties, EQR and the EQR Subsidiaries have not
failed to comply in any material respect with all applicable local, state and
federal environmental laws, regulations, ordinances and
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administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials, except to the extent such failure to comply, individually or in the
aggregate, would not have an EQR Material Adverse Effect.
3.11 TAXES.
(a) Each of EQR and the EQR Subsidiaries has filed all tax returns and
reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to do so)
and has paid (or EQR has paid on its behalf) all Taxes shown on such returns
and reports as required to be paid by it except where the failure to file such
tax returns or reports and failure to pay such Taxes would not have an EQR
Material Adverse Effect. The most recent audited financial statements
contained in the EQR SEC Documents reflect an adequate reserve for all
material Taxes payable by EQR and the EQR Subsidiaries for all taxable periods
and portions thereof through the date of such financial statements. Since the
EQR Financial Statement Date, EQR has incurred no liability for taxes under
Sections 857(b), 860(c) or 4981 of the Code, including without limitation any
tax arising from a prohibited transaction described in Section 857(b)(6) of
the Code, and neither EQR nor any EQR Subsidiary has incurred any liability
for taxes other than in the ordinary course of business. No event has
occurred, and no condition or circumstance exists, which presents a material
risk that any material Tax described in the preceding sentence will be imposed
upon EQR. To the Knowledge of EQR, no deficiencies for any Taxes have been
proposed, asserted or assessed against EQR or any of the EQR Subsidiaries, and
no requests for waivers of the time to assess any such Taxes are pending.
(b) EQR (i) for all taxable years commencing with 1993 through the most
recent December 31 has been subject to taxation as a REIT within the meaning
of Section 856 of the Code and has satisfied all requirements to qualify as a
REIT for such years, (ii) has operated, and intends to continue to operate, in
such a manner as to qualify as a REIT for the tax year ending December 31,
1997 and (iii) has not taken or omitted to take any action which would
reasonably be expected to (A) result in any rents paid by tenants to the EQR
Properties to be excluded from the definition of "rents from real property"
under Section 856(d)(2) of the Code or (B) otherwise result in a challenge to
its status as a REIT, and to EQR's Knowledge, no such challenge is pending or
threatened. Each EQR Subsidiary which is a partnership, joint venture or
limited liability company has been treated since its formation and continues
to be treated for federal income tax purposes as a partnership and not as a
corporation or as an association taxable as a corporation.
3.12 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than J.P. Morgan Securities Inc., the
fees and expenses of which have previously been disclosed to EQR and will be
paid by EQR, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of EQR or any
EQR Subsidiary.
3.13 COMPLIANCE WITH LAWS. Except as disclosed in the EQR SEC Documents,
neither EQR nor any of the EQR Subsidiaries has violated or failed to comply
with any statute, law, ordinance, regulation, rule, judgment, decree or order
of any Governmental Entity applicable to its business, properties or
operations, except to the extent that such violation or failure would not have
an EQR Material Adverse Effect.
3.14 CONTRACTS; DEBT INSTRUMENTS. Neither EQR nor any EQR Subsidiary has
received a written notice that EQR or any EQR Subsidiary is in violation of or
in default under (nor to the Knowledge of EQR does there exist any condition
which upon the passage of time or the giving of notice or both would cause
such a violation of or default under) any material loan or credit agreement,
note, bond, mortgage, indenture, lease, permit, concession, franchise, license
or any other material contract, agreement, arrangement or understanding, to
which it is a party or by which it or any of its properties or assets is
bound, nor to the Knowledge of EQR does such a violation or default exist,
except to the extent such violation or default, individually or in the
aggregate, would not have an EQR Material Adverse Effect, except as set forth
in Schedule 3.14 to the EQR Disclosure Letter.
3.15 OPINION OF FINANCIAL ADVISOR. EQR has received the opinion of J. P.
Morgan Securities Inc., dated August 27, 1997, satisfactory to EQR, a signed
copy of which has been provided to EWR, to the effect that the consideration
to be paid by EQR in connection with the Merger is fair, from a financial
point of view, to EQR and ERP Operating Partnership.
3.16 STATE TAKEOVER STATUTES. EQR has taken all action necessary to exempt
transactions between EQR and EWR and its Affiliates from the operation of
Takeover Statutes.
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3.17 REGISTRATION STATEMENT. The information with respect to EQR and the EQR
Subsidiaries included in the Registration Statement will not, as of the
effective date of the Registration Statement, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.18 INVESTMENT COMPANY ACT OF 1940. Neither EQR nor any of the EQR
Subsidiaries is, or at the Effective Time will be, required to be registered
under the 1940 Act.
3.19 EMPLOYEE POLICIES. Schedule 3.19 of the EQR Disclosure Letter lists the
employee handbooks of EQR and each of the EQR Subsidiaries currently in
effect. A copy of each such employee handbook has previously been made
available to EWR. Except as set forth in Schedule 3.19 of the EQR Disclosure
Letter, such handbooks fairly and accurately summarize all material employee
policies, vacation policies and payroll practices of EQR and the EQR
Subsidiaries.
3.20 DEFINITION OF KNOWLEDGE OF EQR. As used in this Agreement, the phrase
"Knowledge of EQR" (or words of similar import) means the knowledge of those
individuals identified in Schedule 3.20 of the EQR Disclosure Letter.
3.21 EQR NOT AN INTERESTED STOCKHOLDER. EQR is not an "interested
stockholder" of EWR or an "affiliate of an interested stockholder" of EWR
within the meaning of Section 3-601 of the MGCL.
ARTICLE 4
Covenants
4.1 ACQUISITION PROPOSALS. Prior to the Effective Time, EWR agrees that:
(a) neither it nor any of the EWR Subsidiaries shall initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, sale of assets or
similar transaction involving all or any significant portion of the assets
or any equity securities of, EWR or any of the EWR Subsidiaries, other than
the transactions contemplated by this Agreement (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal;
(b) it will not permit any of its officers, employees, agents or
financial advisors to engage in any of the activities described in Section
4.1(a);
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to in Section 4.1(b)
of the obligations undertaken in this Section 4.1; and
(d) it will notify EQR immediately if EWR receives any such inquiries or
proposals, or any requests for such information, or if any such
negotiations or discussions are sought to be initiated or continued with
it;
provided, however, that nothing contained in this Section 4.1 shall prohibit
the Board of Directors of EWR from (i) furnishing information to or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited Acquisition Proposal, if, and only to the extent that (A) the
Board of Directors of EWR determines in good faith that such action is
required for the Board of Directors to comply with its duties to shareholders
imposed by law, (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, EWR provides written
notice to EQR to the effect that it is furnishing information to, or entering
into discussions with, such person or entity and (C) subject to any
confidentiality agreement with such person or entity (which EWR determined in
good faith was required to be executed in order for the Board of Directors to
comply with its duties to shareholders imposed by law), EWR keeps EQR informed
of the status (not the terms) of any such discussions or negotiations; and
(ii) to the extent applicable, taking and disclosing to the EWR shareholders a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal. Nothing in this Section 4.1 shall
(x) permit EWR to terminate this Agreement (except as specifically provided in
Article 7 hereof), (y) permit EWR to enter into an agreement with respect to
an Acquisition Proposal during the term of this Agreement (it being agreed
that during the term of this Agreement, EWR shall not enter into an agreement
with any Person that provides for, or in any way facilitates, an Acquisition
Proposal (other than a confidentiality agreement in customary form executed as
provided above)) or (z) affect any other obligation of EWR under this
Agreement; provided, however, that the Board of Directors of EWR may approve
and recommend a Superior Acquisition Proposal and, in connection therewith,
withdraw or modify its approval or recommendation of this Agreement and the
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Merger. Any disclosure that the Board of Directors of EWR may be compelled to
make with respect to the receipt of an Acquisition Proposal in order to comply
with its duties to stockholders of EWR or Rule 14d-9 or 14e-2 will not
constitute a violation of this Section 4.1 provided that such disclosure
states that no action will be taken by the Board of Directors of EWR with
respect to the withdrawal of its recommendation of the transactions
contemplated hereby or the approval or recommendation of any Acquisition
Proposal except in accordance with this Section 4.1. As used herein, "Superior
Acquisition Proposal" means a bona fide Acquisition Proposal made by a third
party which a majority of the members of the Board of Directors of EWR
determines in good faith to be more favorable to EWR's shareholders from a
financial point of view than the Merger and which the Board of Directors of
EWR determines is reasonably capable of being consummated.
4.2 CONDUCT OF EWR's BUSINESS PENDING MERGER. Prior to the Effective Time,
except as consented to in writing by EQR or as expressly provided for in this
Agreement, EWR shall, and shall cause each of the EWR Subsidiaries to:
(a) conduct its business only in the usual, regular and ordinary course
and in substantially the same manner as heretofore and take all action
necessary to continue to qualify as a REIT;
(b) preserve intact its business organizations and goodwill and use its
reasonable efforts to keep available the services of its officers and
employees;
(c) confer on a regular basis with one or more representatives of EQR to
report operational matters of materiality and, subject to Section 4.1, any
proposals to engage in material transactions;
(d) promptly notify EQR of any material emergency or other material
change in the condition (financial or otherwise), business, properties,
assets, liabilities or the normal course of its businesses or in the
operation of its properties, or of any material governmental complaints,
investigations or hearings (or communications indicating that the same may
be contemplated);
(e) promptly deliver to EQR true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(f) maintain its books and records in accordance with GAAP consistently
applied and not change in any material manner any of its methods,
principles or practices of accounting in effect at the Financial Statement
Date, except as may be required by the SEC, applicable law or GAAP;
(g) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided EWR notifies EQR that it
is availing itself of such extensions and provided such extensions do not
adversely affect EWR's status as a qualified REIT under the Code;
(h) not make or rescind any express or deemed election relative to Taxes
(unless required by law or necessary to preserve EWR's status as a REIT or
the status of any EWR Subsidiary as a partnership for federal income tax
purposes or as a qualified REIT subsidiary under Section 856(i) of the
Code, as the case may be);
(i) not acquire, enter into any option to acquire, or exercise an option
or contract to acquire, additional real property, incur additional
indebtedness except for working capital under its revolving line(s) of
credit, encumber assets or commence construction of, or enter into any
agreement or commitment to develop or construct, other real estate
projects, except in the ordinary course of the multi-family apartment
business, which shall include all activities necessary to proceed with the
construction of the multi-family residential projects described in the EWR
SEC Documents as being under development as well as projects which have
been budgeted and previously disclosed in the EWR Capital Budget, in
accordance with the agreements in existence on the date of this Agreement
and previously furnished to EQR (the "Development Agreements");
(j) not amend its charter or By-laws, or the articles or certificate of
incorporation, bylaws, code of regulations, partnership agreement,
operating agreement or joint venture agreement or comparable charter or
organization document of any EWR Subsidiary;
(k) make no change in the number of shares of capital stock, membership
interests or units of limited partnership interest issued and outstanding,
other than pursuant to (i) the exercise of options disclosed in Schedule
2.3 to the EWR Disclosure Letter, (ii) the conversion of EWR OP Units
pursuant to the EWR Partnership Agreement for EWR Common Shares and (iii)
the issuance of EWR Common Shares to Paul Fannin in payment of the bonus to
which he is entitled as approved by the Compensation Committee of the Board
of Directors of EWR on July 11, 1997;
(l) grant no options or other right or commitment relating to its shares
of capital stock, membership interests or units of limited partnership
interest or any security convertible into its shares of capital stock,
membership interests or units of limited partnership interest, or any
security the value of which is measured by shares of capital stock, or any
security subordinated to the claim of its general creditors and not amend
or waive any rights under any of the EWR Options;
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(m) except as provided in Section 5.10 hereof and in connection with the
use of EWR Common Shares to pay the exercise price or tax withholding in
connection with equity-based employee benefit plans by the participants
therein, not (i) authorize, declare, set aside or pay any dividend or make
any other distribution or payment with respect to any EWR Common Shares or
EWR OP Units or (ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock, membership interests or units of
partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of capital stock, membership interests,
or units of partnership interest, except for redemptions of EWR Common
Shares required under Section 2(c) of Article V of the charter of EWR in
order to preserve the status of EWR as a REIT under the Code;
(n) not sell, lease, mortgage, subject to Lien or otherwise dispose of
any of the EWR Properties, except the sale of EWR Properties which are the
subject of binding contracts to sell in existence on the date of this
Agreement and disclosed in Schedule 2.18 of the EWR Disclosure Schedule;
(o) not sell, lease, mortgage, subject to Lien or otherwise dispose of
any of its personal property or intangible property, except sales of
equipment which are not material, individually or in the aggregate, and
which are made in the ordinary course of business;
(p) not make any loans, advances or capital contributions to, or
investments in, any other Person, other than loans, advances and capital
contributions to EWR Subsidiaries in existence on the date hereof;
(q) not pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto)
furnished to EQR or incurred in the ordinary course of business consistent
with past practice;
(r) not enter into any commitment, contractual obligation, capital
expenditure or transaction (each, a "Commitment") for the purchase of any
real estate or which may result in total payments or liability by or to it
in excess of $500,000 or aggregate Commitments in excess of $1,000,000
except (i) purchases of real estate necessary to complete a like kind
exchange pursuant to Section 1031 of the Code, provided such purchase has
been previously approved by EQR, such approval not to be unreasonably
withheld or delayed and (ii) capital expenditures disclosed in the EWR
Capital Budget;
(s) not guarantee the indebtedness of another Person, enter into any
"keep well" or other agreement to maintain any financial statement
condition of another Person or enter into any arrangement having the
economic effect of any of the foregoing;
(t) not enter into any Commitment with any officer, director, consultant
or Affiliate of EWR or any of the EWR Subsidiaries;
(u) not increase any compensation or enter into or amend any employment
agreement with any of its officers, directors or employees earning more
than $50,000 per annum, other than waivers by employees of benefits under
such agreements;
(v) not adopt any new employee benefit plan or amend any existing plans
or rights, except for changes which are required by law and changes which
are not more favorable to participants than provisions presently in effect;
(w) not settle any shareholder derivative or class action claims arising
out of or in connection with any of the transactions contemplated by this
Agreement;
(x) not change the ownership of any of its Subsidiaries, except changes
which arise as a result of the conversion of EWR OP Units into EWR Common
Shares; and
(y) not accept a promissory note in payment of the exercise price payable
under any option to purchase EWR Common Shares.
For purposes of this Section 4.2 only, any contract, transaction or other
event shall be deemed to be material if it would result or is expected to
result in a net impact on EWR's consolidated income statement in excess of
$500,000, or on EWR's consolidated balance sheet in excess of $1,000,000.
4.3 CONDUCT OF EQR's BUSINESS PENDING MERGER. Prior to the Effective Time,
except as (i) contemplated by this Agreement, or (ii) consented to in writing
by EWR, EQR shall, and shall cause each of the EQR Subsidiaries to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(b) confer on a regular basis with one or more representatives of EWR to
report operational matters of materiality which would have an EQR Material
Adverse Effect;
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(c) promptly notify EWR of any material emergency or other material
change in the condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of its businesses or in
the operation of its properties, or of any material governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated);
(d) promptly deliver to EWR true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(e) maintain its books and records in accordance with GAAP consistently
applied; and
(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities.
For purposes of this Section 4.3 only, an emergency, change, complaint,
investigation or hearing shall be deemed material if it would reasonably be
expected to have an EQR Material Adverse Effect.
4.4 COMPLIANCE WITH THE SECURITIES ACT. Prior to the Effective Time, EWR
shall cause to be prepared and delivered to EQR a list (reasonably
satisfactory to counsel for EQR) identifying all persons who, at the time of
the EWR and EQR Shareholders Meetings, may be deemed to be "affiliates" of the
EWR as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates"). EWR shall use its best efforts to cause
each person who is identified as an Affiliate in such list to deliver to EQR
on or prior to the Effective Time a written agreement, in the form previously
approved by the parties hereto, that such Affiliate will not sell, pledge,
transfer or otherwise dispose of any EQR Common Shares issued to such
Affiliate pursuant to the Merger, except pursuant to an effective registration
statement under the Securities Act or in compliance with paragraph (d) of Rule
145. EQR shall be entitled to place legends as specified in such written
agreements on the certificates representing any EQR Common Shares to be
received by such Affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the EQR
Common Shares, consistent with the terms of such agreements.
4.5 FILING OF CERTAIN REPORTS. The Surviving Trust shall file the reports
required to be filed by it under the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further
action as any Affiliate of EWR or EQR may reasonably request, all to the
extent required from time to time to enable such Affiliate to sell shares of
beneficial interest of the Surviving Trust received by such Affiliate in the
Merger without registration under the Securities Act pursuant to (i) Rule
145(d)(1) under the Securities Act, as such rule may be amended from to time,
or (ii) any successor rule or regulation hereafter adopted by the SEC.
4.6 OTHER ACTIONS. Each of EWR on the one hand and EQR on the other hand
shall not, and shall use commercially reasonable efforts to cause their
Subsidiaries not to take, any action that would result in (i) any of the
representations and warranties of such party (without giving effect to any
"knowledge" qualification) set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and
warranties (without giving effect to any "knowledge" qualification) that are
not so qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 4.1, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
ARTICLE 5
Additional Covenants
5.1 PREPARATION OF THE REGISTRTION STATEMENT AND THE PROXY STATEMENT; EWR
SHAREHOLDERS MEETING AND EQR SHAREHOLDERS MEETING.
(a) The parties shall cooperate and promptly prepare and EQR shall file with
the SEC as soon as practicable a Registration Statement on Form S-4 under the
Securities Act (the "Corporate Registration Statement") covering the EQR
Common Shares issuable in the Merger, a portion of which registration
statement shall also serve as the joint proxy statement with respect to the
meetings of the stockholders of EQR and EWR in connection with the Merger (the
"Proxy Statement"). The parties shall cooperate and promptly prepare and ERP
Operating Partnership shall file with the SEC as soon as practicable after the
date of this Agreement, a registration statement on Form S-4 ("Partnership
Registration Statement") under the Securities Act covering:
(i) ERP OP Units issuable to EWR Unit Holders upon the contribution of
EWR OP Units to ERP Operating Partnership pursuant to the Unit Contribution
Agreements;
(ii) ERP OP Units which may be issued to EWR Partnership pursuant to the
Asset Contribution and the distribution of such ERP OP Units to the
Partners of EWR Operating Partnership (other than the ERP OP Units issued
to EQR) in complete liquidation of their partnership interests; and
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(iii) A portion of the Partnership Registration Statement shall also
constitute a Consent Solicitation Statement of EWR Partnership of
solicitation of consents to the matters described in the definition of EWR
Partner Approval (the "Consent Solicitation Statement"). The Corporate
Registration Statement and the Partnership Registration Statement are
referred to collectively as the "Registration Statements."
EQR shall use its best efforts to maintain the effectiveness of the
Partnership Registration Statement during the period EWR OP Units can be
exchanged for ERP OP Units. To the extent practicable, the parties shall
utilize one document for transmittal to their respective shareholders and for
transmittal to the partners of EWR Partnership to meet applicable legal
requirements. EQR shall use its reasonable best efforts, and EWR shall
cooperate with EQR, to (i) respond to any comments of the SEC and (ii) have
the Registration Statements declared effective under the Securities Act and
the rules and regulations promulgated thereunder as promptly as practicable
after such filing and to keep the Registration Statements effective as long as
is necessary to consummate the Merger and the transactions contemplated
hereby. Each of EWR and EQR will use its reasonable best efforts to cause the
Proxy Statement to be mailed to EWR's shareholders and EQR's shareholders,
respectively, as promptly as practicable after the Corporate Registration
Statement is declared effective under the Securities Act. EWR will use its
reasonable best efforts to cause the Consent Solicitation Statement to be
mailed to the EWR Unit Holders as promptly as practicable after the
Partnership Registration Statement is declared effective under the Securities
Act. Each party agrees to date its Proxy Statement as of the same date, which
shall be the approximate date of mailing to the shareholders of the respective
parties. EQR will notify EWR promptly of the receipt of any comments from the
SEC and of any request by the SEC for amendments or supplements to the
Registration Statements, the Proxy Statement or the Consent Solicitation
Statement or for additional information and will supply EWR with copies of all
correspondence between such party or any of its representatives and the SEC,
with respect to the Registration Statements, the Proxy Statement or the
Consent Solicitation Statement. The Registration Statements, the Proxy
Statement and the Consent Solicitation Statement shall comply in all material
respects with all applicable requirements of law. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the
Registration Statements, the Proxy Statement or the Consent Solicitation
Statement, EQR or EWR, as the case may be, shall promptly inform the other of
such occurrences and cooperate in filing with the SEC and/or mailing to the
shareholders of EQR, the shareholders of EWR or the EWR Unit Holders such
amendment or supplement to the Proxy Statement or the Consent Solicitation
Statement. EQR shall also take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of shares of beneficial interest of the Surviving Trust pursuant to the Merger
and the ERP OP Units pursuant to the Unit Contribution Agreement or as
contemplated by the Asset Contribution, and EWR shall furnish all information
concerning EWR, EWR Partnership, the holders of the EWR Common Shares and
rights to acquire such shares and the EWR Unit Holders as may be reasonably
requested in connection with any such action.
(b) EQR will, as soon as practicable following the date of this Agreement
(but in no event sooner than 20 business days following the date the Proxy
Statement is mailed to the shareholders of EQR), duly call, give notice of,
convene and hold a meeting of its shareholders (the "EQR Shareholders
Meeting") for the purpose of obtaining the EQR Shareholder Approvals. EQR
will, through its Board of Trustees, recommend to its shareholders approval of
this Agreement, the Merger, and the transactions contemplated by this
Agreement.
(c) EWR will, as soon as practicable following the date of this Agreement
(but in no event sooner than 20 business days following the date the Proxy
Statement is mailed to the shareholders of EWR), duly call, give notice of,
convene and hold a meeting of its shareholders (the "EWR Shareholders
Meeting") for the purpose of obtaining EWR Shareholder Approvals. EWR will,
through its Board of Directors, recommend to its shareholders approval of this
Agreement, the Merger and the transactions contemplated by this Agreement;
provided, that prior to the EWR Shareholders Meeting, such recommendation may
be withdrawn, modified or amended to the extent that, as a result of the
commencement or receipt of a proposal constituting a Superior Acquisition
Proposal, the Board of Directors of EWR determines in good faith that such
withdrawal, modification or amendment is appropriate.
(d) EQR and EWR shall use their best efforts to hold their respective
shareholder meetings on the same day, which day, subject to the provisions of
Sections 5.1(b) and 5.1(c), shall be a day not later than 45 days after the
date the Proxy Statement is mailed.
(e) If on the date for the EQR Shareholders Meeting and EWR Shareholders
Meeting established pursuant to Section 5.1(d) of this Agreement, either EQR
or EWR has not received duly executed proxies for a sufficient number of votes
to approve the Merger (but less than a majority of the outstanding EWR Common
Shares or EQR Common Shares, as the case may be, have voted against the
Merger), then both parties shall recommend the adjournment of their respective
shareholders meetings until the first to occur of (i) the date ten (10) days
after the originally scheduled date of the shareholders meetings or (ii) the
date on which duly executed proxies for the requisite number of votes
approving the Merger have been obtained
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or proxies have been received representing more than a majority of its
outstanding common shares of beneficial interest or more than a majority of
its outstanding common stock which voted against the Merger.
(f) EWR will present for approval by the limited partners of EWR Partnership
each of the matters described in the definition of EWR Partner Approvals, at a
meeting of the limited partners of EWR Partnership or through requests for
written consent. Approval will be solicited through the use of the Consent
Solicitation Statement. EWR hereby agrees to vote in favor of such matters and
to recommend to the EWR Unit Holders that they approve such matters. If such
approval is sought through a meeting, EWR shall use its best efforts to hold
such partners' meeting on the same day as the EWR Shareholders Meeting.
5.2 ACCESS TO INFORMATION: CONFIDENTIALITY. Subject to the requirements of
confidentiality agreements with third parties, each of EWR and EQR shall, and
shall cause each of its Subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
EWR and EQR shall, and shall cause each of its Subsidiaries to, furnish
promptly to the other party (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Each of EWR and EQR, shall cause its Subsidiaries to, and
shall use commercially reasonable efforts to cause its officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to, hold any nonpublic information in confidence to the extent
required by, and in accordance with, and will comply with the provisions of
the letter agreement dated as of July 22, 1997 between EWR and EQR (the
"Confidentiality Agreement").
5.3 BEST EFFORTS; NOTIFICATION.
(a) Subject to the terms and conditions herein provided, EWR and EQR shall:
(i) use all reasonable best efforts to cooperate with one another in (A)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
and any third parties in connection with the execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby and
(B) timely making all such filings and timely seeking all such consents,
approvals, permits and authorizations; (ii) use all reasonable best efforts
(other than the payment of money) to obtain in writing any consents required
from third parties to effectuate the Merger, including consents required in
connection with the EWR Debt (as defined in Section 5.18 below), such consents
to be in form reasonably satisfactory to EWR and EQR; and (iii) use all
reasonable best efforts to take, or cause to be taken, all other action and
do, or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Effective Time any further action is necessary or
desirable to carry out the purpose of this Agreement, EWR and EQR shall take
all such necessary action.
(b) EWR shall give prompt notice to EQR, and EQR shall give prompt notice to
EWR, (i) if any representation or warranty made by it contained in this
Agreement that is qualified as to materiality becomes untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becomes untrue or inaccurate in any material respect or (ii) of the failure by
it to comply with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
5.4 TAX TREATMENT. Each of EQR and EWR shall use its reasonable best efforts
before and after the Effective Time to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a) of the Code and to
obtain the opinions of counsel referred to in Sections 6.2(e) and 6.3(f). The
EQR Partnership will use the "traditional method" under Treasury Regulations
Section 1.704-3(b) for purposes of making allocations under Section 704(c) of
the Code with respect to the properties of or interests in the EWR Partnership
as of the Effective Time.
5.5 PUBLIC ANNOUNCEMENTS. EQR and EWR will consult with each other before
issuing, and provide each other the opportunity to review and comment upon,
any press release or other written public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such
press release or make any such written public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement will be in the form
agreed to by the parties hereto prior to the execution of this Agreement.
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5.6 LISTING. EQR shall use all reasonable efforts to cause the EQR Common
Shares to be issued in the Merger and the EQR Common Shares to be reserved for
issuance to EWR Holders upon exchange for ERP OP Units issued pursuant to the
Unit Contribution Agreements and the Asset Contribution to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Effective Time.
5.7 TRANSFER AND GAINS TAXES. EQR and EWR shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to tax, "Transfer and Gains
Taxes"). From and after the Effective Time, EQR shall, or shall cause ERP
Operating Partnership, as appropriate, to pay or cause to be paid, without
deduction or withholding from any amounts payable to the holders of beneficial
interests in the Surviving Trust, all Transfer and Gains Taxes.
5.8 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. After the Effective Time, all employees of EWR who are
employed by the Surviving Trust shall, at the option of the Surviving Trust,
either continue to be eligible to participate in an "employee benefit plan",
as defined in Section 3(3) of ERISA, of EWR which is, at the option of the
Surviving Trust, continued by the Surviving Trust, or alternatively shall be
eligible to participate in the same manner as other similarly situated
employees of the Surviving Trust who were formerly employees of EQR in any
"employee benefit plan," as defined in Section 3(3) of ERISA, sponsored or
maintained by the Surviving Trust after the Effective Time. With respect to
each such employee benefit plan, service with EWR or any EWR Subsidiary (as
applicable) shall be included for purposes of determining eligibility to
participate, vesting (if applicable) and entitlement to benefits.
(b) SHARE INCENTIVE PLANS. The share incentive plans of EWR shall be
discontinued as specifically set forth in the Articles of Merger.
(c) AGREEMENT OF OPTIONEES. Prior to the Closing, EWR shall use its best
efforts to obtain the written agreement of each optionee holding an option to
purchase EWR Common Shares described in Schedule 2.3 to the EWR Disclosure
Letter ("Company Options") not to exercise such Company Option prior to the
Effective Time and in consideration for such agreement, receive cash in an
amount equal to the difference between (i) the Exchange Ratio multiplied by
the Closing Price (as hereinafter defined) of a EQR Common Share on the
Trading Day (as hereinafter defined) immediately preceding the Closing Date
and (ii) the applicable exercise price set forth in such Company Option,
multiplied by (iii) the number of EWR Common Shares subject to such Company
Option (whether or not vested), such amount to be paid by EWR an instant prior
to the Effective Time. All Company Options not so forfeited and which remain
outstanding at the Effective Time shall be cancelled by virtue of the Merger
and no consideration shall be paid with respect thereto. As used in this
Agreement, "Average Closing Price" means the average of the daily closing
prices of a EWR Common Share reported in the "New York Stock Exchange
Composite Transactions" by The Wall Street Journal (Midwest Edition) during
the period of five (5) consecutive Trading Days ending on the Trading Day
immediately prior to the Closing Date. As used in this Agreement, "Trading
Day" means a day on which the closing price of a EWR Common Share is reported
in the "New York Stock Exchange Composite Transactions" by The Wall Street
Journal (Midwest Edition).
(d) WITHHOLDING. EWR shall require each employee who exercises a Company
Option or who receives EWR Common Shares pursuant to any existing commitment
to pay to EWR in cash or EWR Common Shares an amount sufficient to satisfy in
full EWR's obligation to withhold Taxes incurred by reason of such exercise or
issuance.
(e) RETENTION PROGRAM. As of the Effective Time, the Surviving Trust shall
adopt a retention program (the "Retention Program") with respect to those
employees of EWR and the EWR Subsidiaries set forth in Schedule 5.8 to the EWR
Disclosure Letter (the "Schedule 5.8 Employees") by issuing to such Schedule
5.8 Employees a letter substantially in the form previously agreed upon by the
parties (the "Retention Program Letter"). The Surviving Trust shall maintain
the Retention Program in accordance with the terms thereof. In no event shall
EWR adopt or agree to any other severance or retention program in addition to
the Retention Program, except as otherwise specifically set forth in this
Agreement. Neither the Retention Program nor any other term of this Agreement
shall require the Surviving Trust to continue the employment of any employee
of EWR after the Effective Time.
(f) TERMINATION OF EXISTING EMPLOYMENT AGREEMENTS. The Employment Agreements
dated as of August 17, 1994, as amended, between EWR Management Corp. and each
of Stephen O. Evans and Richard G. Berry shall be terminated as of the
Effective Time. Neither Mr. Evans nor Mr. Berry shall be entitled to any of
the benefits set forth in Section 7 of such Employment Agreement.
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(g) AMENDMENT TO CHANGE IN CONTROL AGREEMENTS. The Company and each of Paul
Fannin, Kevin Burnett and Gail B. Peterson shall have entered into an
agreement amending the Change in Control Agreement dated June 18, 1997 between
EWR and such individual to (i) provide that all payments thereunder shall be
due on January 2 of the year immediately succeeding the year in which
termination of employment occurred if such termination occurs during the last
two months of a calendar year, (ii) delete Section 3(b)(v) thereof, which
provides for the vesting of employer contributions in his or her account
pursuant to EWR's 401(k) plan, and to provide for a payment of money in lieu
thereof, and (iii) provide that the definition of "Change in Control" set
forth in such Change in Control Agreement shall apply only to EWR. The Company
and each of Grant Lyon, Edward O'Clair, Donald Couvillion and Tony Pusateri
shall have entered into an agreement amending the Change in Control Agreement
dated June 18, 1997 between EWR and such individual in the manner described in
clauses (ii) and (iii) of the immediately preceding sentence.
(h) BONUS. EQR shall pay, or shall cause an EQR Subsidiary to pay, the
bonuses for 1997 for employees of EWR and the EWR Subsidiaries under the bonus
plan of EWR previously described to EQR, on the date such bonus would have
been paid by EWR had the Merger not occurred; provided, however, that EQR
shall have no obligation to pay such bonus to (i) any person who voluntarily
terminated his or her employment with EWR and the EWR Subsidiaries prior to
the Effective Time or with EQR and the EQR Subsidiaries after the Effective
Time, or (ii) any person who received payments under any of the Change In
Control Agreements dated June 18, 1997 with EWR (the "CIC Agreements") of a
Pro Rata Bonus (as defined in the CIC Agreements). Such Pro Rata Bonus for any
person who is a party to a CIC Agreement and whose employment is terminated
during 1997 shall be determined based on the amount of the bonus payable to
such person for 1997 under EWR's bonus plan referred to above, rather than the
bonus received by such person for 1996.
5.9 INDEMNIFICATION.
(a) From and after the Effective Time, the Surviving Trust shall provide
exculpation and indemnification for each person who is now or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of EWR or any EWR Subsidiary (the "Indemnified Parties")
which is the same as the exculpation and indemnification provided to the
Indemnified Parties by EWR and the EWR Subsidiaries immediately prior to the
Effective Time in its charter and Bylaws, as in effect on the date hereof;
provided, that such exculpation and indemnification covers actions on or prior
to the Effective Time, including, without limitation, all transactions
contemplated by this Agreement. In no event shall the Surviving Trust be
obligated to provide directors' and officers' liability insurance except that
the Surviving Trust shall obtain, at its expense, so-called "tail insurance"
providing for the extension of the directors and officers liability insurance
maintained by EWR for a period of six years after the Closing Date if
available at commercially reasonable rates.
(b) The provisions of this Section 5.9 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of EQR and EWR.
(c) In the event that the Surviving Trust or any of its respective
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case the
successors and assigns of such entity shall assume the obligations set forth
in this Section 5.9, which obligations are expressly intended to be for the
irrevocable benefit of, and shall be enforceable by, each director and officer
covered hereby.
5.10 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and after the date of
this Agreement, EWR shall not make any dividend or distribution to its
shareholders without the prior written consent of EQR; provided, however, the
written consent of EQR shall not be required for the authorization and payment
of quarterly distributions with respect to the EWR Common Shares of up to
$0.41 per share for the dividend for the third quarter of 1997 and an amount
per share for each quarterly dividend thereafter not to exceed 50% of the
dividend on an EQR Common Share for such quarter; provided, however, the
record date for each distribution with respect to the EWR Common Shares (other
than the dividend for the third quarter of 1997) shall be the same date as the
record date for the quarterly distribution for the EQR Common Shares as
provided to EWR by notice not less than twenty (20) business days prior to the
record date for any quarterly EQR distribution. From and after the date of
this Agreement, EWR Partnership shall not make any distribution to the holders
of EWR OP Units except a distribution per EWR OP Unit in the same amount as a
dividend per EWR Common Share permitted pursuant to this Section, with the
same record and payment dates as such dividend on the EWR Common Shares. The
foregoing restrictions shall not apply, however, to the extent necessary for
EWR to maintain REIT status.
5.11 EMPLOYMENT AND CONSULTING AGREEMENTS. Concurrently with the execution
and delivery of this Agreement, Equity Residential Properties Management
Limited Partnership shall enter into an employment agreement with Richard G.
Berry ("Employment Agreement") and a Consulting Agreement with Stephen O.
Evans ("Consulting
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Agreement"), each of which shall become effective as of the Effective Time.
Such Employment Agreement and Consulting Agreement shall provide that the
Change In Control Agreements dated June 18, 1997 between each such employee
and EWR shall terminate as of the Effective Time.
5.12 TRANSFER OF MANAGEMENT COMPANY SHARES. At the Closing and pursuant to
the Stock Purchase Agreement, each of Stephen O. Evans and F. Keith Withycombe
shall transfer to such person or persons as EQR shall designate by written
notice delivered to them prior to the Closing, all of the shares of Management
Corp. owned by them, constituting all the outstanding shares of the Management
Corp. which are not owned by EWR or a wholly-owned subsidiary of EWR, for an
aggregate consideration of $10,000.
5.13 NOTICES. EQR shall provide such notice to its preferred shareholders of
the Merger as is required under Maryland law.
5.14 OPTIONS. After the Effective Time, EQR may grant options to certain
employees of EWR and its Subsidiaries who continue to be employed by EQR after
the Closing Date in accordance with EQR's standard policies and procedures.
5.15 RESIGNATIONS. On the Closing Date, EWR shall cause the directors and
officers of each of the EWR Subsidiaries to submit their resignations from
such positions, effective as of the Effective Time.
5.16 THIRD PARTY MANAGEMENT AGREEMENTS AND OUTSIDE PROPERTY MANAGEMENT
AGREEMENTS. EWR will not, and will not permit any of its Subsidiaries to,
amend the Third Party Management Agreements or Outside Property Management
Agreements. EWR will not, and will not permit any of its Subsidiaries to,
renew the Third Party Management Agreements except on terms which permit its
cancellation by EWR or the applicable EWR Subsidiary on thirty days' notice or
less without any charge, penalty or other cost for such cancellation. EWR will
not, and will not permit any of its Subsidiaries to, renew any Outside
Property Management Agreement except on terms which are the same as the
existing Outside Property Management Agreement or more favorable to EWR or the
applicable EWR Subsidiary than the existing Outside Property Management
Agreement.
5.17 INTENTIONALLY OMITTED.
5.18. RESTRICTIONS ON RESALE OF CERTAIN EWR PROPERTIES. EQR agrees that
neither it nor any of the EQR Subsidiaries will sell, transfer or otherwise
dispose of any of the EWR Properties described on Schedule 5.18 of the EWR
Disclosure Letter (or any property acquired in a like-kind exchange under
Section 1031 or 1033 of the Code in replacement thereof) in a transaction
resulting in the recognition of gain for federal income tax purposes on or
before January 1, 2003, unless and until the first to occur of (a) the date on
which an aggregate of at least 50% of the Applicable Units (as hereinafter
defined) have been transferred in Taxable Transactions (as hereinafter
defined) or (b) the date on which an amendment to the Code is enacted which
eliminates tax-free transfers, exchanges, conveyances or other dispositions of
real property under Section 1031 or 1033 of the Code. As used herein, a
"Taxable Transaction" shall mean (i) a sale, transfer or other disposition of
Applicable Units unless the holder of such Applicable Units presents evidence
reasonably satisfactory to EQR or ERP Operating Partnership that such holder
will not incur any income tax as a result of such transfer or (ii) the death
of the holder of Applicable Units; provided, however, that once an Applicable
Unit has been the subject of a Taxable Transaction, any subsequent transfers
of such Applicable Unit or the death of any subsequent holder thereof shall
not be considered in determining whether 50% or more of the Applicable Units
have been transferred in Taxable Transactions. As used herein, "Applicable
Units" mean the ERP OP Units issued pursuant to the Unit Contribution
Agreements, the ERP OP Units issued to the EWR Unit Holders in liquidation of
EWR Partnership and any ERP OP Units issued upon any subsequent transfer of
such ERP OP Units (regardless of the number of transfers). EQR further
covenants that it will not voluntarily prepay (y) the securitized debt arising
under the Deed of Trust with Assignment of Rents, Security Agreement and
Fixture Filing dated as of August 17, 1994 with EWR Finance Partnership L.P.
or (z) the fixed rate loan from Northwestern Mutual Life Insurance Company to
EWR Partnership (each a "EWR Debt") until the date the EWR Debt in question
can be prepaid without penalty or premium.
ARTICLE 6
Conditions
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) SHAREHOLDER AND PARTNER APPROVALS. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and
adopted by the Shareholder Approvals and the Partner Approvals shall have
been obtained.
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(b) LISTING OF SHARES. The NYSE shall have approved for listing the
shares of beneficial interest of the Surviving Trust to be issued in the
Merger or in exchange for ERP OP Units issued pursuant to the Unit
Contribution Agreements, subject to official notice of issuance.
(c) REGISTRATION STATEMENTS. The Registration Statements shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings by the SEC seeking a stop order.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated hereby shall be in effect.
(e) BLUE SKY LAWS. The Surviving Trust shall have received all state
securities or "blue sky" permits and other authorizations necessary to
issue shares of beneficial interest to the shareholders of EWR.
(f) OPINION OF MARYLAND COUNSEL. EQR and EWR shall have received the
opinion of Ballard Spahr Andrews & Ingersoll, which is acting at the
request and with the consent of both parties as Maryland counsel, to the
effect that this Agreement and the Articles of Merger are enforceable under
Maryland law, that all requisite approvals of the Merger by the
shareholders of EQR and EWR has been obtained, and as to such other matters
as are customary in a transaction such as the Merger.
6.2 CONDITIONS TO OBLIGATIONS OF EQR. The obligations of EQR to effect the
Merger and to consummate the other transactions contemplated to occur on the
Closing Date are further subject to the following conditions, any one or more
of which may be waived by EQR:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
EWR set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, as
though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another
date, and EQR shall have received a certificate (which certificate may be
qualified by Knowledge to the same extent as the representations and
warranties of EWR contained herein are so qualified) signed on behalf of
EWR by the chief executive officer or the chief financial officer of EWR,
in such capacity, to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF EWR. EWR shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and EQR shall have received a
certificate signed on behalf of EWR by the chief executive officer or the
chief financial officer of EWR, in such capacity, to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no EWR Material Adverse Change and EQR shall have received
a certificate of the chief executive officer or chief financial officer of
EWR, in such capacity, certifying to such effect.
(d) TAX OPINIONS RELATING TO REIT STATUS OF EWR AND PARTNERSHIP STATUS OF
EWR PARTNERSHIP. EQR shall have received an opinion of counsel to EWR,
reasonably satisfactory to EQR, that, commencing with its taxable year
ended December 31, 1994, (i) EWR was organized and has operated in
conformity with the requirements for qualification as a REIT under the
Code, and (ii) EWR Operating Partnership has been during and since 1994,
and continues to be, treated for federal income tax purposes as a
partnership and not as a corporation or association taxable as a
corporation (with customary exceptions, assumptions and qualifications and
based upon customary representations).
(e) TAX OPINION RELATING TO MERGER. EQR shall have received an opinion
dated the Closing Date from counsel to EQR, based upon certificates and
letters, which letters and certificates are in the form agreed upon by the
parties and dated the Closing Date, to the effect that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Code.
(f) OPINION OF COUNSEL. EQR shall have received an opinion from Gibson,
Dunn & Crutcher LLP or other counsel to EWR reasonably satisfactory to EQR
dated the Closing Date in form and substance reasonably satisfactory to EQR
addressing the matters set forth in Exhibit "B" hereto.
(g) CONSENTS. All consents and waivers (including, without limitation,
waivers of rights of first refusal) from third parties necessary in
connection with the consummation of the transactions contemplated by this
Agreement shall have been obtained, other than such consents and waivers
from third parties, which, if not obtained, would not result, individually
or in the aggregate, in an EQR Material Adverse Effect or a EWR Material
Adverse Effect.
(h) EMPLOYMENT AND CONSULTING AGREEMENTS. The Employment Agreement and
Consulting Agreement shall remain in full force and effect (except due to
the employee's or consultant's death), and neither Mr. Berry nor Mr. Evans
shall have breached any of his obligations under his Employment Agreement
or Consulting Agreement, as applicable.
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(i) SHARES OF MANAGEMENT CORP. The voting shares of Management Corp.
shall have been transferred to EQR's designees in accordance with the
Management Corp. Stock Purchase Agreement.
(j) VOTING AGREEMENTS. Each of the Voting Agreements shall remain in full
force and effect and the individuals and entities party thereto shall not
have breached any of their obligations thereunder.
(k) CHANGE IN CONTROL AGREEMENTS. The Change in Control Agreements dated
June 18, 1997 between EWR and each of the employees named in Section 5.8
(other than Messrs. Lyon, O'Clair and Pusateri) shall have been amended as
provided in Section 5.8.
(l) AFFILIATES LETTER. Each of the Affiliates shall have delivered to EQR
the written agreement contemplated by Section 4.4.
6.3 CONDITIONS TO OBLIGATIONS OF EWR. The obligation of EWR to effect the
Merger and to consummate the other transactions contemplated to occur on the
Closing Date is further subject to the following conditions, any one or more
of which may be waived by EWR:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
EQR set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, as
though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another
date, and EWR shall have received a certificate (which certificate may be
qualified by Knowledge to the same extent as the representations and
warranties of EQR contained herein are so qualified) signed on behalf of
EQR by the chief executive officer and the chief financial officer of such
party, in such capacity, to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF EQR. EQR shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and EWR shall have received a
certificate of EQR signed on behalf of EQR by the chief executive officer
or the chief financial officer of EQR, in such capacity, to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no EQR Material Adverse Change and EWR shall have received
a certificate of the chief executive officer or chief financial officer of
EQR, in such capacity, certifying to such effect.
(d) TAX OPINIONS RELATING TO REIT STATUS OF EQR AND PARTNERSHIP STATUS OF
ERP OPERATING PARTNERSHIP. EWR shall have received an opinion of counsel to
EQR, reasonably satisfactory to EWR, that, commencing with its taxable year
ended December 31, 1993, (i) EQR was organized and has operated in
conformity with the requirements for qualification as a REIT under the
Codes and (ii) ERP Operating Partnership has been during and since 1993,
and continues to be, treated for federal income tax purposes as a
partnership and not as a corporation or association taxable as a
corporation (with customary exceptions, assumptions and qualifications and
based upon customary representations).
(e) TAX OPINION RELATING TO MERGER. EWR shall have received an opinion
dated the Closing Date from counsel to EWR, based upon certificates and
letters, which letters and certificates are in the form agreed upon by the
parties and dated the Closing Date, to the effect that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Code.
(f) OPINION OF COUNSEL. EWR shall have received an opinion from Rudnick &
Wolfe or other counsel to EQR reasonably satisfactory to EWR dated the
Closing Date in form and substance reasonably satisfactory to EWR
addressing the matters set forth in Exhibit "C" hereto dated the Closing
Date.
(g) CONSENTS. All consents and waivers (including, without limitation,
waivers or rights of first refusal) from third parties necessary in
connection with the consummation of the transactions contemplated hereby
shall have been obtained, other than such consents and waivers from third
parties, which, if not obtained, would not result, individually or in the
aggregate, in an EQR Material Adverse Effect or a EWR Material Adverse
Effect.
ARTICLE 7
Termination, Amendment and Waiver
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
filing of the Articles of Merger with the Department, whether before or after
either of the Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by the Board of Trustees of
EQR and the Board of Directors of EWR;
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(b) by EQR, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of EWR set forth in this Agreement, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b), as the case may be, would be incapable of being satisfied by
February 15, 1998 (or as otherwise extended);
(c) by EWR, upon a breach of any representation, warranty, covenant
obligation or agreement on the part of EQR set forth in this Agreement, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b), as the case may be, would be incapable of being satisfied by
February 15, 1998 (or as otherwise extended);
(d) by either EQR or EWR, if any judgment, injunction, order, decree or
action by any Governmental Entity of competent authority preventing the
consummation of the Merger shall have become final and nonappealable;
(e) by either EQR or EWR, if the Merger shall not have been consummated
before February 15, 1998; provided, that a party may not terminate pursuant
to this clause (e) if the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure
referred to in this clause;
(f) by either EQR or EWR if, upon a vote at a duly held EWR Shareholders
Meeting or any adjournment thereof, EWR Shareholder Approvals shall not
have been obtained by Section 5.1 or if the Partner Approvals shall not
have been obtained as contemplated by the date of the vote at the EWR
Shareholders Meeting;
(g) by either EQR or EWR if, upon a vote at a duly held EQR Shareholders
Meeting or any adjournment thereof, the EQR Shareholder Approvals shall not
have been obtained as contemplated by Section 5.1;
(h) by EWR, if prior to the EWR Shareholders Meeting, the Board of
Directors of EWR shall have withdrawn or modified its approval or
recommendation of the Merger or this Agreement in connection with, or
approved or recommended, a Superior Acquisition Proposal;
(i) by EQR if (i) prior to the EWR Shareholders Meeting, the Board of
Directors of EWR shall have withdrawn or modified in any manner adverse to
EQR its approval or recommendation of the Merger or this Agreement in
connection with, or approved or recommended, any Superior Acquisition
Proposal, or (ii) EWR shall have entered into a definitive agreement with
respect to any Acquisition Proposal; and
(j) by EQR if Stephen O. Evans terminates his Consulting Agreement (other
than by reason of his death) or Richard G. Berry terminates his Employment
Agreement (other than by reason of his death) or if any of Stephen O.
Evans, F. Keith Withycombe, EW Investments Limited Partnership or The Evans
Family Limited Liability Company shall default in the performance of his
obligations under the Voting Agreement.
7.2 CERTAIN FEES AND EXPENSES. If this Agreement shall be terminated (i)
pursuant to Section 7.1(h) or 7.1(i), then EWR will pay EQR (provided EWR was
not entitled to terminate this Agreement pursuant to Section 7.1(c) at the
time of such termination) a fee equal to the Break-Up Fee (as defined below),
(ii) pursuant to Section 7.1(b) or 7.1(f), then EWR will pay EQR (provided EWR
was not entitled to terminate this Agreement pursuant to Section 7.1(c) at the
time of such termination) an amount equal to the Break-Up Expenses (as defined
below). If this Agreement shall be terminated pursuant to Section 7.1(c) or
7.1(g), then EQR will pay EWR (provided EQR was not entitled to terminate this
Agreement pursuant to Section 7.1(b) at the time of such termination) an
amount equal to the Break-Up Expenses. If the Merger is not consummated (other
than due to the termination of this Agreement pursuant to Section 7.1(a) or
7.1(g) or EQR's failure to perform its obligations under this Agreement in
such a manner so as to entitle EWR to terminate this Agreement pursuant to
Section 7.1(c)) and at the time of the termination of this Agreement an
Acquisition Proposal has been received by EWR, and either prior to the
termination of this Agreement or within twelve (12) months thereafter EWR or
any EWR Subsidiary enters into any written Acquisition Proposal which is
subsequently consummated (whether or not such Acquisition Proposal is the same
Acquisition Proposal which had been received at the time of the termination of
this Agreement), then EWR shall pay the Break-Up Fee to EQR. The payment of
the Break Up Fee shall be compensation and liquidated damages for the loss
suffered by EQR as a result of the failure of the Merger to be consummated and
to avoid the difficulty of determining damages under the circumstances and
neither party shall have any other liability to the other after the payment of
the Break-Up Fee. The Break-Up Fee shall be paid by EWR to EQR, or the Break-
Up Expenses shall be paid by EWR to EQR or EQR to EWR (as applicable), in
immediately available funds within fifteen (15) days after the date the event
giving rise to the obligation to make such payment occurred. As used in this
Agreement, "Break-Up Fee" shall be an amount equal to the lesser of (i)
$14,000,000 plus Break-Up Expenses (the "Base Amount") and (ii) the sum of (A)
the maximum amount that can be paid to EQR without causing it to fail to meet
the requirements of Sections 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants to EQR, and (B) in the event EQR
receives a letter from outside counsel (the "Break-Up Fee Tax Opinion")
indicating that EQR has received a ruling from the IRS holding that EQR's
receipt of the Base Amount would either constitute Qualifying Income or would
be excluded from gross income within the meaning of Sections 856(c)(2) and (3)
of the Code (the "REIT Requirements") or that the receipt by
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EQR of the remaining balance of the Base Amount following the receipt of and
pursuant to such ruling would not be deemed constructively received prior
thereto, the Base Amount less the amount payable under clause (A) above. EWR's
obligation to pay any unpaid portion of the Break-Up Fee shall terminate three
years from the date of this Agreement. In the event that EQR is not able to
receive the full Base Amount, EWR shall place the unpaid amount in escrow and
shall not release any portion thereof to EQR unless and until EWR receives
either one or combination of the following: (i) a letter from EQR's
independent accountants indicating the maximum amount that can be paid at that
time to EQR without causing EQR to fail to meet the REIT Requirements or (ii)
a Break-Up Fee Tax Opinion, in either of which events EWR shall pay to EQR the
lesser of the unpaid Base Amount or the maximum amount stated in the letter
referred to in (i) above. The "Break-Up Expenses" payable to EQR or EWR, as
the case may be (the "Recipient"), shall be an amount equal to the lesser of
(i) $2,500,000, (ii) the Recipient's out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, all attorneys', accountants' and investment
bankers' fees and expenses) and (iii) the sum of (A) the maximum amount that
can be paid to the Recipient without causing it to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income, as determined by
independent accountants to the Recipient, and (B) in the event the Recipient
receives a Break Up Fee Tax Opinion indicating that the Recipient has received
a ruling from the IRS holding that the Recipient's receipt of the Break-Up
Expenses would either constitute Qualifying Income or would be excluded from
gross income within the meaning of the REIT Requirements or that receipt by
the Recipient of the remaining balance of the Break-Up Expenses following the
receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Break-Up Expenses less the amount payable under
clause (A) above. The obligation of EQR or EWR, as applicable ("Payor"), to
pay any unpaid portion of the Break Up Expenses shall terminate three years
from the date of this Agreement. In the event that the Recipient is not able
to receive the full Break-Up Expenses, the Payor shall place the unpaid amount
in escrow and shall not release any portion thereof to the Recipient unless
and until the Payor receives any one or combination of the following: (i) a
letter from the Recipient's independent accountants indicating the maximum
amount that can be paid at that time to the Recipient without causing the
Recipient to fail to meet the REIT Requirements or (ii) a Break-Up Expense Tax
Opinion, in either of which events the Payor shall pay to the Recipient the
lesser of the unpaid Break-Up Expenses or the maximum amount stated in the
letter referred to in (i) above.
7.3 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either EWR or EQR as provided in Section 7.1, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the
part of EQR, or EWR, other than the last sentence of Section 5.2, Section 7.2,
this Section 7.3 and Article 8; provided that (a) if this Agreement is
terminated by EQR pursuant to Section 7.1(b), EWR shall not be entitled to any
of the benefits of Section 7.2, or (b) if this Agreement is terminated by EWR
pursuant to Section 7.1(c), EQR shall not be entitled to any of the benefits
of Section 7.2.
7.4 AMENDMENT. This Agreement may be amended by the parties in writing by
action of their respective Board of Trustees or Board of Directors at any time
before or after any Shareholder Approvals are obtained and prior to the filing
of the Articles of Merger with the Department; provided, however, that, after
the Shareholder Approvals are obtained, no such amendment, modification or
supplement shall be made which by law requires the further approval of
shareholders without obtaining such further approval. The parties agree to
amend this Agreement in the manner provided in the immediately preceding
sentence to the extent required to (a) continue the status of the parties as
REITs or (b) preserve the Merger as a tax-free reorganization under Section
368 of the Code.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE 8
General Provisions
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement confirming the representations and
warranties in this Agreement shall survive the Effective Time. This Section
8.1 shall not limit any covenant or agreement of the parties which by its
terms contemplates performance after the Effective Time.
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8.2 Notices. All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be delivered personally,
sent by overnight courier (providing proof of delivery) to the parties or sent
by telecopy (providing confirmation of transmission) at the following
addresses or telecopy numbers (or at such other address or telecopy number for
a party as shall be specified by like notice):
(a) if to EQR, to:
Equity Residential Properties Trust
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: President
Fax No. (312) 207-5243
with a copy to:
Equity Residential Properties Trust
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: Bruce C. Strohm, Esq.
Fax No. (312) 454-0039
and:
Rudnick & Wolfe
203 N. LaSalle St., Suite 1800
Chicago, Illinois 60601
Attention: Errol R. Halperin, Esq.
Fax No. (312) 236-7516
(b) if to EWR, to:
Evans Withycombe Residential, Inc.
6991 East Camelback Road, Suite A200
Scottsdale, Arizona 85251
Attention: President
Fax: (602) 941-4266
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Fax No. (213) 229-6537
All notices shall be deemed given only when actually received.
8.3 INTERPRETATION. When a reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party.
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, the EWR
Disclosure Letter, the EQR Disclosure Letter, the Confidentiality Agreement
and the other agreements entered into in connection with the Merger (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement and (b) except as provided in Section 5.8
(with respect to the Schedule 5.8 Employees who do not receive Retention
Program Letters), Section 5.9 and Section 5.18 (with respect to the partners
of EWR Partnership) ("Third Party Provisions"), are not intended to confer
upon any person other than the parties
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hereto any rights or remedies. The Third Party Provisions may be enforced by
the beneficiaries thereof or on behalf of the beneficiaries thereof by the
directors of EWR who had been members of the Board of Directors of EWR prior
to the Effective Time.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS
THEREOF.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned or delegated, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
8.8 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in
Chicago, Illinois, or Phoenix, Arizona, or in any state court located in
Illinois or California, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(a) consents to submit itself (without making such submission exclusive) to
the personal jurisdiction of any federal court located in Chicago, Illinois,
or Phoenix, Arizona or any state court located in Chicago, Illinois or
Phoenix, Arizona in the event any dispute arises out of this Agreement or any
of the transactions contemplated by this Agreement and (b) agrees that it will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court.
8.9 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
8.10 NON-RECOURSE. This Agreement shall not create or be deemed to create or
permit any personal liability or obligation on the part of any direct or
indirect stockholder of EWR or any officer, director, employee, agent or
representative of any party hereto. This Agreement and all documents,
agreements, understandings and arrangements relating hereto have been entered
into or executed on behalf of EQR by the undersigned in his capacity as a
trustee or officer of EQR, which has been formed as a Maryland real estate
investment trust pursuant to an Amended and Restated Declaration of Trust of
EQR dated as of August 10, 1993, as amended and restated, and not
individually, and neither the trustees, officers nor shareholders of EQR shall
be personally bound or have any personal liability hereunder. EWR shall look
solely to the assets of EQR for satisfaction of any liability of EQR with
respect to this Agreement and any other agreements to which it is a party. EWR
will not seek recourse or commence any action against any of the shareholders
of EQR or any of their personal assets, and will not commence any action for
money judgments against any of the trustees or officers of EQR or seek
recourse against any of their personal assets, for the performance or payment
of any obligation of EQR hereunder or thereunder.
IN WITNESS WHEREOF, EQR and EWR have caused this Agreement to be signed by
their respective officers thereunto duly authorized all as of the date first
written above.
EQUITY RESIDENTIAL PROPERTIES TRUST, a
Maryland real estate investment trust
/s/ Bruce C. Strohm
By: _____________________________________
Name: Bruce C. Strohm
Title:
Executive Vice President
EVANS WITHYCOMBE RESIDENTIAL, INC., a
Maryland corporation
/s/ Stephen O. Evans
By: _____________________________________
Name: Stephen O. Evans
Title:
Chairman & Chief Executive Officer
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APPENDIX B
EQUITY RESIDENTIAL PROPERTIES TRUST
EVANS WITHYCOMBE RESIDENTIAL, INC.
ARTICLES OF MERGER
EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real estate investment trust
("EQR"), and EVANS WITHYCOMBE RESIDENTIAL, INC., a Maryland corporation
("EWR"), certify to the State Department of Assessments and Taxation of
Maryland:
1. The Merger. EQR and EWR agree to merge in the manner hereinafter set
forth. Subject to the acceptance for record of these Articles of Merger
("Articles") by the State Department of Assessments and Taxation of Maryland
(the "Department"), EWR shall be merged with and into EQR in accordance with
Sections 3-114 and 8-501.1 of the Corporations and Associations Article of the
Annotated Code of Maryland (the "Maryland Code"), and the separate existence
of EWR shall thereupon cease (the "Merger").
2. Formation. EQR and EWR are formed under Titles 8 and 2 of the Maryland
Code, respectively.
3. Principal Offices. The principal office of each of EQR and EWR in the
State of Maryland is located in Baltimore City.
4. Ownership of Land Interests. EWR owns no interests in land located within
the State of Maryland.
5. Declaration of Trust. The Second Amended and Restated Declaration of
Trust of EQR (the "Declaration"), as amended and restated and as in effect
immediately prior to the Effective Time, shall continue in full force and
effect until duly amended in accordance with its terms and applicable law.
6. Effective Time. The Merger shall be effective at the time the Department
accepts these Articles for record (the "Effective Time"). The date on which
the Effective Time occurs is herein referred to as the "Effective Date."
7. Effects. The Merger shall have the effects specified in Sections 3-114
and 8-501.1(n) of the Maryland Code. At the Effective Time all the properties,
rights, privileges, powers and franchises of EWR shall vest in EQR and all
debts, liabilities and duties of EWR shall become the debts, liabilities and
duties of EQR. If at any time EQR shall consider or be advised that any
further assignments, conveyances or assurances in law are necessary or
desirable to vest, perfect or confirm in EQR the title to any property or
rights of EQR or EWR or otherwise to carry out the provisions hereof, the
persons who are the proper officers, trustees and directors of EQR or EWR
immediately prior to the Effective Time (or their successors in office) shall
execute and deliver any and all proper deeds, assignments and assurances in
law, and do all things necessary or proper, to vest, perfect or confirm title
to such property or rights in EQR and otherwise to carry out the provisions
hereof. EQR shall continue to be governed by the laws of the State of
Maryland.
8. Approval of Merger. The terms and conditions of the Merger were duly
advised, authorized and approved by EQR in the manner and by the vote required
by the laws of the State of Maryland and the Amended and Restated Declaration
of Trust of EQR as follows:
(a) The Board of Trustees of EQR, at a meeting duly called and held,
adopted a resolution declaring that the terms and conditions of the Merger
described herein were advisable and directing that the proposed transaction
be submitted for consideration by the shareholders of EQR.
(b) The shareholders of EQR entitled to vote on the proposed merger, at a
meeting duly called and held, adopted a resolution approving the Merger.
The terms and conditions of the Merger were duly advised, authorized and
approved by EWR in the manner and by the vote required by the laws of the
State of Maryland and the charter of EWR as follows:
(a) The Board of Directors of EWR, at a meeting duly called and held,
adopted a resolution declaring that the terms and conditions of the Merger
described herein were advisable and directing that the proposed transaction
be submitted for consideration by the shareholders of EWR.
(b) The shareholders of EWR entitled to vote on the proposed merger, at a
meeting duly called and held, adopted a resolution approving the Merger.
The shareholders of EWR shall not be entitled to any appraisal rights in
connection with the Merger.
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9. Trustees. As of the Effective Time, the trustees of EQR and their terms
of office shall be as set forth on Exhibit "A" attached hereto. If any of the
individuals named in Exhibit "A" are unable to serve as a trustee of EQR at
the Effective Time, his successor will be nominated and elected in accordance
with the laws of the State of Maryland and the Bylaws of EQR.
10. Capital.
(a) EWR's charter as in effect immediately prior to the Effective Time
(the "Charter") authorizes the issuance of 100,000,000 shares of common
stock, $.01 par value per share ("EWR Common"), and 10,000,000 shares of
preferred stock, $.01 par value per share ("EWR Preferred"). The aggregate
par value of all the authorized shares of EWR is $1,100,000.
(b) EQR's Declaration authorizes the issuance of 300,000,000 shares, of
which 200,000,000 are common shares, $.01 par value par share ("EQR
Common"), and 100,000,000 are preferred shares. EQR has established the
following series of preferred shares: (i) 6,900,000 shares of 9 3/8% Series
A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value
$.01 per share; (ii) 575,000 shares of 9 1/8% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest, par value $.01 per
share; (iii) 460,000 shares of 9 1/8% Series C Cumulative Redeemable
Preferred Shares of Beneficial Interest, par value $.01 per share; (iv)
805,000 shares of 8.60% Series D Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $.01 per share; (v) 4,600,000 shares of
Series E Convertible Preferred Shares of Beneficial Interest, par value
$.01 per share; and (vi) 2,300,000 shares of Series F Cumulative Redeemable
Preferred Shares of Beneficial Interest, par value $.01 per share.
11. Conversion. The manner of converting the shares of EWR shall be as
follows:
(a) Subject to the provisions of Section 11(c) hereof, at the Effective
Time, each share of EWR Common outstanding immediately prior to the
Effective Time shall, without any action on the part of the holder thereof,
be converted into 0.5 of a share of EQR Common.
(b) At the Effective Time, each certificate representing outstanding
shares of EWR Common will, without any action on the part of the holder
thereof, thereafter represent the right to receive, without interest, the
EQR Common as calculated pursuant to Section 11(a) above and cash in lieu
of fractional shares of the EQR Common in accordance with Section 11(c),
upon the surrender of such EWR certificate.
(c) Notwithstanding any other provision hereof, no fractional shares of
EQR Common shall be issued in connection with the Merger. Instead, each
holder of outstanding EWR Common having a fractional interest arising upon
the conversion or exchange of such shares in connection with the Merger
shall, at the time of surrender of its EWR certificate, be paid an amount
in cash equal to the Closing Price (as hereinafter defined) multiplied by
the fraction of a share of EQR Common to which such holder would otherwise
be entitled. No such holder shall be entitled to dividends or other
distributions, voting rights or any other shareholder rights in respect of
any fractional share. For purposes of this Section 11(c), "Closing Price"
shall mean the unweighted average closing price of a share of EQR Common
(as reported in the New York Stock Exchange, Inc. Composite Tape) for the
five (5) Trading Days immediately preceding the Effective Date, and
"Trading Day" shall mean any day on which EQR Common is traded on the New
York Stock Exchange and reported on its Composite Tape.
(d) At the Effective Time, each outstanding option to purchase EWR Common
(a "EWR Stock Option" or collectively "EWR Stock Options") shall terminate
and shall be of no further force or effect.
(e) The 1994 Stock Incentive Plan of EWR and the Non-Employee Directors
Stock Plan of EWR shall each terminate effective as of the Effective Time.
(f) Each outstanding share of EWR Common which was subject to any risk of
forfeiture immediately prior to the Effective Time shall, by virtue of the
Merger, become fully vested immediately prior to the Merger, and shall no
longer be subject to any risk of forfeiture.
12. Exchange of Certificates.
(a) As of the Effective Time, EQR shall deposit, or shall cause to be
deposited, with an exchange agent selected by EQR (the "Exchange Agent"),
for the benefit of the holders of certificates representing EWR Common (the
"EWR Certificates"), for exchange in accordance with this Section 12,
certificates representing the EQR Common (the "EQR Certificates") to be
issued pursuant to this Section 12.
(b) Promptly after the Effective Time, EQR shall cause the Exchange Agent
to mail to each holder of record of EWR Common a letter of transmittal
which shall specify (i) that delivery shall be effected, and risk of loss
and title to EWR Certificates shall pass, only upon delivery of such EWR
Certificates to the Exchange Agent, and shall be in such form and have such
other provisions as EQR may reasonably specify, and (ii) instructions for
use in effecting the
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surrender of such EWR Certificates in exchange for EQR Certificates and
cash in lieu of fractional shares of EQR Common. Upon surrender of a EWR
Certificate for cancellation to the Exchange Agent, duly executed and
completed in accordance with the instructions thereto, together with such
letter of transmittal, the holder of such EWR Certificate shall be entitled
to receive in exchange therefor (x) an EQR Certificate representing the
number of whole shares of EQR Common and (y) a check representing the
amount of cash in lieu of fractional shares of EQR Common, if any, and
unpaid dividends and distributions, if any, which such holder has the right
to receive pursuant to the provisions of Section 12(c) in respect of the
EWR Certificate surrendered, after giving effect to any required
withholding tax, and the EWR Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on the cash in lieu of
fractional shares of EQR Common and unpaid dividends and distributions, if
any, payable to holders of EWR Certificates. In the event of a transfer of
ownership of EWR Common which is not registered in the transfer records of
EWR, an EQR Certificate representing the proper number of EQR Common,
together with a check for the cash to be paid in lieu of any fractional
shares of EQR Common, if any, and unpaid dividends and distributions, if
any, which such holder has the right to receive pursuant to Section 12(c)
in respect of the EWR Certificate so surrendered, after giving effect to
any required withholding tax, may be issued to such a transferee if the EWR
Certificate is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid. All EWR
Certificates so surrendered will be cancelled forthwith. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be
liable to a holder of EWR Common for any EQR Common or dividends or other
distributions thereon, or cash in lieu of any fractional EQR Common,
delivered to a public official pursuant to applicable escheat law.
(c) Notwithstanding any other provisions of these Articles, no dividends
or other distributions on EQR Common shall be paid with respect to any EWR
Common represented by an EWR Certificate until such EWR Certificate is
surrendered for exchange as provided herein. Subject to the effect of
applicable laws, following surrender of any such EWR Certificate, there
shall be paid to the holder of the EQR Certificate issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective
Time theretofore payable with respect to such whole shares of EQR Common
and not paid, less the amount of any withholding taxes which may be
required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of EQR Common, less the amount of
any withholding taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the
share transfer books of EWR of the EWR Common which was outstanding
immediately prior to the Effective Time. If, after the Effective Time, EWR
Certificates are presented to EQR, they shall be cancelled and exchanged
for certificates representing EQR Common and cash in lieu of fractional EQR
Common, if any, and unpaid dividends and distributions deliverable in
respect thereof pursuant to these Articles in accordance with the
procedures set forth in this Section 12.
(e) Any portion of the EQR Certificates made available to the Exchange
Agent pursuant to Section 12(a) which remains unclaimed by the holders of
EWR Common for one hundred twenty (120) days after the Effective Time shall
be delivered to EQR, upon demand of EQR, and any former shareholders of EWR
who have not theretofore complied with this Section 12 shall look only to
EQR for payment of their shares of EQR Common, cash in lieu of fractional
shares and unpaid dividends and distributions on the EQR Common deliverable
in respect of each share of EWR Common such shareholder holds as determined
pursuant to these Articles, in each case, without any interest thereon.
(f) None of EWR, EQR, the Exchange Agent or any other person shall be
liable to any former holder of EWR Common for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(g) In the event any EWR Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and, if required
by EQR, the posting by such person of a bond in such reasonable amount as
EQR may direct as indemnity against any claim that may be made against it
with respect to such EWR Certificate, the Exchange Agent or EQR will issue
in exchange for such lost, stolen or destroyed EWR Certificate the EQR
Common and cash in lieu of fractional EQR Common, and unpaid dividends and
distributions on EQR Common as provided in Section 12(c), deliverable in
respect thereof pursuant to these Articles.
13. Amendment. The parties hereto may amend, modify or supplement these
Articles in whole or in part and in such manner as may be agreed upon by them
in writing at any time before or after the approval of the Merger by the
parties' shareholders as contemplated hereby; provided, however, that after
any such shareholder approval, any such amendment will be subject to further
approval of such shareholders if such further approval is required under the
Declaration or Bylaws of EQR, or the Charter or Bylaws of EWR, as the case may
be, or under applicable law.
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<PAGE>
14. Waiver. Any term or provision of these Articles (other than any matter
which cannot under applicable law be waived) may be waived in writing at any
time by the party which is, or whose shareholders are, entitled to the
benefits thereof. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect such party's
right at a later time to enforce the same. No waiver by any party of a
condition or of the breach of these Articles, whether by conduct or otherwise,
in any one or more instances shall be deemed to be construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or of the breach of any other term, covenant, representation or
warranty of these Articles.
15. Notice. Any notice or other communication required or permitted under
these Articles shall be given, and shall be effective, in accordance with the
provisions of the Merger Agreement.
16. Governing Law. These Articles shall be governed by and construed in
accordance with the laws of the State of Maryland.
17. Counterparts. These Articles may be executed in multiple counterparts,
each of which shall be deemed an original and all of which together shall
constitute one agreement.
18. Abandonment. The Merger may be abandoned before the Effective Time by
majority vote of the entire board of trustees of EQR and board of directors of
EWR.
IN WITNESS WHEREOF, these Articles have been signed on this day of
, 1997 by the of EQR and the
of EWR, and each of the undersigned acknowledges these
Articles to be the act of the entity on whose behalf he or she has signed, and
as to all matters or facts required to be verified under oath, each of the
undersigned acknowledges that to the best of his or her knowledge,
information, and belief, the matters and facts are true in all material
respects and such statement is made under the penalties for perjury.
Equity Residential Properties
Trust
Evans Withycombe Residential, Inc.
By: __________________________________
By: __________________________________
Its: ________________________________
Its: ________________________________
Attest: ______________________________ Attest: ______________________________
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<PAGE>
EXHIBIT A
TRUSTEES OF SURVIVING TRUST
<TABLE>
<CAPTION>
TERM
TRUSTEE EXPIRES
- ------- -------
<S> <C>
Samuel Zell............................................................. 1999
Douglas Crocker II...................................................... 1998
Sheli Z. Rosenberg...................................................... 1998
Gerald A. Spector....................................................... 1998
James D. Harper, Jr..................................................... 1998
Errol R. Halperin....................................................... 1999
Barry S. Sternlicht..................................................... 2000
John W. Alexander....................................................... 1999
B. Joseph White......................................................... 2000
Henry H. Goldberg....................................................... 1999
Jeffrey M. Lynford...................................................... 2000
Edward Lowenthal........................................................ 2000
Stephen O. Evans........................................................ 2000
</TABLE>
B-5
<PAGE>
APPENDIX C
JPMORGAN
J.P. Morgan Securities Inc.
August 27, 1997
60 Wall Street The Board of Trustees
New York NY Equity Residential Properties Trust
10260-0060 Two North Riverside Plaza
Chicago, Illinois 60606
Attention: Mr. Douglas Crocker II
President, Chief Executive Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to Equity Residential Properties
Trust (together with its subsidiaries and affiliates, the
"Company") of the consideration proposed to be paid by the
Company in connection with the proposed merger (the "Merger")
of the Company with Evans Withycombe Residential, Inc. (the
"Seller"). Pursuant to the Agreement and Plan of Merger,
dated as of August 27, 1997 (the "Agreement"), between the
Company and the Seller, each common share of the Seller,
$0.01 par value per share, will be converted into 0.50 common
shares of beneficial interest of the Company, and each unit
of limited partnership interest in Evans Withycombe
Residential L.P. will be exchangeable for 0.50 common units
of ERP Operating Limited Partnership.
In arriving at our opinion set forth below, we have reviewed,
among other things: (i) the Agreement; (ii) certain publicly
available information concerning the business of the Seller
and of certain other companies engaged in businesses
comparable to those of the Seller, and the reported market
prices for certain other companies' securities deemed
comparable; (iii) publicly available terms of certain
transactions involving companies comparable to the Seller and
the consideration received for such companies; (iv) current
and historical market prices of the common shares of
beneficial interest of the Company and the common shares of
the Seller; (v) audited financial statements of the Company
and the Seller for the fiscal year ended December 31, 1996,
and unaudited financial statements of the Company and the
Seller for the six months ended June 30, 1997; (vi) certain
agreements with respect to outstanding indebtedness or
obligations of the Company and the Seller; (vii) certain
internal financial analyses and estimates of budgeted 1998
funds from operations and net operating income prepared by
the Company and the Seller and their respective managements;
and (viii) the terms of other business combinations that we
deemed relevant.
In addition, we have held discussions with certain members of
the management of the Company and the Seller with respect to
certain aspects of the Merger, and the past and current
business operations of the Company and the Seller, the
financial condition and future prospects and operations of
the Company and the Seller, the effects of the Merger on the
financial condition and future prospects of the Company and
the Seller, and certain other matters we believed necessary
or appropriate to our inquiry. We have reviewed such other
financial studies and analyses and considered such other
information as we deemed appropriate for the purposes of this
opinion.
In giving our opinion, we have relied upon and assumed,
without independent verification, the accuracy and
completeness of all information that was publicly available
or was furnished to us by the Company and the Seller or
otherwise reviewed by us, and we have not assumed any
responsibility or liability therefor. We have not conducted
any valuation or appraisal of any assets or liabilities, nor
have any such valuations or appraisals been provided to us.
In relying on
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<PAGE>
JPMORGAN
financial analyses and forecasts provided to us, we have
assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates
and judgments by management as to the expected future results
of operations and financial condition of the Company and the
Seller to which such analyses or forecasts relate. We have
also assumed that the Merger will have the tax consequences
described in discussions with, and materials furnished to us
by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be
consummated as described in the Agreement. We have relied as
to all legal matters relevant to rendering our opinion upon
the advice of counsel.
Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made
available to us as of, the date hereof. It should be
understood that subsequent developments may affect this
opinion and that we do not have any obligation to update,
revise, or reaffirm this opinion. We are expressing no
opinion herein as to the price at which the Company's or the
Seller's shares will trade at any future time.
In addition, we were not requested to and did not provide
advice concerning the structure, the specific amount of the
consideration, or any other aspects of the Merger, or to
provide services other than the delivery of this opinion. We
did not participate in negotiations with respect to the terms
of the Merger and related transactions. Consequently, we have
assumed that such terms are the most beneficial terms from
the Company's perspective that could under the circumstances
be negotiated among the parties to such transactions.
We will receive a fee from the Company for the delivery of
this opinion. Our affiliate, Morgan Guaranty Trust Company of
New York ("MGT"), is a co-arranger on the Company's revolving
credit facility. We have also provided other financial
advisory services to the Company and its affiliates in the
past and have received fees for such services. In addition,
in the past we have assisted the Seller in raising debt
capital and MGT has entered into derivatives transactions
with the Seller. In the ordinary course of their businesses,
our affiliates may actively trade the debt and equity
securities of the Company or the Seller for their own account
or for the accounts of customers and, accordingly, they may
at any time hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our
opinion as of the date hereof that the consideration to be
paid by the Company in connection with the proposed Merger is
fair, from a financial point of view, to the Company.
This letter is provided to the Board of Trustees of the
Company in connection with and for the purposes of its
evaluation of the Merger. This opinion does not constitute a
recommendation to any stockholder of the Company as to how
such stockholder should vote with respect to the Merger. This
opinion may not be disclosed, referred to, or communicated
(in whole or in part) to any third party for any purpose
whatsoever except with our prior written consent in each
instance. This opinion may be reproduced in full in any proxy
or information statement mailed to stockholders of the
Company but may not otherwise be disclosed publicly in any
manner without our prior written approval and must otherwise
be treated as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
/s/ Peter E. Baccile
By:
Name: Peter E. Baccile
Title: Managing Director
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<PAGE>
APPENDIX D
August 27, 1997
Board of Directors
Evans Withycombe Residential, Inc.
6991 East Camelback Road, Suite A200
Scottsdale, Arizona 85251
Gentlemen:
We understand that Evans Withycombe Residential, Inc. ("Evans Withycombe")
and Equity Residential Properties Trust ("Equity Residential") have entered
into an Agreement and Plan of Merger, dated as of August 27, 1997 (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Evans Withycombe with and into Equity Residential. Pursuant to the Merger,
each outstanding share of common stock, par value $0.01 per share (the "Evans
Withycombe Common Stock") of Evans Withycombe, other than shares held in
treasury or by Equity Residential or any affiliate of Equity Residential, will
be converted into the right to receive, subject to certain adjustments, 0.5
shares of common stock of Equity Residential, par value $0.01 per share (the
"Equity Residential Common Stock"). We further understand that, pursuant to
the Merger, certain units evidencing limited partnership interests in Evans
Withycombe Residential, L.P. will be converted into the right to exchange each
such unit into 0.5 limited partnership units of ERP Operating Limited
Partnership. The terms and conditions of the Merger are more fully set forth
in the Merger Agreement.
You have asked our opinion as to whether the consideration to be received by
the holders of shares of Evans Withycombe Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders (other than
Equity Residential and its affiliates).
For the purposes of the opinions set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of Evans Withycombe and Equity Residential;
(ii) analyzed certain internal financial statements and other financial and
operating data concerning Evans Withycombe and Equity Residential
prepared by the managements of Evans Withycombe and Equity
Residential;
(iii) analyzed certain financial projections prepared by the managements of
Evans Withycombe and Equity Residential;
(iv) discussed the past and current operations and financial condition and
the prospects of Evans Withycombe and Equity Residential and certain
of the real property assets of each company with senior executives of
Evans Withycombe and Equity Residential;
(v) reviewed the reported prices and trading activity of Evans Withycombe
Common Stock and Equity Residential Common Stock;
(vi) compared the financial performance of Evans Withycombe and the prices
and trading activity of Evans Withycombe Common Stock with that of
certain other comparable publicly-traded companies and their
securities;
(vii) compared the financial performance of Equity Residential and the
prices and trading activity of Equity Residential Common Stock with
that of certain other comparable publicly-traded companies and their
securities;
(viii) discussed with senior management of each of Evans Withycombe and
Equity Residential their estimates of the synergies and other cost
savings to be realized pursuant to the Merger;
(xiv) participated in discussions and negotiations among representatives of
Evans Withycombe and Equity Residential and their financial and legal
advisors;
D-1
<PAGE>
(x) reviewed drafts of the Merger Agreement and drafts of certain related
documents; and
(xi) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Evans
Withycombe and of Equity Residential. Further, we have relied upon Evans
Withycombe's and Equity Residential's estimates of the synergies and other
cost savings to be realized pursuant to the Merger. We have not made any
independent valuation or appraisal of the assets or liabilities of Evans
Withycombe or of Equity Residential, nor have we been provided with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof.
It is understood that this letter is for the information of the Board of
Directors of Evans Withycombe and may not be used for any other purpose
without our prior written consent, except that this opinion may be included in
its entirety in any filing made by Evans Withycombe with the Securities and
Exchange Commission with respect to the Merger. We express no opinion and make
no recommendation as to how the shareholders of Evans Withycombe should vote
at the shareholders' meeting held in connection with the Merger.
We have acted as financial advisor to the Board of Directors of Evans
Withycombe in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley Realty Incorporated and its affiliates
have provided financial advisory and financing services for Evans Withycombe
and Equity Residential and have received fees for the rendering of these
services.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Evans Withycombe
Common Stock pursuant to the Merger Agreement is fair from a financial point
of view to such holders (other than Equity Residential and its affiliates).
Very truly yours,
MORGAN STANLEY REALTY INCORPORATED
/s/ Scott M. Kelley
By: _____________________________________
Scott M. Kelley
Managing Director
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF TRUSTEES AND OFFICERS
Under Maryland law, a REIT organized in Maryland is permitted to eliminate,
by provision in its Declaration of Trust, the liability of its 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) active and deliberate dishonesty
established by final judgment as being material to the cause of action. The
Declaration of Trust of EQR includes such a provision eliminating such
liability to the maximum extent permitted by the Maryland REIT Law.
The Maryland REIT Law permits a Maryland REIT 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. The
MGCL permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the
MGCL, a Maryland corporation may not indemnify for an adverse judgment in a
suit by or in the right of the corporation or for a judgment of liability on
the basis that personal benefit was improperly received, unless in either case
a court orders indemnification and then only for expenses. In addition, the
MGCL permits a corporation to advance reasonable expenses to a director or
officer upon the corporation's receipt of (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation and (b) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met. The Declaration of Trust of EQR authorizes it, to the maximum
extent permitted by Maryland Law, to obligate itself to indemnify, and to pay
or reimburse reasonable expenses in advance of a final disposition of a
proceeding to, (a) any individual who is a present or former shareholder,
trustee or officer or (b) any individual who, while a shareholder, trustee or
officer of EQR and at the express request of EQR, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, shareholder, partner or trustee of
such corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, from and against all claims and liabilities to which such
person may become subject by reason of his being or having been a shareholder,
trustee, or officer. In addition, the Declaration of Trust of EQR provides
that, with the approval of its board of trustees, EQR shall have the power to
provide such indemnification and advancement of expenses to a person who
served a predecessor of EQR in any of the capacities described in (a) or (b)
above and to any employee or agent of EQR or a predecessor of EQR. The Bylaws
of EQR require it to indemnify (a) any trustee, officer or shareholder or any
former trustee, officer or shareholder (including among the foregoing, for all
purposes of the indemnification provisions of the Bylaws and without
limitation, any individual who, while a trustee, officer or shareholder and at
the express request of EQR, serves or has served another real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, shareholder,
partner or trustee of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
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 trustee or officer or any former trustee or officer against any claim
or liability to which he may become subject by reason of such status 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) each shareholder or former shareholder against
any claim or liability to which he may become subject by reason of such
status. In addition, EQR's Bylaws require it to pay or reimburse without
requiring a preliminary determination of the ultimate entitlement to
indemnification, in advance of final disposition of a proceeding, reasonable
expenses incurred by a trustee, officer or shareholder or former trustee,
officer or shareholder made a party to a proceeding by reason of such status,
provided that, in the case of a trustee or officer, EQR 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 EQR as authorized
by its Bylaws and (2) a written undertaking by or on his behalf to repay the
amount paid or reimbursed by EQR if it shall ultimately be determined that the
applicable standard of conduct was not met. EQR's Bylaws also (x) permit EQR
to provide indemnification and payment or reimbursement of expenses to a
present or former trustee, officer or shareholder who served as a predecessor
of EQR or to any employee or agent of EQR or a predecessor of EQR, (y) provide
that any indemnification and payment or reimbursement of the expenses
permitted in the
II-1
<PAGE>
Bylaws shall be furnished in accordance with the procedures providing for
indemnification and payment or reimbursement of expenses under Section 2-418
of the MGCL for directors of Maryland corporations and (z) permit EQR to
provide to trustees, officers and shareholders such other and further
indemnification or payment or reimbursement of expenses to the fullest extent
permitted by the MGCL for directors of Maryland corporations.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees and officers of EQR pursuant to the
foregoing provisions or otherwise, EQR has been advised that, although the
validity and scope of the governing statute have not been challenged in a
court of law, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In addition, indemnification may be
limited by state securities law.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
<C> <S> <C>
2.1 Agreement and Plan of Merger by and between Equity Residential
Properties Trust and Evans Withycombe Residential, Inc. dated
as of August 27, 1997 (incorporated by reference to Exhibit 10
to EQR's Current Report on Form 8-K, dated August 29, 1997--
SEC File No. 1-12252).
2.2 Articles of Merger by and between Equity Residential Proper-
ties Trust and Evans Withycombe Residential Properties, Inc.
(Included as Appendix B to the Prospectus contained in the
Registration Statement)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding legal-
ity of issued shares
8.1 Opinion of Rudnick & Wolfe regarding certain tax aspects of
the Merger
8.2* Opinion of Rudnick & Wolfe regarding REIT qualifications of
EQR
8.3* Opinion of Gibson, Dunn & Crutcher LLP regarding certain tax
aspects of the Merger and REIT qualifications of EWR
10.1 Consulting Agreement dated August 27, 1997 between Equity
Residential Properties Management Limited Partnership and
Stephen O. Evans
10.2 Employment Agreement dated August 27, 1997 between Equity Res-
idential Properties Management Limited Partnership and Richard
G. Berry
23.1* Consent of Ernst & Young LLP (Chicago)
23.2* Consent of Ernst & Young LLP (Phoenix)
23.3* Consent of Grant Thornton LLP
23.4 Consent of Rudnick & Wolfe (included in Exhibits 8.1 and 8.2
hereof)
23.5 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibits
8.3 and 8.4 hereof)
23.6 Consent of Ballard Spahr Andrews & Ingersoll (included in Ex-
hibit 5.1 hereof)
23.7 Consent of J.P. Morgan Securities Inc.
23.8 Consent of Morgan Stanley Realty Incorporated
24.1 Power of Attorney (Included as Page S-2)
99.1 Form of Proxy Card for Special Meeting of Shareholders of Eq-
uity Residential Properties Trust
99.2 Form of Proxy Card for Special Meeting of Shareholders of Ev-
ans Withycombe Residential, Inc.
99.3 Opinion of J.P. Morgan Securities Inc. (Included as Appendix C
to the Prospectus contained in the Registration Statement)
99.4 Opinion of Morgan Stanley Realty Incorporated (Included as Ap-
pendix D to the Prospectus contained in the Registration
Statement)
99.7 Consent of Person named to become a Trustee
</TABLE>
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*Filed with this amendment. All other exhibits previously filed.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
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<PAGE>
(b) 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 securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(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 the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and 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, in the changes
in volume and price represent no more than 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 the registration statement;
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned registrant hereby undertakes that, for 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 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) (a) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(b) The registrant undertakes that every prospectus (A) that is filed
pursuant to paragraph (a) immediately preceding, or (B) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1993, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) 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 the foregoing provisions,
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 director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, 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.
(5) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day
of receipt of such request, and to send the incorporation documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 14TH DAY OF
NOVEMBER 1997.
EQUITY RESIDENTIAL PROPERTIES TRUST
By: /s/ Douglas Crocker II
---------------------------------------
Douglas Crocker II
President, Chief Executive Officer and
Trustee
S-1
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board of
Samuel Zell* Trustees
President, Chief Executive
Douglas Crocker II* Officer and Trustee
Executive Vice President and
David J. Neithercut* Chief Financial Officer
Senior Vice President, Chief
Michael J. McHugh* Accounting Officer and
Treasurer
Henry H. Goldberg* Trustee
Errol R. Halperin* Trustee
November 14, 1997
James D. Harper, Jr.* Trustee
Sheli Z. Rosenberg* Trustee
Gerald A. Spector* Trustee
Barry S. Sternlicht* Trustee
B. Joseph White* Trustee
</TABLE>
*By /s/ Douglas Crocker II
--------------------------------
Douglas Crocker II
President, Chief Executive
Officer and Trustee
Individually and as Attorney-
in-fact
S-2
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF RUDNICK & WOLFE]
October 31, 1997
(312) 368-4000
Evans Withycombe Residential, Inc.
6991 East Camelback Road, Suite A200
Scottsdale, AZ 85251
Re: Tax Opinion - REIT Status/Partnership Classification
----------------------------------------------------
Ladies and Gentlemen:
In connection with (A) the Joint Proxy Statement and Prospectus, included
in the Registration Statement on Form S-4 (File No. 333-35873) (the "Merger
Registration Statement"), relating to the proposed merger (the "Merger") of
Evans Withycombe Residential, Inc., a Maryland corporation ("EWR"), with and
into Equity Residential Properties Trust, a Maryland real estate investment
trust ("EQR"), and (B) the Consent Solicitation/Prospectus/Information
Statement, contained in the Registration Statement on Form S-4 (File No. 333-
36053) (the "Partnership Registration Statement"), relating to (1) the proposed
contribution of the assets, subject to liabilities, of Evans Withycombe
Residential, L.P., a Delaware limited partnership ("EWRLP") to ERP Operating
Limited Partnership, an Illinois limited partnership ("ERP Operating
Partnership") and (2) the offer by ERP Operating Partnership to holders of units
in EWRLP to exchange such units for units of partnership interest in ERP
Operating Partnership, (the Merger Registration Statement and the Partnership
Registration Statement are referred to herein collectively as the "Registration
Statements"), you have requested our opinion, as special counsel to EQR,
concerning: (i) the qualification and taxation of EQR as a real estate
investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), for the taxable years ended December 31, 1993 through December 31,
1996; (ii) the qualification and taxation of EQR as a REIT under the Code for
all taxable years ending after the Effective Time; and (iii) the classification
of ERP Operating Partnership as a partnership for federal income tax purposes;
and (iv) the classification of EWRLP as a partnership for federal income tax
purposes from and after the Effective Time. Unless otherwise specifically
defined herein, all capitalized terms have the meaning assigned to them in the
Registration Statements.
In connection with rendering the opinions expressed below, we have examined
originals (or copies identified to our satisfaction as true copies of the
originals) of the following documents (collectively, the "Reviewed Documents"):
<PAGE>
Rudnick & Wolfe
Evans Withycombe Residential, Inc.
October 31, 1997
Page 2
(a) The Fourth Amended and Restated Limited Partnership Agreement of ERP
Operating Partnership, dated as of September 30, 1995, as amended (the
"ERP Operating Partnership Agreement");
(b) The Registration Statements;
(c) The Amended and Restated Agreement of Limited Partnership of EWRLP,
dated as of August 17, 1994, as amended (the "EWRLP Partnership
Agreement"); and
(d) Such other documents as may have been presented to us by EQR from time
to time.
In addition, we have relied upon (i) EQR's certificate, dated October 31,
1997 (the "EQR Officer's Certificate"), executed by a duly appointed officer of
EQR, which is attached hereto as Exhibit A, setting forth certain
representations relating to the organization and operation of EQR and ERP
Operating Partnership before the Merger and EQR, ERP Operating Partnership, and
EWRLP subsequent to the Merger, and (ii) EWR's certificates, dated October 31,
1997 (the "EWR Officer's Certificate"), executed by a duly appointed officer of
EWR, which are attached hereto as Exhibit B, setting forth certain
representations relating to the organization and operation of EWR and EWRLP
before the Merger (collectively, the EQR Officer's Certificate and the EWR
Officer's Certificate are referred to herein as the "Officer's Certificates").
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. In the course of our representation of EQR, no information has come to
our attention that would cause us to question the accuracy or completeness of
the representations contained in the Officer's Certificates or of the Reviewed
Documents in a material way.
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. We have also 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.
<PAGE>
Rudnick & Wolfe
Evans Withycombe Residential, Inc.
October 31, 1997
Page 3
In rendering these opinions, we have assumed that the transactions
contemplated by the Reviewed Documents will be consummated in accordance with
the terms and provisions of such documents, and that such documents accurately
reflect the material facts of such transactions. In addition, the opinions are
based on the correctness of the following specific assumptions: (i) prior to
the Merger, EQR, ERP Operating Partnership, EWR, and EWRLP each have been
operated in the manner described in the partnership agreements of ERP Operating
Partnership and EWRLP, respectively (hereinafter, the "Partnership Agreements")
or other organizational documents of each such entity, in the Joint Proxy
Statement/Prospectus and the Consent Solicitation/Prospectus/Information
Statement, and all terms and provisions of such agreements and documents have
been complied with by all parties thereto; (ii) following the Merger, EQR, the
ERP Operating Partnership, and EWRLP will each be operated in the manner
described in the Partnership Agreement or other organizational documents of each
such entity, in the Joint Proxy Statement/Prospectus and the Consent
Solicitation/Prospectus/Information Statement, and all terms and provisions of
such agreements and documents will be complied with by all parties thereto;
(iii) EQR is a duly formed real estate investment trust under the laws of the
State of Maryland; and (iv) there has been no change in the applicable laws of
the State of Maryland, or in the Code, the regulations promulgated thereunder by
the Treasury Department, and the interpretations of the Code and such
regulations by the courts and the Internal Revenue Service, all as they are in
effect and exist at the date of this letter. With respect to the last
assumption, it should be noted that statutes, regulations, judicial decisions,
and administrative interpretations are subject to change at any time and, in
some circumstances, with retroactive effect. A material change that is made
after the date hereof in any of the foregoing bases for our opinions could
affect our conclusions. Moreover, the qualification and taxation of EQR as a
REIT depends upon its ability to meet, through actual annual operating results,
distribution levels and diversity of share ownership and the various
qualification tests imposed under the Code, the results of which will not be
reviewed by the undersigned. Accordingly, no assurance can be given that the
actual results of the operations of EQR for any one taxable year will satisfy
such requirements.
Based upon and subject to the foregoing, it is our opinion that:
(i) EQR was organized and has operated in conformity with the requirements
for qualification as a REIT under the Code for its taxable years ended
December 31, 1993 through December 31, 1996; and
(ii) Assuming the Merger and all other events occur as contemplated in the
Agreements and the Registration Statements: (a) EQR's proposed method
of operation, as described in the Joint Proxy Statement/Prospectus and
the Consent Solicitation/Prospectus/Information Statement, and as
represented in the Officer's
<PAGE>
Rudnick & Wolfe
Evans Withycombe Residential, Inc.
October 31, 1997
Page 4
Certificates, will enable it to satisfy the requirements for
qualification and taxation as a REIT under the Code for its taxable
years ending after the Effective Time; (b) the ERP Operating
Partnership will be classified as a partnership, and not as an
association taxable as a corporation, for federal income tax purposes
under Code Section 7701 and the Treasury Regulations promulgated
thereunder; and (c) from and after the Effective Date, EWRLP will be
classified as a partnership, and not as an association taxable as a
corporation, for federal income tax purposes under Code Section 7701
and the Treasury Regulations promulgated thereunder.
Other than as expressly stated above, we express no opinion on any issue
relating to EQR, the ERP Operating Partnership and EWRLP, or to any investment
therein.
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
respective sections of the Joint Proxy Statement/Prospectus and the Consent
Solicitation/Prospectus/Information Statement under the heading "Federal Income
Tax Consequences." We assume no obligation to advise you of any changes in the
foregoing subsequent to the date of this opinion letter, and we are not
undertaking to update the opinion letter from time to time.
This opinion letter has been prepared in connection with Section 6.3 of the
Merger Agreement. We hereby consent to the use of our name and our opinion under
the caption "Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus.
Very truly yours,
RUDNICK & WOLFE
/s/ Rudnick & Wolfe
<PAGE>
Rudnick & Wolfe
EXHIBIT A
---------
<PAGE>
Equity Residential Properties Trust
Two North Riverside Plaza
Chicago, Illinois 60606
October 31, 1997
Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Re: Tax Opinion for Status as a Real Estate Investment Trust/Partnership
Classification - Officer's Certificate
---------------------------------------
Ladies and Gentlemen:
In connection with (A) the Joint Proxy Statement and Prospectus, included
in the Registration Statement on Form S-4 (File No. 333-35873) (the "Merger
Registration Statement"), relating to the proposed merger (the "Merger") of
Evans Withycombe Residential, Inc., a Maryland corporation ("EWR"), with and
into Equity Residential Properties Trust, a Maryland real estate investment
trust ("EQR"), and (B) the Consent Solicitation/Prospectus/Information
Statement, contained in the Registration Statement on Form S-4 (File No. 333-
36053) (the "Partnership Registration Statement"), relating to (1) the proposed
contribution of the assets, subject to liabilities, of Evans Withycombe
Residential, L.P., a Delaware limited partnership ("EWRLP") to ERP Operating
Limited Partnership, an Illinois limited partnership ("ERP Operating
Partnership") and (2) the offer by ERP Operating Partnership to holders of units
in EWRLP to exchange such units for units of partnership interest in ERP
Operating Partnership, (the Merger Registration Statement and the Partnership
Registration Statement are referred to herein collectively as the "Registration
Statements"), we have requested your opinion concerning: (i) the qualification
and taxation of EQR as a real estate investment trust (a "REIT") under the
Internal Revenue Code of 1986, as amended (the "Code"), for its taxable year
ended December 31, 1993 through December 31, 1996; (ii) the qualification and
taxation of EQR as a REIT under the Code for all taxable years ending after the
Effective Time; and (iii) the classification of ERP Operating Partnership as a
partnership for federal income tax purposes. Unless otherwise specifically
defined herein or in Exhibit A attached hereto, all capitalized terms have the
meaning assigned to them in the Registration Statements.
In connection with the issuance of your legal opinion as described above,
EQR and/or ERP Operating Partnership hereby make the following representations
(intending that Rudnick & Wolfe will rely on such representations in rendering
its opinion); all representations made by EQR and ERP Operating Partnership are
made for all periods of their existence (or such other periods of time as may be
specifically set forth below):
<PAGE>
October 31, 1997
Page 2
1. No interests in ERP Operating Partnership held by a general partner or
limited partner have ever been or will be traded on an established
securities market or exchange (including an over-the-counter market)
or the substantial equivalent thereof.
2. No interests in EWRLP held by a general partner or limited partner
will be traded on an established securities market or exchange
(including an over-the-counter market) or the substantial equivalent
thereof.
3. Commencing with its taxable year ending December 31, 1993, EQR timely
and properly filed an election to be taxed as a "Real Estate
Investment Trust." EQR has not revoked such election and has no
present intention to revoke such election.
4. EQR has and will be managed by one or more of its trustees.
5. Beneficial ownership in EQR has been and will be evidenced by
transferable shares.
6. At no time during the last half of any taxable year of EQR have more
than 50% in value of EQR's outstanding beneficial interests been
owned, directly or indirectly, by or for five or fewer individuals as
determined by applying the Attribution Rules.
7. EQR will take all measures within its control to ensure that at no
time during the last half of any taxable year ending after the
Effective Time, are more than 50% in value of EQR's outstanding
beneficial interests owned, directly or indirectly, by or for five or
fewer individuals as determined by applying the Attribution Rules.
8. Beneficial ownership in EQR was held by 100 or more persons during at
least 335 days for the taxable year ending December 31, 1993 (or
during a proportionate part of such taxable year if such taxable year
was less than twelve months) and for all periods thereafter. EQR will
take all measures within its control to ensure that beneficial
ownership in EQR is held by 100 or more persons at all times from and
after the Effective Time.
9. Commencing with EQR's taxable year ending December 31, 1993, and for
all taxable years ending after the Effective Time, at least ninety-
five percent (95%) of the gross income of EQR (excluding gross income
from Prohibited Transactions) has been and is expected to be derived
from (i) dividends, (ii) interest, (iii) rents from real property,
(iv) gain from the sale or other disposition
of stock, securities
<PAGE>
October 31, 1997
Page 3
and real property (including Interests in Real Property and interests
on mortgages on real property), but excluding gain on real property
which is Code Section 1221(1) Property, (v) abatements and refunds of
taxes on real property, (vi) income and gain derived from Foreclosure
Property, (vii) amounts (other than amounts, the determination of
which depends in whole or in part on income or profits of any person)
received or accrued as consideration for entering into agreements (A)
to make loans secured by mortgages on real property or on Interests in
Real Property, or (B) to purchase or lease real property (including
Interests in Real Property and interests in mortgages on real
property), and (viii) gain from the sale or other disposition of Real
Estate Assets that is not a Prohibited Transaction.
10. Commencing with EQR's taxable year ending December 31, 1993, and for
all taxable years ending after the Effective Time, at least seventy-
five (75%) of the gross income of EQR (excluding gross income from
Prohibited Transactions) has been and is expected to be derived from
(i) rents from real property, (ii) interest on obligations secured by
mortgages on real property or on Interests in Real Property, (iii)
gain from the sale or disposition of real property (including
Interests in Real Property and interests in mortgages on real
property), but excluding gain from real property which is Code Section
1221(1) Property, (iv) dividends or other distributions on, and gain
(other than gain from Prohibited Transactions) from the sale or other
disposition of, transferable shares or beneficial certificates in
other Real Estate Investment Trusts, (v) abatements and refunds of
taxes on real property, (vi) income and gain derived from Foreclosure
Property, (vii) amounts (other than amounts, the determination of
which depends in whole or in part on the income or profits of any
person) received or accrued as consideration for entering into
agreements (A) to make loans secured by mortgages on real property or
on Interests in Real Property or (B) to purchase or lease real
property (including Interests in Real Property and interests in
mortgages on real property), (viii) gain from the sale or other
disposition of a Real Estate Asset which is not a Prohibited
Transaction, and (ix) Qualified Temporary Investment Income.
11. Less than 30% of the gross income of EQR in its taxable years ending
December 31, 1993, 1994, 1995 and 1996 was derived from the sale or
other disposition of (i) stock or securities held for less than one
year; (ii) property in a Prohibited Transaction; and (iii) real
property (including Interests in Real Property and interests in
mortgages on real property) held for less than four years other than
property compulsorily or involuntarily converted (by means of
destruction, theft, seizure, requisition, condemnation or threat of
imminence thereof) and Foreclosure Property.
<PAGE>
October 31, 1997
Page 4
12. EQR will take all measures within its control to ensure that, for the
taxable year ending December 31, 1997, less than 30% of its gross
income will be derived from the sale or other disposition of (i) stock
or securities held for less than one year; (ii) property in a
Prohibited Transaction; and (iii) real property (including Interests
in Real Property and interests in mortgages on real property) held for
less than four years other than property compulsorily or involuntarily
converted (by means of destruction, theft, seizure, requisition,
condemnation or threat of imminence thereof) and Foreclosure Property.
13. Neither EQR nor the ERP Operating Partnership has entered into any
agreement or arrangement (and each has taken all measures within its
control to ensure that no subsidiary of EQR classified as a Qualified
REIT Subsidiary ("QRS") and no Related Partnership, has entered into
any agreement or arrangement) in connection with the rental of real
property under which amounts payable to EQR, the ERP Operating
Partnership, any Related Partnership or QRS are dependent in whole or
in part on the income or profits derived from any tenant (or
subtenant) of such properties (except that such amounts may be based
on a fixed percentage or percentages of gross receipts or sales).
14. From and after the Effective Time, neither EQR, the ERP Operating
Partnership nor EWRLP will enter into any agreement or arrangement
(and each will take all measures within its control to ensure that no
Related Partnership or QRS will enter into any agreement or
arrangement) in connection with the rental of real property under
which amounts payable to EQR, the ERP Operating Partnership, EWRLP,
any Related Partnership or QRS will depend in whole or in part on the
income or profits derived from any tenant (or subtenant) of such
properties (except that such amounts may be based on a fixed
percentage or percentages of gross receipts or sales).
15. Neither EQR nor the ERP Operating Partnership has rendered services
themselves or through the ERP Operating Partnership, a Related
Partnership, or any other affiliate in regard to a real property in
which EQR, directly or through the ERP Operating Partnership or a
Related Partnership, had an interest that is less than or equal to 50%
unless EQR (i) obtained either a ruling from the Internal Revenue
Service or an opinion of counsel that the provision of such services
would not disqualify the income from such real property as rents from
real property or (ii) determined that, if the income from such real
property did not qualify as rents from real property, such income
(along with other nonqualifying income) would
<PAGE>
October 31, 1997
Page 5
not cause EQR to fail to meet the tests described in representations
(9) and (10) above.
16. Neither EQR, the ERP Operating Partnership nor EWRLP will render
services themselves or through the ERP Operating Partnership, EWRLP, a
Related Partnership, or any other affiliate, in regard to any real
property or any real property acquired in the future in which EQR,
directly or through the ERP Operating Partnership or a Related
Partnership, has an interest that is less than or equal to 50% unless
EQR (i) obtains either a ruling from the Internal Revenue Service or
an opinion of counsel that the provision of such services will not
disqualify the income from such real property as rents from real
property or (ii) determines that, if the income from such real
property did not qualify as rents from real property, such income
(along with other nonqualifying income) would not cause EQR to fail to
meet the tests described in representations (9) and (10) above.
17. For the taxable years ending December 31, 1993, 1994, 1995 and 1996,
(i) less than 15% of the rent received by EQR, the ERP Operating
Partnership, any Related Partnership or QRS in regard to each of the
real properties owned directly or indirectly and/or leased by any of
them (the "Properties") was attributable to personal property; and
(ii) all personal property contained in the Properties was leased
under or in connection with a lease of the real property contained in
the Properties.
18. EQR, the ERP Operating Partnership and EWRLP expect that, and each
will take all measures within its control to ensure that, for any
taxable year ending after the Effective Time, (i) less than 15% of the
rent received by EQR, the ERP Operating Partnership, EWRLP, any
Related Partnership or QRS in regard to each of the Properties will be
attributable to personal property; and (ii) all personal property
contained in the Properties will be leased under or in connection with
a lease of real property contained in the Properties.
19. For its taxable years ending December 31, 1993, 1994, 1995 and 1996,
no more than a de minimis amount of rent received by EQR, the ERP
Operating Partnership or any Related Partnership for the Properties
was received or accrued directly or indirectly from any person in
which EQR owns (i) in the case of a corporation, 10% or more of the
total combined voting power of all classes of stock entitled to vote,
or 10% or more of the total number shares of all classes of stock; or
(ii) in the case of an entity other than a corporation, an interest of
10% or more in the
<PAGE>
October 31, 1997
Page 6
assets or net profits of such entity. For purposes of this
representation, ownership will be determined by taking into account
the Modified Attribution Rules.
20. EQR will take all measures within its control to ensure that, for any
of its taxable years ending after the Effective Time, no more than a
de minimis amount of rent received by EQR, EWRLP, the ERP Operating
Partnership, any Related Partnership or QRS for the Properties will be
received or accrued directly or indirectly from any person in which
EQR owns (i) in the case of a corporation, 10% or more of the total
combined voting power of all classes of stock entitled to vote, or 10%
or more of the total number of shares of all classes of stock; or (ii)
in the case of an entity other than a corporation, an interest of 10%
or more in the assets or net profits of such entity. For purposes of
this representation, ownership will be determined by taking into
account the Modified Attribution Rules.
21. Neither EQR, the ERP Operating Partnership, nor any Related
Partnership or QRS or affiliate of any of them has entered into or (in
the case of the aforementioned entities and EWRLP) will enter into any
agreement or arrangement for the performance of services to tenants of
the Properties, other than an agreement or arrangement for services
not rendered primarily for the convenience of the tenants of the
Properties and customarily furnished or rendered in connection with
the rental of real property, pursuant to which (i) an entity that
fails to qualify as an Independent Contractor will furnish any
services to tenants of the Properties or (ii) EQR, the ERP Operating
Partnership or a Related Partnership, QRS or affiliate of any of them
derives any income from an entity providing services to Property
tenants that is required to qualify as an Independent Contractor.
22. At the close of each quarter during its existence, at least 75% of the
value of the Total Assets of EQR consisted of Real Estate Assets, cash
and cash items (including receivables which arise in the ordinary
course of EQR's operation but not receivables purchased from another
person) and government securities, and not more than 25% of the value
of its assets was represented by securities (other than government
securities).
23. EQR will take all measures within its control to ensure that, at the
close of each quarter during each taxable year ending after the
Effective Time, at least 75% of the value of its Total Assets of EQR
will consist of Real Estate Assets, cash and cash items (including
receivables which arise in the ordinary course of EQR's
operation but not receivables purchased from another person) and
government
<PAGE>
October 31, 1997
Page 7
securities, and not more than 25% of the value of its assets was
represented by securities (other than government securities).
24. At the close of each quarter during its existence, EQR has not owned
(either directly or indirectly through ERP Operating Partnership, or
any Related Partnership or other affiliate) securities in any one
issuer having an aggregate value in excess of 5% of the value of the
Total Assets of EQR.
25. EQR will take all measures within its control to ensure that, at the
close of each quarter of each taxable year ending after the Effective
Time, it does not own (either directly or indirectly through ERP
Operating Partnership, EWRLP, or any Related Partnership or other
affiliate) securities in any one issuer having an aggregate value in
excess of 5% of the value of the Total Assets of EQR.
26. At no time has EQR owned (either directly or indirectly through the
ERP Operating Partnership or any Related Partnership or other
affiliate) any securities in any issuer representing in excess of 10%
of the outstanding voting securities of such issuer, unless such
issuer is a Qualified REIT Subsidiary.
27. EQR will take all measures within its control to ensure that, at the
close of each quarter of each taxable year ending after the Effective
Time, it will not own (either directly, or indirectly, through ERP
Operating Partnership, EWRLP, or any Related Partnership or other
affiliate) any securities in any issuer representing in excess of 10%
of the outstanding voting securities of such issuer, unless such
issuer is a Qualified REIT Subsidiary.
28. EQR, the ERP Operating Partnership and any Related Partnerships have
at all times during their existence held the Properties (and all other
assets) for investment purposes and not as (i) stock in trade or other
property of a kind which would properly be included in inventory if on
hand at the close of the taxable year, or (ii) property held primarily
for sale to customers in the ordinary course of its trade or business.
29. EQR, the ERP Operating Partnership, EWRLP and any Related Partnerships
will at all times after the Effective Time hold the Properties (and
all other assets) for investment purposes and not as (i) stock in
trade or other property of a kind which would properly be included in
inventory if on hand at the close of the taxable year, or (ii)
property held primarily for sale to customers in the ordinary course
of its trade or business.
<PAGE>
October 31, 1997
Page 8
30. Commencing with EQR's taxable year ending December 31, 1993, EQR has
paid and expects to pay dividends (without regard to capital gains
dividends) equal to or in excess of the sum of (i) ninety-five percent
(95%) of EQR's REIT Taxable Income for the year (determined without
regard to the deduction for dividends paid and by excluding any net
capital gain), and (ii) ninety-five percent (95%) of the net income
from Foreclosure Property (after the tax imposed thereon by Section
857(b)(4)(A) of the Code), minus (iii) any Excess Noncash Income.
31. As required by Regulation Section 1.857-8, for each year commencing
with EQR's taxable year ending December 31, 1993, EQR (i) has
maintained and will maintain the necessary records relating to the
actual ownership of its stock, (ii) has made and will make the
requisite information requests of its shareholders regarding stock
ownership, and (iii) has maintained and will maintain a list of the
persons failing or refusing to comply in whole or in part with EQR's
demand for statements regarding stock ownership.
32. EQR has adopted a calendar year accounting period and has not changed
nor sought the consent of the Secretary of the Treasury or his
delegate to change EQR's accounting period, and from and after the
Effective Time, will continue to use a calendar year accounting period
and will take all measures within its control to retain a calendar
year accounting period.
33. Any representations herein as to the Properties will also be true with
respect to properties acquired by ERP Operating Partnership or any
Related Partnership or other affiliate after the date hereof.
34. None of the liabilities incurred by EQR, ERP Operating Partnership or
any Related Partnership during the two-year period immediately
preceding the date hereof were incurred in anticipation of any of the
transactions described in the Registration Statement.
35. The undersigned is familiar with the requirements for qualification as
a REIT under the Code and believes that (i) EQR has satisfied such
requirements for all periods of its existence and (ii) EQR will
satisfy such requirements for all periods after the Effective Time.
36. Neither EQR, ERP Operating Partnership, nor any Related Partnership or
other affiliate was notified by the IRS in writing on or before May 8,
1996, that the entity's classification was under examination.
<PAGE>
October 31, 1997
Page 9
37. The undersigned is a duly elected officer of EQR, and will be a duly
elected officer of EQR as of the Effective Time. In such capacity,
the undersigned has access to relevant information regarding each of
the factual matters set forth above and has consulted with other
employees and officers of EQR and the ERP Operating Partnership
regarding such factual matters, none of whom have disagreed in any
respect with any of the representations set forth above.
38. EQR has advised you of any matter of which it has been advised by
independent legal counsel or accounting advisors or of which EQR or
its employees is aware that could, if adversely decided, adversely
affect EQR's ability to satisfy the requirement for continued taxation
as a REIT under the Code.
The foregoing is provided in connection with the preparation of your
opinion. We understand that your opinion will be premised on the basis that all
of the facts, representations and assumptions on which you are relying, whether
contained herein or elsewhere, are accurate and complete and will be accurate
and complete on the date the Registration Statement is filed.
Very truly yours,
EQUITY RESIDENTIAL PROPERTIES TRUST
By:
Name: Bruce C. Strohm
------------------
Its: Executive Vice President
----------------------------
<PAGE>
EXHIBIT A
Definitions
-----------
"Attribution Rules": the rules of ownership described in Section 856(h) of
the Code.
"Constructive" or "Constructively": the constructive stock ownership rules
of Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
"Excess Noncash Income": the excess of (i) the sum of (A) all interest,
original issue discount and other income includible in income with respect to
debt instruments received upon the sale of property over the money and fair
market value of property received with respect to such instruments and (B)
income recognized upon the disposition of real estate if there is a
determination that Section 1031 of the Code (like-kind exchanges) does not apply
to the disposition and the failure to satisfy the requirements of Section 1031
of the Code was due to reasonable cause and not willful neglect, over (ii) five
percent (5%) of REIT Taxable Income (without regard for the deduction for
dividends paid and excluding any net capital gain).
"Foreclosure Property": any real property (including Interests in Real
Property), and personal property incident to such real property, acquired by EQR
and/or its affiliates as a result of EQR and/or its affiliates having bid in
such property at foreclosure, or having otherwise reduced such property to
ownership or possession by agreement or process of law, after there was default
(or default was imminent) on a lease of such property or on an indebtedness
which such property secured; provided that an election for foreclosure property
status under Section 856(e)(5) of the Code is in effect with respect to such
property and such election has not been terminated under Section 856(e)(4) of
the Code. Such term does not include property acquired by EQR and/or its
affiliates as a result of indebtedness arising from the sale or other
disposition of property of EQR and/or its affiliates which is Section 1221(1)
Property which was not originally acquired as foreclosure property.
"Independent Contractor": means any person other than (i) any person
owning (actually or Constructively) more than 35% of the shares of EQR; (ii) any
corporation in which persons owning 35% or more of the shares of EQR own
(actually or Constructively) more than 35% of the voting power with respect to
the stock of such corporation; or (iii) any entity other than a corporation in
which persons owning 35% or more of the shares of EQR own actually or
Constructively) more than a 35% interest in the assets or net profits of such
entity.
"Interests in Real Property": includes fee ownership and co-ownership of
land or improvements thereon, leaseholders of land or improvements thereon,
options to acquire land or improvements thereon, and options to acquire
leaseholds of land or improvements thereon, but does not include mineral, oil or
gas royalty interests.
A-1
<PAGE>
"Modified Attribution Rules": the rules of ownership described in Code
Section 318 as modified by Code Section 856(d)(5).
"Prohibited Transaction": the sale or other disposition of Section 1221(1)
Property, other than Foreclosure Property, unless (i) the property sold was a
Real Estate Asset; (ii) EQR and/or its affiliates held the Real Estate Asset for
at least four years; (iii) the aggregate expenditures made by EQR and/or its
affiliates during the four (4) year period preceding the date of the sale which
are includible in the basis of the Real Estate Asset does not exceed thirty
percent (30%) of the net selling price of such asset; (iv) (A) during the
taxable year EQR and/or its affiliates did not make more than seven sales of
property (other than Foreclosure Property) or (B) the aggregate adjusted bases
(as determined for purposes of computing earnings and profits) of the REIT's
property (other than Foreclosure Property) sold during the taxable year does not
exceed ten percent (10%) of the aggregate adjusted bases (as so determined) of
all the assets of the REIT as of the beginning of the taxable year; (v) in the
case of property, which consists of land or improvements, not acquired through
foreclosure (or deed in lieu of foreclosure), or lease termination, EQR and/or
its affiliates has held the property for not less than four (4) years for
production of rental income; and (vi) if the requirement of clause (iv)(A) is
not satisfied, substantially all of the marketing and development expenditures
with respect to the property were made through an Independent Contractor from
whom EQR and/or its affiliates does not directly or indirectly derive gross
income (including but not limited to dividends). For purposes of clause (iv)(B)
of the preceding sentence, the REIT will be treated as owning its proportionate
share of the adjusted bases of assets owned by its affiliates.
"Qualified REIT Subsidiary": any corporation if 100 percent of the stock
of such corporation is held by EQR.
"Qualified Temporary Investment Income": any income which (i) is
attributable to stock, or a bond, debenture, note, certificate or other evidence
of indebtedness (excluding any annuity contract which depends (in whole or in
substantial part) on the life expectancy of one or more individuals, or is
issued by an insurance company subject to tax under subchapter L of the Code (1)
in a transaction in which there is no consideration other than cash or another
annuity contract meeting the requirements of this definition, (2) pursuant to
the exercise of an election under an insurance contract by a beneficiary owner
thereof on the death of the insured party under such contract, or (3) in a
transaction involving a qualified pension or employee benefit plan), (ii) is
attributable to the temporary investment of new capital (amounts received upon
the issuance of stock of EQR or upon a public offering of debt obligations of
EQR having maturities of at least five years) received by EQR and (iii) is
received or accrued during the one year period beginning on the date EQR
received such capital.
"Real Estate Asset": real property (including Interests in Real Property
and interests in mortgages on real property) and shares (or transferable
certificates of beneficial interest) in other Real Estate Investment Trusts.
Such term also includes any property (not otherwise a Real Estate Asset)
attributable to the temporary investment of new capital (amounts received upon
the issuance
A-2
<PAGE>
of stock of EQR or upon a public offering of debt obligations of EQR having
maturities of at least five years), but only if such property is stock or a debt
instrument, and only for the one-year period beginning on the date EQR receives
such capital.
"Real Estate Investment Trust": a real estate investment trust which meets
the requirements of Sections 856 through 860 of the Code.
"REIT Taxable Income": "Real estate investment trust taxable income" as
defined in Section 857(b) of the Code, which generally equals the taxable income
of EQR, computed with the dividends-paid deduction as defined in Section 561 of
the Code (except that the portion of such deduction attributable to net income
from Foreclosure Property is excluded), excluding any net income from
Foreclosure Property, and computed with a deduction for any tax imposed under
Section 857(b)(5) of the Code (i.e., tax on the failure to meet the seventy-five
percent (75%) or ninety-five percent (95%) income tests).
"Related Partnership": any entity classified as a partnership for federal
tax purposes in which EQR or the ERP Operating Partnership, directly or
indirectly owns an interest.
"Section 1221(1) Property": stock in trade of EQR and/or its affiliates or
other property of a kind which would properly be included in inventory of EQR
and/or its affiliates if on hand at the close of the taxable year, or property
held by EQR and/or its affiliates primarily for sale to customers in the
ordinary course of its trade or business.
"Total Assets": the gross assets of EQR determined in accordance with
generally accepted accounting principles.
A-3
<PAGE>
RUDNICK & WOLFE
EXHIBIT B
---------
<PAGE>
OFFICER'S CERTIFICATE FOR
EVANS WITHYCOMBE RESIDENTIAL, INC.
REGARDING EVANS WITHYCOMBE RESIDENTIAL, L.P.
AND EVANS WITHYCOMBE FINANCE PARTNERSHIP, L.P.
This Officer's Certificate is given in connection with (i) the Joint Proxy
Statement and Prospectus, included in the Registration Statement on Form S-4
(File No. 333-35873) (the "Merger Registration Statement"), relating to the
proposed merger (the "Merger") of Evans Withycombe Residential, Inc., a Maryland
corporation (the "REIT") with and into Equity Residential Properties Trust, a
Maryland real estate investment trust ("EQR"), and (ii) the Prospectus and
Information Statement, contained in the Registration Statement on Form S-4 (File
No.333-36053) (the "Partnership Registration Statement"), relating to (A) the
proposed contribution of the assets, subject to liabilities, of Evans Withycombe
Residential, L.P., a Delaware limited partnership (the "Operating Partnership")
to ERP Operating Limited Partnership, an Illinois limited partnership ("ERP")
and (B) the the offer by ERP to holders of units in the Operating Partnership to
exchange such units for units of partnership interest in ERP.
Paul R. Fannin, Senior Vice President and Chief Financial Officer of the
REIT, hereby certifies that to the best of his knowledge and belief that each of
the following statements is true and correct and will be true and correct at the
effective time of the Merger. The undersigned understands that the following
representations form the basis of the opinions of Rudnick & Wolfe and Gibson,
Dunn & Crutcher LLP described in the Merger Registration Statement and the
Partnership Registration Statement ( collectively the "Registration
Statements"), and any change or inaccuracy in the facts described herein could
adversely alter such opinions.
References herein to the "Partnerships" or "Partnership" include the
Operating Partnership, Evans Withycombe Finance Partnership, L.P., a Delaware
limited partnership (the "Finance Partnership), McKinley Hills Partners-85, and
EW Chandler Limited Partnership.
Terms not otherwise defined herein have the meanings set forth in Exhibit A
hereto. Unless specifically provided otherwise, all the statements below with
respect to any entity relate to such entity from the date of its organization
until the effective date of the Merger.
1. Except as provided in the Operating Partnership Agreement, the REIT has
not acted and will not be acting as the agent of the limited partners of the
Operating Partnership.
2. The current net worth of the Finance Partnership exceeds $190 million.
For purposes of this paragraph 2, "net worth" means the gross fair market value
of all assets minus liabilities.
3. The REIT has contributed to Finance Sub a promissory note (the "Demand
Note"), in the aggregate principal amount of $10 million payable to Finance Sub
on demand, proceeds from which may be used to satisfy any of Finance Sub's
obligations as general partner of the Finance Partnership.
4. Interests in the Partnerships have not been and will not be listed or
traded on an established securities market or exchange (including an over-the-
counter market).
1
<PAGE>
5. No interests in the Partnerships have been or will be issued in a
transaction that is registered under the Securities Act of 1933.
6. None of the Partnerships have had more than 500 partners, and the
general partners of the Partnerships will not take any action that could permit
the Partnerships to have more than 500 partners (including as partners those
persons indirectly owning an interest in the Partnerships through a partnership,
S corporation, or grantor trust).
7. Neither the REIT, Finance Sub nor the Partnerships will participate in
or tacitly allow the facilitation of public trading of interests in the
Partnerships.
8. Beginning with the taxable year ending December 31, 1994, ninety
percent (90%) or more of the gross income of each of the Partnerships have
consisted and will consist of "qualifying income" within the meaning of Section
7704(d) of the Code. "Qualifying income" for this purpose refers to interest,
dividends, real property rents, gain from the sale or other disposition of real
property, and gain from the sale or other disposition of assets (other than
inventory assets) that produce interest or dividends. "Interest" for this
purpose excludes any amounts received or accrued, directly or indirectly, if the
determination of such amount depends in whole or in part on the income or
profits of any person, other than interest based on a fixed percentage of
receipts or sales. In addition, gross income from the sale of real property
held primarily for sale to customers in the ordinary course of business is not
reduced by the cost of such property.
9. Beginning with the taxable year ending December 31, 1994, with respect
to each and every Lease, the amount of rent received or accrued by the
Partnerships has not been and will not be based in whole or in part on the
income or profits of any person.
10. With respect to each and every Tenant, neither the Partnerships nor
any owner (actual or Constructive) of 10% or more of the outstanding interests
in profits or capital of the Partnerships, has been or is expected to be the
owner (actual or Constructive) of: (i) in the case of a Tenant that is a
corporation, stock of such Tenant possessing 10% or more of the total combined
voting power of all classes of stock entitled to vote, or 10% or more of the
total number of shares of all classes of stock of such Tenant; or (ii) in the
case of a Tenant that is not a corporation, an interest of 10% or more in the
assets or net profits of such Tenant.
11. With respect to every Lease: (i) all personal property leased by the
Partnerships has been and will be leased in connection with a lease of real
property, and (ii) the rent attributable to any personal property leased in
connection with a Lease has been and will be less than 15% of the total rent
received or accrued under the Lease. I understand that the amount of rent
attributable to personal property is determined under Section 856(d)(1) of the
Code, which provides that with respect to each lease of real property, the
amount of rent attributable to personal property for a taxable year is the
amount that bears the same ratio to the rent for the taxable year as the average
of the adjusted basis of personal property at the beginning and at the end of
the taxable year bears to the average of the aggregate adjusted basis of both
the real property and the personal property at the beginning and at the end of
the taxable year. This representation applies only to personal property that is
owned (as opposed to leased) by the Partnerships.
2
<PAGE>
12. The Partnerships have not acted and will not act as lessee of any
property for the purpose of subleasing such property to a Tenant.
13. No Partnership would be or would have been a "regulated investment
company" within the meaning of Section 851(a) of the Code if it were a domestic
corporation. A "regulated investment company" is a domestic corporation which,
at all times during the taxable year, is registered under the Investment Company
Act of 1940, as amended (15 U.S.C. 80a-1 to 80b-2), as a management company or a
unit investment trust, or has in effect an election under such Act to be treated
as a business development company, or which is a common trust fund or similar
fund excluded by Section 3(c)(3) of such Act from the definition of "investment
company" and is not included in the definition of "common trust fund" by Section
584(a) of the Code.
14. The REIT, the Finance Sub and the Partnerships have no knowledge of
facts that are contrary to the following: (i) the Partnerships have been and
will be operated in accordance with the terms of the Partnership Agreements and
the provisions of the Delaware Revised Uniform Limited Partnership Act (the
"Act"), (ii) the Partnership Agreements and the Demand Note are valid and
enforceable in accordance with their terms, (iii) no person has made or will to
make a market in interests in the Partnerships, (iv) interests in the
Partnerships have not been and will not be regularly quoted by persons such as
brokers or dealers and (v) holders of interests in the Partnerships have not had
and will not have a readily available, regular or ongoing opportunity to buy,
sell or exchange such interests (other than with respect to the Redemption
Rights) in a time frame and with the regularity and continuity that a secondary
market for interests in the Partnerships would provide.
15. The Partnerships have been and will be operated in accordance with the
terms of the Partnership Agreements and the provisions of the Act.
16. The information set forth in the Registration Statement is true,
correct and complete.
17. As Senior Vice President and Chief Financial Officer, of the REIT,
which is (i) the sole general partner of the Operating Partnership, and (ii) the
sole shareholder of the Finance Sub, which is the sole general partner of the
Finance Partnership, it is my responsibility to have knowledge of the matters
described in the above representations.
IN WITNESS WHEREOF, I have executed this Certificate on this 31st day of
October, 1997.
/s/ Paul R. Fannin
-----------------------------
Paul R. Fannin
Senior Vice President
and Chief Financial Officer
3
<PAGE>
EXHIBIT A
Definitions
-----------
"Code": the Internal Revenue Code of 1986, as amended.
"Constructive" or "Constructively": constructive stock ownership rules of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
"Finance Sub": Evans Withycombe Finance, Inc., a Delaware corporation and
wholly owned subsidiary of the REIT.
"Lease": any lease from which any Partnership derives revenue.
"Operating Partnership Agreement": the Amended and Restated Agreement of
Limited Partnership of Evans Withycombe Residential, L.P., dated as of August
17, 1994.
"Ownership Interest": in the case of a corporation, stock in such
corporation, and in the case of any other entity, an interest in the capital or
profits of such entity.
"Partnership Agreements": the partnership agreements of the Partnerships.
"Redemption Rights": the right of limited partners of the Operating
Partnership to have their partnership interests redeemed by the Operating
Partnership in accordance with Section 8.6 of the Operating Partnership
Agreement.
1
<PAGE>
OFFICER'S CERTIFICATE
FOR EVANS WITHYCOMBE RESIDENTIAL, INC.
REGARDING CERTAIN INCOME TAX MATTERS
This Officer's Certificate is given in connection with (i) the Joint Proxy
Statement and Prospectus, included in the Registration Statement on Form S-4
(File No. 333-35873) (the "Merger Registration Statement"), relating to the
proposed merger (the "Merger") of Evans Withycombe Residential, Inc., a Maryland
corporation (the "REIT") with and into Equity Residential Properties Trust, a
Maryland real estate investment trust ("EQR"), and (ii) the Prospectus and
Information Statement, contained in the Registration Statement on Form S-4 (File
No.333-36053) (the "Partnership Registration Statement"), relating to (A) the
proposed contribution of the assets, subject to liabilities, of Evans Withycombe
Residential, L.P., a Delaware limited partnership (the "Operating Partnership")
to ERP Operating Limited Partnership, an Illinois limited partnership ("ERP")
and (B) the offer by ERP to holders of units in the Operating Partnership to
exchange such units for units of partnership interest in ERP.
Paul R. Fannin, Senior Vice President and Chief Financial Officer of the
REIT, hereby certifies that to the best of his knowledge and belief that each of
the following statements is true and correct and will be true and correct at the
effective time of the Merger. The undersigned understands that the following
representations form the basis of the opinions of Rudnick & Wolfe and Gibson,
Dunn & Crutcher LLP described in the Merger Registration Statement and the
Partnership Registration Statement (collectively the "Registration Statements"),
and any change or inaccuracy in the facts described herein could adversely alter
such opinions.
References herein to the "Company" include the REIT, Evans Withycombe
Finance, Inc. (the "Finance Sub") as well as the Partnerships. References to the
Partnerships include Operating Partnership, Evans Withycombe Finance
Partnership, L.P., a Delaware limited partnership (the "Finance Partnership"),
McKinley Hills Partners-85, and EW Chandler Limited Partnership.
Terms not otherwise defined herein have the meanings set forth in Exhibit A
hereto. Unless specifically provided otherwise, all the statements below with
respect to any entity relate to such entity from the date of its organization
until the effective date of the Merger.
1. The information set forth in the Registration Statements is true,
correct and complete.
2. One hundred (100) or more persons have held, and, until the effective
date of the Merger will hold, the beneficial ownership of the outstanding stock
of the REIT.
3. Since the date of incorporation, five or fewer Persons have not owned,
and until the effective date of the Merger will not own, after applying the
Attribution Rules, more than fifty percent (50%) of the REIT's outstanding
stock.
4. Commencing with its taxable year ending December 31, 1994, the REIT
timely and properly filed an election to be a taxed as "Real Estate Investment
Trust." The REIT has not revoked such election and has no present intention to
revoke such election.
5. The REIT has not owned and does not anticipate to own an actual or
Constructive interest in any corporation, partnership, association, trust, joint
venture, limited
<PAGE>
liability company or other entity other than its actual or Constructive
interests in the Partnerships, the Finance Sub, the Management Company, and the
trusts established by the Finance Partnership to facilitate the borrowing by the
Finance Partnership.
6. With respect to each and every Lease, the amount of rent received or
accrued by the Company has not been, and will not be based in whole or in part
on the income or profits of any person.
7. With respect to each and every Tenant, neither the Company, nor any
owner (actual or Constructive) of 10% or more of the outstanding Common Stock of
the REIT, has been, or is expected to be the owner (actual or Constructive) of:
(i) in the case of a Tenant that is a corporation, stock of such Tenant
possessing 10% or more of the total combined voting power of all classes of
stock entitled to vote, or 10% or more of the total number of shares of all
classes of stock of such Tenant; or (ii) in the case of a Tenant that is not a
corporation, an interest of 10% or more in the assets or net profits of such
Tenant.
8. With respect to every Lease: (i) all personal property leased by the
Company has been and will be leased in connection with a lease of real property,
and (ii) the rent attributable to any personal property leased in connection
with a Lease has been and will be less than 15% of the total rent received or
accrued under the Lease. I understand that the amount of rent attributable to
personal property is determined under Section 856(d)(1) of the Code, which
provides that with respect to each lease of real property, the amount of rent
attributable to personal property for a taxable year is the amount that bears
the same ratio to the rent for the taxable year as the average of the adjusted
basis of personal property at the beginning and at the end of the taxable year
bears to the average of the aggregate adjusted basis of both the real property
and the personal property at the beginning and at the end of the taxable year.
This representation applies only to personal property that is owned (as opposed
to property leased) by the Company.
9. The Company has not acted and will not act as lessee of any property
for the purpose of subleasing such property to a Tenant.
10. No Partnership has leased or will lease or sublease personal property
that is not owned by it. All personal property provided or made available to a
Tenant by the Management Company has been and will be leased by the Management
Company acting on its own behalf and not as agent for the Partnerships, and the
Management Company has separately charged and will separately charge the Tenant
therefor.
11. The Company will not receive "excess rentals" from a Tenant. "Excess
rentals" means rent payable pursuant to a Lease in an amount that is greater
than the rent that would be payable under the Lease but for the existence of a
provision obligating the Tenant to pay over all or a portion of any rent
received by that Tenant from a subtenant or assignee of that Tenant.
12. One hundred percent (100%) of the stock of the Finance Sub has been
and will be held by the REIT at all times during the existence of the Finance
Sub.
13. For purposes of the following representations, income, deductions,
credits and other tax items of the REIT shall be deemed to include the REIT's
share of such items of the Partnerships, based on the REIT's proportionate
direct or indirect capital interest in such entities. Furthermore, for this
purpose the REIT will be treated as owning directly the assets owned by the
Finance Sub:
(a) Commencing with the REIT's taxable year ending December 31, 1994,
at least ninety-five percent (95%) of the gross income of the REIT
2
<PAGE>
(excluding gross income from Prohibited Transactions) has been and is
expected to be derived from (i) dividends, (ii) interest, (iii) rents from
real property, (iv) gain from the sale or other disposition of stock,
securities and real property (including Interests in Real Property and
interests in mortgages on real property), but excluding gain on real
property which is Section 1221(1) Property, (v) abatements and refunds of
taxes on real property, (vi) income and gain derived from Foreclosure
Property, (vii) amounts (other than amounts, the determination of which
depends in whole or in part on income or profits of any person) received or
accrued as consideration for entering into agreements (A) to make loans
secured by mortgages on real property or on Interests in Real Property, or
(B) to purchase or lease real property (including Interests in Real
Property and interests in mortgages on real property), and (viii) gain from
the sale or other disposition of Real Estate Assets that is not a
Prohibited Transaction;
(b) Commencing with the REIT's taxable year ending December 31, 1994,
at least seventy-five percent (75%) of the gross income of the REIT
(excluding gross income from Prohibited Transactions) has been and is
expected to be derived from (i) rents from real property, (ii) interest on
obligations secured by mortgages on real property or on Interests in Real
Property, (iii) gain from the sale or disposition of real property
(including Interests in Real Property and interests in mortgages on real
property), but excluding gain from real property which is Section 1221(1)
Property, (iv) dividends or other distributions on, and gain (other than
gain from Prohibited Transactions) from the sale or other disposition of,
transferable shares or beneficial certificates in other Real Estate
Investment Trusts, (v) abatements and refunds of taxes on real property,
(vi) income and gain derived from Foreclosure Property, (vii) amounts
(other than amounts, the determination of which depends in whole or in part
on the income or profits of any person) received or accrued as
consideration for entering into agreements (A) to make loans secured by
mortgages on real property or on Interests in Real Property and interests
in mortgages on real property, (viii) gain from the sale or other
disposition of a Real Estate Asset which is not a Prohibited Transaction,
and (ix) Qualified Temporary Investment Income. Dividends received by the
Operating Partnership from the Management Company are not included in
clauses (i) through (ix) of this paragraph (b);
(c) Commencing with the REIT's taxable year ending December 31, 1994,
the REIT has derived and expects to derive less than thirty percent (30%)
of its aggregate gross income from the sale or other disposition of (i)
stock or securities held for less than one year, (ii) property in a
Prohibited Transaction, and (iii) real property (including Interests in
Real Property and interests in mortgages on real property) held for less
than four years other than such property that is compulsorily or
involuntarily converted (by means of destruction, theft, seizure,
requisition, condemnation or threat of imminence thereof) and Foreclosure
Property;
(d) Commencing with the REIT's taxable year ending December 31, 1994,
the REIT has paid and expects to pay dividends (without regard to capital
gains dividends) equal to or in excess of the sum of (i) ninety-five
percent (95%) of the REIT's REIT Taxable Income for the year (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain), and (ii) ninety-five percent (95%) of the net income from
3
<PAGE>
Foreclosure Property (after the tax imposed thereon by Section 857(b)(4)(A)
of the Code), minus (iii) any Excess Noncash Income; and
(e) Commencing with the REIT's taxable year ending December 31, 1994,
the dividends paid and to be paid by the REIT on the Common Stock were and
will be made pro rata, with no preference to any share of the Common Stock
as compared with other such shares.
14. For purposes of the following representations, assets of the REIT
shall be deemed to include the REIT's share of assets owned by the Partnerships,
based on the REIT's proportionate direct or indirect capital interest in such
entities. Furthermore, for this purpose the REIT will be treated as owning
directly the assets owned by the Finance Sub:
At the close of each quarter of each taxable year commencing with the
REIT's taxable year ending December 31, 1994 (i) at least seventy-five
percent (75%) of the value of the combined total assets of the REIT has
been and will be represented by Real Estate Assets, cash and cash items,
(including receivables), and U.S. Government securities, (ii) not more than
twenty-five percent (25%) of the value of the REIT's total assets has been
or will be represented by securities (other than those described in clause
(i) above), and (iii) with respect to those assets described in clause (ii)
above, the value of any one issuer's securities owned by the REIT
(including but not limited to the Management Company) has not exceeded and
will not exceed five percent (5%) of the value of the REIT's total assets
and the REIT has not owned and will not own more than ten percent (10%) of
any one issuer's outstanding voting securities.
15. The REIT, the Finance Sub, and the Partnerships have not earned and
will not earn fees for services performed, or other income (whether or not
through a manager) not described in clauses (i) through (viii) of paragraph
13(a) above, other than with respect to (i) Foreclosure Property and (ii)
income, if any attributable to reimbursements paid by the Operating Partnership
and Finance Partnership to the REIT pursuant to the terms of the Partnership
Agreements.
16. The Company has not provided and will not provide, and has not engaged
and will not engage any entity that fails to qualify as an "independent
contractor" to furnish, any services to any Tenant that are other than services
of the type that are "usually or customarily rendered" in connection with the
rental of space for occupancy only and not otherwise considered "rendered to the
occupant" within the meaning of Section 1.512(b)-1(c)(5) of the Treasury
Regulations. The Company has not received and will not receive any income,
directly or indirectly, from such contractor, including but not limited to
administrative or other fees, interest and dividends. For this purpose, an
"independent contractor" is a person other than (i) any person owning (actually
or Constructively) more than 35% of the stock of the REIT; (ii) any corporation
in which persons owning 35% or more of the stock of the REIT own (actually or
Constructively) more than 35% of the voting power with respect to the stock of
such corporation; or (iii) any entity other than a corporation in which persons
owning persons owning 35% or more of the stock of the REIT own (actually or
Constructively) more than 35% interest in the assets or net profits of such
entity.
17. No independent contractor providing services to Tenants has had or
will have any operating employees in common with the Company.
18. The services described in the draft private letter ruling request
dated August 16, 1994 prepared by the REIT sets forth in complete detail the
services that have been provided
4
<PAGE>
and are expected to be provided to by the Partnerships and the Management
Company to Tenants.
19. As required by Treasury Regulation Section 1.857-8, for each year
commencing with the REIT's taxable year ending December 31, 1994, the REIT (i)
has maintained and will maintain the necessary records relating to the actual
ownership of its stock, (ii) has made and will make the requisite information
requests of its shareholders regarding stock ownership, and (iii) has maintained
and will maintain a list of the persons failing or refusing to comply in whole
or in party with the Company's demand for statements regarding stock ownership.
20. The Company has operated and will operate in a manner such that the
above representations will continue to be true in the future; provided, however,
the Company may operate in a manner different from such representations if it
obtains the advice of nationally recognized counsel that such differences will
not impair its status as a Real Estate Investment Trust.
21. The REIT will use its best efforts to monitor ownership of Common
Stock in order to ensure compliance with, and will use its best efforts to
enforce, the Transfer Restrictions. Specifically, the REIT, as soon as
practicable after the date it discovers that a transaction in violation of the
Transfer Restrictions has occurred, will inform the Purported Record Owner and,
to the extent it is aware of its identity, the Purported Beneficial Owner, of
their obligations pursuant to the Charter, including the obligation to surrender
to the Trustee of the Trust any Trust Shares and any and all dividends or other
distributions received with respect to Trust Shares. The REIT will also take
additional action as is reasonably necessary to refuse to give effect to or to
prevent such transaction, which may include: (1) refusing to give effect to such
transaction on its books; (2) instituting legal proceedings to enjoin the
transaction and to recover any Trust Shares and any dividends erroneously paid
or distributed; and (3) declaring any votes erroneously cast by the Purported
Record Owner to be retroactively invalid. For purposes of this paragraph 21, the
terms "Purported Record Owner," "Purported Beneficial Owner," "Trustee," "Trust"
and "Trust Shares" shall have the meanings ascribed to such terms in the
Charter.
22. The representations herein take into account the expected income,
assets and operations of the Development Properties.
23. All shares of stock issued by the REIT are freely transferable.
24. As Senior Vice President and Chief Financial Officer, of the REIT,
which is (i) the sole general partner of the Operating Partnership, and (ii) the
sole stockholder of the Finance Sub, which is the sole general partner of the
Finance Partnership, it is my responsibility to have knowledge of the matters
described in the above representations.
IN WITNESS WHEREOF, I have executed this Certificate on the 31st day of
October, 1997.
/s/ Paul R. Fannin
-----------------------------
Paul R. Fannin
Senior Vice President
and Chief Financial Officer
5
<PAGE>
EXHIBIT A
Definitions
-----------
"Attribution Rules": the rules of ownership described in Section 856(h) of
the Code.
"Charter": The Charter of the REIT.
"Code": the Internal Revenue Code of 1986, as amended.
"Common Stock": Common Stock, $.01 par value per share of Evans Withycombe
Residential, Inc.
"Constructive" or "Constructively": constructive stock ownership rules of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
"Development Properties": the "Development Communities" and the
"Development Rights" as those terms are defined in the Registration Statement.
"Excess Noncash Income": the excess of (i) the sum of (A) all interest,
original issue discount and other income includible in income with respect to
debt instruments received upon the sale of property over the money and fair
market value of property received with respect to such instruments and (B)
income recognized upon the disposition of real estate if there is a
determination that Section 1031 of the Code (like-kind exchanges) does not apply
to the disposition and the failure to satisfy the requirements of Section 1031
of the Code was due to reasonable cause and not willful neglect, over (ii) five
percent (5%) of REIT Taxable Income (without regard for the deduction for
dividends paid and excluding any net capital gain).
"Foreclosure Property": any real property (including Interests in Real
Property), and personal property incident to such real property, acquired by the
Company as a result of the Company having bid in such property at foreclosure,
or having otherwise reduced such property to ownership or possession by
agreement or process of law, after there was default (or default was imminent)
on a lease of such property or on an indebtedness which such property secured;
provided that an election for foreclosure property status under Section
856(e)(5) of the Code is in effect with respect to such property and such
election has not been terminated under Section 856(e)(4) of the Code. Such term
does not include property acquired by the Company as a result of indebtedness
arising from the sale or other disposition of property of the Company which is
Section 1221(1) Property which was not originally acquired as foreclosure
property.
"Interests in Real Property": includes fee ownership and co-ownership of
land or improvements thereon, leaseholders of land or improvements thereon,
options to acquire land or improvements thereon, and options to acquire
leaseholds of land or improvements thereon, but does not include mineral, oil or
gas royalty interests.
"Lease": any lease from which the Company derives revenue.
"Management Company": Evans Withycombe Management, Inc., an Arizona
corporation.
"Ownership Interest": in the case of a corporation, stock in such
corporation, and in the case of any other entity, any interest in the assets or
net income of such entity.
A-1
<PAGE>
"Partnership Agreements": the partnership agreements of the Partnerships.
"Person": an individual, private foundation, charitable trust, and
employee pension, profit sharing, stock bonus or supplemental unemployment
benefit trust.
"Prohibited Transaction": the sale or other disposition of Section 1221(1)
Property, other than Foreclosure Property, unless (i) the property sold was a
Real Estate Asset; (ii) the Company held the Real Estate Asset for at least four
years; (iii) the aggregate expenditures made by the Company during the four (4)
year period preceding the date of the sale which are includible in the basis of
the Real Estate Asset does not exceed thirty percent (30%) of the net selling
price of such asset; (iv) (A) during the taxable year the Company did not make
more than seven sales of property (other than Foreclosure Property) or (B) the
aggregate adjusted bases (as determined for purposes of computing earnings and
profits) of the REIT's property (other than Foreclosure Property) sold during
the taxable year does not exceed ten percent (10%) of the aggregate adjusted
bases (as so determined) of all the assets of the REIT as of the beginning of
the taxable year; (v) in the case of property, which consists of land or
improvements, not acquired through foreclosure (or deed in lieu of foreclosure),
or lease termination, the Company has held the property for not less than four
(4) years for production of rental income; and (vi) if the requirement of clause
(iv)(A) is not satisfied, substantially all of the marketing and development
expenditures with respect to the property were made through an independent
contractor (as defined in paragraph 16 hereof) from whom the Company does not
directly or indirectly derive gross income (including but not limited to
dividends). For purposes of clause (iv)(B) of the preceding sentence, the REIT
will be treated as owning its proportionate share of the adjusted bases of
assets owned by other entities in a manner consistent with that described in
paragraph 14 hereof.
"Qualified Temporary Investment Income": any income which (i) is
attributable to stock, or a bond, debenture, note, certificate or other evidence
of indebtedness (excluding any annuity contract which depends (in whole or in
substantial part) on the life expectancy of one or more individuals, or is
issued by an insurance company subject to tax under subchapter L of the Code (1)
in a transaction in which there is no consideration other than cash or another
annuity contract meeting the requirements of this definition, (2) pursuant to
the exercise of an election under an insurance contract by a beneficiary thereof
on the death of the insured party under such contract, or (3) in a transaction
involving a qualified pension or employee benefit plan), (ii) is attributable to
the temporary investment of new capital (amounts received upon the issuance of
stock of the REIT or upon a public offering of debt obligations of the REIT
having maturities of at least five years) received by the REIT and (iii) is
received or accrued during the one year period beginning on the date the REIT
received such capital.
"Real Estate Asset": real property (including Interests in Real Property
and interests in mortgages on real property) and shares (or transferable
certificates of beneficial interest) in other Real Estate Investment Trusts.
Such term also includes any property (not otherwise a Real Estate Asset)
attributable to the temporary investment of new capital (amounts received upon
the issuance of stock of the REIT or upon a public offering of debt obligations
of the REIT having maturities of at least five years), but only if such property
is stock or a debt instrument, and only for the one-year period beginning on the
date the REIT receives such capital.
"Real Estate Investment Trust": a real estate investment trust which meets
the requirements of Sections 856 through 860 of the Code.
"REIT Taxable Income": "Real estate investment trust taxable income" as
defined in Section 857(b) of the Code, which generally equals the taxable income
of the REIT, computed with the dividends-paid deduction as defined in Section
561 of the Code (except that the
A-2
<PAGE>
portion of such deduction attributable to net income from Foreclosure Property
is excluded), excluding any net income from Foreclosure Property, and computed
with a deduction for any tax imposed under Section 857(b)(5) of the Code (i.e.,
tax on the failure to meet the seventy-five percent (75%) or ninety-five percent
(95%) income tests).
"Section 1221(1) Property": stock in trade of the Company or other
property of a kind which would properly be included in inventory of the Company
if on hand at the close of the taxable year, or property held by the Company
primarily for sale to customers in the ordinary course of its trade or business.
"Tenant": any person from whom the Company derives gross income.
"Transfer Restrictions": The restrictions on transfer of capital stock of
the REIT as set forth in Article V of the Charter.
A-3
<PAGE>
EXHIBIT 8.3
October 31, 1997
(213) 229-7000 C 26181-00031
Evans Withycombe Residential, Inc.
6991 East Camelback Road
Suite A-200
Scottsdale, AZ 85251
Re: Tax Opinion For The Merger Registration Statement
Ladies and Gentlemen:
We are acting as special counsel to Evans Withycombe Residential, Inc. a
Maryland corporation ("EWR"), in connection with (i) the Joint Proxy Statement
and Prospectus, included in the Registration Statement on Form S-4 (File No.
333-35873) (the "Merger Registration Statement"), relating to the proposed
merger (the "Merger") of EWR with and into Equity Residential Properties Trust,
a Maryland real estate investment trust ("EQR"), and (ii) the Prospectus and
Information Statement, contained in the Registration Statement on Form S-4 (File
No. 333-36053) (the "Partnership Registration Statement"), relating to (A) the
proposed contribution of the assets, subject to liabilities, of Evans Withycombe
Residential, L.P., a Delaware limited partnership ("EWRLP") to ERP Operating
Limited Partnership, an Illinois limited partnership ("ERP") and (B) the offer
by ERP to holders of units in EWRLP to exchange such units for units of
partnership interest in ERP. You have requested our opinion as to certain
federal income tax matters described below.
The Merger will be effected pursuant to the terms and conditions of the
Agreement and Plan of Merger (the "Merger Agreement") dated as of August 27,
1997, by and among EWR and EQR. In the Merger, each share of EWR Common Stock,
$.01 par value per share ("EWR Common") will be exchanged for 0.5 share of
beneficial interest of EQR ("EQR Common"). The Merger Agreement is attached as
Exhibit 2.1 to the Merger Registration Statement. This opinion is being rendered
pursuant to Sections 6.3(d) and (e) of the Merger Agreement.
<PAGE>
October 31, 1997
Page 2
In rendering our opinion, we have examined the Merger Agreement and have,
with your permission, relied upon and assumed as correct now and as of the
effective time of the Merger, (i) the representations, warranties, and covenants
contained in the Merger Agreement, (ii) the factual information contained in the
Merger Registration Statement and the Partnership Registration Statement, (iii)
certain factual representations made by EWR, EWRLP and EQR, which are attached
as Exhibits hereto and made a part hereof, and (iv) such other materials as we
have deemed necessary or appropriate as a basis for our opinion.
On the basis of the information, representations, warranties, and covenants
contained in the foregoing materials, we are of the opinion that for federal
income tax purposes:
(i) the Merger will constitute a reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and EQR and EWR will
each be a party to such reorganization within the meaning of Section 368(b) of
the Code;
(ii) no gain or loss will be recognized by EWR as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of EWR upon
the exchange of their shares of EWR Common solely for shares of EQR Common ;
(iv) the tax basis of the shares of EQR Common received by a holder of
EWR Common in exchange for shares of EWR Common pursuant to the Merger will be
the same as the tax basis of the shares of EWR Common exchanged therefor;
(v) the holding period for shares of EQR Common received in exchange for
shares of EWR Common pursuant to the Merger will include the period that such
shares of EWR Common were held by the stockholder, provided that such shares of
EWR Common are held as a capital asset by the stockholder at the effective time
of the Merger;
(vi) a stockholder of EWR who receives cash in lieu of a fractional share
of EQR Common will recognize gain equal or loss equal to the difference, if any,
between the stockholder's tax basis in the fractional share and the amount of
cash received;
(vii) EWRLP will be classified as a partnership for federal income tax
purposes;
(viii) commencing with its taxable year ended December 31, 1994, EWR was
organized in conformity with the requirements for qualification and taxation as
a real estate investment trust ("REIT") under Section 856 of the Code, and its
method of operation has enabled it and will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code; and
<PAGE>
October 31, 1997
Page 3
(ix) the discussion under the caption "Federal Income Tax Consequences" in
the Merger Registration Statement, to the extent it constitutes matters of law
or legal conclusions, is accurate in all material respects.
This opinion expresses our views as to federal income tax laws in effect as
of the date hereof, including the Code, applicable Treasury Regulations,
published rulings and administrative practices of the Internal Revenue Service
(the "Service") and court decisions. This opinion represents our best legal
judgment as to the matters addressed herein, but is not binding on the Service
or the courts. Furthermore, the legal authorities upon which we rely are subject
to change either prospectively or retroactively. Any change in such authorities
or any change in the facts or representations, or any past or future actions by
EWR, EQR, or the stockholders of EWR contrary to such representations might
adversely affect the conclusions stated herein.
Furthermore, our opinion as to the status of EWR as a REIT under the Code
is based upon the accuracy of the representations made by EWR and EWRLP as to
factual matters relating to the organization, operation, income, assets,
distributions and stock ownership of EWR and EWRLP. EWR's qualification as a
REIT depends on its having met and continuing to meet, through actual operating
results, distribution levels and diversity of stock ownership, the various
qualifications tests imposed under the Code and described in the Merger
Registration Statement and the Exhibits attached hereto, the results of which
have not been and will not be reviewed by Gibson, Dunn & Crutcher LLP.
Accordingly, we give no assurance that the actual results of EWR's operations
for any taxable year have satisfied or will satisfy such requirements.
This opinion is being delivered solely to you for your and EQR's use in
connection with the Merger Registration Statement, and may not be relied upon by
any other person or used for any other purpose. We hereby consent to the use of
our name and our opinion under the caption "Federal Income Tax Consequences" in
the Merger Registration Statement.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
/s/ Gibson, Dunn & Crutcher LLP
HB/SMK/slc
<PAGE>
OFFICER'S CERTIFICATE
FOR EVANS WITHYCOMBE RESIDENTIAL, INC.
REGARDING THE MERGER OF
EVANS WITHYCOMBE RESIDENTIAL, INC.
WITH EQUITY RESIDENTIAL PROPERTIES TRUST
This Officer's Certificate is given in connection with the Joint Proxy
Statement and Prospectus, included in the Registration Statement on Form S-4
(File No. 333-35873) (the "Merger Registration Statement"), relating to the
proposed merger (the "Merger") of Evans Withycombe Residential, Inc., a Maryland
corporation("EWR") with and into Equity Residential Properties Trust, a Maryland
real estate investment trust ("EQR"). The Merger will be effected pursuant to
the terms and conditions of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 27, 1997, by and among EWR and EQR, which is
attached as Exhibit 2.1 to the Merger Registration Statement. Your opinions are
being rendered pursuant to Sections 6.2(e) and 6.3(e) of the Merger Agreement.
Unless otherwise indicated, capitalized terms not defined herein have the
meaning set forth in the Merger Agreement.
Paul R. Fannin, Senior Vice President and Chief Financial Officer of EWR
hereby certifies that to the best of his knowledge and belief, each of the
following statements is true and correct and will be true and correct at the
Effective Time of the Merger. The undersigned understands that the following
representations form the basis of the opinions of Rudnick & Wolfe and Gibson,
Dunn & Crutcher LLP that are attached as exhibits to and described in the Merger
Registration Statement, and any change or inaccuracy in the facts described
herein could adversely alter such opinions.
The fair market value of the EQR Common Shares and cash in lieu of
fractional shares received in the Merger by each EWR shareholder will be
approximately equal to the fair market value of the EWR Common Shares
surrendered in exchange therefor;
2. In the Merger, no shareholders of EWR will receive cash or other
property by reason of exercising dissenters' rights;
3. EWR has not made (nor will it make prior to the Effective Time) any
distributions, redemptions, or other payments in respect of stock of EWR or in
respect of rights to acquire such stock that are made in contemplation of the
Merger or that are related thereto, except for regular and normal distributions
that are consistent with amounts historically distributed by EWR on an annual
basis, including any distributions required by Section 857(a) of the Code;
4. Other than in the ordinary course of business, EWR has not disposed of
any of its assets (including any distribution of assets with respect to, or in
redemption of, EWR Common Shares);
5. EWR's principal reasons for participating in the Merger are bona fide
business purposes unrelated to taxes;
<PAGE>
6. Except for the possibility of receiving cash in lieu of fractional
shares of EQR Common Shares, the sole consideration to be received in the Merger
by the shareholders of EWR in exchange for their EWR Common Shares will be EQR
Common Shares;
7. The fair market value of EWR's assets will, at the Effective Time of
the Merger, exceed the aggregate liabilities of EWR plus the amount of
liabilities, if any, to which such assets are subject;
8. The liabilities of EWR assumed by EQR in the Merger and the
liabilities to which the transferred assets of EWR are subject were incurred by
EWR in the ordinary course of its business;
9. EWR is a "real estate investment trust" for purposes of Section
368(a)(2)(F)(i) of the Code;
10 EWR is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code;
11. There is no plan or intention ("Plan") on the part of the EWR
shareholders who own 5 percent or more of the EWR Common Shares, and to the best
knowledge of the management of EWR, there is no Plan on the part of the
remaining EWR shareholders to engage in a sale, exchange, transfer, pledge,
disposition or any other transaction that results in a reduction in the risk of
ownership or a direct or indirect disposition (a "Sale") of the EQR Common
Shares received in the Merger that would reduce ownership by the EWR
shareholders of EQR stock to a number of shares having a value as of the
Effective Time of the Merger of less than fifty percent (50%) of the aggregate
fair market value, immediately prior to the Merger, of all outstanding EWR
Common Shares. For purposes of making the foregoing representation, EWR Common
Shares exchanged for cash in lieu of fractional shares and EWR Common Shares
that are the subject of a Sale by an EWR shareholder prior to the Merger shall
be considered outstanding EWR Common Shares at the Effective Time of the Merger;
12. EWR and the EWR shareholders will pay their own respective expenses
incurred in connection with the Merger, except for the payment by EQR of those
expenses of EWR, if any, that are solely and directly related to the Merger in
accordance with the guidelines established in Revenue Ruling 73-54, 1973-1 C.B.
187;
13. There is no intercorporate indebtedness existing between EQR and EWR
that was issued, acquired, or will be settled at a discount as a result of the
Merger;
14. The terms of the Merger Agreement are the product of arm's-length
negotiations;
15. None of the compensation received by any shareholder-employee of EWR
will be separate consideration for, or allocable to, any of their EWR Common
Shares. None of the EQR Common Shares received by any shareholder-employee of
EWR will be separate consideration for, or allocable to, any employment
agreement or any covenants not to compete, and the compensation paid to any
shareholder-employee of EWR will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services;
2
<PAGE>
16. The information set forth in the Merger Registration Statement is
true, correct, and complete; and
17. The undersigned is authorized to make all of the representations set
forth herein.
It is understood that (i) your opinions will be based on the
representations set forth herein, the information set forth in the Merger
Registration Statement, and on the statements, representations, and warranties
set forth in the Merger Agreement (including all schedules and exhibits
thereto), and (ii) your opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations, statements, and information are not true, correct, and
complete. It is further understood that your opinions will not address any tax
consequence of the Merger or any action taken in connection therewith except as
expressly set forth in such opinion.
IN WITNESS WHEREOF, I have executed this Officer's Certificate on the 31st
day of October, 1997.
/s/ Paul R. Fannin
---------------------------
Paul R. Fannin
Senior Vice President
and Chief Financial Officer
3
<PAGE>
OFFICER'S CERTIFICATE FOR
EVANS WITHYCOMBE RESIDENTIAL, INC.
REGARDING EVANS WITHYCOMBE RESIDENTIAL, L.P.
AND EVANS WITHYCOMBE FINANCE PARTNERSHIP, L.P.
This Officer's Certificate is given in connection with (i) the Joint Proxy
Statement and Prospectus, included in the Registration Statement on Form S-4
(File No. 333-35873) (the "Merger Registration Statement"), relating to the
proposed merger (the "Merger") of Evans Withycombe Residential, Inc., a Maryland
corporation (the "REIT") with and into Equity Residential Properties Trust, a
Maryland real estate investment trust ("EQR"), and (ii) the Prospectus and
Information Statement, contained in the Registration Statement on Form S-4 (File
No.333-36053) (the "Partnership Registration Statement"), relating to (A) the
proposed contribution of the assets, subject to liabilities, of Evans Withycombe
Residential, L.P., a Delaware limited partnership (the "Operating Partnership")
to ERP Operating Limited Partnership, an Illinois limited partnership ("ERP")
and (B) the the offer by ERP to holders of units in the Operating Partnership to
exchange such units for units of partnership interest in ERP.
Paul R. Fannin, Senior Vice President and Chief Financial Officer of the
REIT, hereby certifies that to the best of his knowledge and belief that each of
the following statements is true and correct and will be true and correct at the
effective time of the Merger. The undersigned understands that the following
representations form the basis of the opinions of Rudnick & Wolfe and Gibson,
Dunn & Crutcher LLP described in the Merger Registration Statement and the
Partnership Registration Statement (collectively the "Registration Statements"),
and any change or inaccuracy in the facts described herein could adversely alter
such opinions.
References herein to the "Partnerships" or "Partnership" include the
Operating Partnership, Evans Withycombe Finance Partnership, L.P., a Delaware
limited partnership (the "Finance Partnership), McKinley Hills Partners-85, and
EW Chandler Limited Partnership.
Terms not otherwise defined herein have the meanings set forth in Exhibit A
hereto. Unless specifically provided otherwise, all the statements below with
respect to any entity relate to such entity from the date of its organization
until the effective date of the Merger.
1. Except as provided in the Operating Partnership Agreement, the REIT has
not acted and will not be acting as the agent of the limited partners of the
Operating Partnership.
2. The current net worth of the Finance Partnership exceeds $190 million.
For purposes of this paragraph 2, "net worth" means the gross fair market value
of all assets minus liabilities.
3. The REIT has contributed to Finance Sub a promissory note (the "Demand
Note"), in the aggregate principal amount of $10 million payable to Finance Sub
on demand, proceeds from which may be used to satisfy any of Finance Sub's
obligations as general partner of the Finance Partnership.
4. Interests in the Partnerships have not been and will not be listed or
traded on an established securities market or exchange (including an over-the-
counter market).
1
<PAGE>
5. No interests in the Partnerships have been or will be issued in a
transaction that is registered under the Securities Act of 1933.
6. None of the Partnerships have had more than 500 partners, and the
general partners of the Partnerships will not take any action that could permit
the Partnerships to have more than 500 partners (including as partners those
persons indirectly owning an interest in the Partnerships through a partnership,
S corporation, or grantor trust).
7. Neither the REIT, Finance Sub nor the Partnerships will participate in
or tacitly allow the facilitation of public trading of interests in the
Partnerships.
8. Beginning with the taxable year ending December 31, 1994, ninety
percent (90%) or more of the gross income of each of the Partnerships have
consisted and will consist of "qualifying income" within the meaning of Section
7704(d) of the Code. "Qualifying income" for this purpose refers to interest,
dividends, real property rents, gain from the sale or other disposition of real
property, and gain from the sale or other disposition of assets (other than
inventory assets) that produce interest or dividends. "Interest" for this
purpose excludes any amounts received or accrued, directly or indirectly, if the
determination of such amount depends in whole or in part on the income or
profits of any person, other than interest based on a fixed percentage of
receipts or sales. In addition, gross income from the sale of real property
held primarily for sale to customers in the ordinary course of business is not
reduced by the cost of such property.
9. Beginning with the taxable year ending December 31, 1994, with respect
to each and every Lease, the amount of rent received or accrued by the
Partnerships has not been and will not be based in whole or in part on the
income or profits of any person.
10. With respect to each and every Tenant, neither the Partnerships nor
any owner (actual or Constructive) of 10% or more of the outstanding interests
in profits or capital of the Partnerships, has been or is expected to be the
owner (actual or Constructive) of: (i) in the case of a Tenant that is a
corporation, stock of such Tenant possessing 10% or more of the total combined
voting power of all classes of stock entitled to vote, or 10% or more of the
total number of shares of all classes of stock of such Tenant; or (ii) in the
case of a Tenant that is not a corporation, an interest of 10% or more in the
assets or net profits of such Tenant.
11. With respect to every Lease: (i) all personal property leased by the
Partnerships has been and will be leased in connection with a lease of real
property, and (ii) the rent attributable to any personal property leased in
connection with a Lease has been and will be less than 15% of the total rent
received or accrued under the Lease. I understand that the amount of rent
attributable to personal property is determined under Section 856(d)(1) of the
Code, which provides that with respect to each lease of real property, the
amount of rent attributable to personal property for a taxable year is the
amount that bears the same ratio to the rent for the taxable year as the average
of the adjusted basis of personal property at the beginning and at the end of
the taxable year bears to the average of the aggregate adjusted basis of both
the real property and the personal property at the beginning and at the end of
the taxable year. This representation applies only to personal property that is
owned (as opposed to leased) by the Partnerships.
2
<PAGE>
12. The Partnerships have not acted and will not act as lessee of any
property for the purpose of subleasing such property to a Tenant.
13. No Partnership would be or would have been a "regulated investment
company" within the meaning of Section 851(a) of the Code if it were a domestic
corporation. A "regulated investment company" is a domestic corporation which,
at all times during the taxable year, is registered under the Investment Company
Act of 1940, as amended (15 U.S.C. 80a-1 to 80b-2), as a management company or a
unit investment trust, or has in effect an election under such Act to be treated
as a business development company, or which is a common trust fund or similar
fund excluded by Section 3(c)(3) of such Act from the definition of "investment
company" and is not included in the definition of "common trust fund" by Section
584(a) of the Code.
14. The REIT, the Finance Sub and the Partnerships have no knowledge of
facts that are contrary to the following: (i) the Partnerships have been and
will be operated in accordance with the terms of the Partnership Agreements and
the provisions of the Delaware Revised Uniform Limited Partnership Act (the
"Act"), (ii) the Partnership Agreements and the Demand Note are valid and
enforceable in accordance with their terms, (iii) no person has made or will to
make a market in interests in the Partnerships, (iv) interests in the
Partnerships have not been and will not be regularly quoted by persons such as
brokers or dealers and (v) holders of interests in the Partnerships have not had
and will not have a readily available, regular or ongoing opportunity to buy,
sell or exchange such interests (other than with respect to the Redemption
Rights) in a time frame and with the regularity and continuity that a secondary
market for interests in the Partnerships would provide.
15. The Partnerships have been and will be operated in accordance with the
terms of the Partnership Agreements and the provisions of the Act.
16. The information set forth in the Registration Statement is true,
correct and complete.
17. As Senior Vice President and Chief Financial Officer, of the REIT,
which is (i) the sole general partner of the Operating Partnership, and (ii) the
sole shareholder of the Finance Sub, which is the sole general partner of the
Finance Partnership, it is my responsibility to have knowledge of the matters
described in the above representations.
IN WITNESS WHEREOF, I have executed this Certificate on this 31st day of
October, 1997.
/s/ Paul R. Fannin
-----------------------------
Paul R. Fannin
Senior Vice President
and Chief Financial Officer
3
<PAGE>
EXHIBIT A
Definitions
-----------
"Code": the Internal Revenue Code of 1986, as amended.
"Constructive" or "Constructively": constructive stock ownership rules of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
"Finance Sub": Evans Withycombe Finance, Inc., a Delaware corporation and
wholly owned subsidiary of the REIT.
"Lease": any lease from which any Partnership derives revenue.
"Operating Partnership Agreement": the Amended and Restated Agreement of
Limited Partnership of Evans Withycombe Residential, L.P., dated as of August
17, 1994.
"Ownership Interest": in the case of a corporation, stock in such
corporation, and in the case of any other entity, an interest in the capital or
profits of such entity.
"Partnership Agreements": the partnership agreements of the Partnerships.
"Redemption Rights": the right of limited partners of the Operating
Partnership to have their partnership interests redeemed by the Operating
Partnership in accordance with Section 8.6 of the Operating Partnership
Agreement.
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OFFICER'S CERTIFICATE
FOR EVANS WITHYCOMBE RESIDENTIAL, INC.
REGARDING CERTAIN INCOME TAX MATTERS
This Officer's Certificate is given in connection with (i) the Joint Proxy
Statement and Prospectus, included in the Registration Statement on Form S-4
(File No. 333-35873) (the "Merger Registration Statement"), relating to the
proposed merger (the "Merger") of Evans Withycombe Residential, Inc., a Maryland
corporation (the "REIT") with and into Equity Residential Properties Trust, a
Maryland real estate investment trust ("EQR"), and (ii) the Prospectus and
Information Statement, contained in the Registration Statement on Form S-4 (File
No.333-36053) (the "Partnership Registration Statement"), relating to (A) the
proposed contribution of the assets, subject to liabilities, of Evans Withycombe
Residential, L.P., a Delaware limited partnership (the "Operating Partnership")
to ERP Operating Limited Partnership, an Illinois limited partnership ("ERP")
and (B) the offer by ERP to holders of units in the Operating Partnership to
exchange such units for units of partnership interest in ERP.
Paul R. Fannin, Senior Vice President and Chief Financial Officer of the
REIT, hereby certifies that to the best of his knowledge and belief that each of
the following statements is true and correct and will be true and correct at the
effective time of the Merger. The undersigned understands that the following
representations form the basis of the opinions of Rudnick & Wolfe and Gibson,
Dunn & Crutcher LLP described in the Merger Registration Statement and the
Partnership Registration Statement (collectively the "Registration Statements"),
and any change or inaccuracy in the facts described herein could adversely alter
such opinions.
References herein to the "Company" include the REIT, Evans Withycombe
Finance, Inc. (the "Finance Sub") as well as the Partnerships. References to the
Partnerships include Operating Partnership, Evans Withycombe Finance
Partnership, L.P., a Delaware limited partnership (the "Finance Partnership"),
McKinley Hills Partners-85, and EW Chandler Limited Partnership.
Terms not otherwise defined herein have the meanings set forth in Exhibit A
hereto. Unless specifically provided otherwise, all the statements below with
respect to any entity relate to such entity from the date of its organization
until the effective date of the Merger.
1. The information set forth in the Registration Statements is true,
correct and complete.
2. One hundred (100) or more persons have held, and, until the effective
date of the Merger will hold, the beneficial ownership of the outstanding stock
of the REIT.
3. Since the date of incorporation, five or fewer Persons have not owned,
and until the effective date of the Merger will not own, after applying the
Attribution Rules, more than fifty percent (50%) of the REIT's outstanding
stock.
4. Commencing with its taxable year ending December 31, 1994, the REIT
timely and properly filed an election to be a taxed as "Real Estate Investment
Trust." The REIT has not revoked such election and has no present intention to
revoke such election.
5. The REIT has not owned and does not anticipate to own an actual or
Constructive interest in any corporation, partnership, association, trust, joint
venture, limited
<PAGE>
liability company or other entity other than its actual or Constructive
interests in the Partnerships, the Finance Sub, the Management Company, and the
trusts established by the Finance Partnership to facilitate the borrowing by the
Finance Partnership.
6. With respect to each and every Lease, the amount of rent received or
accrued by the Company has not been, and will not be based in whole or in part
on the income or profits of any person.
7. With respect to each and every Tenant, neither the Company, nor any
owner (actual or Constructive) of 10% or more of the outstanding Common Stock of
the REIT, has been, or is expected to be the owner (actual or Constructive) of:
(i) in the case of a Tenant that is a corporation, stock of such Tenant
possessing 10% or more of the total combined voting power of all classes of
stock entitled to vote, or 10% or more of the total number of shares of all
classes of stock of such Tenant; or (ii) in the case of a Tenant that is not a
corporation, an interest of 10% or more in the assets or net profits of such
Tenant.
8. With respect to every Lease: (i) all personal property leased by the
Company has been and will be leased in connection with a lease of real property,
and (ii) the rent attributable to any personal property leased in connection
with a Lease has been and will be less than 15% of the total rent received or
accrued under the Lease. I understand that the amount of rent attributable to
personal property is determined under Section 856(d)(1) of the Code, which
provides that with respect to each lease of real property, the amount of rent
attributable to personal property for a taxable year is the amount that bears
the same ratio to the rent for the taxable year as the average of the adjusted
basis of personal property at the beginning and at the end of the taxable year
bears to the average of the aggregate adjusted basis of both the real property
and the personal property at the beginning and at the end of the taxable year.
This representation applies only to personal property that is owned (as opposed
to property leased) by the Company.
9. The Company has not acted and will not act as lessee of any property
for the purpose of subleasing such property to a Tenant.
10. No Partnership has leased or will lease or sublease personal property
that is not owned by it. All personal property provided or made available to a
Tenant by the Management Company has been and will be leased by the Management
Company acting on its own behalf and not as agent for the Partnerships, and the
Management Company has separately charged and will separately charge the Tenant
therefor.
11. The Company will not receive "excess rentals" from a Tenant. "Excess
rentals" means rent payable pursuant to a Lease in an amount that is greater
than the rent that would be payable under the Lease but for the existence of a
provision obligating the Tenant to pay over all or a portion of any rent
received by that Tenant from a subtenant or assignee of that Tenant.
12. One hundred percent (100%) of the stock of the Finance Sub has been
and will be held by the REIT at all times during the existence of the Finance
Sub.
13. For purposes of the following representations, income, deductions,
credits and other tax items of the REIT shall be deemed to include the REIT's
share of such items of the Partnerships, based on the REIT's proportionate
direct or indirect capital interest in such entities. Furthermore, for this
purpose the REIT will be treated as owning directly the assets owned by the
Finance Sub:
(a) Commencing with the REIT's taxable year ending December 31, 1994,
at least ninety-five percent (95%) of the gross income of the REIT
2
<PAGE>
(excluding gross income from Prohibited Transactions) has been and is
expected to be derived from (i) dividends, (ii) interest, (iii) rents from
real property, (iv) gain from the sale or other disposition of stock,
securities and real property (including Interests in Real Property and
interests in mortgages on real property), but excluding gain on real
property which is Section 1221(1) Property, (v) abatements and refunds of
taxes on real property, (vi) income and gain derived from Foreclosure
Property, (vii) amounts (other than amounts, the determination of which
depends in whole or in part on income or profits of any person) received or
accrued as consideration for entering into agreements (A) to make loans
secured by mortgages on real property or on Interests in Real Property, or
(B) to purchase or lease real property (including Interests in Real
Property and interests in mortgages on real property), and (viii) gain from
the sale or other disposition of Real Estate Assets that is not a
Prohibited Transaction;
(b) Commencing with the REIT's taxable year ending December 31, 1994,
at least seventy-five percent (75%) of the gross income of the REIT
(excluding gross income from Prohibited Transactions) has been and is
expected to be derived from (i) rents from real property, (ii) interest on
obligations secured by mortgages on real property or on Interests in Real
Property, (iii) gain from the sale or disposition of real property
(including Interests in Real Property and interests in mortgages on real
property), but excluding gain from real property which is Section 1221(1)
Property, (iv) dividends or other distributions on, and gain (other than
gain from Prohibited Transactions) from the sale or other disposition of,
transferable shares or beneficial certificates in other Real Estate
Investment Trusts, (v) abatements and refunds of taxes on real property,
(vi) income and gain derived from Foreclosure Property, (vii) amounts
(other than amounts, the determination of which depends in whole or in part
on the income or profits of any person) received or accrued as
consideration for entering into agreements (A) to make loans secured by
mortgages on real property or on Interests in Real Property and interests
in mortgages on real property, (viii) gain from the sale or other
disposition of a Real Estate Asset which is not a Prohibited Transaction,
and (ix) Qualified Temporary Investment Income. Dividends received by the
Operating Partnership from the Management Company are not included in
clauses (i) through (ix) of this paragraph (b);
(c) Commencing with the REIT's taxable year ending December 31, 1994,
the REIT has derived and expects to derive less than thirty percent (30%)
of its aggregate gross income from the sale or other disposition of (i)
stock or securities held for less than one year, (ii) property in a
Prohibited Transaction, and (iii) real property (including Interests in
Real Property and interests in mortgages on real property) held for less
than four years other than such property that is compulsorily or
involuntarily converted (by means of destruction, theft, seizure,
requisition, condemnation or threat of imminence thereof) and Foreclosure
Property;
(d) Commencing with the REIT's taxable year ending December 31, 1994,
the REIT has paid and expects to pay dividends (without regard to capital
gains dividends) equal to or in excess of the sum of (i) ninety-five
percent (95%) of the REIT's REIT Taxable Income for the year (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain), and (ii) ninety-five percent (95%) of the net income from
3
<PAGE>
Foreclosure Property (after the tax imposed thereon by Section 857(b)(4)(A)
of the Code), minus (iii) any Excess Noncash Income; and
(e) Commencing with the REIT's taxable year ending December 31, 1994,
the dividends paid and to be paid by the REIT on the Common Stock were and
will be made pro rata, with no preference to any share of the Common Stock
as compared with other such shares.
14. For purposes of the following representations, assets of the REIT
shall be deemed to include the REIT's share of assets owned by the Partnerships,
based on the REIT's proportionate direct or indirect capital interest in such
entities. Furthermore, for this purpose the REIT will be treated as owning
directly the assets owned by the Finance Sub:
At the close of each quarter of each taxable year commencing with the
REIT's taxable year ending December 31, 1994 (i) at least seventy-five
percent (75%) of the value of the combined total assets of the REIT has
been and will be represented by Real Estate Assets, cash and cash items,
(including receivables), and U.S. Government securities, (ii) not more than
twenty-five percent (25%) of the value of the REIT's total assets has been
or will be represented by securities (other than those described in clause
(i) above), and (iii) with respect to those assets described in clause (ii)
above, the value of any one issuer's securities owned by the REIT
(including but not limited to the Management Company) has not exceeded and
will not exceed five percent (5%) of the value of the REIT's total assets
and the REIT has not owned and will not own more than ten percent (10%) of
any one issuer's outstanding voting securities.
15. The REIT, the Finance Sub, and the Partnerships have not earned and
will not earn fees for services performed, or other income (whether or not
through a manager) not described in clauses (i) through (viii) of paragraph
13(a) above, other than with respect to (i) Foreclosure Property and (ii)
income, if any attributable to reimbursements paid by the Operating Partnership
and Finance Partnership to the REIT pursuant to the terms of the Partnership
Agreements.
16. The Company has not provided and will not provide, and has not engaged
and will not engage any entity that fails to qualify as an "independent
contractor" to furnish, any services to any Tenant that are other than services
of the type that are "usually or customarily rendered" in connection with the
rental of space for occupancy only and not otherwise considered "rendered to the
occupant" within the meaning of Section 1.512(b)-1(c)(5) of the Treasury
Regulations. The Company has not received and will not receive any income,
directly or indirectly, from such contractor, including but not limited to
administrative or other fees, interest and dividends. For this purpose, an
"independent contractor" is a person other than (i) any person owning (actually
or Constructively) more than 35% of the stock of the REIT; (ii) any corporation
in which persons owning 35% or more of the stock of the REIT own (actually or
Constructively) more than 35% of the voting power with respect to the stock of
such corporation; or (iii) any entity other than a corporation in which persons
owning persons owning 35% or more of the stock of the REIT own (actually or
Constructively) more than 35% interest in the assets or net profits of such
entity.
17. No independent contractor providing services to Tenants has had or
will have any operating employees in common with the Company.
18. The services described in the draft private letter ruling request
dated August 16, 1994 prepared by the REIT sets forth in complete detail the
services that have been provided
4
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and are expected to be provided to by the Partnerships and the Management
Company to Tenants.
19. As required by Treasury Regulation Section 1.857-8, for each year
commencing with the REIT's taxable year ending December 31, 1994, the REIT (i)
has maintained and will maintain the necessary records relating to the actual
ownership of its stock, (ii) has made and will make the requisite information
requests of its shareholders regarding stock ownership, and (iii) has maintained
and will maintain a list of the persons failing or refusing to comply in whole
or in party with the Company's demand for statements regarding stock ownership.
20. The Company has operated and will operate in a manner such that the
above representations will continue to be true in the future; provided, however,
the Company may operate in a manner different from such representations if it
obtains the advice of nationally recognized counsel that such differences will
not impair its status as a Real Estate Investment Trust.
21. The REIT will use its best efforts to monitor ownership of Common
Stock in order to ensure compliance with, and will use its best efforts to
enforce, the Transfer Restrictions. Specifically, the REIT, as soon as
practicable after the date it discovers that a transaction in violation of the
Transfer Restrictions has occurred, will inform the Purported Record Owner and,
to the extent it is aware of its identity, the Purported Beneficial Owner, of
their obligations pursuant to the Charter, including the obligation to surrender
to the Trustee of the Trust any Trust Shares and any and all dividends or other
distributions received with respect to Trust Shares. The REIT will also take
additional action as is reasonably necessary to refuse to give effect to or to
prevent such transaction, which may include: (1) refusing to give effect to such
transaction on its books; (2) instituting legal proceedings to enjoin the
transaction and to recover any Trust Shares and any dividends erroneously paid
or distributed; and (3) declaring any votes erroneously cast by the Purported
Record Owner to be retroactively invalid. For purposes of this paragraph 21, the
terms "Purported Record Owner," "Purported Beneficial Owner," "Trustee," "Trust"
and "Trust Shares" shall have the meanings ascribed to such terms in the
Charter.
22. The representations herein take into account the expected income,
assets and operations of the Development Properties.
23. All shares of stock issued by the REIT are freely transferable.
24. As Senior Vice President and Chief Financial Officer, of the REIT,
which is (i) the sole general partner of the Operating Partnership, and (ii) the
sole stockholder of the Finance Sub, which is the sole general partner of the
Finance Partnership, it is my responsibility to have knowledge of the matters
described in the above representations.
IN WITNESS WHEREOF, I have executed this Certificate on the 31st day of
October, 1997.
/s/ Paul R. Fannin
-----------------------------
Paul R. Fannin
Senior Vice President
and Chief Financial Officer
5
<PAGE>
EXHIBIT A
Definitions
-----------
"Attribution Rules": the rules of ownership described in Section 856(h) of
the Code.
"Charter": The Charter of the REIT.
"Code": the Internal Revenue Code of 1986, as amended.
"Common Stock": Common Stock, $.01 par value per share of Evans Withycombe
Residential, Inc.
"Constructive" or "Constructively": constructive stock ownership rules of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
"Development Properties": the "Development Communities" and the
"Development Rights" as those terms are defined in the Registration Statement.
"Excess Noncash Income": the excess of (i) the sum of (A) all interest,
original issue discount and other income includible in income with respect to
debt instruments received upon the sale of property over the money and fair
market value of property received with respect to such instruments and (B)
income recognized upon the disposition of real estate if there is a
determination that Section 1031 of the Code (like-kind exchanges) does not apply
to the disposition and the failure to satisfy the requirements of Section 1031
of the Code was due to reasonable cause and not willful neglect, over (ii) five
percent (5%) of REIT Taxable Income (without regard for the deduction for
dividends paid and excluding any net capital gain).
"Foreclosure Property": any real property (including Interests in Real
Property), and personal property incident to such real property, acquired by the
Company as a result of the Company having bid in such property at foreclosure,
or having otherwise reduced such property to ownership or possession by
agreement or process of law, after there was default (or default was imminent)
on a lease of such property or on an indebtedness which such property secured;
provided that an election for foreclosure property status under Section
856(e)(5) of the Code is in effect with respect to such property and such
election has not been terminated under Section 856(e)(4) of the Code. Such term
does not include property acquired by the Company as a result of indebtedness
arising from the sale or other disposition of property of the Company which is
Section 1221(1) Property which was not originally acquired as foreclosure
property.
"Interests in Real Property": includes fee ownership and co-ownership of
land or improvements thereon, leaseholders of land or improvements thereon,
options to acquire land or improvements thereon, and options to acquire
leaseholds of land or improvements thereon, but does not include mineral, oil or
gas royalty interests.
"Lease": any lease from which the Company derives revenue.
"Management Company": Evans Withycombe Management, Inc., an Arizona
corporation.
"Ownership Interest": in the case of a corporation, stock in such
corporation, and in the case of any other entity, any interest in the assets or
net income of such entity.
A-1
<PAGE>
"Partnership Agreements": the partnership agreements of the Partnerships.
"Person": an individual, private foundation, charitable trust, and
employee pension, profit sharing, stock bonus or supplemental unemployment
benefit trust.
"Prohibited Transaction": the sale or other disposition of Section 1221(1)
Property, other than Foreclosure Property, unless (i) the property sold was a
Real Estate Asset; (ii) the Company held the Real Estate Asset for at least four
years; (iii) the aggregate expenditures made by the Company during the four (4)
year period preceding the date of the sale which are includible in the basis of
the Real Estate Asset does not exceed thirty percent (30%) of the net selling
price of such asset; (iv) (A) during the taxable year the Company did not make
more than seven sales of property (other than Foreclosure Property) or (B) the
aggregate adjusted bases (as determined for purposes of computing earnings and
profits) of the REIT's property (other than Foreclosure Property) sold during
the taxable year does not exceed ten percent (10%) of the aggregate adjusted
bases (as so determined) of all the assets of the REIT as of the beginning of
the taxable year; (v) in the case of property, which consists of land or
improvements, not acquired through foreclosure (or deed in lieu of foreclosure),
or lease termination, the Company has held the property for not less than four
(4) years for production of rental income; and (vi) if the requirement of clause
(iv)(A) is not satisfied, substantially all of the marketing and development
expenditures with respect to the property were made through an independent
contractor (as defined in paragraph 16 hereof) from whom the Company does not
directly or indirectly derive gross income (including but not limited to
dividends). For purposes of clause (iv)(B) of the preceding sentence, the REIT
will be treated as owning its proportionate share of the adjusted bases of
assets owned by other entities in a manner consistent with that described in
paragraph 14 hereof.
"Qualified Temporary Investment Income": any income which (i) is
attributable to stock, or a bond, debenture, note, certificate or other evidence
of indebtedness (excluding any annuity contract which depends (in whole or in
substantial part) on the life expectancy of one or more individuals, or is
issued by an insurance company subject to tax under subchapter L of the Code (1)
in a transaction in which there is no consideration other than cash or another
annuity contract meeting the requirements of this definition, (2) pursuant to
the exercise of an election under an insurance contract by a beneficiary thereof
on the death of the insured party under such contract, or (3) in a transaction
involving a qualified pension or employee benefit plan), (ii) is attributable to
the temporary investment of new capital (amounts received upon the issuance of
stock of the REIT or upon a public offering of debt obligations of the REIT
having maturities of at least five years) received by the REIT and (iii) is
received or accrued during the one year period beginning on the date the REIT
received such capital.
"Real Estate Asset": real property (including Interests in Real Property
and interests in mortgages on real property) and shares (or transferable
certificates of beneficial interest) in other Real Estate Investment Trusts.
Such term also includes any property (not otherwise a Real Estate Asset)
attributable to the temporary investment of new capital (amounts received upon
the issuance of stock of the REIT or upon a public offering of debt obligations
of the REIT having maturities of at least five years), but only if such property
is stock or a debt instrument, and only for the one-year period beginning on the
date the REIT receives such capital.
"Real Estate Investment Trust": a real estate investment trust which meets
the requirements of Sections 856 through 860 of the Code.
"REIT Taxable Income": "Real estate investment trust taxable income" as
defined in Section 857(b) of the Code, which generally equals the taxable income
of the REIT, computed with the dividends-paid deduction as defined in Section
561 of the Code (except that the
A-2
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portion of such deduction attributable to net income from Foreclosure Property
is excluded), excluding any net income from Foreclosure Property, and computed
with a deduction for any tax imposed under Section 857(b)(5) of the Code (i.e.,
tax on the failure to meet the seventy-five percent (75%) or ninety-five percent
(95%) income tests).
"Section 1221(1) Property": stock in trade of the Company or other
property of a kind which would properly be included in inventory of the Company
if on hand at the close of the taxable year, or property held by the Company
primarily for sale to customers in the ordinary course of its trade or business.
"Tenant": any person from whom the Company derives gross income.
"Transfer Restrictions": The restrictions on transfer of capital stock of
the REIT as set forth in Article V of the Charter.
A-3
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Equity Residential Properties Trust
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
October 31, 1997
Rudnick & Wolfe Gibson, Dunn & Crutcher LLP
203 North LaSalle Street 333 South Grand Avenue
Suite 1800 Los Angeles, California 90071
Chicago, Illinois 60601
Re: Tax Opinion for Merger - Officer's Certificate
----------------------------------------------
Ladies and Gentlemen:
In connection with the merger of Evans Withycombe Residential, Inc., a
Maryland corporation ("EWR"), with and into Equity Residential Properties Trust,
a Maryland real estate investment trust ("EQR"), pursuant to the Joint Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 (File
No. 333-35873), filed with the Securities and Exchange Commission, as amended
(the "Registration Statement"), and certain related transactions, Rudnick &
Wolfe, as special counsel for EQR, and Gibson, Dunn & Crutcher LLP, as special
counsel for EWR, have each been requested to render an opinion concerning
certain federal income tax consequences of the proposed merger (the "Merger") of
EWR with and into EQR. Unless otherwise specifically defined herein, all
capitalized terms have the meaning assigned to them in the Registration
Statement.
The Merger will be consummated pursuant to (i) an Agreement of Merger, by
and between EWR and EQR, dated as of August 27, 1997 (the "Merger Agreement"),
and (ii) the Articles of Merger, by and between EWR and EQR in connection
therewith (the "Plan of Merger"). Pursuant to the Asset Contribution Agreement,
the assets of EWRLP will be contributed to ERP Operating Partnership at the time
set forth in the Asset Contribution Agreement.
In connection with the issuance of your legal opinion as described above,
EQR, on behalf of itself and ERP Operating Partnership, hereby makes the
following representations (intending that Rudnick & Wolfe and Gibson, Dunn &
Crutcher LLP will rely on such representations in rendering their opinions),
each of which will be true as of the Effective Time of the Merger and
thereafter, where relevant:
1. The Merger is being effected for bona fide business reasons as
described in the Joint Proxy Statement/Prospectus.
<PAGE>
October 31, 1997
Page 2
2. The fair market value of the EQR Common received by each holder of EWR
Common will be approximately equal to the fair market value of the EWR Common
surrendered in the exchange.
3. EQR has no plan or intention to reacquire any of the EQR Common to be
issued in the Merger.
4. EQR has no plan or intention to sell or otherwise dispose of any of
the assets acquired from EWR in the Merger except for (i) dispositions made in
the ordinary course of business, (ii) transfers described in both Section
368(a)(2)(C) of the Code and Treasury Regulations Section 1.368-2(j)(4), and
(iii) the transfer of assets made pursuant to the Asset Contribution Agreement.
5. Following the Merger, EQR will continue the historic business of EWR
and will use a significant portion of EWR's historic business assets in a
business.
6. EQR and the shareholders of EQR will pay their respective expenses
incurred in connection with the Merger, and will not pay the expenses of EWR or
the EWR shareholders, except for those expenses of EWR that are solely and
directly related to the Merger in accordance with the guidelines established in
Revenue Ruling 73-54, 1973-1 C.B. 187.
7. There is no intercorporate indebtedness existing between EQR and EWR
that was issued, acquired or will be settled at a discount.
8. Although EQR is an "investment company," as defined in Code Sections
368(a)(2)(F)(iii) and (iv), EQR is also a real estate investment trust, as
defined in Code Section 856(a), described in Code Section 368(a)(2)(F)(i).
9. EQR is not under the jurisdiction of a court in a title 11 or similar
case within the meaning of Code Section 368(a)(3)(A).
10. None of the compensation received by any shareholder-employee of EQR
will be separate consideration for, or allocable to, any of his or her EQR
Common or EQR Preferred. The compensation paid to any shareholder-employee of
EQR will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services. None of
the EQR Common or EQR Preferred received by any shareholder-
<PAGE>
October 31, 1997
Page 3
employee of EQR will be in exchange for, or in consideration of, services
rendered to EQR or any other entity by such shareholder-employee.
11. The payment of cash in lieu of fractional shares of EQR Common is
solely for the purpose of avoiding the expense and inconvenience to EQR of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
EWR shareholders in lieu of issuing fractional shares of EQR Common will not
exceed one percent of the total consideration that will be issued in the Merger
to the holders of EWR Common in exchange for their EWR Common. The fractional
share interests of each holder of EWR Common will be aggregated, and no holder
of EWR Common will receive cash in an amount greater than the value of one share
of EWR Common.
12. The principal purpose of EQR's assumption of liabilities and/or
acquisition of properties subject to liabilities in connection with the Merger
is not to avoid federal income tax, and EQR has a valid business purpose for
assuming any liabilities and/or acquiring properties subject to liabilities in
connection with the Merger.
13. EQR has the corporate power and authority to make all of the
representations contained herein.
EQUITY RESIDENTIAL PROPERTIES
TRUST, a Maryland real estate investment trust
By: /s/ Bruce C. Strohm
------------------------------
Name: Bruce C. Strohm
------------------------------
Its: Executive Vice President
------------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Equity Residential
Properties Trust for the registration of 13,027,181 common shares and to the
incorporation by reference therein of our reports indicated below with respect
to the financial statements indicated below included or incorporated by
reference in Equity Residential Properties Trust's filings as indicated below,
filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Date of
-------
Financial Statements Auditor's Report Filing
-------------------- ---------------- ------
<S> <C> <C>
Consolidated financial statements February 12, 1997 except Annual Report on
and schedule of Equity Residential for Note 19, as to which Form 10-K, as
Properties Trust at December 31, the date is March 20, 1997 amended by Form
1996 and for the year then ended 10-K/A and Joint
Proxy Statement/
Prospectus dated
April 25, 1997
Combined Statement of Revenue and November 12, 1997 Current Report on
Certain Expenses of the CAPREIT Form 8-K, as
Acquired and Probable Properties amended by Form
for the year ended December 31, 8-K/A, dated
1996 October 9, 1997
Combined Statement of Revenue August 15, 1997 Current Report on
and Certain Expenses of the Form 8-K dated
Ameritech Pension Trust Probable September 17, 1997
Properties for the year ended
December 31, 1996
Combined Statement of Revenue September 5, 1997 Current Report on
and Certain Expenses of Paces Form 8-K dated
on the Green and Paces Station September 17, 1997
for the year ended December 31,
1996
Statement of Revenue and Certain July 17, 1997 Current Report
Expenses of Cascade at Landmark on Form 8-K
for the year ended December 31, dated August 15,
1996 1997
Statement of Revenue and Certain July 2, 1997 Current Report
Expenses of Sabal Palm Club on Form 8-K
(formerly known as Post Crossing dated August 15,
(Pompano)) for the year ended 1997
December 31, 1996
Statement of Revenue and Certain July 23, 1997 Current Report
Expenses of Wood Creek (Pleasant on Form 8-K
Hill) for the year ended December dated August 15,
31, 1996 1997
Statement of Revenue and Certain July 25, 1997 Current Report
Expenses of LaMirage for the year on Form 8-K
ended December 31, 1996 dated August 15,
1997
Statement of Revenue and Certain May 16, 1997 Current Report
Expenses of Harborview for the on Form 8-K dated
year ended December 31, 1996 May 20, 1997
Statement of Revenue and Certain May 6, 1997 Current Report
Expenses of Trails at Dominion for on Form 8-K dated
the year ended December 31, 1996 May 20, 1997
Statement of Revenue and Certain May 7, 1997 Current Report
Expenses of Rincon for the year on Form 8-K dated
ended December 31, 1996 May 20, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date of
-------
Financial Statements Auditor's Report Filing
-------------------- ---------------- ------
<S> <C> <C>
Statement of Revenue and Certain May 12, 1997 Current Report on
Expenses of Waterford at the Lakes Form 8-K dated
for the year ended December 31, May 20, 1997
1996
Statement of Revenue and Certain May 16, 1997 Current Report on
Expenses of Lincoln Harbour for Form 8-K dated
the year ended December 31, 1996 May 20, 1997
Combined Statement of Revenue and May 9, 1997 Current Report on
Certain Expenses of Knights Castle Form 8-K dated
and Club at the Green for the year May 20, 1997
ended December 31, 1996
Combined Statements of Revenue and March 25, 1997 Current Report on
Certain Expenses of the Form 8-K dated
Zell/Merrill Properties for each May 20, 1997
of the three years in the period
ended December 31, 1996
Combined Statement of Revenue and May 17, 1997 Current Report on
Certain Expenses of the 1996 Form 8-K, as amended
Acquired Properties and Probable by Form 8-K/A, dated
Properties for the year ended May 23, 1996
December 31, 1995
Combined Statement of Revenue and November 7, 1996 Current Report on
Certain Expenses for the 1996 Form 8-K, as amended
Acquired Properties for the year by Form 8-K/A, dated
ended December 31, 1995 November 15, 1996
Consolidated financial statements February 10, 1997 Joint Proxy Statement/
and schedule of Wellsford except for note 13, as Prospectus dated
Residential Property Trust at to which the date is April 25, 1997
December 31, 1996 and 1995 and for February 28, 1997
each of the three years in the period
ended December 31, 1996
Consolidated financial statements February 9, 1996 Current Report
and schedule of Wellsford on Form 8-K
Residential Property Trust dated March 17, 1997
at December 31, 1995 and 1994
and for each of the three years
in the period ended
December 31, 1995
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
</TABLE>
Chicago, Illinois
November 14, 1997
<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-4) and related Prospectus of Equity Residential
Properties Trust for the registration of 13,027,181 common shares and to the
incorporation by reference therein of our report dated January 31, 1997, with
respect to the consolidated financial statements and schedule of Evans
Withycombe Residential, Inc. and Subsidiaries included in Evans Withycombe
Residential, Inc.'s 1996 Annual Report (Form 10-K/A), as amended, for the year
ended December 31, 1996 and included in the Current Report on Form 8-K of Equity
Residential Properties Trust dated September 10, 1997, filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Phoenix, Arizona
November 14, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated February 14, 1996 accompanying the consolidated
financial statements of Equity Residential Properties Trust as of December 31,
1995 and for each of the two years in the period then ended. We consent to the
incorporation by reference of the above report in Amendment No. 2 to the
Registration Statement of Equity Residential Properties Trust on Form S-4, and
to the use of our name as it appears under the caption "Experts".
/s/ GRANT THORNTON LLP
----------------------
GRANT THORNTON LLP
Chicago, Illinois
November 14, 1997
