<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EQUITY RESIDENTIAL PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
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)
---------------
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)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest, par
value $.01 per share..................... 13,027,181 $ (2) $594,669,788 $180,203
- --------------------------------------------------------------------------------------------------
</TABLE>
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(1) Represents the estimated maximum number of shares of beneficial interest
to be issued in exchange for all of the issued and outstanding shares of
common stock of Evans Withycombe Residential, Inc. pursuant to a plan of
merger and estimated number of shares which may be issued in exchange for
units of limited partnership interest issued to holders of limited
partnership interests in Evans Withycombe Residential, L.P.
(2) Pursuant to Rule 457(f), the filing fee has been computed based on the
market value of the common shares of Evans Withycombe Residential, Inc. to
be exchanged in the merger, computed pursuant to Rule 457(c) using the
average of the high and low prices reported in the consolidated reporting
system ($24.9375) of such common shares as reported on the New York Stock
Exchange on September 15, 1997, and, as there is no market for units of
limited partnership interest in Evans Withycombe Residential, L.P., the
maximum aggregate offering price and filing fee with respect to shares
issuable in exchange for limited partnership units have been calculated
based on the aggregate book value as of June 30, 1997, of the limited
partnership units to be exchanged.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Preliminary Copy
LOGO
TWO NORTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
, 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 ,
1997, at 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 14 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 , 1997 at , .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 , 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
, 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>
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 , 1997, at .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 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.
. EQR is subject to the risks normally 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.
. 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 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.
<PAGE>
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
, 1997 at .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 , 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
, 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 , 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.
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 , 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 14. Such matters include:
. The ability of EQR to maintain the growth rate which it has experienced
since 1993.
. Adverse consequences normally 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.
. 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,
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 14 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.
. 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
<PAGE>
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
, 1997.
---------------
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 September , 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 , 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 January 16, 1997
2. EQR's current report on Form 8-K dated March 12, 1997
3. EQR's current report on Form 8-K dated March 17, 1997
4. EQR's current report on Form 8-K dated March 19, 1997
5. EQR's current report on Form 8-K dated March 20, 1997
6. EQR's current report on Form 8-K, dated March 24, 1997
7. EQR's annual report on Form 10-K for the year ended December 31, 1996
8. EQR's Amendment No. 1 to the annual report on Form 10-K for the year ended
December 31, 1996 dated April 3, 1997
9. EQR's current report on Form 8-K/A dated April 3, 1997
10. EQR's quarterly report on Form 10-Q dated for the quarter ended March 31,
1997
11. EQR's current report on Form 8-K dated May 23, 1996
12. EQR's current report on Form 8-K dated November 15, 1996
13. EQR's current report on Form 8-K/A dated May 23, 1996
14. EQR's current report on Form 8-K/A dated November 15, 1996
15. EQR's current report on Form 8-K dated May 16, 1997
16. EQR's current report on Form 8-K dated May 20, 1997
17. EQR's current report on Form 8-K dated May 30, 1997
18. EQR's current report on Form 8-K dated June 5, 1997
19. EQR's current report on Form 8-K dated June 9, 1997
20. EQR's current report on Form 8-K dated June 10, 1997
21. EQR's current report on Form 8-K dated June 23, 1997
22. EQR's quarterly report on Form 10-Q for the quarter ended June 30, 1997
23. EQR's current report on Form 8-K dated August 15, 1997
24. EQR's current report on Form 8-K dated August 27, 1997
25. EQR's current report on Form 8-K dated September 11, 1997
26. 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
27. The description of EQR Common contained in EQR's Registration Statement on
Form 8-A, as amended, dated August 10, 1993
28. EQR's Joint Proxy Statement/Prospectus dated April 25, 1997
29. EWR's current report on Form 8-K dated February 14, 1997
30. EWR's Amendment No. 1 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 11, 1997
31. EWR's Amendment No. 2 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 20, 1997
32. EWR's Amendment No. 3 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 25, 1997
33. EWR's Amendment No. 4 to the annual report on Form 10-K for the year ended
December 31, 1996, dated March 26, 1997
I-2
<PAGE>
34. EWR's proxy statement filed May 7, 1997
35. EWR's quarterly report on Form 10-Q for the quarter ended March 31, 1997
36. EWR's quarterly report on Form 10-Q for the quarter ended June 30, 1997
37. EWR's current report on Form 8-K dated August 26, 1997
38. EWR's current report on Form 8-K dated August 27, 1997
39. 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 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>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 14
Conflicts of Interest................................................... 14
Size and Rapid Growth of EQR............................................ 14
Decrease in Distributions Per Share to EWR Shareholders................. 14
Potential Change in Relative Stock Prices............................... 14
Termination Payments if Merger Fails to Occur........................... 14
Potential Adverse Effects of Combining the Companies.................... 14
Adverse Consequences of Debt Financing and Preferred Shares............. 15
Control and Influence by Significant Shareholders of EQR................
Potential Environmental Liability....................................... 16
General Real Estate Investment Considerations; Changes in Laws..........
Ownership Limit and Limits on Changes in Control........................
Consequences of Failure to Qualify as a REIT............................ 18
Dependence on Key Personnel............................................. 18
No Appraisal Rights under Maryland Law.................................. 18
Distribution Requirements Potentially Increasing Indebtedness of EQR.... 18
Exemptions for Mr. Zell and Others from Maryland Business Combination
Law which Tend to Inhibit Takeovers....................................
THE MEETINGS OF SHAREHOLDERS.............................................. 20
EQR..................................................................... 20
EWR..................................................................... 20
THE MERGER................................................................ 21
Terms of the Merger..................................................... 21
Transactions Relating to the ERP Operating Partnership.................. 21
Background of the Merger................................................ 22
Reasons for the Merger; Recommendation of the EQR Board of Trustees..... 24
Reasons for the Merger; Recommendation of the EWR Board of Directors.... 25
Opinion of Financial Advisor--EQR....................................... 27
Opinion of Financial Advisor--EWR....................................... 30
Effective Time of the Merger............................................ 33
Representations and Warranties; Conditions to the Merger................ 33
Appraisal Rights........................................................ 34
Regulatory Matters...................................................... 34
Termination Provisions.................................................. 34
Termination Fee and Expenses............................................ 34
No Solicitation of Other Transactions................................... 35
Conversion of Shares.................................................... 35
Appointment of Exchange Agent........................................... 35
Exchange of Certificates................................................ 36
Conduct of Business Pending the Merger.................................. 36
Limitations on the Sale or Refinancing of Certain Properties............ 37
Waiver and Amendment.................................................... 38
Stock Exchange Listing.................................................. 38
Anticipated Accounting Treatment........................................ 38
Shares Available for Resale............................................. 38
FEDERAL INCOME TAX CONSIDERATIONS......................................... 38
Federal Income Tax Consequences of Merger............................... 39
Qualification of EQR as a REIT.......................................... 39
Tax Aspect of EQR's Investments in Partnerships......................... 43
Taxation of Shareholders................................................ 44
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 47
Consulting Agreement.................................................... 47
Employment Agreement.................................................... 47
Senior Officers......................................................... 47
Change in Control Agreements............................................ 47
Restricted Share Grants................................................. 48
EWR Options............................................................. 48
EQR Options............................................................. 48
Unit Contribution Agreement............................................. 48
Sale of Stock........................................................... 48
EQR SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA AND OTHER
REQUIRED FINANCIAL STATEMENTS............................................ 49
POLICIES OF EQR WITH RESPECT TO CERTAIN ACTIVITIES........................ 61
MANAGEMENT AND OPERATION OF EQR AFTER THE MERGER.......................... 63
COMPARISON OF RIGHTS OF SHAREHOLDERS...................................... 64
LEGAL MATTERS............................................................. 67
EXPERTS................................................................... 67
SHAREHOLDER PROPOSALS..................................................... 68
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 herein)
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 herein); 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
June 30, 1997, EQR owned or had interests in a portfolio of 346 multifamily
properties containing 100,636 apartment units and managed approximately 9,573
additional units owned by affiliated entities. As of June 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 June 30, 1997, owned
approximately 91% of ERP Operating Partnership's outstanding partnership
interests (excluding preference units) ("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.
1
<PAGE>
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 June 30, 1997, EWR owned or had interests in a portfolio of 52
multifamily properties containing 15,443 apartment units (including communities
stabilized and under development) and managed 1,759 additional units owned by
affiliated entities. As of June 30, 1997, the properties EWR owned or had
interests in had an average occupancy rate of 87.7%. 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 August 31, 1997
owned approximately 81.7% 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.
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 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 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 units 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 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 shall be distributed to
the partners of EWRLP in complete liquidation of their partnership interests in
EWRLP.
2
<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.
100,636 15,443
Apartment Units** Apartment Units**
* Owns 1% as General Partner and 81% as a limited partner.
** As of June 30, 1997.
3
<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.
100,636 15,443
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 June 30, 1997.
4
<PAGE>
Post-Merger Transactions Structure
----------------------------------
Equity Residential Properties Trust Former Evans Withycombe
Public Shareholders Residential, Inc. Public Shareholders
Equity Residential
Properties Trust
Former Evans
ERP Operating Withycombe
Limited Partnership Residential, L.P.
Limited Partners Limited Partners
ERP
Operating
Limited Partnership
116,079
Apartment Units*
* As of June 30, 1997.
5
<PAGE>
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 $445,441,000 at June 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 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) of
$14 million and to reimburse EQR for Break-Up Expenses (as defined herein) 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."
6
<PAGE>
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."
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.
. The ability 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 normally 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.
. 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, 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.
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 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 shall 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
7
<PAGE>
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 shall expire on December
31, 2000, (iii) termination of Change in Control Agreements between EWR and
each of Messrs. Evans and Berry, (iv) amendments to the Change in Control
Agreements between EWR and six 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 shall be made in lieu of the vesting of employer
contributions to such executive's account in the EWR 401(k) plan, (d) the
definition of "change in control" in the Change in Control Agreements shall be
amended to refer only to the Merger of EWR into EQR and not to any future
transactions involving EQR, and for one officer of EWR, (e) payments of money
shall be made in lieu of the vesting of employer contributions to such
executive's account in the EWR 401(k) plan, (f) the definition of "change in
control" in the Change in Control Agreements shall be amended to refer only to
the Merger of EWR into EQR and not to any future transactions involving EQR and
(g) the officer's new position with EQR will not trigger payments under his
Change in Control Agreement and (v) EQR's agreement that 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.
Certain directors, executive officers and employees of EWR who hold options
to purchase shares of EWR Common will agree not to exercise such 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 become employees of EQR and 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 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 the Exchange Ratio. Each such option to
purchase shares of EQR Common shall 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 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.
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 , 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
8
<PAGE>
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."
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
The Merger is intended to qualify as a tax-free reorganization under Section
368(a) of the Code. For a more detailed discussion of certain U.S. Federal
income tax consequences of the Merger and certain other matters related
thereto, see "Federal Income Tax Considerations."
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."
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."
9
<PAGE>
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 ,
1997 at a.m., local time, at One North Franklin, Chicago, Illinois. Only
holders of record of EQR Common at the close of business on , 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 73,663,502 shares of EQR Common as
of the close of business on August 15, 1997, of which shares (or
approximately % of the outstanding shares of EQR Common) (excluding
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 ,
1997, at .m., Arizona time, at , Scottsdale, Arizona.
Only holders of record of EWR Common at the close of business on
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 20,372,163 shares of EWR
Common as of the close of business on August 27, 1997, of which 4,566,119
shares (or approximately 18.6% of the outstanding shares of EWR Common)
(excluding 974,297 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.
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 June 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.
10
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
OPERATING DATA: ---------------- -----------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES:
Rental Income............................... $ 345,664 $548,762
Fee and asset management.................... 3,340 7,906
Interest income-investment in mortgage
notes...................................... 8,011 12,819
Interest and other income................... 7,933 10,600
---------- --------
Total revenues.......................... 364,948 580,087
---------- --------
EXPENSES:
Property and maintenance.................... 85,194 152,333
Real estate taxes and insurance............. 34,451 52,249
Property management......................... 13,505 20,883
Fee and asset management.................... 1,569 3,837
Depreciation................................ 78,997 125,593
Interest:
Expense incurred.......................... 65,602 104,272
Amortization of deferred financing costs.. 1,220 4,242
General and administrative.................. 6,711 10,867
---------- --------
Total expenses.......................... 287,249 474,276
---------- --------
Income before gain on disposition of
properties, (loss) on early extinguishment
of
debt, extraordinary item and allocation to
Minority Interests......................... 77,699 105,811
Gain on disposition of properties.......... 8,885 22,402
(Loss) on early extinguishment of debt..... (1,500) --
---------- --------
Income before extraordinary item............ 85,084 128,213
Extraordinary Item:
Write-off of unamortized costs on
refinanced debt............................ -- (3,512)
---------- --------
Income before allocation to Minority
Interests.................................. 85,084 124,701
(Income) allocated to Minority Interests... (8,764) (12,844)
---------- --------
Net income.................................. 76,320 111,857
Preferred distributions..................... (20,939) (29,015)
---------- --------
Net income available to Common Shares....... $ 55,381 $ 82,842
========== ========
Net income per weighted average Common Share
outstanding................................ $ 0.84 $ 1.57
========== ========
Weighted average Common Shares outstanding.. 65,552 52,753
========== ========
<CAPTION>
PRO FORMA
JUNE 30, 1997
-------------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
(at end of period)
Real Estate, after accumulated depreciation. $5,197,061
==========
Total assets................................ $5,763,484
==========
Total debt.................................. $2,106,021
==========
Minority Interests.......................... $ 280,449
==========
Shareholders' Equity........................ $3,167,853
==========
</TABLE>
11
<PAGE>
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 September 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 (through September 12,
1997)................................... 53 47 1/8 .625
On September 12, 1997, the last reported sale price of a share of EQR Common
on the NYSE was $51 1/16 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 EQR Common on the NYSE was $50 3/8 per share. As of September 10,
1997, EQR's transfer agent reported 1,039 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
September 12, 1997.
<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 (through September 12,
1997)................................... 25 3/8 20 1/2 .38*
</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.
12
<PAGE>
On September 12, 1997, the last reported sale price of a share of EWR Common
on the NYSE was $25 1/8 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 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.
13
<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, (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 which shall expire on December 31, 2000, (iv)
amendments to certain Change in Control Agreements between EWR and certain of
its executive officers, (v) the right to exercise options to purchase shares
of EWR Common which right will be forfeited in exchange for a cash payment in
lieu thereof and (vi) EQR's agreement that 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 June 30, 1997, EQR will own or have
interests in and operate 398 properties, consisting of 116,079 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.
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), 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.
14
<PAGE>
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 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 (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 normally 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.
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
15
<PAGE>
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 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
16
<PAGE>
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 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.
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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 September 11,
1997, 14,079,800 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 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 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.
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 neither EQR nor 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."
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EXEMPTIONS FOR MR. ZELL AND OTHERS FROM MARYLAND BUSINESS COMBINATION LAW
WHICH TEND TO INHIBIT TAKEOVERS
Under the Maryland General Corporation Law, as amended ("MGCL"), certain
"business combinations" (including 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 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
, 1997, at a.m., local time, at One North Franklin, Chicago,
Illinois. Only shareholders of record of EQR Common at the close of business
on , 1997 will be entitled to vote at the EQR Special Meeting.
EQR had outstanding shares of EQR Common as of the close of
business on , 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 EQR, 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 $ ,
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 broker non-votes 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
, 1997, at .m., Arizona time, at , Scottsdale, Arizona.
Only shareholders of record of EWR Common at the close of business on
, 1997 will be entitled to vote at the EWR Special Meeting. EWR had
outstanding 20,372,163 shares of EWR Common as of the close of business on
August 27, 1997, of which 4,566,119 shares (or approximately 18.6% of the
outstanding shares of EWR Common) (excludes 974,297 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
EWR, 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 $ , 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 broker non-votes 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. 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.
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.
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.
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 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
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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.
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 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.
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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 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.
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(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.
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
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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;
(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.
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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. 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 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.
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 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
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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, 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 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
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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 other REIT
sectors 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.
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.
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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.
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.
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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.
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.
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%.
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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%.
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.
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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 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 , 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 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.
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APPRAISAL RIGHTS
Neither shareholders of EWR nor shareholders of EQR are not 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 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
hereinafter). 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 hereinafter). 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
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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) 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, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be
allocated between EQR and EWR.
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 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.
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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 is expected to 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 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 herein, 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
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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, (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 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)
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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.
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 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 CONSIDERATIONS
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, existing, 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 INCLUDED FOR GENERAL INFORMATION ONLY.
IT 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
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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 should
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;
(iv) the tax basis of the EQR Common received or deemed to be 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 was 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 United States IRS, and no assurance is or will be given
that the IRS would not adopt a contrary position or that the IRS position
would 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 should 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 to continue to meet the requirements for qualification and
taxation as a REIT under the Code.
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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 and 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 and 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.
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" (at both the corporate and
shareholder levels) 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
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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 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 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
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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 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
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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.
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
terminated partnership in liquidation of the terminated partnership, for the
continuation of the business by the new partnership. Neither EWRLP nor its
partners should recognize any taxable income upon the termination of EWRLP as
a result of the Merger. 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 the
contributed assets (including certain of the Contributed Properties). These
allocations will tend to eliminate the Book-Tax Difference 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 herein), 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 (to the extent that they do not
exceed EQR's actual net capital gain for the taxable year) 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
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received on such sale or other disposition and (ii) the holder's adjusted
basis in such shares of EQR Common for tax 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 should 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).
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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 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.
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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.
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.
CONSULTING AGREEMENT
EQR Properties Management LP, an affiliate of EQR, has entered into a
consulting agreement to be effective as of the Effective Time with Mr. Evans
which will expire on December 31, 1999 and will provide 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.
EMPLOYMENT AGREEMENT
EQR Properties Management LP has entered into an employment agreement to be
effective as of the Effective Time with Mr. Berry which will expire on
December 31, 2000 and will provide 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. Mr. Berry will also receive the
following benefits under his employment 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 participate.
SENIOR OFFICERS
Mr. J. Donald Couvillion, a Vice President of EWR, will be the Vice
President--Development of ERP. 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, Pusateri, O'Clair, 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,
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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 and Berry 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.
Fannin, 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. Fannin, Burnett, Peterson, Pusateri,
O'Clair and Lyon will receive cash payments under their Change in Control
Agreements of $546,000, $197,000, $206,300, $392,000, $246,990 and $190,000,
respectively. Mr. Fannin will receive an estimated additional payment of
$442,000 to offset any excise tax payment.
RESTRICTED SHARE GRANTS
Outstanding restricted share grants made to Messrs. Evans, Berry, Pusateri,
O'Clair, Fannin and other employees of EWR. In connection with the Merger, 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.
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:
$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 become employees of EQR or its subsidiaries and who
receive a cash payment in consideration for their agreement not to exercise
their outstanding options to purchase shares of EWR Common will receive a
nonqualified option to purchase a number of shares of EQR Common equal to 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.
48
<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 June 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.
49
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
OPERATING DATA:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES:
Rental Income............................... $ 345,664 $548,762
Fee and asset management.................... 3,340 7,906
Interest income-investment in mortgage
notes...................................... 8,011 12,819
Interest and other income................... 7,933 10,600
---------- --------
Total revenues.......................... 364,948 580,087
---------- --------
EXPENSES:
Property and maintenance.................... 85,194 152,333
Real estate taxes and insurance............. 34,451 52,249
Property management......................... 13,505 20,883
Fee and asset management.................... 1,569 3,837
Depreciation................................ 78,997 125,593
Interest:
Expense incurred.......................... 65,602 104,272
Amortization of deferred financing costs.. 1,220 4,242
General and administrative.................. 6,711 10,867
---------- --------
Total expenses.......................... 287,249 474,276
---------- --------
Income before gain on disposition of
properties, (loss) on early extinguishment
of debt, extraordinary item and allocation
to Minority Interests...................... 77,699 105,811
Gain on disposition of properties.......... 8,885 22,402
(Loss) on early extinguishment of debt..... (1,500) --
---------- --------
Income before extraordinary item............ 85,084 128,213
Extraordinary item:
Write-off of unamortized costs on
refinanced debt............................ -- (3,512)
---------- --------
Income before allocation to Minority
Interests.................................. 85,084 124,701
(Income) allocated to Minority Interests... (8,764) (12,844)
---------- --------
Net income.................................. 76,320 111,857
Preferred distributions..................... (20,939) (29,015)
---------- --------
Net income available to Common Shares....... $ 55,381 $ 82,842
========== ========
Net income per weighted average Common Share
outstanding................................ $ 0.84 $ 1.57
========== ========
Weighted average Common Shares outstanding.. 65,552 52,753
========== ========
<CAPTION>
PRO FORMA
JUNE 30, 1997
----------------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
(at end of period)
Real Estate, after accumulated depreciation. $5,197,061
==========
Total assets................................ $5,763,484
==========
Total debt.................................. $2,106,021
==========
Minority Interests.......................... $ 280,449
==========
Shareholders' Equity........................ $3,167,853
==========
</TABLE>
50
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
The Unaudited Pro Forma Combined Balance Sheet gives effect to the proposed
Merger of Equity Residential Properties Trust ("EQR") and Evans Withycombe
Residential, Inc. ("EWR") as if the Merger had occurred on June 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 June 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.
51
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA EQR
EQR EWR MERGER PRO FORMA
HISTORICAL HISTORICAL (A) ADJUSTMENTS (B) COMBINED
---------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Rental property, cost... $4,482,434 $803,861 $317,290 (C) $5,603,585
Less: Accumulated
Depreciation........... (357,599) (48,925) -- (406,524)
Rental property, net.... 4,124,835 754,936 317,290 5,197,061
Real Estate held for
disposition............ 3,947 -- -- 3,947
Construction in
progress............... -- 43 -- 43
Investment in mortgage
notes, net............. 174,764 15,120 (7,932)(D) 181,952
Cash and cash
equivalents............ 311,358 1,051 (69,068)(E) 243,341
Rents receivable........ 2,078 371 -- 2,449
Deposits-restricted..... 6,112 6,787 -- 12,899
Escrow deposits-
mortgage............... 28,698 1,731 -- 30,429
Deferred financing
costs, net............. 14,306 4,489 (4,489)(F) 14,306
Other assets............ 72,636 4,421 -- 77,057
---------- -------- -------- ----------
Total assets........ $4,738,734 $788,949 $235,801 $5,763,484
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.. $ 960,879 $277,231 $(15,166)(G) $1,222,944
Line of credit.......... -- 44,000 (44,000)(H) --
Notes, net.............. 754,508 124,210 4,359 (I) 883,077
Accounts payable and
accrued expenses....... 43,001 13,347 -- 56,348
Accrued interest
payable................ 22,210 2,860 -- 25,070
Due to affiliates....... 649 -- -- 649
Rents received in
advance and other
liabilities............ 31,844 870 -- 32,714
Security deposits....... 19,231 2,408 -- 21,639
Distributions payable... 64,506 8,235 -- 72,741
---------- -------- -------- ----------
Total liabilities... 1,896,828 473,161 (54,807) 2,315,182
---------- -------- -------- ----------
Commitments and
contingencies
Minority Interests...... 179,222 54,610 46,617 (J) 280,449
---------- -------- -------- ----------
Shareholders' equity:
Common shares......... 736 204 (102)(K) 838
Preferred shares...... 725,495 -- -- 725,495
Employee notes........ (5,202) -- -- (5,202)
Unamortized employee
restricted stock
compensation......... -- (1,104) 1,104 (L) --
Paid in capital....... 2,050,152 292,253 212,814 (M) 2,555,219
Distributions in
excess of accumulated
earnings............. (108,497) (30,175) 30,175 (N) (108,497)
---------- -------- -------- ----------
Total Shareholders'
Equity............. 2,662,684 261,178 243,991 3,167,853
---------- -------- -------- ----------
Total liabilities
and shareholders'
equity............. $4,738,734 $788,949 $235,801 $5,763,484
========== ======== ======== ==========
</TABLE>
52
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
The Unaudited Pro Forma Combined Statement of Operations for the six months
ended June 30, 1997 is presented as if the Merger 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 six months ended June
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.
53
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EQR
EQR EWR MERGER PRO FORMA
HISTORICAL HISTORICAL (O) ADJUSTMENTS COMBINED
---------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental Income.............. $290,799 $54,865 $ -- $345,664
Fee and asset management... 3,110 230 -- 3,340
Interest income-investment
in mortgage notes......... 8,011 -- -- 8,011
Interest and other income.. 4,404 3,529 -- 7,933
-------- ------- ------- --------
Total revenues......... 306,324 58,624 -- 364,948
-------- ------- ------- --------
EXPENSES
Property and maintenance... 70,760 14,434 -- 85,194
Real estate taxes and
insurance................. 29,667 4,784 -- 34,451
Property management........ 11,819 1,540 146 (P) 13,505
Fee and asset management... 1,569 -- -- 1,569
Depreciation............... 62,775 12,637 3,585 (Q) 78,997
Interest:
Expense incurred......... 50,924 14,948 (270)(R) 65,602
Amortization of deferred
financing costs......... 1,220 454 (454)(S) 1,220
General and administrative. 6,206 818 (313)(T) 6,711
-------- ------- ------- --------
Total expenses......... 234,940 49,615 2,694 287,249
-------- ------- ------- --------
Income before gain on
disposition of properties,
(loss) on early
extinguishment of debt and
allocation to Minority
Interests................... 71,384 9,009 (2,694) 77,699
Gain on disposition of
properties................ 3,632 5,253 -- 8,885
(Loss) on early
extinguishment of debt.... -- (1,500) -- (1,500)
-------- ------- ------- --------
Income before allocation to
Minority Interests.......... 75,016 12,762 (2,694) 85,084
(Income) allocated to
Minority Interests........ (6,345) (2,364) (55)(U) (8,764)
-------- ------- ------- --------
Net income................... 68,671 10,398 (2,749) 76,320
Preferred distributions...... (20,939) -- -- (20,939)
-------- ------- ------- --------
Net income available to
Common Shares............... $ 47,732 $10,398 $(2,749) $ 55,381
======== ======= ======= ========
Net income per weighted
average Common Share
outstanding................. $ 0.86 $ 0.52 $ 0.29 $ 0.84
======== ======= ======= ========
Weighted average Common
Shares outstanding.......... 55,385 19,810 (9,643)(V) 65,552
======== ======= ======= ========
</TABLE>
54
<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 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.
55
<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>
EQR PRO
EQR EWR MERGER FORMA
HISTORICAL HISTORICAL (W) ADJUSTMENTS COMBINED
---------- ------------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES
Rental Income............. $454,412 $ 94,350 $ -- $548,762
Fee and asset management.. 6,749 1,157 -- 7,906
Interest income-investment
in mortgage notes........ 12,819 -- -- 12,819
Interest and other income. 4,405 6,195 -- 10,600
-------- -------- ------- --------
Total revenues........ 478,385 101,702 -- 580,087
-------- -------- ------- --------
EXPENSES
Property and maintenance.. 127,172 25,161 -- 152,333
Real estate taxes and
insurance................ 44,128 8,121 -- 52,249
Property management....... 17,512 3,225 146 (X) 20,883
Fee and asset management.. 3,837 -- -- 3,837
Depreciation.............. 93,253 20,885 11,455 (Y) 125,593
Interest:.................
Expense incurred........ 81,351 23,460 (539)(Z) 104,272
Amortization of deferred
financing costs........ 4,242 765 (765)(AA) 4,242
General and
administrative........... 9,857 1,515 (505)(BB) 10,867
-------- -------- ------- --------
Total expenses........ 381,352 83,132 9,792 474,276
-------- -------- ------- --------
Income before gain on
disposition of properties,
extraordinary items and
allocation to Minority
Interests.................. 97,033 18,570 (9,792) 105,811
Gain on disposition of
properties................. 22,402 -- -- 22,402
-------- -------- ------- --------
Income before extraordinary
items...................... 119,435 18,570 (9,792) 128,213
Extraordinary item:.........
Write-off of unamortized
costs on refinanced debt... (3,512) -- -- (3,512)
-------- -------- ------- --------
Income before allocation to
Minority Interests......... 115,923 18,570 (9,792) 124,701
(Income) loss allocated to
Minority Interests......... (14,299) (4,010) 5,465 (CC) (12,844)
-------- -------- ------- --------
Net income.................. 101,624 14,560 (4,327) 111,857
Preferred distributions..... (29,015) -- -- (29,015)
-------- -------- ------- --------
Net income available to
Common Shares.............. $ 72,609 $ 14,560 $(4,327) $ 82,842
======== ======== ======= ========
Net income per weighted
average Common Share
outstanding................ $ 1.70 $ 0.84 $ 0.60 $ 1.57
======== ======== ======= ========
Weighted average Common
Shares outstanding......... 42,586 17,410 (7,243)(DD) 52,753
======== ======== ======= ========
</TABLE>
56
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(A) Certain reclassifications have been made to EWR's historical balance sheet
to conform to EQR's balance sheet presentation.
(B) Represents adjustments to record the Merger in accordance with the
purchase method of accounting, based upon the assumed purchase price of
$1,101,750 assuming a market value of $48.75 per share of EQR's common
shares, as follows:
<TABLE>
<S> <C>
Issuance of 10,167 and 2,276 EQR Common Shares and OP Units,
respectively, based on the .50 exchange rate, in exchange
for 20,335 and 4,551 EWR Common Shares and OP Units,
respectively................................................ $ 606,596
Assumption of EWR's liabilities.............................. 473,161
Adjustment to increase the assumed EWR debt to it's fair
value (see Note I).......................................... 4,359
Merger costs (see calculation below)......................... 17,634
----------
$1,101,750
==========
The following is a calculation of the estimated fees and other expenses
related to the Merger:
Employee termination costs................................... $ 1,915
Buyout of stock options...................................... 5,628
Investment Banking Fees...................................... 5,650
Legal and accounting fees.................................... 2,120
Other, including printing, filing, title and transfer costs.. 2,321
----------
Total estimated merger costs............................... $ 17,634
==========
(C)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 B).................................. $1,101,750
Less: Historical basis of EWR's net assets acquired
Rental property, net......................................... 754,936
Construction in progress..................................... 43
Investment in mortgage notes, net............................ 15,120
Cash and cash equivalents.................................... 1,051
Rents receivable............................................. 371
Restricted deposits.......................................... 6,787
Escrow deposits-mortgage..................................... 1,731
Other assets................................................. 4,421
----------
Step-up to record fair value of EWR's rental property........ $ 317,290
==========
(D)Decrease to Investment in mortgage notes reflects the receipt by EWR of $7.9
million mortgage note receivable on July 23, 1997.
(E)Decrease to Cash and cash equivalents reflects the following:
The expected payment for Merger costs (see Note B) and
registration costs (see Note M)............................. $ 17,834
Repayment of EWR's line of credit (see Note H)............... 44,000
Repayment of two of EWR's Mortgage notes payable in July,
1997 (see Note G)........................................... 15,166
The receipt of notes receivable (see Note D)................. (7,932)
----------
$ 69,068
==========
</TABLE>
57
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(F) Decrease due to elimination of EWR's deferred loan costs in connection
with the Merger.
(G) Decrease to Mortgage notes payable reflects the payoff of two of EWR's
mortgage notes payable totaling $15.2 million in July, 1997.
(H) Reflects the repayment of EWR's line of credit from EQR's cash balances.
(I) Increase to Notes, net reflects the premium required to adjust EWR's notes
to their estimated fair value.
(J) 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............. $3,448,302
Less: Preferred shares........................................ (725,495)
----------
$2,722,807
Minority Interests percentage ownership in ERP Operating
Partnership (see Note M)..................................... 10.3%
----------
Pro Forma Combined Minority Interests ownership in ERP
Operating Partnership........................................ 280,449
EQR historical Minority Interests ownership in ERP Operating
Partnership.................................................. (179,222)
EWR historical Minority Interests............................. (54,610)
----------
Adjustment to Minority Interests ownership in ERP Operating
Partnership.................................................. $ 46,617
==========
</TABLE>
(K) 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 B).
(L) Reflects the elimination of EWR's restricted stock as a result of the
Merger.
(M) Increase to paid in capital to reflect the following:
<TABLE>
<S> <C>
Issuance of EQR Common Shares and OP Units (see Note B)........ $ 606,596
Par value of common shares issued (see Note K)................. (102)
Registration costs incurred in connection with the Merger...... (200)
EWR's historical Paid in capital and Minority Interests........ (346,863)
Adjustment to Minority Interests ownership in ERP Operating
Partnership (see Note J)...................................... (46,617)
---------
$ 212,814
=========
</TABLE>
The 10.30% Minority Interests ownership in EQR, is calculated as follows:
<TABLE>
<S> <C> <C>
SHARES UNITS
------ ------
EWR's historical Shares outstanding........................ 20,335 24,886
====== ======
EQR's Shares/Units to be issued based on the .50 Merger
exchange ratio............................................ 10,167 12,443
EQR's historical Shares/Units outstanding.................. 73,633 80,953
------ ------
EQR's proforma Shares/Units outstanding.................... 83,800 93,396
====== ======
EQR ownership percentage of ERP Operating Partnership...... 89.7%
======
Minority Interests ownership percentage of ERP Operating
Partnership............................................... 10.3%
======
</TABLE>
(N) Reflects the elimination of EWR's distribution in excess of accumulated
earnings to paid in capital, as a result of the Merger.
58
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(O) Certain reclassifications have been made to EWR's Historical Statement of
Operations to conform to EQR's Statement of Operations presentation.
(P) Increase results from additional costs expected to be incurred as a result
of the Merger.
(Q) 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 June
30, 1997 is as follows:
<TABLE>
<S> <C>
Historical basis of EWR's rental property.................... $ 754,936
Plus: Step up to EWR's rental property, net (see Note C)..... 317,290
----------
Pro forma basis of EWR's rental property at fair value....... 1,072,226
Less: Fair value allocated to land........................... (107,223)
----------
Pro forma basis of EWR's depreciable rental property at fair
value....................................................... $ 965,004
==========
Calculation of depreciation of rental property for the six months ended June
30, 1997 is as follows:
Depreciation expense based upon an estimated useful life of
approximately 30 years...................................... $ 16,083
Less: EWR's historic depreciation of rental property......... (12,498)
----------
Pro forma adjustment......................................... $ 3,585
==========
</TABLE>
(R) Decrease results from the amortization of the premium required to record
EWR's debt at its estimated fair value.
(S) Decrease results from the elimination of amortization of EWR's deferred
financing costs, which costs would be eliminated in connection with the
Merger.
(T) Decrease results from operating efficiencies expected to occur as a result
of the Merger.
(U) 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.
(V) 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.
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EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(W) Certain reclassifications have been made to EWR's Historical Statement of
Operations to conform to EQR's Statement of Operations presentation.
(X) Increase results from additional costs expected to be incurred as a result
of the Merger.
(Y) 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
December 31, 1996 is as follows:
<TABLE>
<S> <C>
Historical basis of EWR's rental property..................... $ 754,936
Plus: Step up to EWR's rental property, net (see Note C)...... 317,290
----------
Pro forma basis of EWR's rental property at fair value........ 1,072,226
Less: Fair value allocated to land............................ (107,223)
----------
Pro forma basis of EWR's depreciable rental property at fair
value........................................................ $ 965,004
==========
</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........................................ $ 32,167
Less: EWR's historic depreciation of rental property........... (20,172)
--------
Pro forma adjustment........................................... $ 11,455
========
</TABLE>
(Z)Decrease results from the amortization of the premium required to record
EWR's debt at its estimated fair value.
(AA) Decrease results from the elimination of amortization of EWR's deferred
financing costs, which costs would be eliminated in connection with the
Merger.
(BB) Decrease results from operating efficiencies expected to occur as a result
of the Merger.
(CC) 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.
(DD) 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.
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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
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<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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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.
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 Article of the Annotated Code of Maryland
("Title 8"), the EQR Declaration and EQR Bylaws. After the Merger the EWR
Common Shareholders will be subject to the EQR Declaration, 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, and (vi) 2,300,000
shares of Series F Cumulative Redeemable 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 25% of all the votes entitled
to be cast at such meeting.
BOARD OF DIRECTORS/TRUSTEES
The EWR Bylaws state that pursuant to the Articles of EWR the directors of
EWR shall be 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 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 for 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.
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
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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.
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 EWR Bylaws and EQR Bylaws both contain provisions stating that the
restrictions regarding Control Shares will not apply to any acquisition of its
shares by any person.
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 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 constitute excess shares
("Excess Shares"), which will be transferred by operation of law to EQR as
trustee for the exclusive benefit of the person or persons to whom the Excess
Shares are
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ultimately transferred, until such time as the intended transferee retransfers
the Excess Shares. While these Excess Shares are held in trust, they will not
be entitled to vote or to share in any distributions (except upon
liquidation). Subject to the Ownership Limit, the Excess Shares may be
retransferred by the intended transferee to any person (if the Excess Shares
would not be Excess Shares in the hands of such person) at a price not to
exceed the price paid by the intended transferee or, if the intended
transferee did not give value for such Excess Shares (e.g., a transfer by gift
or devise), the fair market value (as described below) at the time of the
purported transfer that resulted in the Excess Shares, at which point the
Excess Shares will automatically be exchanged for the shares of beneficial
interest to which the Excess Shares are attributable. In addition, such Excess
Shares held in trust are subject to purchase by EQR at a purchase price equal
to the lesser of the price paid for the Excess Shares in the transaction that
created such Excess Shares (or, in the case of a devise or gift, the fair
market value at the time of such devise or gift) and the fair market value of
the EQR Preferred or EQR Common to which such Excess Shares relate on the date
EQR exercises its right to purchase. Fair market value will be the last sales
price of such shares of beneficial interest reported on the NYSE on the
trading day immediately preceding the relevant date, or if not then traded on
the NYSE, the last reported sales price of such shares of beneficial interest
on the trading day immediately preceding the relevant date as reported on any
exchange or quotation system over which such shares of beneficial interest may
be traded, or if not then traded over any exchange or quotation system, then
the fair market value of such shares of beneficial interest on the relevant
date as determined in good faith by the EQR Board of Trustees. EQR's right to
purchase shall be for a period of 90 days after the later of the date of the
purported transfer which resulted in the Excess Shares and the date the EQR
Board of Trustees determines in good faith that such a transfer has occurred.
From and after the intended transfer to the intended transferee of the Excess
Shares, the intended transferee will cease to be entitled to distributions
(except upon liquidation), voting rights and other benefits with respect to
such shares except the right to payment of the purchase price for the shares
or the retransfer of shares as provided above. Any distribution paid to a
proposed transferee on Excess Shares prior to the discovery by EQR that such
shares of beneficial interest have been transferred in violation of the
provisions of EQR's Declaration will be repaid to EQR upon demand. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulation, then the intended
transferee of any Excess Shares may be deemed, at the option of EQR, to have
acted as an agent on behalf of EQR in acquiring such Excess Shares and to hold
such Excess Shares on behalf of EQR.
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.
66
<PAGE>
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 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,
the Maryland REIT Law 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. The
Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes. There is no such requirement
for Maryland corporations 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 11, 1997; the consolidated financial statements of
Wellsford Residential Properties 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; the Combined Statement of Revenue and Certain
Expenses for the year ended December 31, 1995 of the 1996 Acquired Properties
and Probable Properties, appearing in the Current Report of EQR on Form 8-K,
as amended by Form 8-K/A, dated May 23, 1996; the Combined Statement of
Revenue and Certain Expenses for the year ended December 31, 1995 of the 1996
Acquired Properties, appearing in the Current Report of EQR on Form 8-K, as
amended by Form 8-K/A, dated November 15, 1996; the Combined Statements of
Revenue and Certain Expenses of certain of the properties either acquired or
which may be acquired in 1997 for the three years in the period ended December
31, 1996 and the Statements of Revenue and Certain Expenses of certain other
properties acquired in 1997 for the year ended December 31, 1996, each of
which appear in the Current Report of EQR on Form 8-K, dated May 20, 1997; and
the Statements of Revenue and Certain Expenses of certain properties acquired
in 1997 for the year ended December 31, 1996, in the Current Report of EQR on
Form 8-K, dated August 15, 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.
67
<PAGE>
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.
68
<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
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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.
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(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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<PAGE>
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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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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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>
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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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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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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;
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<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
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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,
officers and shareholders for money damages except for liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) acts or omissions established by final judgment as involving
active and deliberate dishonesty and being material to the matter giving rise
to the proceeding. The Declaration of Trust of EQR, as general partner of ERP,
includes such a provision eliminating such liability to the maximum extent
permitted by Maryland law.
The Maryland REIT law, effective October 1, 1994, permits a Maryland 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. In accordance with the MGCL, the bylaws of EQR require
it to indemnify (a) any present or former trustee, officer or shareholder of
any individual who, while a trustee, officer or shareholder, served or is
serving as a trustee, officer, director, shareholder or partner or otherwise,
in the defense of a proceeding to which he was made a party by reason of
service in such capacity, against reasonable expenses incurred by him in
connection with the proceeding, (b) any present or former trustee or officer
or any individual who, while a trustee or officer served or its serving as a
trustee, officer, director, shareholder or partner of another entity at EQR's
express request against any claim or liability to which he may become subject
by reason of service in such capacity unless it is established that (i) his
act or omission was material to the matter giving rise to the proceeding and
was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) he actually received an improper personal benefit in money,
property or services or (iii) in the case of a criminal proceeding, he had
reasonable cause to believe that his act or omission was unlawful and (c) any
present or former shareholder against any claim or liability to which he may
become subject by reason of such status. In addition, EQR's bylaws require it
to pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a present or former trustee, officer or
shareholder or any individual who, while a trustee, officer or shareholder,
served or is serving as a trustee, officer, director, shareholder or partner
of another entity at EQR's express request made a party to a proceeding by
reason of such status, however, 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 reimburse 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 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 the
trustees and officers such other and further indemnification or payment or
reimbursement of expenses to the fullest extent permitted by Section 2-418 of
the MGCL for directors of Maryland corporations.
Insofar as indemnification for liabilities arising under the Securities Act
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
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<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
8.4* Opinion of Gibson, Dunn & Crutcher LLP regarding REIT qualifi-
cations of EWR
</TABLE>
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<TABLE>
<CAPTION>
<C> <S> <C>
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 Form of 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>
- -------
*To be filed by amendment
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;
(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.
II-2
<PAGE>
(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 REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 18TH DAY OF SEPTEMBER 1997.
EQUITY RESIDENTIAL PROPERTIES TRUST
/s/ Douglas Crocker II
By: _____________________________________
Douglas Crocker II
President, Chief Executive Officer and
Trustee
S-1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW, HEREBY CONSTITUTES AND APPOINTS DOUGLAS CROCKER II, DAVID NEITHERCUT AND
BRUCE C. STROHM, OR ANY OF THEM, HIS OR HER ATTORNEYS-IN-FACT AND AGENTS, WITH
FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER IN ANY AND ALL
CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS OR POST-EFFECTIVE AMENDMENTS TO THIS
REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND
OTHER DOCUMENTS IN CONNECTION THEREWITH OR IN CONNECTION WITH THE REGISTRATION
OF THE SECURITIES UNDER THE EXCHANGE ACT, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO EACH OF SUCH ATTORNEYS-IN-FACT AND AGENTS FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY IN CONNECTION WITH SUCH MATTERS AS FULLY TO ALL INTENTS AND PURPOSES
AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT
EACH OF SUCH ATTORNEYS-IN-FACT AND AGENTS OR HIS SUBSTITUTE OR SUBSTITUTES MAY
LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Samuel Zell Chairman of the Board of September 18, 1997
____________________________________ Trustees
Samuel Zell
/s/ Douglas Crocker II President, Chief Executive September 18, 1997
____________________________________ Officer and Trustee
Douglas Crocker II
/s/ David J. Neithercut Executive Vice President and September 18, 1997
____________________________________ Chief Financial Officer
David J. Neithercut
/s/ Michael J. McHugh Senior Vice President, Chief September 18, 1997
____________________________________ Accounting Officer and
Michael J. McHugh Treasurer
Trustee September , 1997
____________________________________
John W. Alexander
/s/ Henry H. Goldberg Trustee September 18, 1997
____________________________________
Henry H. Goldberg
/s/ Errol R. Halperin Trustee September 18, 1997
____________________________________
Errol R. Halperin
/s/ James D. Harper, Jr. Trustee September 18, 1997
____________________________________
James D. Harper, Jr.
Trustee September , 1997
____________________________________
Edward Lowenthal
Trustee September , 1997
____________________________________
Jeffrey H. Lynford
/s/ Sheli Z. Rosenberg Trustee September 18, 1997
____________________________________
Sheli Z. Rosenberg
/s/ Gerald A. Spector Trustee September 18, 1997
____________________________________
Gerald A. Spector
Trustee September , 1997
____________________________________
Barry S. Sternlicht
/s/ B. Joseph White Trustee September 18, 1997
____________________________________
B. Joseph White
</TABLE>
S-2
<PAGE>
EXHIBIT 10.1
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (this "Agreement") is dated August 27, 1997 by
and between EQUITY RESIDENTIAL PROPERTIES MANAGEMENT LIMITED PARTNERSHIP, an
Illinois limited partnership ("ERPM"), and STEPHEN O. EVANS ("Consultant").
R E C I T A L S:
- - - - - - - -
A. Consultant is currently an employee and owner of a direct and indirect
equity interest in Evans Withycombe Residential, Inc., a Maryland corporation
("EWR"), or Evans Withycombe Residential, L.P. ("EWR Partnership").
B. Concurrently with the execution and delivery of this Agreement, EWR
and Equity Residential Property Trust, a Maryland real estate investment trust
("EQR") and an affiliate of ERPM, are entering into an Agreement and Plan of
Merger ("Merger Agreement"), pursuant to which EWR shall merge with and into EQR
(the "Merger").
C. As a result of Consultant's equity interest in EWR and EWR
Partnership, Consultant will realize certain benefits as a result of the Merger.
D. As an inducement for EQR to enter into the Merger Agreement,
Consultant agrees to terminate certain agreements previously entered into with
EWR and/or its affiliates, all on the terms and conditions set forth in this
Agreement.
E. ERPM desires to retain the services of Consultant, effective as of the
time the Merger is consummated (the "Effective Time"), all on the terms and
conditions set forth in this Agreement, and Consultant desires to provide such
services.
F. As an inducement for Consultant to terminate the Change In Control
Agreement (as hereinafter defined), ERPM desires to provide certain benefits to
Consultant pursuant to this Agreement.
Agreements
----------
In consideration of the covenants and mutual agreements set forth below and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Effective Time. This Agreement shall not become effective unless and
until the Effective Time occurs.
<PAGE>
2. Consulting Services. Effective as of the Effective Time, ERPM agrees
to retain Consultant to provide consultative services, and Consultant agrees to
be so retained by ERPM, all on the terms and conditions hereinafter set forth.
3. Term. Subject to the early termination provisions contained in
Sections 9, 10 and 11 hereof, the term of this Agreement shall be for a period
commencing on the date the Effective Time occurs and ending on December 31,
1999. The period during which this Agreement is in effect is referred to herein
as the "Term".
4. Duties. During the Term, Consultant shall serve as Executive Vice
President-Strategic Investments of EQR. During the Term, Consultant shall
provide consulting services to the President and other senior executive officers
of EQR with respect to the strategic investments of EQR and its subsidiaries.
During the Term, Consultant shall devote such time as is reasonably necessary to
perform the services required of him hereunder.
5. Base Compensation. ERPM shall pay Consultant for all services
rendered by him under this Agreement during the Term, a fee at the rate of
$225,000 per annum, payable not less frequently than monthly. Such fee shall
not be subject to review or increase during the Term.
6. Benefits. In addition to the fee provided for in Section 5 hereof,
Consultant shall be entitled to the following additional benefits during the
Term:
(a) Effective as of the Effective Time, Consultant shall be awarded
an option to purchase 115,500 common shares of beneficial
interest of EQR ("EQR Common Shares"), subject to the terms and
conditions of EQR's Second Amended and Restated 1993 Share Option
and Share Award Plan, which options shall vest in three equal
installments on the first, second and third anniversaries of the
date of grant and shall have an exercise price equal to the
closing price of an EQR Common Share on the date the Effective
Time occurs.
(b) Commencing February, 1998, Consultant shall be eligible for
consideration for an award of an option to purchase EQR Common
Shares under EQR's Second Amended and Restated 1993 Share Option
and Share Award Plan.
(c) ERPM shall pay to Consultant a bonus equal to the bonus he would
have received for calendar year 1997 under the Employment
Agreement dated August 17, 1994 between Consultant, EWR and Evans
Withycombe Management, Inc., as amended by Amendment No. 1
thereto dated as of July 1, 1997 (the "Old Employment
Agreement"), payable in that number of EQR Common Shares equal to
the number of shares of EWR which would have been issued in
payment of such bonus but for this Agreement
2
<PAGE>
and the occurrence of the Merger multiplied by the Exchange Ratio
(as defined in the Merger Agreement). Such bonus shall be
payable by ERPM at the same time as such bonus would have been
payable under the Old Employment Agreement but for this Agreement
and the occurrence of the Merger.
(d) Effective for the year beginning January 1, 1998, Consultant
shall be eligible for a bonus award for services rendered during
the Term of up to 50% of his base compensation pursuant to EQR's
Incentive Compensation Plan, such bonus to be 37-1/2% of such
base compensation if the annual target is achieved. Fifty percent
of any such bonus shall be paid to Consultant in cash and the
balance shall be paid in EQR Common Shares which shall be subject
to forfeiture if Consultant is not employed by ERPM or an
affiliate of ERPM on the second anniversary of the date of the
award (the "Bonus Restricted Shares").
(e) Consultant shall be entitled to participate in any additional
employee benefit plans of ERPM for persons in comparable
positions for which Consultant is eligible (treating Consultant
as an employee for purposes of determining such eligibility) and
in accordance with and subject to the terms of such plans,
including deferred compensation plans, stock option plans, group
health insurance and retirement plans but excluding any severance
plans or policies (it being understood that Consultant is
entitled to severance as provided in Section 10(c) of this
Agreement).
(f) Consultant shall not be required to perform services hereunder
for five weeks in each period ending on an anniversary of the
date of this Agreement. ERPM shall continue to pay the base fee
to Consultant during the period of such vacation.
With respect to each employee benefit plan of EQR and its affiliates,
Consultant's services with EWR or any EWR Subsidiary (as defined in the Merger
Agreement) shall be included for purposes of determining eligibility to
participate, vesting (if applicable) and entitlement to benefits.
7. Expense Reimbursement. ERPM shall reimburse Consultant for all
reasonable and customary travel and other business expenses incurred by
Consultant in carrying out his duties under this Agreement promptly following
ERPM's receipt of the documentation then required under ERPM's expense
reimbursement policy.
8. No Withholding. Unless otherwise required by law, no compensation
payable to Consultant shall be reduced by Social Security or income taxes.
3
<PAGE>
9. Termination Due to Death or Disability.
(a) This Agreement shall terminate in the event of Consultant's death.
In such event, ERPM shall pay to Consultant's legal representative Consultant's
fees earned but unpaid through the date of Consultant's death and all other
benefits that were earned by Consultant and which had vested at the time of
Consultant's death, payable in accordance with the terms of the plans under
which such benefits accrued. In addition, Consultant shall be entitled to the
Pro Rata Bonus (as hereinafter defined), payable at the same time as the annual
bonus for the year in which this Agreement is terminated would have been paid to
Consultant had this Agreement remained in force and effect. As used herein,
"Pro Rata Bonus" means the annual bonus which would have been payable to
Consultant had this Agreement remained in effect for the calendar year in which
this Agreement is terminated multiplied by a fraction, of which the numerator is
the number of days in such calendar year prior to the date this Agreement was
terminated and the denominator is 365.
(b) ERPM may terminate this Agreement if Consultant shall be prevented
from properly performing his duties hereunder, or is reasonably expected to be
prevented from properly performing his duties hereunder, by reason of any
physical or mental incapacity for a period of 120 consecutive working days or
for periods aggregating 180 working days within a one year period. ERPM shall
give Consultant 30 days' advance notice of termination if the termination occurs
as a result of an illness, injury or infirmity which is reasonably expected to
render Consultant unable to perform his duties hereunder for the period provided
above.
If ERPM and Consultant do not agree that Consultant is suffering from an
illness, injury or infirmity which is reasonably expected to prevent Consultant
from properly performing his duties hereunder for the aforesaid period, then
ERPM and Consultant (or Consultant's representative if Consultant is unable to
act) shall together select a licensed physician who shall, within thirty (30)
days from the date upon which he or she is selected, make a conclusive
determination as to whether or not Consultant is suffering from a permanent
disability. In the event that the parties are unable to agree upon the
selection of a physician, Consultant (or Consultant's representative if
Consultant is unable to act) and ERPM shall each separately select, within
fifteen (15) days from the date such disagreement arises, a licensed physician.
Together, the physicians so selected shall designate a third licensed physician
who shall, within fifteen (15) days from the date of his selection, make the
conclusive determination as to whether or not Consultant is suffering from a
permanent disability.
In the event of a termination due to disability, Consultant shall receive
such disability benefits as are paid generally to employees of ERPM at his
position under the policies of ERPM in effect at the time of the termination of
this Agreement. In addition, Consultant shall be entitled to Pro Rata Bonus,
payable at the same time the annual bonus for the year in which this Agreement
is terminated would have been paid to Consultant had this Agreement remained in
force and effect.
4
<PAGE>
10. Other Termination by ERPM.
(a) In addition to the termination of this Agreement pursuant to
Section 9, ERPM shall have the right to terminate this Agreement effective upon
delivery to Consultant of written notice of termination stating the basis for
such termination as being either:
(i) for "Cause", which shall be defined as any of the following:
(A) Consultant wilfully and continually fails to
substantially perform his duties under this Agreement
(other than due to his death or incapacity due to
accident or physical or mental illness);
(B) Consultant breaches any of his covenants in Sections
12, 13 or 14 or his representations in Section 15;
(C) Consultant engages in an act of dishonesty constituting
a felony and which results or is intended to result
directly or indirectly in his gain or personal
enrichment at the expense of ERPM;
(D) Consultant is convicted of a felony or of any crime
involving moral turpitude, fraud, theft or conversion;
(E) Consultant fails or refuses to submit to a medical
examination for the sole purpose of determining whether
Consultant is disabled pursuant to Section 9 within ten
(10) days after ERPM delivered a written request for
such examination to Consultant; or
(ii) without "Cause".
(b) Upon a termination of this Agreement by ERPM for Cause, ERPM shall
have no further obligation to Consultant under this Agreement, except to pay his
base fee through the date of termination of this Agreement and any other
benefits that have fully accrued and vested but have not been paid as of the
date of such termination, which shall be payable in accordance with the terms of
the plans under which such benefits accrued.
(c) Upon a termination of this Agreement by ERPM without Cause or by
Consultant for Good Reason (as defined in Section 11(a) hereof), ERPM shall have
no further obligation to Consultant under this Agreement, except (A) to pay an
amount equal to the base
5
<PAGE>
fee which would otherwise have been payable to Consultant for the balance of the
Term, payable in the same manner as such fee would have been paid to Consultant
had this Agreement not been terminated, (B) to pay the bonus which Consultant
would have received for the balance of the Term had this Agreement remained in
force and effect, assuming for this purpose that each annual bonus were the same
amount as the annual bonus for the year in which this Agreement terminated, (C)
to provide continuing participation in all group medical, dental and
hospitalization insurance plans in which Consultant participated at the time of
termination of this Agreement, (D) all Bonus Restricted Shares shall vest
immediately, and (E) any other benefits that have fully accrued and vested but
have not been paid as of the date of termination of this Agreement, shall be
payable in accordance with the terms of the plans under which such benefits
accrued.
11. Termination by Consultant. Consultant may terminate this Agreement by
providing ERPM with a written notice of termination at least one hundred twenty
(120) days prior to the effective date of such termination in the case of a
termination other than for Good Reason (as defined below) or sixty (60) days
prior to the effective date of such termination in the case of a termination for
Good Reason. As used herein, "Good Reason" shall mean (a) a substantial adverse
alteration in Consultant's status, position or responsibilities, (b) a reduction
in Consultant's base fee or any failure to pay Consultant any fees or benefits
to which he is entitled within five days after notice of such failure is given
to ERPM by Consultant, (c) the material breach by ERPM of any of its agreements
set forth in Sections 2, 5 and 6 hereof which continues unremedied for a period
of thirty (30) days after receipt by the general partner of ERPM of a written
demand for performance by Consultant, which written demand specifically
identifies in reasonable detail the manner in which Consultant believes that
ERPM has not performed its obligations, (d) ERPM requires Consultant to be based
at any place outside a 30-mile radius from Scottsdale, Arizona, except for
reasonably required travel on business of ERPM and its affiliates. If Consultant
terminates this Agreement for Good Reason, Consultant shall be entitled to the
payments and benefits provided for in Section 10(c). If Consultant terminates
this Agreement without Good Reason, ERPM shall have no further obligation to
Consultant except to pay (i) Consultant's fees earned but unpaid through the
date of termination of this Agreement, and (ii) all other benefits that were
earned by Consultant and had vested at the time of such termination, payable in
accordance with the terms of the plans under which such benefits accrued.
12. Competition.
(a) At all times during the Term (the "Non-Compete Period"),
Consultant shall be prohibited from engaging in Competition (as defined in
subsection 12(b) below) with ERPM or its affiliates. As used in this Agreement,
an "affiliate" of ERPM means any corporation or other entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with ERPM.
6
<PAGE>
(b) The term "Competition" for purposes of this Agreement shall mean
Consultant's taking any of the following actions: engaging in or carrying on,
directly or indirectly whether as advisor, agent, principal, partner, officer,
director, employee or stockholder, associate or consultant of or to any person,
partnership, corporation or any other business entity which is engaged in the
development, construction, acquisition or management of multifamily apartment
properties in North America (i.e., the United States, Canada or Mexico).
Notwithstanding the foregoing, the term "Competition" shall exclude (a)
Consultant's ownership interest as of the date of this Agreement in those
multifamily apartment properties which were not contributed to EWR at the time
of EWR's initial public offering of common shares to the public pursuant to a
registration statement filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, and (b) ownership of not
more than 2% of the outstanding shares of an entity which is traded on a
national stock exchange or in the over-the-counter market.
(c) Consultant acknowledges that, as a senior consultant to ERPM,
Consultant will be involved, on a high level, in the development, implementation
and management of ERPM's national business strategies and plans, including those
which involve ERPM's finances, research, marketing, planning, operations and
property acquisitions. By virtue of the Consultant's unique and sensitive
position and special background, employment of the Consultant by a competitor of
ERPM represents a serious competitive danger to ERPM, and the use of
Consultant's talent and knowledge and information about ERPM's business
strategies can and would constitute a valuable competitive advantage over ERPM.
(d) Consultant acknowledges that he has carefully read and considered
all of the terms of this Agreement, including particularly the terms of this
Section 12 and of Sections 13 and 14 hereof, that ERPM and its affiliates have
made a substantial investment in their business and that the restrictions
provided in this Section 12 and the following Sections 13 and 14 hereof are
reasonable and necessary for ERPM's protection. Consultant further acknowledges
that damages at law will not be a measurable or adequate remedy for breach of
the covenants contained in this Section 12 or in Sections 13 and 14 hereof and,
accordingly Consultant consents to the entry by any court of competent
jurisdiction of any order enjoining him from violating any such covenants,
without bond but upon due notice. The parties hereto further agree that if, in
any judicial proceeding, a court should refuse to enforce any covenants set
forth in this Section 12 or in Sections 13 and 14 hereof because of their term
or geographical scope, then such covenants shall be deemed to be modified to
permit their enforcement to the maximum extent permitted by law.
13. Confidentiality. Consultant acknowledges that during the course of
this Agreement, he will obtain knowledge of and access to confidential
proprietary information of ERPM and its affiliates (hereinafter referred to as
the "Confidential Information"). Such Confidential Information includes
confidential records, data, formulae, sales strategy, and other confidential and
proprietary information of ERPM and its affiliates. Consultant acknowledges
that the disclosure of any Confidential Information in contravention of this
Section 13 would do irreparable damage to ERPM and its affiliates. Consultant
accordingly agrees that, unless
7
<PAGE>
otherwise authorized by written instrument signed by an officer of ERPM, he will
not at any time, in any manner whatsoever, except in the regular course of
performing his duties as a consultant to ERPM, use for himself or others, or
disclose, reveal or divulge to anyone, any of the Confidential Information.
"Confidential Information" shall not include any information which now or
hereafter (a) is or becomes generally known to the public other than as a result
of breach of this Section 13 or other similar confidentiality covenant, or (b)
is or becomes readily available from or actually acquired from third parties who
are not employees of ERPM or an affiliate of ERPM and who did not acquire such
information as a result of a breach of this Section 13 or other similar
confidentiality covenant.
14. Covenant Restricting Solicitation. Consultant shall not, directly or
indirectly, solicit, attempt to solicit for employment or employ any employee of
ERPM or any affiliate of ERPM at any time during the Term and the one year
period ending on the first anniversary of the date of the expiration or
termination of the Term.
15. Certain Representations. Each party represents and warrants to the
other party that (i) such party is free to enter into this Agreement, and (ii)
this Agreement does not violate the terms of any agreement, instrument,
covenant, order or decree to which such party is bound.
16. Certain Provisions to Survive. The provisions of Sections 9(b), 10,
11, 12, 13, 14 and 16 shall survive the expiration or termination of this
Agreement as to obligations which accrued prior to such expiration or
termination.
17. Waiver. Failure by either party to insist upon strict compliance with
any of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or remedy hereunder at any one or more times be deemed a waiver or
relinquishment of such right or remedy at any other time or times.
18. Other Agreements. ERPM and Consultant do hereby acknowledge that:
(a) The Change in Control Agreement dated June 18, 1997 by and between
Consultant and EWR (the "Change in Control Agreement") shall terminate as of the
Effective Time. Consultant hereby waives any rights he may have under the
Change in Control Agreement as a result of such termination.
(b) Except as otherwise provided in Section 6(c) of this Agreement,
the Old Employment Agreement shall terminate effective as of the Effective Time.
Consultant hereby waives any rights he may have under Section 7 of the Old
Employment Agreement as a result of such termination.
8
<PAGE>
19. Severability. Each section, paragraph, term and provision of this
Agreement, and any portion thereof, shall be considered severable. If for any
reason any such portion of this Agreement is held to be invalid, contrary to, or
in conflict with any applicable present or future law or regulation in a final,
unappealable ruling issued by a court, agency or tribunal with competent
jurisdiction in a proceeding to which ERPM is a party, that ruling shall not
impair the operation of, or have any other effect upon, any other portions of
this Agreement, which shall continue to be given full force and effect. If any
provisions hereof shall be adjudicated to be invalid or unenforceable in whole
or in part, such modifications made to this Agreement as a result of such
adjudication shall be effective only in the particular jurisdiction in which
such adjudication is made. To the extent any provision hereof is deemed
unenforceable by virtue of its scope but may be made enforceable by limitations
thereon, the parties agree that the same shall be enforceable to the fullest
extent permissible under the laws and public policies applied in such
jurisdiction in which the enforcement is sought. The parties hereby authorize
any court of competent jurisdiction to modify the restrictive covenants to the
extent necessary to make the same enforceable.
20. Assignability; Benefit. This Agreement shall inure to the benefit of
and be binding upon ERPM and its successors and assigns. The rights and
benefits of Consultant under this Agreement are personal to him, and are not
subject to voluntary or involuntary alienation, assignment or transfer by him.
21. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof, and may not be
modified or rescinded except by a written agreement to such effect signed by
both parties.
22. Notices. Any and all notices required or permitted to be given
hereunder must be in writing and shall be deemed to have been properly served if
given by personal delivery, or if transmitted by telecopy, or if delivered to
Federal Express or other reputable overnight carrier for next business day
delivery, charges billed to and prepaid by shipper, or if deposited in the
United States mail, registered or certified with return receipt requested,
proper postage prepaid, addressed as follows:
To Consultant: Stephen O. Evans
5035 Cottontail Run East
Paradise Valley, Arizona 85253
To ERPM: Equity Residential Property Management Limited
Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: President
Each notice shall be effective upon personal delivery, or upon
confirmation of receipt of the applicable telecopy, or one (1) business day
after delivery to a reputable overnight carrier
9
<PAGE>
in accordance with the foregoing, or upon receipt with respect to notices
deposited in the United States registered or certified mail in accordance with
the foregoing. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given shall not adversely
impact the effectiveness of any such notice.
Any addressee may change its address for notices hereunder by giving
written notice in accordance with this Section 22.
23. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of Illinois, without regard to its conflict of laws provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
EQUITY RESIDENTIAL PROPERTIES MANAGEMENT LIMITED
PARTNERSHIP
By: ERP OPERATING LIMITED PARTNERSHIP, an Illinois
limited partnership, its general partner
By: EQUITY RESIDENTIAL PROPERTIES TRUST, its
general partner
By: /s/Bruce C. Strohm
-------------------
Title: Executive Vice President
------------------------
/s/ Stephen O. Evans
--------------------
Stephen O. Evans
10
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated August 27, 1997 by
and between EQUITY RESIDENTIAL PROPERTIES MANAGEMENT LIMITED PARTNERSHIP, an
Illinois limited partnership ("Employer"), and RICHARD G. BERRY ("Employee").
R E C I T A L S:
- - - - - - - -
A. Employee is currently an employee and owner of a direct and indirect
equity interest in Evans Withycombe Residential, Inc., a Maryland corporation
("EWR") or Evans Withycombe Residential, L.P. ("EWR Partnership").
B. Concurrently with the execution and delivery of this Agreement, EWR
and Equity Residential Property Trust, a Maryland real estate investment trust
("EQR") and an affiliate of Employer, are entering into an Agreement and Plan of
Merger ("Merger Agreement"), pursuant to which EWR shall merge with and into EQR
(the "Merger").
C. As a result of Employee's equity interest in EWR and EWR Partnership,
Employee will realize certain benefits as a result of the Merger.
D. As an inducement for EQR to enter into the Merger Agreement, Employee
agrees to terminate certain agreements previously entered into with EWR and/or
its affiliates, all on the terms and conditions set forth in this Agreement.
E. Employer desires to employ Employee, effective as of the time the
Merger is consummated (the "Effective Time"), all on the terms and conditions
set forth in this Agreement, and Employee desires to be so employed.
F. As an inducement for Employee to terminate the Change In Control
Agreement (as hereinafter defined), Employer desires to provide certain benefits
to Employee pursuant to this Agreement.
Agreements
----------
In consideration of the covenants and mutual agreements set forth below and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
<PAGE>
1. Effective Time. This Agreement shall not become effective unless and
until the Effective Time occurs.
2. Employment. Effective as of the Effective Time, Employer agrees to
employ Employee, and Employee agrees to be employed by Employer, all on the
terms and conditions hereinafter set forth.
3. Term. Subject to the early termination provisions contained in
Sections 9, 10 and 11 hereof, the term of this Agreement shall be for a period
commencing on the date the Effective Time occurs and ending on December 31,
2000. The period during which this Agreement is in effect is referred to herein
as the "Term".
4. Duties. During the Term, Employee shall serve as Executive Vice
President-Development of EQR and, if a separate legal entity is formed by
Employer or EQR through which the business of developing multi-family
residential apartments is conducted, Employee shall serve as President of such
entity. During the Term, Employee shall be in charge of EQR's national
development of multi-family residences, subject to the supervision and control
of the President of EQR. During the Term, Employee shall devote his entire
working time, attention, skills and efforts to the business and affairs of
Employer, to the performance of his duties hereunder (as may be designated from
time to time by Employer), and to the advancement of the interests of Employer.
5. Base Compensation. Employer shall pay Employee, as base compensation
for all services rendered by him under this Agreement during the Term, salary at
the rate of $250,000 per annum, payable in accordance with Employer's normal
payroll practice, but not less frequently than monthly. Such rate of
compensation shall be subject to annual review and, if appropriate, increase
beginning January 1, 1998 at the same time as the compensation of other
Executive Vice Presidents is reviewed.
6. Benefits. In addition to the base compensation provided for in Section
5 hereof, Employee shall be entitled to the following additional benefits during
the Term:
(a) Effective as of the Effective Time, Employee shall be awarded an
option to purchase 77,500 common shares of beneficial interest of
EQR ("EQR Common Shares"), subject to the terms and conditions of
EQR's Second Amended and Restated 1993 Share Option and Share
Award Plan, which options shall vest in three equal installments
on the first, second and third anniversaries of the date of grant
and shall have an exercise price equal to the closing price of an
EQR Common Share on the date the Effective Time occurs.
2
<PAGE>
(b) Commencing February, 1998, Employee shall be eligible for
consideration for an award of an option to purchase EQR Common
Shares under EQR's Second Amended and Restated 1993 Share Option
and Share Award Plan.
(c) Employer shall pay to Employee a bonus equal to the bonus he
would have received for calendar year 1997 under the Employment
Agreement dated August 17, 1994 between Employee, EWR and Evans-
Withycombe Management, Inc., as amended by Amendment No. 1
thereto dated as of July 1, 1997 (the "Old Employment
Agreement"), payable in that number of EQR Common Shares equal to
the number of shares of EWR which would have been issued in
payment of such bonus but for this Agreement and the occurrence
of the Merger multiplied by the Exchange Ratio (as defined in the
Merger Agreement). Such bonus shall be payable by Employer at the
same time as such bonus would have been payable under the Old
Employment Agreement but for this Agreement and the occurrence of
the Merger.
(d) Effective for the year beginning January 1, 1998, Employee shall
be eligible for a bonus award for services rendered during the
Term of up to 50% of his base compensation pursuant to EQR's
Incentive Compensation Plan, such bonus to be 37-1/2% of such
base compensation if the annual target is achieved. Fifty percent
of any such bonus shall be paid to Employee in cash and the
balance shall be paid in EQR Common Shares which shall be subject
to forfeiture if Employee is not employed by Employer or an
affiliate of Employer on the second anniversary of the date of
the award (the "Bonus Restricted Shares").
(e) Employee shall be entitled to participate in any additional
employee benefit plans of Employer for persons in comparable
positions for which Employee is eligible and in accordance with
and subject to the terms of such plans, including deferred
compensation plans, stock option plans, group health insurance
and retirement plans but excluding any severance plans or
policies (it being understood that Employee is entitled to
severance as provided in Section 10(c) of this Agreement).
(f) Employee shall be entitled to three weeks of paid vacation in
accordance with Employer's vacation policy in effect from time to
time for employees at Employee's salary level.
With respect to each employee benefit plan of EQR and its affiliates, services
with EWR or any EWR Subsidiary (as defined in the Merger Agreement) shall be
included for purposes of determining eligibility to participate, vesting (if
applicable) and entitlement to benefits.
3
<PAGE>
7. Expense Reimbursement. Employer shall reimburse Employee for all
reasonable and customary travel and other business expenses incurred by Employee
in carrying out his duties under this Agreement promptly following Employer's
receipt of the documentation then required under Employer's expense
reimbursement policy.
8. Withholding. All compensation payable to Employee shall be reduced by
Social Security taxes and withholding taxes for which Employee is obligated and
any other taxes that may be lawfully levied by any governmental authority and
which Employer may be required by law from time to time to withhold.
9. Termination Due to Death or Disability.
(a) This Agreement shall terminate in the event of Employee's death.
In such event, Employer shall pay to Employee's legal representative Employee's
salary earned but unpaid through the date of Employee's death and all other
employee benefits that were earned by Employee and which had vested at the time
of Employee's death, payable in accordance with the terms of the plans under
which such benefits accrued. In addition, Employee shall be entitled to the Pro
Rata Bonus (as hereinafter defined), payable at the same time as the annual
bonus for the year in which this Agreement is terminated would have been paid to
Employee had this Agreement remained in force and effect. As used herein, "Pro
Rata Bonus" means the annual bonus which would have been payable to Employee had
this Agreement remained in effect for the calendar year in which this Agreement
is terminated multiplied by a fraction, of which the numerator is the number of
days in such calendar year prior to the date this Agreement was terminated and
the denominator is 365.
(b) Employer may terminate this Agreement if Employee shall be
prevented from properly performing his duties hereunder, or is reasonably
expected to be prevented from properly performing his duties hereunder, by
reason of any physical or mental incapacity for a period of 120 consecutive
working days or for periods aggregating 180 working days within a one year
period. Employer shall give Employee 30 days' advance notice of termination if
the termination occurs as a result of an illness, injury or infirmity which is
reasonably expected to render Employee unable to perform his duties hereunder
for the period provided above.
If Employer and Employee do not agree that Employee is suffering from an
illness, injury or infirmity which is reasonably expected to prevent Employee
from properly performing his duties hereunder for the aforesaid period, then
Employer and Employee (or Employee's representative if Employee is unable to
act) shall together select a licensed physician who shall, within thirty (30)
days from the date upon which he or she is selected, make a conclusive
determination as to whether or not Employee is suffering from a permanent
disability. In the event that the parties are unable to agree upon the
selection of a physician, Employee (or Employee's representative if Employee is
unable to act) and Employer shall each separately select, within fifteen (15)
days from the date such disagreement arises, a licensed physician. Together,
the physicians so selected shall designate a third licensed physician who shall,
within
4
<PAGE>
fifteen (15) days from the date of his selection, make the conclusive
determination as to whether or not Employee is suffering from a permanent
disability.
In the event of a termination due to disability, Employee shall receive
such disability benefits as are paid generally to employees of Employer at his
position under the policies of Employer in effect at the time of the termination
of this Agreement. In addition, Employee shall be entitled to Pro Rata Bonus,
payable at the same time the annual bonus for the year in which this Agreement
is terminated would have been paid to Employee had this Agreement remained in
force and effect.
10. Other Termination by Employer.
(a) In addition to the termination of this Agreement pursuant to
Section 9, Employer shall have the right to terminate this Agreement effective
upon delivery to Employee of written notice of termination stating the basis for
such termination as being either:
(i) for "Cause", which shall be defined as any of the following:
(A) Employee wilfully and continually fails to
substantially perform his duties under this Agreement
(other than due to his death or incapacity due to
accident or physical or mental illness);
(B) Employee breaches any of his covenants in Sections 12,
13 or 14 or his representations in Section 15;
(C) Employee engages in an act of dishonesty constituting a
felony and which results or is intended to result
directly or indirectly in his gain or personal
enrichment at the expense of Employer;
(D) Employee is convicted of a felony or of any crime
involving moral turpitude, fraud, theft or conversion;
(E) Employee fails or refuses to submit to a medical
examination for the sole purpose of determining whether
Employee is disabled pursuant to Section 9 within ten
(10) days after Employer delivered a written request
for such examination to Employee; or
5
<PAGE>
(ii) without "Cause".
(b) Upon a termination of this Agreement by Employer for Cause,
Employer shall have no further obligation to Employee under this Agreement,
except to pay his base compensation through the date of termination of this
Agreement and any other benefits that have fully accrued and vested but have not
been paid as of the date of such termination, which shall be payable in
accordance with the terms of the plans under which such benefits accrued.
(c) Upon a termination of this Agreement by Employer without Cause or
by Employee for Good Reason (as defined in Section 11(a) hereof), Employer shall
have no further obligation to Employee under this Agreement, except (A) to pay
as severance, an amount equal to the base compensation which would otherwise
have been payable to Employee for the balance of the Term, payable in the same
manner as such compensation would have been paid to Employee had his employment
not been terminated, (B) to pay the bonus which Employee would have received for
the balance of the Term had this Agreement remained in force and effect,
assuming for this purpose that each annual bonus were the same amount as the
annual bonus for the year in which this Agreement terminated, (C) to provide
continuing participation in all group medical, dental and hospitalization
insurance plans in which Employee participated at the time of termination of
this Agreement, (D) all Bonus Restricted Shares shall vest immediately, and (E)
any other benefits that have fully accrued and vested but have not been paid as
of the date of termination of this Agreement, shall be payable in accordance
with the terms of the plans under which such benefits accrued.
11. Termination by Employee. Employee may terminate his employment
hereunder by providing Employer with a written notice of termination at least
one hundred twenty (120) days prior to the effective date of such termination in
the case of a termination other than for Good Reason (as defined below) or sixty
(60) days prior to the effective date of such termination in the case of a
termination for Good Reason. As used herein, "Good Reason" shall mean (a) a
substantial adverse alteration in Employee's status, position or
responsibilities, (b) a reduction in Employee's base salary or any failure to
pay Employee any compensation or benefits to which he is entitled within five
days after notice of such failure is given to Employer by Employee, (c) the
material breach by Employer of any of its agreements set forth in Sections 2, 5
and 6 hereof which continues unremedied for a period of thirty (30) days after
receipt by the general partner of Employer of a written demand for performance
by Employee, which written demand specifically identifies in reasonable detail
the manner in which Employee believes that Employer has not performed its
obligations, (d) Employer requires Employee to be based at any place outside a
30-mile radius from Scottsdale, Arizona, except for reasonably required travel
on business of Employer and its affiliates. If Employee terminates this
Agreement for Good Reason, Employee shall be entitled to the payments and
benefits provided for in Section 10(c). If Employee terminates this Agreement
without Good Reason, Employer shall have no further obligation to Employee
except to pay (i) Employee's salary earned but unpaid through the date of
termination of this Agreement, and (ii) all other employee benefits
6
<PAGE>
that were earned by Employee and had vested at the time of such termination,
payable in accordance with the terms of the plans under which such benefits
accrued.
12. Competition.
(a) At all times during the Term (the "Non-Compete Period"), Employee
shall be prohibited from engaging in Competition (as defined in subsection 12(b)
below) with Employer or its affiliates; provided, however, that if Employee
terminates this Agreement without Good Reason, the foregoing prohibition shall
terminate on the first anniversary of the date of such termination without Good
Reason. As used in this Agreement, an "affiliate" of Employer means any
corporation or other entity which directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Employer.
(b) The term "Competition" for purposes of this Agreement shall mean
Employee's taking any of the following actions: engaging in or carrying on,
directly or indirectly whether as advisor, agent, principal, partner, officer,
director, employee or stockholder, associate or consultant of or to any person,
partnership, corporation or any other business entity which is engaged in the
development, construction, acquisition or management of multifamily apartment
properties in North America (i.e., the United States, Canada or Mexico).
Notwithstanding the foregoing, the term "Competition" shall exclude (a) the
passive investments of Employee as of the date of this Agreement in various
Berry & Boyle entities, and (b) ownership of not more than 2% of the outstanding
shares of an entity which is traded on a national stock exchange or in the over-
the-counter market.
(c) Employee acknowledges that, as an executive employee of Employer,
Employee will be involved, on a high level, in the development, implementation
and management of Employer's national business strategies and plans, including
those which involve Employer's finances, research, marketing, planning,
operations and property acquisitions. By virtue of the Employee's unique and
sensitive position and special background, employment of the Employee by a
competitor of Employer represents a serious competitive danger to Employer, and
the use of Employee's talent and knowledge and information about Employer's
business strategies can and would constitute a valuable competitive advantage
over Employer.
(d) Employee acknowledges that he has carefully read and considered
all of the terms of this Agreement, including particularly the terms of this
Section 12 and of Sections 13 and 14 hereof, that Employer and its affiliates
have made a substantial investment in their business and that the restrictions
provided in this Section 12 and the following Sections 13 and 14 hereof are
reasonable and necessary for Employer's protection. Employee further
acknowledges that damages at law will not be a measurable or adequate remedy for
breach of the covenants contained in this Section 12 or in Sections 13 and 14
hereof and, accordingly Employee consents to the entry by any court of competent
jurisdiction of any order enjoining him from violating any such covenants,
without bond but upon due notice. The parties hereto further agree that if, in
any judicial proceeding, a court should refuse to enforce any covenants
7
<PAGE>
set forth in this Section 12 or in Sections 13 and 14 hereof because of their
term or geographical scope, then such covenants shall be deemed to be modified
to permit their enforcement to the maximum extent permitted by law.
13. Confidentiality. Employee acknowledges that during the course of his
employment by Employer, he will obtain knowledge of and access to confidential
proprietary information of Employer and its affiliates (hereinafter referred to
as the "Confidential Information"). Such Confidential Information includes
confidential records, data, formulae, sales strategy, and other confidential and
proprietary information of Employer and its affiliates. Employee acknowledges
that the disclosure of any Confidential Information in contravention of this
Section 13 would do irreparable damage to Employer and its affiliates. Employee
accordingly agrees that, unless otherwise authorized by written instrument
signed by an officer of Employer, he will not at any time, in any manner
whatsoever, except in the regular course of performing his duties as an employee
of Employer, use for himself or others, or disclose, reveal or divulge to
anyone, any of the Confidential Information.
"Confidential Information" shall not include any information which now or
hereafter (a) is or becomes generally known to the public other than as a result
of breach of this Section 13 or other similar confidentiality covenant, or (b)
is or becomes readily available from or actually acquired from third parties who
are not employees of Employer or an affiliate of Employer and who did not
acquire such information as a result of a breach of this Section 13 or other
similar confidentiality covenant.
14. Covenant Restricting Solicitation. Employee shall not, directly or
indirectly, solicit, attempt to solicit for employment or employ any employee of
Employer or any affiliate of Employer at any time during the Term and the one
year period ending on the first anniversary of the date of the expiration or
termination of the Term.
15. Certain Representations. Each party represents and warrants to the
other party that (i) such party is free to enter into this Agreement, and (ii)
this Agreement does not violate the terms of any agreement, instrument,
covenant, order or decree to which such party is bound.
16. Certain Provisions to Survive. The provisions of Sections 9(b), 10,
11, 12, 13, 14 and 16 shall survive the expiration or termination of this
Agreement as to obligations which accrued prior to such expiration or
termination.
17. Waiver. Failure by either party to insist upon strict compliance with
any of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or remedy hereunder at any one or more times be deemed a waiver or
relinquishment of such right or remedy at any other time or times.
8
<PAGE>
18. Other Agreements. Employer and Employee do hereby acknowledge that:
(a) The Change in Control Agreement dated June 18, 1997 by and between
Employee and EWR (the "Change in Control Agreement") shall terminate as of the
Effective Time. Employee hereby waives any rights he may have under the Change
in Control Agreement as a result of such termination.
(b) Except as otherwise provided in Section 6(c) of this Agreement,
the Old Employment Agreement shall terminate effective as of the Effective Time.
Employee hereby waives any rights he may have under Section 7 of the Old
Employment Agreement as a result of such termination.
19. Severability. Each section, paragraph, term and provision of this
Agreement, and any portion thereof, shall be considered severable. If for any
reason any such portion of this Agreement is held to be invalid, contrary to, or
in conflict with any applicable present or future law or regulation in a final,
unappealable ruling issued by a court, agency or tribunal with competent
jurisdiction in a proceeding to which Employer is a party, that ruling shall not
impair the operation of, or have any other effect upon, any other portions of
this Agreement, which shall continue to be given full force and effect. If any
provisions hereof shall be adjudicated to be invalid or unenforceable in whole
or in part, such modifications made to this Agreement as a result of such
adjudication shall be effective only in the particular jurisdiction in which
such adjudication is made. To the extent any provision hereof is deemed
unenforceable by virtue of its scope but may be made enforceable by limitations
thereon, the parties agree that the same shall be enforceable to the fullest
extent permissible under the laws and public policies applied in such
jurisdiction in which the enforcement is sought. The parties hereby authorize
any court of competent jurisdiction to modify the restrictive covenants to the
extent necessary to make the same enforceable.
20. Assignability; Benefit. This Agreement shall inure to the benefit of
and be binding upon Employer and its successors and assigns. The rights and
benefits of Employee under this Agreement are personal to him, and are not
subject to voluntary or involuntary alienation, assignment or transfer by him.
21. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof, and may not be
modified or rescinded except by a written agreement to such effect signed by
both parties.
22. Notices. Any and all notices required or permitted to be given
hereunder must be in writing and shall be deemed to have been properly served if
given by personal delivery, or if transmitted by telecopy, or if delivered to
Federal Express or other reputable overnight carrier for next business day
delivery, charges billed to and prepaid by shipper, or if deposited in the
United States mail, registered or certified with return receipt requested,
proper postage prepaid, addressed as follows:
9
<PAGE>
To Employee: Richard G. Berry
6537 East Exeter Boulevard
Scottsdale, Arizona 85251
To Employer: Equity Residential Property Management Limited
Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: President
Each notice shall be effective upon personal delivery, or upon
confirmation of receipt of the applicable telecopy, or one (1) business day
after delivery to a reputable overnight carrier in accordance with the
foregoing, or upon receipt with respect to notices deposited in the United
States registered or certified mail in accordance with the foregoing. Rejection
or other refusal to accept or the inability to deliver because of changed
address of which no notice was given shall not adversely impact the
effectiveness of any such notice.
Any addressee may change its address for notices hereunder by giving
written notice in accordance with this Section 22.
23. Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to its
conflict of laws provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
EQUITY RESIDENTIAL PROPERTIES MANAGEMENT LIMITED
PARTNERSHIP
By: ERP OPERATING LIMITED PARTNERSHIP, an Illinois
limited partnership, its general partner
By: EQUITY RESIDENTIAL PROPERTIES TRUST, its
general partner
By:/s/ Bruce C. Strohm
-------------------
Title: Executive Vice President
-------------------------
/s/ Richard G. Berry
--------------------
Richard G. Berry
10
<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
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 and Current Report
each of the three years in the period on Form 8-K, dated
ended December 31, 1996 March 17, 1997
</TABLE>
Ernst & Young LLP
Chicago, Illinois
September 18, 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 11, 1997, filed with the Securities
and Exchange Commission.
Ernst & Young LLP
Phoenix, Arizona
September 18, 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 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".
GRANT THORNTON LLP
Chicago, Illinois
September 15, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF J.P. MORGAN SECURITIES INC.
We hereby consent to (i) the use of our opinion letter dated August 27, 1997 to
the Board of Trustees of Equity Residential Properties Trust (the "Company")
included as Appendix C to the Joint Proxy Statement/Prospectus which forms a
part of the Registration Statement of Form S-4 relating to the proposed merger
of the Company and Evans Withycombe Residential, Inc., and (ii) the references
to such opinion in such Joint Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we hereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
J.P. MORGAN SECURITIES INC.
By: /s/ Peter E. Baccile
------------------------
Name: Peter E. Baccile
Title: Managing Director
September 17, 1997
<PAGE>
Exhibit 23.8
FORM OF CONSENT OF MORGAN STANLEY REALTY INCORPORATED
We hereby consent to (i) the use of our opinion letter dated August 27, 1997 to
the Board of Directors of Evans Withycombe Residential, Inc. (the "Company")
included as Appendix D to the Joint Proxy Statement/Prospectus which forms a
part of the Registration Statement on Form S-4 relating to the proposed merger
of the Company and Equity Residential Properties Trust and (ii) the references
to such opinion in such Joint Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we hereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
MORGAN STANLEY REALTY INCORPORATED
By:
------------------------------
Name:
Title: Managing Director
September , 1997
<PAGE>
EXHIBIT 99.1
Preliminary Copy
EQUITY RESIDENTIAL PROPERTIES TRUST
Two North Riverside Plaza
P Chicago, Illinois 60606
R
O
X This Proxy is solicited on behalf of the
Y Board of Trustees of Equity Residential Properties Trust.
The undersigned hereby appoints Samuel Zell and Douglas Crocker II, and
each of them, proxies, with power of substitution and revocation, acting by
majority of those present and voting or if only one is present and voting
then that one, to vote all of the common shares of beneficial interest of
Equity Residential Properties Trust which the undersigned is entitled to
vote as designated herein, at the special meeting of shareholders to be
held at One North Franklin Street, Chicago, Illinois, on ________,
___________, 1997 at _____ _.m., local time, and at any adjournment
thereof, with all the powers the undersigned would possess if present.
Please sign and date on reverse side and return promptly in the enclosed
envelope. No postage need be affixed if mailed in the United States.
(Continued and to be signed on the reverse side)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
[X] Please mark
votes as in
this example.
This Proxy, when properly executed, will be voted as
instructed herein by the undersigned shareholder. If
no instructions are given, this Proxy will be voted FOR
Item 1.
1. Approval of the merger of Evans Withycombe FOR AGAINST ABSTAIN
Residential, Inc., a Maryland corporation, with and into [_] [_] [_]
Equity Residential Properties Trust, a Maryland real
estate investment trust, pursuant to an Agreement and
Plan of Merger entered into between Evans Withycombe
Residential, Inc. and Equity Residential Properties
Trust.
2. Upon any other matter which may properly come before
the meeting.
MARK HERE
FOR ADDRESS [_]
CHANGE AND
NOTE AT LEFT
Please sign exactly as name appears on this Proxy. When shares are
held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by an
authorized officer. If a partnership, please sign in partnership name
by an authorized person.
The undersigned hereby revokes any proxy or proxies heretofore given to
vote such shares at said meeting or any adjournment thereof.
Signature: _________________________ Date: ____________ Signature:________________________ Date: _______________________
</TABLE>
<PAGE>
EXHIBIT 99.2
Preliminary Copy
EVANS WITHYCOMBE RESIDENTIAL, INC.
6991 East Camelback Road
P Suite A-200
R Scottsdale, Arizona 85251
O
X
Y This Proxy is solicited on behalf of the
Board of Directors of Evans Withycombe Residential, Inc.
The undersigned hereby appoints Stephen O. Evans and Richard G. Berry and
each of them, proxies, with power of substitution and revocation, acting by
majority of those present and voting or if only one is present and voting
then that one, to vote all of the shares of Common Stock of Evans
Withycombe Residential, Inc. which the undersigned is entitled to vote as
designated herein, at the special meeting of shareholders to be held at
_________________________, Scottsdale, Arizona, on ________, ___________,
1997 at _____ _.m., local time, and at any postponement and adjournment
thereof, with all the powers the undersigned would possess if present.
Please sign and date on reverse side and return promptly in the enclosed
envelope. No postage need be affixed if mailed in the United States.
(Continued and to be signed on the reverse side)
<PAGE>
[X] Please mark
votes as in
this example.
This Proxy, when properly executed, will be
voted as instructed hereinby the undersigned
shareholder. If no instructions are given, this
Proxy will be voted FOR Item 1.
1. Approval of the merger of Evans Withycombe FOR AGAINST ABSTAIN
Residential, Inc., a Maryland corporation, [_] [_] [_]
with and into Equity Residential Properties
Trust, a Maryland real estate investment trust,
pursuant to an Agreement and Plan of Merger
entered into between Evans Withycombe Residential,
Inc. and Equity Residential Properties Trust.
2. Upon any other matter which may properly come
before the meeting.
MARK HERE
FOR ADDRESS [_]
CHANGE AND
NOTE AT LEFT
Please sign exactly as name appears on this
Proxy. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as
such. If a corporation, please sign in full
corporate name by an authorized officer. If
a partnership, please sign in partnership
name by an authorized person.
The undersigned hereby revokes any proxy or
proxies heretofore given to vote such
shares at said meeting or any adjournment
thereof.
Signature: Date: Signature: Date:
--------------- ------- ------------- -------
<PAGE>
EXHIBIT 99.7
CONSENT OF PERSON TO BE NAMED AS TRUSTEE
----------------------------------------
I hereby agree to become a trustee of Equity Residential Properties Trust
("EQR") upon the effectiveness of the merger of Evans Withycombe Residential,
Inc. with and into EQR, and consent to the reference thereto under the headings
"Interests of Certain Persons in the Transactions" and "Management and Operation
of EQR After the Merger" in the Joint Proxy Statement/Prospectus constituting a
part of the foregoing Registration Statement on Form S-4.
/s/ Stephen O. Evans
--------------------
Stephen O. Evans
Scottsdale, Arizona
Dated: September 17, 1997
