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As filed with the Securities and Exchange Commission on June 5, 1996
Registration No. 333-2054
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ESSEX PROPERTY TRUST, INC.
(Exact Name of Registrant as specified in its charter)
MARYLAND
(State or Other Jurisdiction of Incorporation or Organization)
77-0369576
(I.R.S. Employer Indemnification No.)
777 California Avenue
Palo Alto, California 94304
(415) 494-3700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal
Executive Offices)
Keith R. Guericke
President and Chief Executive Officer
777 California Avenue
Palo Alto, California 94304
(415) 494-3700
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent for Service)
COPIES TO:
William D. Sherman, Esq.
Stephen J. Schrader, Esq.
Justin L. Bastian, Esq.
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
(415) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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
AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 5, 1996
$100,000,000
ESSEX PROPERTY TRUST, INC.
COMMON STOCK, PREFERRED STOCK,
DEPOSITARY SHARES AND WARRANTS
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Essex Property Trust, Inc. ("Essex" or the "Company") may from time to time
offer in one or more series or classes (i) shares of its common stock, par value
$0.0001 per share (the "Common Stock"), (ii) shares or fractional shares of its
preferred stock (the "Preferred Stock"), (iii) shares of Preferred Stock
represented by Depositary Shares (the "Depositary Shares"), and (iv) warrants to
purchase Preferred Stock or Common Stock (the "Warrants"), in amounts, at prices
and on terms to be determined at the time of offering, with an aggregate public
offering price of up to $100,000,000 in amounts, at prices and on terms to be
determined at the time of offering. The Common Stock, Preferred Stock,
Depositary Shares and Warrants (collectively, the "Offered Securities") may be
offered, separately or together, in separate series in amounts, at prices and on
terms to be set forth in one or more supplement to the Prospectus (each a
"Prospectus Supplement"). To ensure that the Company maintains its qualification
as a real estate investment trust, the Charter of the Company provides that no
person, with certain exceptions, may own more than 6.0% of the value of the
outstanding shares of stock.
The specific terms of the Offered Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Common Stock,
the specific title and stated value and any initial public offering price; (ii)
in the case of Preferred Stock, the specific title and stated value, any
dividend, liquidation, redemption, conversion, voting and other rights, and any
initial public offering price; (iii) in the case of Depositary Shares, the
fractional share of Preferred Stock represented by each such Depositary Share;
and (iv) in the case of Warrants, the duration, offering price, exercise price
and detachability. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for federal income tax
purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
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For certain factors relevant to an investment in the Offered Securities, see
"Risk Factors," commencing on page 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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The date of this Prospectus is June , 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files, reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Common Stock
is listed on the New York Stock Exchange and similar information concerning the
Company can be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Offered Securities. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December
31, 1995 (including relevant portions of the Company's definitive proxy
statement for the 1996 annual meeting of stockholders specifically
incorporated by reference in Part III of such Form 10-K), Annual Report
on Form 10-K/A (Amendment No. 1) filed with the Commission on May 2, 1996 for
the year ended December 31, 1995 (including relevant portions of the
Company's definite proxy statement for the 1996 annual meeting of
stockholders specifically incorporated by reference in Part III of such Form
10-K/A) and Annual Report on Form 10-K/A (Amendment No. 2) filed with the
Commission on June 5, 1996 for the year ended December 31, 1995 (including
relevant portions of the Company's definitive proxy statement for the 1996
annual meeting of stockholders specifically incorported by reference in
Part III of such Form 10-K/A);
b. The Company's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1996; and
c. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-13106).
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Offered Securities to which this
Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or
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oral request. Requests should be directed to the Investor Service Manager of the
Company at 777 California Avenue, Palo Alto, California 94304, telephone number:
(415) 494-3700.
THE COMPANY
Essex Property Trust, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") that was formed in
1994 to continue and expand the real estate investment and management operations
conducted by Essex Property Corporation since 1971. As of December 31, 1995, the
Company operated and had an ownership interest in 30 income-producing properties
(the "Properties"), aggregating approximately 4.3 million rentable square feet
and comprising 23 multi-family residential Properties containing 4,868 apartment
units, six neighborhood shopping centers aggregating approximately 351,000
rentable square feet of space and one office building housing the Company's
headquarters with approximately 45,000 rentable square feet of space. Eleven of
the multi-family residential Properties are located in three northern California
counties, Santa Clara, Alameda and Contra Costa, which are near San Francisco,
California (the "San Francisco Bay Area"), nine are in the Seattle, Washington
metropolitan area (the "Seattle Metropolitan Area"), two are in southern
California and one is in the Sacramento, California area. Five of the retail
Properties are located in the Portland, Oregon metropolitan area (the "Portland
Metropolitan Area") and one is located in Eugene, Oregon.
The Company conducts substantially all of its activities through Essex
Portfolio, L.P. (the "Operating Partnership") in which the Company owns an
approximate 77.2% general partnership interest. An approximate 22.8% limited
partnership interest in the Operating Partnership is owned by senior members of
the Company's management and certain outside investors. As the sole general
partner of the Operating Partnership, the Company has control over the
management of the Operating Partnership and over each of the Properties.
The Company's Common Stock is listed on the New York Stock Exchange under the
Symbol "ESS." The Company is a Maryland corporation. The Company's executive
offices are located at 777 California Avenue, Palo Alto, California 94304, and
its telephone number is (415) 494-3700.
USE OF PROCEEDS
The Company intends to invest the net proceeds of any sale of Common Stock,
Preferred Stock, Depositary Shares or Warrants in the Operating Partnership.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Operating Partnership intends to use such net proceeds for general corporate
purposes including, without limitation, the acquisition and development of
multi-family residential properties and the repayment of debt. Net proceeds from
the sale of the Offered Securities initially may be temporarily invested in
short-term securities.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the three months ended
March 31, 1996 was approximately 1.69x and for the fiscal years ended December
31, 1995, and the period of June 13, 1994 to December 31, 1994, was
approximately 1.67x and 1.87x, respectively. The ratio of earnings to fixed
charges of the Company's predecessor for the period of January 1, 1994 to June
12, 1994 and for the fiscal years ended December 31, 1993, December 31, 1992 and
December 31, 1991, was approximately 1.06x, 1.03x, 0.83x and 0.76x,
respectively. For purposes of computing these ratios, earnings have been
calculated by adding fixed charges (excluding capitalized interest) to income
(loss) from operations, before gains on sales and extraordinary items. Fixed
charges consist of interest costs, whether expensed or capitalized, and
amortization of debt discounts and deferred financing fees, whether expensed or
capitalized.
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RISK FACTORS
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus and the
applicable Prospectus Supplement before purchasing Offered Securities.
DEBT FINANCING; RISK OF RISING INTEREST RATES
The Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, that the Company will not be able
to refinance existing indebtedness on the encumbered Properties or that the
terms of such refinancing will not be as favorable as the terms of existing
indebtedness. As of December 31, 1995, the Company had outstanding approximately
$155 million of indebtedness secured by certain of the Properties.
As of December 31, 1995, the Company had approximately $78.3 million of
variable rate mortgage indebtedness, which bears interest at a floating rate
tied to either (i) the London InterBank Offered Rates ("LIBOR"), (ii) the rate
of short-term tax exempt securities or (iii) the 11th District Cost of Funds.
Although, approximately $18.6 million of such variable rate indebtedness is
subject to an interest rate swap agreement which may reduce the risks associated
with fluctuations in interest rates, an increase in interest rates will have an
adverse effect on the Company's net income and results of operations.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to actively continue to acquire multi-family residential
and retail properties. Acquisitions of such properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general real estate investment risks
associated with any new real estate investment.
The Company may also pursue retail and multi-family residential property
development projects. Such projects generally require various governmental and
other approvals, the receipt of which cannot be assured. The Company's
development activities will entail certain risks, including the expenditure of
funds on and devotion of management's time to projects which may not come to
fruition; the risk that construction costs of a project may exceed original
estimates, possibly making the project not economical; the risk that occupancy
rates and rents at a completed project will be less than anticipated; and the
risk that expenses at a completed development will be higher than anticipated.
These risks may result in a development project causing a reduction in the funds
available for distribution.
DEBT FINANCING; UNCERTAINTY OF ABILITY TO REFINANCE BALLOON PAYMENTS
The Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, that the Company will not be able
to refinance existing indebtedness on the encumbered Properties or that the
terms of such refinancing will not be as favorable as the terms of existing
indebtedness. As of December 31, 1995, the Company had outstanding approximately
$155 million of indebtedness that is secured by the Properties.
The Company is not expected to have sufficient cash flows from operations to
make all of the balloon payments of principal when due under its mortgage
indebtedness and lines of credit, which are an aggregate of approximately $155
million. Such mortgage indebtedness and lines of credit have the following
scheduled maturity dates: 1996-$20.9 million; 1997-$3.2 million; 1998-$3.2
million; 1999-$18.6 million; 2000-$5.2 million; 2001 and thereafter-$105.4
million. As a result, the Company will be subject to risks that it will not be
able to refinance such mortgage indebtedness and the mortgaged properties could
be foreclosed upon by or otherwise transferred to the mortgagee with a
consequent loss of income and asset value to the Company, or, that the
indebtedness, if any, refinanced will have higher interest rates. An inability
to make such payments when due could cause the mortgage lender to foreclose on
the Properties securing the mortgage, which would have a material adverse effect
on the Company.
RISK OF RISING INTEREST RATES
As of December 31, 1995, the Company had approximately $78.3 million of
variable rate mortgage indebtedness, which bears interest at a floating rate
tied to either (i) the London InterBank Offered Rates ("LIBOR"), (ii) the rate
of short-term tax exempt securities or (iii) the 11th District Cost of Funds.
Essex has entered into an interest rate swap agreement which extends through
June 1999 (covering approximately $18.6 million) and fixes the 30-day LIBOR rate
at 5.79% for mortgage notes payable. Although approximately $18.6 million of
such variable rate indebtedness is subject to the interest rate swap agreement,
an increase in interest rates will have an adverse effect on the Company's net
income and results of operations.
GEOGRAPHIC CONCENTRATION
Approximately 51%, 31%, 11%, and 7% of the Company's rental revenues for the
three months ended December 31, 1995, were derived from Properties located in
the San Francisco South Bay, the Seattle Metropolitan Area, southern California
and the Portland Metropolitan Area (and Eugene, Oregon), respectively. As a
result of this geographic concentration, if a local property market performs
poorly, the income from the Properties in that market could decrease and, in
turn, the ability of the Company to make expected dividends to stockholders
could be adversely affected. The performance of the economy in each of these
areas affects occupancy, market rental rates and expenses and, consequently,
has an impact on the income from the Properties and their underlying values.
The financial results of major local employers may have an impact on the cash
flow and value of certain of the properties.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Properties do not generate sufficient
income to meet operating expenses, including debt service and capital
expenditures, the Company's cash flow and ability to make distributions to its
stockholders will be adversely affected. The performance of the economy in each
of the areas in which the Properties are located affects occupancy, market
rental rates and expenses and,
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consequently, has an impact on the income from the Properties and their
underlying values. The financial results of major local employers may have an
impact on the cash flow and value of certain of the Properties.
Income from the Properties may be further adversely affected by the general
economic climate, local economic conditions in which the Properties are located,
such as oversupply of space or a reduction in demand for rental space, the
attractiveness of the Properties to tenants, competition from other available
space, the ability of the Company to provide for adequate maintenance and
insurance and increased operating expenses. There is also the risk that as
leases on the Properties expire, tenants will enter into new leases on terms
that are less favorable to the Company. Income and real estate values may also
be adversely affected by such factors as applicable laws (e.g., ADA and tax
laws), interest rate levels and the availability of financing. In addition, real
estate investments are relatively illiquid and, therefore, will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions.
RISKS INVOLVED IN INVESTMENTS IN MORTGAGES
The Company may invest in mortgages, in part as a strategy for ultimately
acquiring the underlying property. In general, investments in mortgages include
the risk that the value of mortgaged property may be less than the amounts owed,
the risk that interest rates payable on the mortgages may be lower than the
Company's cost of funds, and, in the case of junior mortgages, the risk that
foreclosure of a senior mortgage would eliminate the junior mortgage. If any of
the above were to occur, cash flows from operations and the Company's ability to
make expected dividends to stockholders could be adversely affected.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs or 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 environmental laws impose
liability for release of asbestos-containing materials into the air, and third
parties may seek recovery from owners or operators of real properties for
personal injuries associated with asbestos-containing materials. In connection
with the ownership (direct or indirect), operation, management and development
of real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may be potentially liable for removal or
remediation costs, as well as certain other costs, including governmental fines
and injuries to persons and property.
GENERAL UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance for each of the Properties, with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which are
either uninsurable or not economically insurable. Further, certain of the
Properties are located in areas that are subject to earthquake activity.
Although the Company has obtained certain limited earthquake insurance policies,
should a Property sustain damage as a result of an earthquake, the Company may
sustain losses due to insurance deductibles, co-payments on insured losses or
uninsured losses.
CHANGES IN FINANCING POLICY
The Company has adopted a policy of maintaining a
debt-to-total-market-capitalization ratio of less than 50%. Debt-to-total-market
capitalization is the ratio of the total property indebtedness to the sum of (i)
the aggregate market value of the outstanding shares of Common Stock (based on
the greater of current market price or the gross proceeds per share from public
offerings of its shares plus any undistributed net cash flow), assuming the
conversion of all limited partnership interests in the Operating Partnership
into shares of Common Stock and (ii) the
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total property indebtedness. Based on this calculation, the Company's
debt-to-total-market-capitalization ratio was approximately 49.5% as of
March 31, 1996.
The organizational documents of the Company and the Operating Partnership do
not limit the amount or percentage of indebtedness that they may incur. The
Company may from time to time modify its debt policy in light of then current
economic conditions, relative costs of debt and equity securities, fluctuations
in the fair market price of the Common Stock, growth and acquisition
opportunities and other factors. Accordingly, the Company may increase its
debt-to-total-market-capitalization ratio beyond the limits described above. If
the Board of Directors determines that additional funding is required, the
Company or the Operating Partnership may raise such funds through additional
equity offerings, debt financing or retention of cash flow (subject to
provisions in the Internal Revenue Code of 1986, as amended (the "Code")
concerning taxability of undistributed real estate investment trust income), or
a combination of these methods.
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CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company has operated so as to qualify as a REIT under the Code,
commencing with its taxable year ended December 31, 1994. Although the Company
believes that it has operated in a manner which satisfies the REIT qualification
requirements, no assurance can be given that the Company will continue to do so.
A REIT generally is not taxed on income so long as it distributes to its
stockholders at least 95% of its taxable income currently. Qualification as a
REIT involves the satisfaction of numerous requirements (some on an annual or
quarterly basis) established under highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations and
involves the determination of various factual matters and circumstances not
entirely within the Company's control. See "Federal Income Tax Considerations."
If the Company fails to qualify as a REIT in any taxable year, the Company
would generally be subject to federal income tax (including any application
alternative minimum tax) at corporate rates on its taxable income for such year.
Moreover, unless entitled to relief under certain statutory provisions, the
Company would also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification is lost. This treatment
would reduce the net earnings of the Company available for investment or
distribution to stockholders because of the additional tax liability of the
Company for the years involved. In addition, distributions would no longer be
required to be made. See "Federal Income Tax Considerations."
The Operating Partnership has received an opinion from Morrison & Foerster
LLP, counsel to the Company, stating that the Operating Partnership is
classified and treated as a partnership for federal income tax purposes. Such
legal opinion is not binding on the IRS. If the IRS were to challenge
successfully the Operating Partnership's status as a partnership for federal
income tax purposes, the Company would cease to qualify as a REIT and the
Company and the Operating Partnership would be subject to federal income tax
(including any alternative minimum tax) on their net income at corporate rates.
See "Federal Income Tax Considerations -- Tax Aspects of the Company's
Investment in the Operating Partnership."
DESCRIPTION OF COMMON STOCK
STOCK -- GENERAL
As of March 31, 1996, the total number of shares of all classes of capital
stock that the Company had authority to issue was 1,000,000,000 shares,
consisting of 670,000,000 shares of Common Stock, par value $0.0001 per share,
and 330,000,000 shares of excess stock (the "Excess Stock").
As of March 31, 1996, there were 6,275,000 shares of Common Stock issued
and outstanding. Up to 425,400 shares of Common Stock have been reserved for
issuance under the Essex Property Trust, Inc. 1994 Employee Stock Incentive
Plan, up to 70,000 shares of Common Stock have been reserved for issuance under
the Essex Property Trust, Inc. 1994 Non-Employee and Director Stock Incentive
Plan and up to 406,500 shares of Common have been reserved for issuance under
the Essex Property Trust, Inc. 1994 Employee Stock Purchase Plan. In addition,
220,000 shares of Common Stock have been reserved for issuance upon the exercise
of an option granted to The Marcus & Millichap Company (the "M&M Stock Option")
and an aggregate of 1,855,000 shares of Common Stock may be issued upon the
conversion of limited partnership interests in the Operating Partnership.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock or Depositary Shares or upon the
exercise of Warrants issued by the Company. This description is in all respects
subject to and qualified in its entirety by reference to the applicable
provisions of the Company's Articles of Incorporation (the "Charter") and its
Bylaws. The Common Stock is listed on the New York Stock Exchange under the
symbol "ESS." The First National Bank of Boston is the Company's transfer agent.
The holders of the outstanding Common Stock are entitled to one vote per
share on all matters voted on by stockholders, including elections of directors.
The Charter provides that shares of Common Stock do not have for cumulative
voting rights.
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The shares of Common Stock offered hereby will, when issued, be fully paid
and nonassessable and will not be subject to preemptive or similar rights.
Subject to the preferential rights of any outstanding series of capital stock,
the holders of Common Stock are entitled to such distributions as may be
declared from time to time by the Board of Directors from funds available for
distribution to such holders. The Company currently pays regular quarterly
dividends to holders of Common Stock.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the assets remaining
after satisfaction of all liabilities and payment of liquidation preferences and
accrued dividends, if any, on any series of capital stock that has a liquidation
preference. The rights of holders of Common Stock are subject to the rights and
preferences established by the Board of Directors for any capital stock that may
subsequently be issued by the Company.
Subject to limitations prescribed by Maryland law and the Company's Charter,
the Board of Directors is authorized to reclassify any unissued portion of the
authorized shares of capital stock to provide for the issuance of shares in
other classes or series, including other classes or series of Common Stock, to
establish the number of shares in each class or series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such class or series. The rights, preferences,
privileges and restrictions of such class or series will be fixed by the
articles supplementary relating to such class or series. A Prospectus Supplement
will specify the terms of such class or series.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"), not more than 50% of the value of the outstanding
shares of stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year. Shares of Common Stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months (other than the first
year) or during a proportionate part of a shorter taxable year and certain
percentages of the Company's gross income must be from particular activities
(see "Federal Income Tax Considerations -- Requirements for Qualification --
Gross Income Tests").
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Charter, subject to certain exceptions,
provides that no holder, other than George M. Marcus, may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 6.0% (the
"Ownership Limit") of the value of the issued and outstanding shares of stock of
the Company. A qualified trust (as defined in the Charter) generally may own up
to the 9.9% of the outstanding shares of Common Stock. If George M. Marcus
converts his limited partnership interests in the Operating Partnership into
shares of Common Stock, he may exceed the Ownership Limit. The Ownership Limit
Provision provides that George M. Marcus may acquire additional shares (up to
25% of the value of the outstanding shares of Common Stock) pursuant to
conversion rights or from other sources so long as the acquisition does not
result in the five largest beneficial owners of Common Stock holding more than
50% of the value of the outstanding shares of Common Stock. The Board of
Directors may waive the Ownership Limit if evidence satisfactory to the Board of
Directors and the Company's tax counsel is presented that such ownership will
not jeopardize the Company's status as a REIT. As a condition to such waiver,
the Board of Directors may require opinions of counsel satisfactory to it and/or
an undertaking from the applicant with respect to preserving the REIT status of
the Company. The Ownership Limit will not apply if the Board of Directors and
the stockholders of the Company determine that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT. Any transfer of shares of stock that would (i) create a direct ownership
of shares of Common Stock in excess of the Ownership Limit, (ii) result in the
shares of stock being owned by fewer than 100 persons, or (iii) result in the
Company's being "closely held" under Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the shares.
The Charter also provides that shares involved in a transfer or change in
capital structure that results in a person (other than George M. Marcus) owning
in excess of the Ownership Limit or would cause the Company to become "closely
held" within the meaning of Section 856(h) of the Code will automatically be
exchanged for shares of Excess Stock. All Excess Stock will be automatically
transferred, without action by the stockholder, to a person who is unaffiliated
with the Company, or the purported holder, as trustee (the "Trustee") for the
exclusive benefit of one or more organizations described in Code Sections
170(b), 170(c) or 501(c)(3) as charitable beneficiary (the
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"Charitable Beneficiary") and designated by resolution of the Board of
Directors. Such shares of Excess Stock held in trust are considered issued and
outstanding shares of stock of the Company. In general, the Trustee of such
shares is deemed to own the shares of Excess Stock held in trust for the
exclusive benefit of the Charitable Beneficiary on the day prior to the date of
the purported transfer or change in capital structure which resulted in the
automatic transfer.
The Ownership Limit provision will not be automatically removed even if the
real estate investment trust provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Except as otherwise described above, any
change in the Ownership Limit would require an amendment to the Charter. Such
amendments to the Charter require the affirmative vote of holders owning a
majority of the outstanding shares of Common Stock. In addition to preserving
the Company's status as a real estate investment trust, the Ownership Limit may
have the effect of precluding an acquisition of control of the Company without
the approval of the Board of Directors.
All certificates representing shares of equity stock of the Company will bear
a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of the value of the outstanding shares of Common Stock
(or 1% if there are fewer than 2,000 stockholders) must file written notice with
the Company containing the information specified in the Charter by January 31 of
each year. In addition, each stockholder shall upon demand be required to
disclose to the Company in writing such information with respect to the direct,
indirect and constructive ownership of shares of stock as the Board of Directors
deems necessary to determine the effect, if any, of such ownership on the
Company's status as a REIT and to ensure compliance with the Ownership Limit.
The articles supplementary, if applicable, for the Offered Securities may
also contain provisions that further restrict the ownership and transfer of the
Offered Securities. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to the Offered Securities.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Subject to limitations prescribed by Maryland law and the Company's Charter,
the Board of Directors is authorized to issue, from the authorized but unissued
shares of capital stock of the Company, Preferred Stock in such classes or
series as the Board of Directors may determine and to establish from time to
time the number of shares of Preferred Stock to be included in any such class or
series and to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of any such class or
series, and such other subjects or matters as may be fixed by resolution of the
Board of Directors. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of Preferred Stock will be described in the
Prospectus Supplement relating to that class or series, including a Prospectus
Supplement providing that Preferred Stock may be issuable upon the exercise of
Warrants issued by the Company. The description of Preferred Stock set forth
below and the description of the terms of a particular class or series of
Preferred Stock set forth in a Prospectus Supplement do not purport to be
complete and are qualified in their entirety by reference to the articles
supplementary relating to that class or series.
The preferences and other terms of the Preferred Stock of each class or
series will be fixed by the articles supplementary relating to such class or
series. A Prospectus Supplement, relating to each class or series, will specify
the terms of the Preferred Stock as follows:
(1) The title and stated value of such Preferred Stock;
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(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s), and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) Whether such Preferred Stock is cumulative or not and, if cumulative,
the date from which dividends on such Preferred Stock shall accumulate;
(5) The provision for a sinking fund, if any, for such Preferred Stock;
(6) The provision for redemption, if applicable, of such Preferred Stock;
(7) Any listing of such Preferred Stock on any securities exchange;
(8) The terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(9) A discussion of any material Federal income tax considerations
applicable to such Preferred Stock;
(10) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of the
Company as a REIT;
(11) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
(12) Any limitations on issuance of any class or series of preferred stock
ranking senior to or on a parity with such class or series of Preferred Stock
as to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
(14) Any voting rights of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock and Excess Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Stock with
respect to dividends rights or rights upon liquidation, dissolution or winding
up of the Company; and (iii) junior to all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
senior to the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any shares of any class or
series of Preferred Stock are convertible into Common Stock will be set forth in
the applicable Prospectus Supplement relating thereto. Such terms will include
the number of shares of Common Stock into which the shares of Preferred Stock
are convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of such class or series of Preferred Stock or the Company, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such class or series of Preferred
Stock.
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RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code) during the last half of a taxable
year, the stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months or during a proportionate part of
a shorter taxable year and certain percentages of the Company's gross income
must be from particular activities (see "Federal Income Tax Considerations --
Requirements for Qualification -- Gross Income Tests"). To enable the Company to
continue to qualify as a REIT, the Charter restricts the acquisition of shares
of common stock and preferred stock. The Charter provides that, subject to
certain exceptions specified in the Charter, no stockholder, other than George
M. Marcus, may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than 6.0% of the value of the outstanding common stock and
preferred stock of the Company. See "Description of Common Stock -- Restrictions
on Transfer." The applicable Prospectus Supplement will also specify any
additional ownership limitation relating to a series of Preferred Stock.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue Depositary Shares, each of which will represent a
fractional interest of a share of a particular class or series of Preferred
Stock, as specified in the applicable Prospectus Supplement. Shares of a class
or series of Preferred Stock represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (the "Preferred Stock Depositary") and the
holders from time to time of the depositary receipts issued by the Preferred
Stock Depositary which will evidence the Depositary Shares ("Depositary
Receipts"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular class or series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the class or series of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipt to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless such Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the extent
that it represents any class or series of Preferred Stock converted into Excess
Stock or otherwise converted or exchanged.
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WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted or converted into Excess
Stock or otherwise), the holders thereof will be entitled to delivery at such
office, to or upon each such holder's order, of the number of whole or
fractional shares of the class or series of Preferred Stock and any money or
other property represented by the Depositary Shares evidenced by such Depositary
Receipts. Holders of Depositary Receipts will be entitled to receive whole or
fractional shares of the related class or series of Preferred Stock on the basis
of the proportion of Preferred Stock represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such shares of
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of shares of Preferred Stock to be withdrawn, the Preferred Stock
Depositary will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of the Depositary Shares representing shares of such
class or series of Preferred Stock so redeemed, provided the Company shall have
paid in full to the Preferred Stock Depositary the redemption price of the
Preferred Stock to be redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The redemption price per
Depositary Share will be equal to the corresponding proportion of the redemption
price and any other amounts per share payable with respect to such class or
series of Preferred Stock. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that will not result in
the issuance of any Excess Stock.
From and after the date fixed for redemption, all dividends in respect of the
shares of a class of series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will no longer
be deemed to be outstanding and all rights of the holders of the Depositary
Receipts evidencing the Depositary Shares so called for redemption will cease,
except the right to receive any moneys payable upon such redemption and any
money or other property to which the holders of such Depositary Receipts were
entitled upon such redemption upon surrender thereof to the Preferred Stock
Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of Preferred
Stock represented by such Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing such
Depositary Shares. The Preferred Stock Depositary will not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect of
any such vote made, as long as any such action or non-action is in good faith
and does not result from negligence or willful misconduct of the Preferred Stock
Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share
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of Preferred Stock represented by the Depositary Share evidenced by such
Depositary Receipt as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock or
any other securities or property of the Company, except in connection with
certain exchanges in connection with the preservation of the Company's status as
a REIT. See "Description of Common Stock -- Restrictions on Transfer."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the applicable Preferred Stock Depositary with written
instructions to the Preferred Stock Depositary to instruct the Company to cause
conversion of a class or series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipts into whole shares of Common Stock,
other shares of a class or series of Preferred Stock (including Excess Stock) of
the Company or other shares of stock, and the Company has agreed that upon
receipt of such instructions and any amounts payable in respect thereof, it will
cause the conversion thereof utilizing the same procedures as those provided for
delivery of Preferred Stock to effect such conversion. If the Depositary Shares
evidenced by a Depositary Receipt are to be converted in part only, a Depositary
Receipt or Receipts will be issued for any Depositary Shares not to be
converted. No fractional shares of Common Stock will be issued upon conversion,
and if such conversion will result in a fractional share being issued, an amount
will be paid in cash by the Company equal to the value of the fractional
interest based upon the closing price of the Common Stock on the last business
day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing Depositary Shares which represent
the Preferred Stock and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Preferred Stock Depositary.
However, any amendment that materially and adversely alters the rights of the
holders of Depositary Receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related Preferred
Stock will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the applicable Depositary Shares
evidenced by the applicable Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the Deposit
Agreements, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related class or series
of Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of an outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series or class of Preferred Stock subject to such Deposit
Agreement consents to such termination, whereupon the Preferred Stock Depositary
will deliver or make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, such number of whole
or fractional shares of each Preferred Stock as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by Preferred Stock Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
preserve the Company's status as a REIT, then the Company will use its best
efforts to list each class or series of Preferred Stock issued upon surrender of
the related Depositary Shares. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of each
class or series of Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of the Depositary Receipts evidencing the Depositary
Shares representing such class or series of Preferred Stock or (iii) each share
of the related Preferred Stock shall have been converted into stock of the
Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary
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Receipts will pay the fees and expenses of the Preferred Stock Depositary for
any duties requested by such holders to be performed which are outside of those
expressly provided for in the Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary Receipts
any reports and communications from the Company which are received by the
Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Stock
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of a class or
series of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under the
Company's stock option plans and the M&M Stock Option). The Company may issue
Warrants for the purchase of Preferred Stock or Common Stock. Warrants may be
issued independently or together with any other Offered Securities offered by
any Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will be
issued; (4) the designation, terms and number of shares of Preferred Stock or
Common Stock purchasable upon exercise of such Warrants; (5) the designation and
terms of the Offered Securities, if any, with which such Warrants are issued and
the number of such Warrants issued with each such Offered Security; (6) the
date, if any, on and after which such Warrants and the related Preferred Stock
or Common Stock will be separately transferable; (7) the price at which each
share of Preferred Stock or Common Stock purchasable upon exercise of such
Warrants may be purchased; (8) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Warrants which may be exercised at any one
time; (10) information
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with respect to book-entry procedures, if any; (11) a discussion of certain
Federal income tax considerations; and (12) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
Certain provisions of the Company's Charter and Bylaws might discourage
certain types of transactions that involve an actual or threatened change of
control of the Company. The Ownership Limit may delay or impede a transaction or
a change in control of the Company that might involve a premium price for the
Company's capital stock or otherwise be in the best interest of the
stockholders. See "Description of Common Stock -- Restrictions on Transfer."
Pursuant to the Company's Charter and Bylaws, the Company's Board of Directors
is divided into three classes of directors, each class serving staggered
three-year terms. The staggered terms of directors may reduce the possibility of
a tender offer or an attempt to change control of the Company. The issuance of
Preferred Stock by the Board of Directors may also have the effect of delaying,
deferring or preventing a change in control of the Company. See "Description of
Preferred Stock -- General."
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material Federal income tax considerations is based
on current law and does not purport to deal with all aspects of taxation that
may be relevant to particular stockholders in light of their personal investment
or tax circumstances, or to certain types of stockholders (including insurance
companies, financial institutions and broker-dealers) subject to special
treatment under the Federal income tax laws. Certain Federal Income Tax
Considerations relevant to holders of the Offered Securities will be provided in
the applicable Prospectus Supplement relating thereto.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SHARES.
GENERAL
The Company believes that since its formation it has operated in a manner
that permits it to satisfy the requirements for taxation as a REIT under the
applicable provisions of the Code. The Company intends to continue to operate to
satisfy such requirement. No assurance can be given, however, that such
requirements will be met.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the Federal income tax treatment of a REIT and
its stockholders. This summary is qualified in its entirety by the applicable
Code provisions, rules and regulations thereunder, and administrative and
judicial interpretations thereof. Morrison & Foerster LLP has acted as tax
counsel to the Company in connection with Company's election to be taxed as a
REIT.
In the opinion of Morrison & Foerster LLP, commencing with the Company's
taxable year ended December 31, 1994, the Company has been organized in
conformity with the requirements for qualification as a REIT, and its method of
operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. Such representations
are set forth in a certificate of the Company filed with the opinion of Morrison
& Foerster LLP relating to certain tax matters which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, distribution levels
and diversity of stock ownership, the various qualification tests imposed under
the Code discussed below, the results of which will not be reviewed by Morrison
& Foerster LLP. Accordingly, no assurance can be given that the actual results
of the Company's operations for any particular taxable year will satisfy such
requirements. See " -- Failure to Qualify."
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently
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distributed to stockholders. This treatment substantially eliminates the "double
taxation" (i.e., taxation at both the corporate and stockholder levels) that
generally results from the use of corporate investment vehicles.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution to
its stockholders could be reduced.
TAXATION OF THE COMPANY
In any year in which the Company qualifies as a REIT, in general it will not
be subject to Federal income tax on that portion of its net income that it
distributes to stockholders. This treatment substantially eliminates the "double
taxation" on income at the corporate and stockholder levels that generally
results from investment in a corporation. However, the REIT will be subject to
federal income tax as follows: First, the REIT will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the REIT may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if the REIT has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the REIT has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the REIT should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), and has nonetheless maintained its
qualification as a real estate investment trust because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% or 95%
test. Sixth, if the REIT should fail to distribute during each calendar year at
least the sum of (i) 85% of its real estate investment trust ordinary income for
such year, (ii) 95% of its real estate investment trust capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the REIT would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if the REIT
acquires any asset from a C corporation (i.e., generally a corporation subject
to full corporate-level tax) in a transaction in which the basis of the asset in
the REIT's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the REIT recognizes gain
on the disposition of such asset during the 10 year period beginning on the date
on which such asset was acquired by the REIT, then, to the extent of any
built-in gain at the time of acquisition, such gain will be subject to tax at
the highest regular corporate rate, assuming the REIT will make an election
pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a real estate investment trust as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year; and (7) which
meets certain other tests, described below, regarding the nature of income and
assets. The Code provides that conditions (1) to (4), inclusive, must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made by the Company
to be taxed as a REIT.
In order to ensure compliance with the ownership tests described above, the
Company has placed certain restrictions on the transfer of the common stock and
preferred stock to prevent further concentration of stock ownership. Moreover,
to evidence compliance with these requirements, the Company must maintain
records which disclose the actual ownership of its outstanding common stock and
preferred stock. In fulfilling its obligations to maintain records, the Company
must and will demand written statements each year from the record holders of
designated percentages of its common stock and preferred stock disclosing the
actual owners of such common stock and preferred stock. A list of those persons
failing or refusing to comply with such demand must be maintained as
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part of the Company's records. A stockholder failing or refusing to comply with
the Company's written demand must submit with his tax returns a similar
statement disclosing the actual ownership of common stock and preferred stock
and certain other information. In addition, the Company's Charter provides
restrictions regarding the transfer of its shares that are intended to assist
the Company in continuing to satisfy the share ownership requirements. See
"Description of Capital Stock -- Restrictions on Transfer."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests, described below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described below.
ASSET TESTS
At the close of each quarter of the Company's taxable year, the Company must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by interests in real
property, interests in mortgages on real property, shares in other REITs, cash,
cash items and government securities (as well as certain temporary investments
in stock or debt instruments purchased with the proceeds of new capital raised
by the Company). Second, although the remaining 25% of the Company's assets
generally may be invested without restriction, securities in this class may not
exceed either (i) 5% of the value of the Company's total assets as to any one
non-government issuer, or (ii) 10% of the outstanding voting securities of any
one issuer. The Company's investment in the Properties through its interest in
the Operating Partnership constitutes qualified assets for purposes of the 75%
asset test. In addition, the Company may own 100% of "qualified real estate
investment trust subsidiaries" as defined in the Code. All assets, liabilities,
and items of income, deduction, and credit of such a qualified REIT subsidiary
will be treated as owned and realized directly by the Company.
GROSS INCOME TESTS
There are three separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For
purposes of these tests, where the Company invests in a partnership, the Company
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the partnership.
See "-- Tax Aspects of the Company's Investment in the Operating Partnerships --
General."
THE 75% TEST. At least 75% of the Company's gross income for the taxable year
must be "qualifying income." Qualifying income generally includes (i) rents from
real property (except as modified below); (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gains from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); and (vii) commitment fees received for agreeing to
make loans collateralized by mortgages on real property or to purchase or lease
real property.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "related party 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
generally 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. Rent or interest will not be
disqualified, however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the Company generally must not operate or manage the
property or furnish or render services to tenants, other than
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through an "independent contractor" from whom the Company derives no revenue.
The "independent contractor" requirement, however, does not apply to the extent
that the services provided by the Company are "usually or customarily rendered"
in connection with the rental of space for occupancy only, and are not otherwise
considered "rendered to the occupant."
The Company, through the Operating Partnership (which will not be an
independent contractor), will provide certain services with respect to the
Properties and any newly acquired Properties. The Company believes that the
services provided by the Operating Partnership are usually or customarily
rendered in connection with the rental of space of occupancy only, and therefore
that the provision of such services will not 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. The Company does not intend to
rent to related party tenants or to charge rents that would not qualify as rents
from real property because the rents are based on the income or profits of any
person (other than rents that are based on a fixed percentage or percentages of
receipts or sales).
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. For purposes of
determining whether the Company complies with the 75% and 95% income tests,
gross income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain property held by
the Company for at least four years and foreclosure property. See "-- Taxation
of the Company" and "-- Tax Aspects of the Company's Investment in the Operating
Partnership -- Sale of the Properties."
The Company believes that it and the Operating Partnership has held and
managed the Properties in a manner that has given rise to rental income
qualifying under the 75% and 95% gross income tests. Gains on sales of the
Properties will generally qualify under the 75% and 95% gross income tests.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the 75% and 95%
gross income 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. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. If these
relief provisions apply, the Company will, however, still be subject to a
special tax upon the greater of the amount by which it fails either the 75% or
95% gross income test for that year.
THE 30% TEST. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. The Company does not anticipate that it
will have any substantial difficulty in complying with this test.
ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its stockholders each year in
an amount at least equal to (A) the sum of (i) 95% of the Company's REIT taxable
income (computed without regard to the dividends paid deduction and the REIT's
net capital gain) and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
REIT taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular capital gains or ordinary corporate tax rates, as the case may
be. Furthermore, if the REIT 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 income for such year, and (iii) any undistributed
taxable
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income from prior periods, the REIT would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
The Company believes that it has made timely distributions sufficient to
satisfy the annual distribution requirements. In this regard, the partnership
agreement of the Operating Partnership authorizes the Company, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand. Further, as described below, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. To avoid any problem with the
95% distribution requirement, the Company will closely monitor the relationship
between its REIT taxable income and cash flow and, if necessary, will borrow
funds (or cause the Operating Partnership or other affiliates to borrow funds)
in order to satisfy the distribution requirement. The Company (through the
Operating Partnership) may be required to borrow funds at times when market
conditions are not favorable.
If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event, to the extent of the Company's current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether the Company would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
The following discussion summarizes certain Federal income tax considerations
applicable solely to the Company's investment in the Operating Partnership. The
discussion does not cover state or local tax laws or any Federal tax laws other
than income tax laws. It should be noted that the Company has not received an
opinion of counsel with respect to the disclosure in the following discussion.
GENERAL
The Company holds a direct ownership interest in the Operating Partnership.
In general, partnerships are "pass-through" entities which are not subject to
Federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company includes its
proportionate share of the foregoing Operating Partnership items for purposes of
the various REIT income tests and in the computation of its REIT taxable income.
See "-- Taxation of the Company" and "-- Requirements for Qualification -- Gross
Income Tests." Any resultant increase in the Company's REIT taxable income
increases its distribution requirements (see "-- Requirements for Qualification
- -- Annual Distribution Requirements"), but is not subject to Federal income tax
in the hands of the Company provided that such income is distributed by the
Company to its stockholders. Moreover, for purposes of the REIT asset tests (see
"-- Requirements for Qualification -- Asset Tests"), the Company includes its
proportionate share of assets held by the Operating Partnership.
ENTITY CLASSIFICATION
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The Company's interest in the Operating Partnership involves special tax
considerations, including the possibility of a challenge by the Internal Revenue
Service (the "Service") of the status of the Operating Partnership as a
partnership (as opposed to an association taxable as a corporation) for Federal
income tax purposes. If the Operating Partnership were to be treated as an
association, it would be taxable as a corporation. In such a situation, the
Operating Partnership would be required to pay income tax at corporate rates on
its net income, and distributions to its partners would constitute dividends
that would not be deductible in computing net income. In addition, the character
of the Company's assets and items of gross income would change, which would
preclude the Company from satisfying the asset test and possibly the income
tests (see "-- Requirements for Qualification -- Asset Tests" and "-- Gross
Income Tests"), and in turn would prevent the Company from qualifying as a REIT.
See "-- Requirements for Qualification -- Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. The Operating Partnership has received an opinion from Morrison &
Foerster LLP, counsel to the Company, stating that the Operating Partnership is
classified and treated as a partnership for federal income tax purposes. Such
legal opinion is not binding on the IRS. If the IRS were to challenge
successfully the Operating Partnership's status as a partnership for federal
income tax purposes, the Company would cease to qualify as a REIT and the
Company and the Operating Partnership would be subject to federal income tax
(including any alternative minimum tax) on their net income at corporate rates.
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 the
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 of contributed property at the time of
contribution, and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property (including the
Properties). Consequently, the partnership agreement of the Operating
Partnership requires such allocations to be made in a manner consistent with
Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets (including the Properties). This will tend to eliminate the
Book-Tax Difference over the life of the Operating Partnership. However, the
special allocation rules under Section 704(c) do not always entirely rectify the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands of the Operating Partnership may cause the company to be allocated
lower depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "-- Requirements for Qualification -- Annual Distribution
Requirements." In addition, the application of Section 704(c) to the Operating
Partnership is not entirely clear and may be affected by authority that may be
promulgated in the future.
SALE OF THE PROPERTIES
Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. The Company's share of any gain
realized by the Operating Partnership on the sale of any dealer property
generally will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "Taxation of the Company" and "--
Requirements for Qualification -- 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 Operating Partnership intends to hold the Properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating the Properties, and to make such
occasional sales of the Properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general the Properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.
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TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders 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. Stockholders that are corporations will not
be entitled to a dividends received deduction. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholders' tax basis taxable as capital gains (if the Common Stock is
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a stockholder
who has held such stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and to the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such stockholder (a) is a corporation or comes within
certain other 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 stockholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
It should be noted that the Company has not obtained an opinion of counsel
with respect to the foregoing disclosure in this subsection entitled "Taxation
of Stockholders".
OTHER TAX CONSIDERATIONS
DIVIDEND REINVESTMENT PROGRAM
Under the Company's dividend reinvestment program, stockholders participating
in the program will be deemed to have received the gross amount of any cash
distributions which would have been paid by the Company to such stockholders had
they not elected to participate. These deemed distributions will be treated as
actual distributions from the Company to the participating stockholders and will
retain the character and tax effect applicable to distributions from the Company
generally. See "Federal Income Tax Considerations -- Taxation of Stockholders."
Participants in the dividend reinvestment program are subject to Federal income
tax on the amount of the deemed distributions to the extent that such
distributions represent dividends or gains, even though they receive no cash.
Shares of Common Stock received under the program will have a holding period
beginning with the day after purchase, and a tax basis equal to their cost
(which is the gross amount of the deemed distribution).
STATE AND LOCAL TAXES
The Company and its stockholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of the Company and its
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stockholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisers regarding the effect of state and local tax laws on an investment in
the Common Stock of the Company.
It should be noted that the Company has not obtained an opinion of counsel
with respect to the foregoing disclosure in this subsection entitled "Other Tax
Considerations".
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PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents, which agents may be affiliated with the Company. Any
such underwriter or agent involved in the offer and sale of the Offered
Securities will be named in the applicable Prospectus Supplement.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions at a
fixed price or prices which may be changed, at prices related to the prevailing
market prices at the time of sale, or at negotiated prices. The Company also
may, from time to time, authorize underwriters acting as the Company's agents to
offer and sell the Offered Securities upon the terms and conditions as set forth
in the applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for whom they may act
as agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act. Any such
indemnification agreements will be described in the applicable Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, each series
of Offered Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the New York Stock Exchange. Any
shares of Common Stock sold pursuant to a Prospectus Supplement will be listed
on such exchange, subject to official notice of issuance. The Company may elect
to list any series of Preferred Stock, Depositary Shares or Warrants on any
exchange, but it is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of Offered Securities, but will not
be obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market for the Offered Securities.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize dealers acting as the Company's agent to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for, the Company in the ordinary
course of business.
23
<PAGE> 25
EXPERTS
The consolidated financial statements of the Company and Essex Partners
Properties (the Predecessor) as of December 31, 1995 and 1994, and for each of
the years ended December 31, 1995 and 1993, and the periods from January 1, 1994
through June 12, 1994 and from June 13, 1994 through December 31, 1994 have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. To the extent that KPMG Peat Marwick LLP audits and reports on
financial statements of the Company issued at future dates, and consents to the
use of their report thereon, such financial statements also will be incorporated
by reference in the registration statement in reliance upon their report and
said authority.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company by
Morrison & Foerster LLP, Palo Alto, California by attorneys licensed to
practice under Maryland State law. In addition, the description of the
Company's qualification and taxation as a REIT under the Code contained in this
Prospectus under the caption entitled "Federal Income Tax Considerations --
General" is based upon the opinion of Morrison & Foerster LLP.
24
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses, other than underwriting discounts and commissions, in
connection with the offering of the securities being registered are set forth
below. All of such expenses are estimates, except the Securities Act
registration fee.
<TABLE>
<S> <C>
Securities Act Registration Fee........................... $ 34,483
Printing fees............................................. 50,000
Legal fees and expenses................................... 75,000
Accounting fees and expenses.............................. 20,000
Blue sky fees and expenses................................ 15,000
Miscellaneous expenses.................................... 5,517
--------
Total.............................................. $200,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Maryland General Corporation Law (the "MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which limits such liability to the maximum extent permitted by
the MGCL.
The Charter authorizes the Company to obligate itself to indemnify its
present and former officers and directors and to pay or reimburse reasonable
expenses for such individuals in advance of the final disposition of a
proceeding to the maximum extent permitted from time to time by the laws of
Maryland. The Bylaws of the Company obligate it to indemnify, and advance
expenses to present, former and proposed directors and officers to the maximum
extent permitted by Maryland law. The MGCL permits a corporation to indemnify
its present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their services in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services, or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation. In addition, the MGCL requires the Company, as conditions to
advancing expenses, to obtain (i) a written affirmation by the director or
officer of his good-faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the applicable
Bylaws and (ii) a written statement by him or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met. The Bylaws of the Company also permit the
Company to provide indemnification and advance or expenses to a present or
former director or officer who served a predecessor of the Company in such
capacity, and to any employee or agent of the Company or a predecessor of the
Company. Finally, the MGCL requires a corporation (unless its charter provides
otherwise, which the Company's charter does not) to indemnify a director or
officer who has
II-1
<PAGE> 27
been successful, on the merits or otherwise, in the defense of any proceedings
to which he is made a party by reason of his service in that capacity.
The Company has entered into indemnification agreements with each of the
directors and executive officers of the Company to provide them with
indemnification to the full extent permitted by the Charter and Bylaws of the
Company.
The Company maintains an insurance policy which provides liability
coverage for directors and officers of the Company.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
<S> <C>
3.1 - Articles of Amendment and Restatement of Essex Property Trust, Inc.,
dated June 22, 1995 (incorporated by reference to Exhibit 3.1 to Essex
Property Trust, Inc.'s Quarterly Report on Form 10-Q for the quarter
ending June 30, 1995
3.2 - Bylaws of Essex Property Trust, Inc. (incorporated by reference to
Exhibit 3.2 to Essex Property Trust, Inc.'s Registration Statement on
Form S-11 (File No. 33-76578))
4.1* - Form of Certificate of Articles Supplementary for additional series of
Preferred Stock or for other classes or series of Essex Property Trust,
Inc.'s capital stock
4.2* - Form of Warrant Agreement
4.3* - Form of Deposit Agreement
5.1** - Opinion of Morrison & Foerster LLP
8.1** - Opinion of Morrison & Foerster LLP relating to certain tax matters
8.2 - Opinion of Morrison & Foerster LLP relating to certain tax matters
12.1 - Statement on Computation of ratio of earnings to fixed charges
(incorporated by reference to Exhibit 12.1 to Essex
Property Trust, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996)
23.1 - Consent of KPMG Peat Marwick LLP (included on page II-6)
23.2** - Consent of Morrison & Foerster LLP
24.1** - Power of Attorney
</TABLE>
(*) To be filed by amendment or incorporated by reference in connection
with the offering of the applicable Offered Securities.
(**) Previously filed.
II-2
<PAGE> 28
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of 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 price may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in this registration
statement or any material change to such information in this registration
statement; provided, however, that subparagraphs (i) and (ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) 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.
The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrants' annual reports pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance under Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
The undersigned Registrant undertakes that 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
II-3
<PAGE> 29
the provisions described under Item 15 of this registration statement, or
otherwise (other than insurance), such Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such 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, each 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 such Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California, on the 4th day of June, 1996.
ESSEX PROPERTY TRUST, INC.
By: /s/ Michael J. Schall
------------------------------------------
Michael J. Schall
Director, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------- -------------------------------------------- --------------------
<S> <C> <C>
/s/George M. Marcus* Chairman of the Board of Directors June 4, 1996
---------------------------
GEORGE M. MARCUS.
/s/William A. Millichap* Director June 4, 1996
---------------------------
WILLIAM A. MILLICHAP
/s/Keith R. Guericke* Chief Executive Officer and President June 4, 1996
---------------------------
KEITH R. GUERICKE (Principal Executive Officer)
/s/ Michael J. Schall Director, Executive Vice President and June 4, 1996
---------------------------
MICHAEL J. SCHALL Chief Financial Officer (Principal
Financial Officer)
/s/Mark Mikl* Controller (Principal Accounting Officer) June 4, 1996
---------------------------
MARK MIKL
/s/David W. Brady* Director June 4, 1996
---------------------------
DAVID W. BRADY
/s/Robert E. Larson* Director June 4, 1996
---------------------------
ROBERT E. LARSON
/s/Gary P. Martin* Director June 4, 1996
---------------------------
GARY P. MARTIN
/s/Issie N. Rabinovitch* Director June 4, 1996
---------------------------
ISSIE N. RABINOVITCH
/s/Thomas E. Randlett* Director June 4, 1996
---------------------------
THOMAS E. RANDLETT
*/s/ Michael J. Schall
---------------------------
MICHAEL. J. SCHALL
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE> 31
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Essex Property Trust, Inc.
We consent to incorporation by reference in the registration statement (No.
333-2054) on Form S-3, Amendment No. 3, of Essex Property Trust, Inc. of our
report dated February 7, 1996, relating to the consolidated balance sheets of
Essex Property Trust, Inc. as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows of
Essex Property Trust, Inc. for the year ended December 31, 1995 and related
schedule, and the period June 13, 1994 through December 31, 1994 and of Essex
Partners Properties for the period January 1, 1994 through June 12, 1994 and
for the year ending December 31, 1993, which report appears in this December
31, 1995 annual report on Form 10-K/A2 of Essex Property Trust, Inc. and to
reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
June 3, 1996
II-6
<PAGE> 32
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
----------- ----------------------------------------------------------
3.1 Articles of Amendment and Restatement of Essex Property Trust,
Inc., dated June 22, 1995 (incorporated by reference to Exhibit
3.1 to Essex Property Trust, Inc.'s Quarterly Report on Form
10-Q for the quarter ending June 30, 1995)
3.2 Bylaws of Essex Property Trust, Inc. (incorporated by
reference to Exhibit 3.2 to Essex Property Trust, Inc.'s
Registration Statement on Form S-11 (File No. 33-76578))
4.1* Form of Certificate of Articles Supplementary for additional
series of Preferred Stock or for other classes or series of
Essex Property Trust, Inc.'s capital stock
4.2* Form of Warrant Agreement
4.3* Form of Deposit Agreement
5.1** Opinion of Morrison & Foerster LLP
8.1** Opinion of Morrison & Foerster LLP relating to certain
tax matters
8.2 Opinion of Morrison & Foerster LLP relating to certain
tax matters
12.1 Statement on Computation of ratio of earnings to fixed charges
(incorporated by reference to Exhibit 12.1 to Essex Property
Trust, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996)
23.1 Consent of KPMG Peat Marwick LLP (included on page II-6)
23.2** Consent of Morrison & Foerster LLP
24.1** Power of Attorney
- -----------------------
(*) To be filed by amendment or incorporated by reference in connection with
the offering of the applicable Offered Securities.
(**) Previously filed.
<PAGE> 1
EXHIBIT 8.2
June 4, 1996
Essex Portfolio, L.P.
Essex Property Trust, Inc.
777 California Avenue
Palo Alto, CA 94304
Ladies and Gentlemen:
We have acted as counsel for Essex Portfolio, L.P. (the "Partnership"),
a California limited partnership, and Essex Property Trust, Inc. (the "General
Partner"), a Maryland corporation and the general partner of the Partnership, in
connection with the shelf registration statement file no. 333-2054 (the
"Registration Statement") and certain federal income tax matters relating to the
Partnership and the General Partner.
You have requested our opinion as to whether, since the effective date
of the Registration Statement, the Partnership has been classified as a
partnership for federal income tax purposes rather than an association or a
publicly traded partnership taxable as a corporation.
In rendering our opinion, we have relied on the following documents
(the "Reviewed Documents"):
1. The Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement");
2. The Articles of Incorporation of the General Partner dated March 11,
1994, and the amendments thereto to date;
3. The Registration Statement;
4. Representations made by the General Partner to Morrison & Foerster
LLP in a letter dated May 31, 1996 concerning the operation of the Partnership;
and
5. Such other documents as may have been presented to us by the General
Partner from time to time.
<PAGE> 2
Essex Portfolio, L.P.
Essex Property Trust, Inc.
June 4, 1996
Page Two
In general, the Internal Revenue Service and the courts have held that
an association of investors organized as a partnership may be taxed as a
corporation of the corporate characteristics of the entity are such that the
entity more nearly resembles a corporation than a partnership or trust. In
addition, the regulations state that a limited partnership will be treated as a
partnership for federal income tax purposes unless more than two of the
following four "major corporate characteristics" exist: (i) limited liability;
(ii) free transferability of interests; (iii) centralization of management; and
(iv) continuity of life. Treasury Regulations Section 301.7701-2(a)(3). We have
concluded, based on the Reviewed Documents and on certain assumptions set forth
below, that the Partnership has no more than two of the four major corporate
characteristics. Therefore, we are of the opinion that, the Partnership is
classified for federal income tax purposes as a partnership rather than as an
association taxable as a corporation.
Section 7704 of the Code provides that a publicly traded partnership is
taxable as a corporation, unless for each year of the partnership's existence at
least 90 percent of its gross income consists of certain types of passive
income. A publicly traded partnership is a partnership the interests in which
are traded on an established securities market or readily tradable on a
secondary market (or the substantial equivalent thereof). Treasury Regulations
promulgated pursuant to Code Section 7704 provide that interests in a
partnership will not be treated as readily tradable on a secondary market (or
the substantial equivalent thereof) if (i) all of the interests in the
partnership were issued in a transaction or transactions not registered under
the Securities Act of 1933; and (ii) the partnership does not have more than 100
partners at any time. Because the interests in the Partnership were not issued
in a registered transaction, and the General Partner has represented that the
Partnership has at all times had fewer than 100 partners, we are of the opinion
that the Partnership does not constitute a publicly traded partnership taxable
as a corporation.
In forming our opinion, we have assumed the authenticity of original
documents relied upon, the accuracy of copies and the genuineness of signatures.
We have assumed that (i) the Partnership has an objective to carry on business
for profit and divide the gains therefrom; (ii) on the date of this opinion and
at all times in the future, the Partnership is and will continue to be a limited
partnership; (iii) on the date of this opinion and at all times in the future,
the General Partner is and will continue to be a general partner of the
Partnership; (iv) the Partnership has taken, and will in the future continue to
take, all actions necessary under the laws of California (and any other
applicable jurisdiction) to permit it to conduct business in those states as a
partnership as contemplated by the Partnership Agreement; and (v) the
Partnership and the General Partner will be operated in accordance with the
terms and provisions of the Partnership
<PAGE> 3
Essex Portfolio, L.P.
Essex Property Trust, Inc.
June 4, 1996
Page Three
and the Company's Articles of Incorporation, respectively, as well as in the
manner described in the Registration Statement. Further, we have assumed that
the Partnership Agreement has been duly executed and the Certificates of Limited
Partnership of the Partnership have been duly executed and filed.
With respect to the representations of the General Partner as to the
operations of the Partnership, which we have relied upon, we note that the tax
consequences addressed herein may depend upon the actual occurrence of events in
the future, which events may or may not be consistent with such representations.
While we have reviewed such representations to ensure that they appear
reasonable, we have no assurance that these expectations will ultimately prove
to be accurate. To the extent the facts differ from those relied on herein, our
opinion should not be relied upon.
Our opinion is based on existing provisions of the Code, rules and
regulations thereunder, and judicial and administrative interpretations thereof,
which are subject to change, possibly retroactively. Furthermore, changes in the
statutes and regulations are continually being proposed. If enacted, such
proposals could alter the opinion expressed herein. Moreover, an opinion of
counsel is not binding on the Internal Revenue Service or on any court, and no
assurance can be given that the Internal Revenue Service or the courts would
take a position consistent with the opinion set forth herein. In issuing this
opinion, we have taken into account Treasury Regulation Section 1.701-2.
This opinion is furnished to you solely for your benefit and for use in
connection with the Registration Statement and may not be used for any other
purpose without prior written consent. This opinion is limited to the matters
expressly set forth herein and no opinion is to be implied or may be inferred
beyond the matters expressly so stated. We hereby consent to the filing of this
opinion as an Exhibit to the Registration Statement filed by the Company. In
giving such consent, we do not admit and we hereby disclaim 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 thereby 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.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 4
ESSEX PROPERTY TRUST, INC.
777 California Avenue
Palo Alto, CA 94304
May 31, 1996
Morrison & Foerster LLP
345 California Street
San Francisco, CA 94104
ATTN: Michael Powlen
Re: Essex Portfolio, L.P.,
a California Limited Partnership
Ladies and Gentlemen:
In connection with your issuance of an opinion concerning the
classification of Essex Portfolio, L.P. (the "Partnership"), a California
limited partnership, as a partnership for federal income tax purposes rather
than as an association or a publicly traded partnership taxable as a
corporation, Essex Property Trust, Inc. ("General Partner"), a Maryland
corporation and the general partner of the Partnership, makes the following
representations of fact:
1. The Partnership is organized and operated under the California
Revised Limited Partnership Act and has at all times been operated in accordance
with the Partnership's Agreement of Limited Partnership, dated as of March 15,
1994 (the "Partnership Agreement").
2. To the best of my knowledge, at all times since formation of the
Partnership, limited partners in the Partnership ("Limited Partners") have not
individually or in the aggregate owned, directly, indirectly or constructively
under Sections 267(b) or 707(b)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), more than 5% of the equity ownership of General Partner
or its affiliates. During the term of the Partnership it is not expected that
Limited Partners will at any time, individually or in the aggregate, own,
directly, indirectly or constructively under Sections 267(b) or 707(b)(1) of
the Code, more than 25% of the equity ownership of General Partner or its
affiliates.
3. General Partner exercises its decision-making authority under the
Partnership Agreement independently of the Limited Partners. General Partner is
not and will not be an
<PAGE> 5
Morrison & Foerster
May 31, 1996
Page Two
agent of, and is not and will not be directly or indirectly controlled by, any
of the Limited Partners.
4. General Partner exercises its sole and absolute discretion in an
independent manner in approving or denying transfers of limited partnership
interests. No side agreement or tacit understanding exists or will exist that
would impair General Partners' sole and absolute discretion in this regard.
Moreover, General Partner intends to approve a transfer of a limited partnership
interest in the Partnership only if the proposed transferee meets strict
investment criteria established by General Partner. General Partner believes
this representation imposes a meaningful restriction on the transferability of
limited partnership interest, in light of the current capital market for real
estate limited partnership interests.
5. General Partner takes such steps as it determines to be advisable or
necessary in order to preserve the tax status of the Partnership as an entity
not taxable as a corporation. Such steps include, without limitation,
prohibiting any amendment to the Partnership Agreement which would (a) allocate
to General Partner less than a 1% share of each item of partnership income,
loss, deduction and credit, (b) liberalize the transfer restrictions in the
Partnership Agreement, or (c) prevent the Partnership from legally terminating
and dissolving upon the withdrawal, adjudication of bankruptcy or dissolution
and liquidation of the General Partner, unless the Limited Partners unanimously
consent in writing to continue the Partnership and admit one or more general
partners.
6. The Partnership has and will have fewer than 100 partners at all
times during the term of the Partnership.
ESSEX PROPERTY TRUST, INC.
By: /s/ MICHAEL J. SCHALL
------------------------------------
Michael J. Schall
Its: Executive Vice President and Chief
Financial Officer
