<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
[_] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
[_] Definitive Additional Materials RULE 14A-6(e)(2))
[_] Soliciting Material Pursuant to
(S)240.14a-11(c) or (S)240.14a-12
ESSEX PROPERTY TRUST, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement \
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
ESSEX PROPERTY TRUST, INC.
777 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94304
Dear Stockholder: August , 1996
You are cordially invited to attend a Special Meeting of the stockholders
(the "Special Meeting") of Essex Property Trust, Inc., a Maryland corporation
(the "Company"), to be held on Friday, September 27, 1996 at 10:00 a.m. local
time, at the Stanford Park Hotel, 100 El Camino Real, Menlo Park, California
.
As described in the accompanying Proxy Statement, the Company has entered
into an agreement pursuant to which Tiger/Westbrook Real Estate Fund, L.P.,
and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P. (collectively,
"TREP Investor") will invest up to $40 million in the Company (the
"Transaction") through the purchase of the Company's 8.75% Convertible
Preferred Stock, Series 1996A (the "Preferred Stock") for a purchase price of
$25.00 per share. In the first phase of the Transaction, on July 1, 1996 TREP
investor purchased 340,000 shares of Preferred Stock for an aggregate purchase
price of $8.5 million and, through an affiliate, loaned the Company an
additional $11.5 million. Under the second phase of the Transaction, the
Company expects to complete the entire Transaction by TREP Investor's
exchanging the $11.5 million loan for shares of Preferred Stock and purchasing
for cash up to an additional $20 million in shares of Preferred Stock.
Completion of the entire second phase of the Transaction will depend on you,
the stockholders, to vote in favor of the Transaction at the Special Meeting.
The first phase of the Transaction has been completed and does not require
the approval of the stockholders. Stockholder approval is, however, required
to complete the entire $40 million investment, and at the Special Meeting you
will be asked for such approval. The sale of $40 million of Preferred Stock
will help the Company to grow in the near term.
At the Special Meeting, you will also be asked to approve certain proposed
amendments to the Company's Charter that are necessary or desirable in
connection with the Transaction, as described in the attached Proxy Statement.
As you may know, in early August 1996, the Company completed a follow-on,
underwritten public offering of 2,530,000 shares of its Common Stock at a per
share price of $22.75. The Company believes that the announcement of the
Transaction with TREP Investor was an important factor in the successful
completion of this offering.
Your management and Board of Directors unanimously recommend that you vote
FOR approving the entire Transaction and FOR the other proposals being
submitted.
Details of the Transaction (including the potential material beneficial and
material adverse effects of the Transaction) and the other proposals are set
forth in the accompanying Proxy Statement, which I urge you to read carefully.
Your vote is important. I hope that you will be able to attend the meeting in
person. However, whether or not you plan to attend the meeting, please
indicate your vote, sign, date and return the enclosed proxy card promptly.
I look forward to seeing you at the Friday, September 27, 1996 Special
Meeting.
Sincerely,
Keith R. Guericke
Chief Executive Officer and
President
<PAGE>
ESSEX PROPERTY TRUST, INC.
777 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94304
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 27, 1996
---------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the "Special
Meeting") of Essex Property Trust, Inc., a Maryland corporation (the
"Company"), will be held on September 27, 1996 at 10:00 a.m. local time, at
the Stanford Park Hotel, 100 El Camino Real, Menlo Park, California, for the
following purposes:
1. To consider and vote upon the terms of a Stock Purchase Agreement, as
amended, among the Company, Tiger/Westbrook Real Estate Fund, L.P., a
Delaware limited partnership, and Tiger/Westbrook Real Estate Co-Investment
Partnership, L.P., a Delaware limited partnership (collectively, "TREP
Investor") and the transactions contemplated thereby (collectively, the
"Transaction"), including the investment by TREP Investor of up to $40
million in the Company through the purchase by TREP Investor of up to
1,600,000 shares of the Company's 8.75% Convertible Preferred Stock, Series
1996A (the "Preferred Stock"), which Preferred Stock is convertible into
shares of the Company's common stock under terms and conditions more
particularly described in the attached Proxy Statement, for a purchase
price of $25.000 per share, which investment will be consummated in two
phases: (a) the purchase by TREP Investor of 340,000 shares of Preferred
Stock, for an aggregate purchase price of $8.5 million, paid in cash, which
purchase was completed on July 1, 1996; and (b) the purchase by TREP
Investor of up to 1,260,000 additional shares of Preferred Stock, the
purchase price for which will be comprised of (A) exchanging $11.5 million,
constituting the outstanding principal balance of a loan (the "TREP Loan"),
in the maximum principal amount of $31.5 million (the "Maximum Loan
Principal Amount"), made to the Company on July 1, 1996 by T/W Essex
Funding, L.L.C., a Delaware limited liability company, an affiliate of TREP
Investor, for shares of Preferred Stock, and (B) utilizing funds otherwise
comprising the remainder of the Maximum Loan Principal Amount to acquire
the remaining shares of Preferred Stock, as more fully described in the
attached Proxy Statement. Completion of the purchase of up to 1,260,000
additional shares of Preferred Stock is scheduled to occur on or prior to
June 20, 1997.
The Transaction also involves a number of additional terms, as more fully
described in the attached Proxy Statement, including, without limitation,
the following: (i) the right of the holders of Preferred Stock to nominate
and elect, voting as a separate class, one director to the Board and, if at
the Special Meeting the stockholders do not approve the proposed amendment
to the charter of the Company (the "Charter") to provide for certain
changes in the membership of the Board in the event of the breach of
certain protective provisions relating to the Preferred Stock (as more
fully discussed in the attached Proxy Statement), to nominate and elect,
voting as a separate class, up to four additional directors to the Board,
in the event of a sustained failure to pay dividends with respect to the
Preferred Stock or a breach of certain protective provisions, as more
particularly described in the attached Proxy Statement, for an aggregate of
five directors, representing approximately 33% of the directors on the
Board; (ii) the grant to TREP Investor of certain rights to information
regarding the Company; (iii) limitations on the Company's ability to engage
in certain transactions and certain corporate actions without the consent
of the holders of Preferred Stock; (iv) provisions that restrict the
holders of Preferred Stock from transferring the shares of Preferred Stock
except in accordance with applicable securities laws and subject to the
ownership limits in the Charter; (v) the grant to TREP Investor of certain
additional rights to purchase, under certain circumstances, shares of the
Company's stock in connection with future stock issuances by the Company;
(vi) limitations on the rights of certain holders of Common Stock and of
limited partnership interests in Essex Portfolio, L.P., a California
limited partnership (the "Operating Partnership") to transfer their shares
of Common Stock or limited partnership interests in the Operating
Partnership; and (vii) the grant to the holders of Preferred
1
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Stock of certain registration rights to enable such holders to resell
outstanding shares of Preferred Stock (and/or shares of Common Stock issued
upon conversion of the shares of Preferred Stock) to the public under
certain conditions (Proposal 1).
2. To consider and vote upon certain proposed amendments to the Charter,
as more particularly described in the attached Proxy Statement, that are
necessary or desirable in connection with the Transaction to amend the
limitations on ownership of the Company's stock to facilitate the
acquisition of the Company's stock by TREP Investor and to provide the
Board of Directors with increased flexibility to waive the Charter
ownership limitations in certain circumstances. (Proposal 2).
3. To consider and vote upon certain proposed amendments to the Charter,
as more particularly described in the attached Proxy Statement, to provide
for certain changes in the membership of the Board of Directors in the
event of the breach of certain protective provisions of the Charter
relating to the Preferred Stock. (Proposal 3).
Approval of each of the Transaction and Proposal 2 is conditioned upon
approval of the other (but is not conditioned on approval of Proposal 3).
Failure by the stockholders to approve the Transaction or Proposal 2 at the
Special Meeting will result in neither the Transaction nor Proposal 2 being
approved (except for certain portions of the Transaction with respect to which
stockholder approval is not required, as more particularly described in the
attached Proxy Statement) and may require the Company to pay a yield
maintenance fee in connection with the TREP Loan. Failure by the stockholders
to approve Proposal 3 will not affect the approval of the Transaction or
Proposal 2.
Pursuant to the Company's By-laws, the Company's Board of Directors has
fixed the close of business on August 23, 1996 as the record date for the
determination of stockholders of the Company entitled to notice of and to vote
at the Special Meeting. Therefore, only record holders of Common Stock at the
close of business on that date are entitled to notice of and to vote at the
Special Meeting.
We urge you to review carefully the enclosed materials. Your vote is
important. All stockholders are urged to attend the meeting in person or by
proxy. If you receive more than one proxy card because your shares are
registered in different names or at different addresses, please indicate your
vote, sign, date and return each proxy card so that all of your shares will be
represented at the Special Meeting.
By Order of the Board of Directors
Keith R. Guericke
-------------------------------
Chief Executive Officer and
President
Palo Alto, California
August , 1996
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY, THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE INDICATE YOUR VOTE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY,
IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED,
INCLUDING BY VOTING AT THE MEETING.
2
<PAGE>
ESSEX PROPERTY TRUST, INC.
777 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94304
----------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 27, 1996
----------------
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board of Directors" or the "Board")
of Essex Property Trust, Inc., a Maryland corporation (the "Company"). The
proxies will be exercised at a Special Meeting of the stockholders of the
Company (as the same may be postponed or adjourned, the "Special Meeting") to
be held on Friday, September 27, 1996, at 10:00 a.m. local time, at the
Stanford Park Hotel, 100 El Camino Real, Menlo Park, California.
This Proxy Statement and the accompanying form of proxy are being first
mailed to the stockholders of the Company on or about August , 1996.
Any proxy given pursuant to this solicitation may be revoked at any time
before it is voted by (i) filing prior to the Special Meeting a written notice
of revocation bearing a later date with the Company (to the attention of Mr.
Jordan E. Ritter); (ii) delivering to the Company a duly executed proxy
bearing a later date; or (iii) attending the Special Meeting and voting in
person.
At the Special Meeting, holders of the common stock, par value $0.0001 per
share (the "Common Stock"), of the Company will be asked to consider and vote
upon the terms of a Stock Purchase Agreement (as amended, the "Stock Purchase
Agreement") among the Company, Tiger/Westbrook Real Estate Fund, L.P., a
Delaware limited partnership, and Tiger/Westbrook Real Estate Co-Investment
Partnership, L.P., a Delaware limited partnership (Tiger/Westbrook Real Estate
Fund, L.P., and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P.,
being collectively or individually, as the context requires, referred to
herein as "TREP Investor"), and the transactions contemplated thereby
(collectively, the "Transaction"), including the investment by TREP Investor
of up to $40 million in the Company through the purchase by TREP Investor of
up to 1,600,000 shares of the Company's 8.75% Convertible Preferred Stock,
Series 1996A (the "Preferred Stock"), for a purchase price of $25.000 per
share, as more fully described in this Proxy Statement. The investment will be
consummated in two phases: (i) the purchase by TREP Investor of 340,000 shares
of Preferred Stock, for an aggregate purchase price of $8.5 million, paid in
cash, which purchase was completed on July 1, 1996; and (ii) the purchase by
TREP Investor of up to 1,260,000 additional shares of Preferred Stock, the
purchase price for which will be comprised of (A) exchanging $11.5 million,
constituting the outstanding principal balance of a loan (the "TREP Loan"), in
the maximum principal amount of $31.5 million (the "Maximum Loan Principal
Amount"), made to the Company on July 1, 1996 by T/W Essex Funding, L.L.C., a
Delaware limited liability company ("TREP Funding"), an affiliate of TREP
Investor, for shares of Preferred Stock, and (B) utilizing funds otherwise
comprising the remainder of the Maximum Loan Principal Amount to acquire the
remaining shares of Preferred Stock, as more fully described in this Proxy
Statement. Completion of the purchase of up to 1,260,000 additional shares of
Preferred Stock is scheduled to occur on or prior to June 20, 1997.
As of the date of this Proxy Statement, there are 340,000 outstanding shares
of Preferred Stock. TREP Investor owns 100% of the 340,000 outstanding shares
of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or
approximately 3.63% of the outstanding shares of Common Stock as of the Record
Date (as hereinafter defined) assuming the exchange of all limited partnership
interests in Essex Portfolio, L.P., a California limited partnership (the
"Operating Partnership"), into shares of Common Stock, and the conversion of
all outstanding shares of Preferred Stock into shares of Common Stock at a
conversion price of $21.875 per
1
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share ("fully-diluted basis"). If TREP Investor acquires all 1,600,000 shares
of Preferred Stock directly from the Company, as contemplated by the
Transaction, and assuming no other change in the number of outstanding shares
of Common Stock or shares of Preferred Stock and further assuming TREP
Investor does not dispose of all or any portion of its shares of Preferred
Stock, TREP Investor will own 100% of the 1,600,000 outstanding shares of
Preferred Stock, which are equivalent to 1,828,571 shares of Common Stock or
approximately 14.64% of the outstanding shares of Common Stock on a fully-
diluted basis.
From and after June 20, 1997, 400,000 shares of Preferred Stock shall become
convertible into Common Stock. Thereafter, at the beginning of each of the
next three three-month periods, an additional 400,000 shares of Preferred
Stock shall become convertible into Common Stock, provided that, in the case
of the voluntary or involuntary liquidation, dissolution or winding up of the
Company, all outstanding shares of Preferred Stock shall, at the option of the
holder thereof, become immediately convertible into Common Stock at the
Conversion Price (as hereinafter defined).
The Transaction also involves a number of additional terms (the "Additional
Terms"), as more fully described in this Proxy Statement, including, without
limitation, the following: (i) the right of the holders of Preferred Stock to
nominate and elect, voting as a separate class, one director to the Board and,
if at the Special Meeting the stockholders do not approve the proposed
amendment to the charter of the Company (the "Charter") to provide for certain
changes in the membership of the Board in the event of the breach of certain
protective provisions relating to the Preferred Stock (as more fully discussed
in this Proxy Statement), to nominate and elect, voting as a separate class,
up to four additional directors to the Board, in the event of a sustained
failure to pay dividends with respect to the Preferred Stock or a breach of
certain protective provisions, as more particularly described in this Proxy
Statement, for an aggregate of five directors, representing approximately 33%
of the directors on the Board; (ii) the grant to TREP Investor of certain
rights to information regarding the Company; (iii) limitations on the
Company's ability to engage in certain transactions and certain corporate
actions without the consent of the holders of the Preferred Stock; (iv)
provisions that restrict the holders of Preferred Stock from transferring the
shares of Preferred Stock except in accordance with applicable securities laws
and subject to the ownership limits in the Charter; (v) the grant to TREP
Investor of certain additional rights to purchase, under certain
circumstances, shares of the Company's stock in connection with future stock
issuances by the Company; (vi) limitations on the rights of certain holders of
Common Stock and of limited partnership interests in the Operating Partnership
to transfer their shares of Common Stock or limited partnership interests in
the Operating Partnership; and (vii) the grant to the holders of Preferred
Stock of certain registration rights to enable such holders to resell
outstanding shares of Preferred Stock (and/or shares of Common Stock issuable
upon conversion of shares of Preferred Stock) to the public under certain
conditions.
The first phase of the Transaction (including, without limitation, the
purchase by TREP Investor of 340,000 shares of Preferred Stock and the making
by TREP Funding of the TREP Loan to the Company) was completed and all of the
Additional Terms were effective as of July 1, 1996, and neither the first
phase of the Transaction nor any of the Additional Terms (including, without
limitation, all of the approval rights, preferences, privileges and other
rights and terms of the Preferred Stock) requires the approval of the
stockholders of the Company. Stockholder approval is, however, required to
complete the entire $40 million investment, in the manner contemplated by the
Company, and, consequently, the Company is relying on such approval for the
Company to maximize the potential benefits that the Company believes the
Transaction can provide if the Transaction is fully consummated, as more
particularly discussed in this Proxy Statement.
A vote in favor of the Transaction also will constitute a vote in favor of
the transactions contemplated by the Stock Purchase Agreement, all of the
other documents referenced therein or executed in connection therewith (as
more fully described in this Proxy Statement), and the terms thereof,
including each of the additional matters set forth above. The Company does not
expect the Transaction to have a material effect on the current management of
the Company.
The Company is seeking stockholder approval of the Transaction pursuant to
certain requirements of the New York Stock Exchange, Inc. regarding the
continued listing of the Common Stock on the New York Stock
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Exchange ("NYSE"). Approval of the Transaction is not required by Maryland
law, the Charter or the Company's Bylaws, as amended (the "Bylaws"). If the
Company were to consummate the entire Transaction without stockholder
approval, the Common Stock could not remain listed on the NYSE.
At the Special Meeting, the stockholders also will be asked to approve
proposed amendments to the Charter that are necessary or desirable in
connection with the Transaction (i) to amend the limitations on ownership of
the Company's stock to facilitate the acquisition of the Company's stock by
TREP Investor and to provide the Board with increased flexibility to waive the
Charter ownership limitations in certain circumstances, and (ii) to provide
for certain changes in the composition of the Board of Directors in the event
of the breach of certain protective provisions of the Charter relating to the
Preferred Stock.
Approval of each of the Transaction and Proposal 2 (as hereinafter defined)
is conditioned upon approval of the other (but is not conditioned on approval
of Proposal 3 (as hereinafter defined)). Failure by the stockholders to
approve the Transaction at the Special Meeting or Proposal 2 will result in
neither the Transaction nor Proposal 2 being approved (except for certain
portions of the Transaction with respect to which stockholder approval is not
required, as more particularly described in this Proxy Statement) and may
require the Company to pay a yield maintenance fee in connection with the TREP
Loan. Failure by the stockholders to approve Proposal 3 will not affect the
approval of the Transaction or Proposal 2.
For a discussion of the potential material beneficial and adverse effects of
the Transaction, see "Potential Material Beneficial Effects of the
Transaction" and "Potential Material Adverse Effects of the Transaction".
----------------
IN DETERMINING WHETHER TO APPROVE THE TRANSACTION AND THE AMENDMENTS TO THE
CHARTER, STOCKHOLDERS SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION
INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.
----------------
The date of this Proxy Statement is August , 1996.
3
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
SUMMARY................................................................... 11
The Special Meeting...................................................... 11
General................................................................. 11
Vote by Proxy........................................................... 13
Voting of Shares........................................................ 13
Quorum.................................................................. 13
Reasons for Seeking Stockholder Approval................................ 14
Vote Required........................................................... 14
Approval of the Investment in the Company by TREP Investor (Proposal 1).. 15
Terms of the Transaction................................................ 15
Potential Material Beneficial Effects of the Transaction................ 20
Potential Material Adverse Effects of the Transaction................... 22
Conflicts of Interest; Interests of Certain Persons..................... 23
Potential Effects of Stockholder Approval or Disapproval of the
Transaction............................................................ 23
Recommendation of the Board; Factors and Conclusions of the Board
Involved in Its Determination.......................................... 24
Proposed Amendments to the Charter....................................... 26
Amending the Ownership Limitations (Proposal 2)......................... 26
Removal of Directors (Proposal 3)....................................... 26
THE SPECIAL MEETING....................................................... 27
Outstanding Shares and Voting Rights..................................... 27
Record Date............................................................. 27
Quorum.................................................................. 27
Voting Rights........................................................... 27
No Appraisal Rights..................................................... 27
Reason for Seeking Stockholder Approval................................. 27
Presence of Accountants................................................. 27
Vote Required............................................................ 27
Vote Required to Approve the Transaction................................ 27
Vote Required to Approve the Amendment to Article EIGHTH of the Charter. 28
Vote Required to Approve the Amendment to Article SIXTH of the Charter.. 28
Proxies.................................................................. 28
APPROVAL OF THE INVESTMENT IN THE COMPANY BY TREP INVESTOR (PROPOSAL 1)... 30
Information About the Company............................................ 30
Information About TREP Investor.......................................... 30
Background of the Transaction............................................ 31
Terms of the Transaction................................................. 32
Purchase of Preferred Stock............................................. 32
Option A and Option B................................................... 32
Option D................................................................ 32
Option C................................................................ 33
Listing of the Preferred Stock and the Common Stock Upon Conversion of
the Preferred Stock.................................................... 33
Preferred Stockholders' Stock Ownership................................. 34
Conversion of Preferred Stock to Common Stock........................... 34
Representation on the Board............................................. 34
</TABLE>
4
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<TABLE>
<S> <C>
PAGE
----
Information Rights....................................................... 34
Participation Rights..................................................... 35
Limitations on Transactions and Corporate Actions........................ 35
Resale Restrictions...................................................... 35
Modifications to Structure for Tax and ERISA Purposes.................... 36
Registration Rights...................................................... 36
Limitations on Certain Stockholders...................................... 36
Solicitation Restrictions................................................ 36
Negotiation of Management Agreement...................................... 36
Use of Proceeds.......................................................... 36
Conditions to Closing.................................................... 37
Yield Maintenance Fee.................................................... 37
Amendment or Termination of the Stock Purchase Agreement................. 37
TREP Loan Terms........................................................... 37
Principal Amount......................................................... 37
Maturity................................................................. 37
Interest................................................................. 38
Yield Maintenance Fee.................................................... 38
Guaranty................................................................. 38
Registration Rights Agreement............................................. 38
Registration of Stock.................................................... 38
Shelf Registration....................................................... 38
Company Registration..................................................... 39
Terms of the Preferred Stock.............................................. 39
Source of Preferred Stock................................................ 39
Dividends................................................................ 39
Voting Rights of Holders of Preferred Stock.............................. 40
Prohibited Actions....................................................... 40
Liquidation Preferences.................................................. 42
Conversion of Preferred Stock Into Common Stock.......................... 42
Redemption Rights Upon Company Required Mandatory Conversion............. 44
Ranking of Preferred Stock............................................... 44
Description of Participation Rights....................................... 44
Participation Rights..................................................... 44
Potential Material Beneficial Effects of the Transaction.................. 46
Increased Capital........................................................ 46
Indirect Affiliation with TREP Investor and Its Affiliates............... 46
Potential Return to Stockholders......................................... 46
Access to Future Capital................................................. 47
Reduction of Company Debt................................................ 47
Potential Material Adverse Effects of the Transaction..................... 47
Substantial Ownership of Common Stock.................................... 47
Limitations on Transactions and Corporate Actions........................ 47
Ownership and Voting Dilution............................................ 47
Effect on Market Price of Common Stock................................... 47
Risk to Dividends........................................................ 48
Chilling Effect.......................................................... 48
</TABLE>
5
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Registration Rights..................................................... 48
Rights of Preferred Stock............................................... 48
Conflicts of Interest; Interests of Certain Persons...................... 48
Preferred Stock Directors............................................... 48
Effect on Restricted Stockholders....................................... 48
Potential Effects of Stockholder Approval or Disapproval of the Transac-
tion.................................................................... 48
Effects of Stockholder Approval......................................... 48
Effects of Failure to Approve the Transaction........................... 49
Recommendation of the Board; Factors and Conclusions of the Board In-
volved in Its Determination............................................. 49
Beneficial Ownership of Common Stock..................................... 51
Director Elected by the Holders of the Preferred Stock................... 53
Required Vote and Related Matters of the Company......................... 54
Vote Required to Approve the Transaction................................ 54
PROPOSAL TO AMEND THE OWNERSHIP RESTRICTIONS (PROPOSAL 2)................. 55
Summary of Relevant Portions of the Current Article EIGHTH............... 55
Reasons for and Possible Effects of the Amendment........................ 55
Text of Amendment........................................................ 56
Required Vote............................................................ 57
PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES
(PROPOSAL 3)............................................................. 58
Summary of Relevant Portions of the Current Article SIXTH, as Modified by
the Articles
Supplementary........................................................... 58
Reasons for and Possible Effects of the Amendment........................ 58
Text of Amendment........................................................ 59
Required Vote............................................................ 60
POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSALS............................ 61
Possible Anti-Takeover Effect of the Transaction (Proposal 1)............ 61
Possible Anti-Takeover Effect of the Proposal to Amend the Ownership Re-
strictions (Proposal 2)................................................. 61
Possible Anti-Takeover Effect of the Proposal to Modify the Composition
of the Board in Certain Circumstances (Proposal 3)...................... 61
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 62
OTHER MATTERS............................................................. 62
APPENDICES
Appendix A Stock Purchase Agreement and Amendment Number One Thereto..... A-1
Appendix B Loan Facility Agreement and Amendment Number One Thereto...... B-1
Appendix C Registration Rights Agreement................................. C-1
Appendix D Articles Supplementary........................................ D-1
</TABLE>
6
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GLOSSARY OF DEFINED TERMS
PAGE
Additional Terms...........................................................
Articles Supplementary.....................................................
Authorized GP Distributions................................................
Board of Directors.........................................................
Board......................................................................
Bylaws.....................................................................
Capital Stock..............................................................
Change of Control..........................................................
Charter Breach.............................................................
Charter....................................................................
Code.......................................................................
Commercial Properties......................................................
Commission.................................................................
Common Stock...............................................................
Company Notice.............................................................
Company....................................................................
Continuing Directors.......................................................
Conversion Options.........................................................
Conversion Price...........................................................
Convertible Securities.....................................................
Current Market Price.......................................................
Defining Event.............................................................
Dividend Payment Date......................................................
Dividend Record Date.......................................................
Dividend Default...........................................................
ERISA......................................................................
EPMC.......................................................................
Exception Section..........................................................
Exchange Act...............................................................
Executive Committee........................................................
Executive Officers.........................................................
Exercise Restriction.......................................................
Financial Occupancy........................................................
Five or Fewer Requirement..................................................
Fully--diluted basis.......................................................
7
<PAGE>
GLOSSARY OF DEFINED TERMS (CONT.)
GMMS.......................................................................
Herakles...................................................................
IRS Approval...............................................................
IRS Ruling.................................................................
Issuance Date..............................................................
Junior Shares..............................................................
M & M......................................................................
M & M 401(k) Plan..........................................................
Material Adverse Effect....................................................
Maximum Loan Principal Amount..............................................
Mr. Hartman................................................................
NYSE.......................................................................
Operating Partnership......................................................
Option.....................................................................
Options....................................................................
Ownership Limit............................................................
Ownership Limits...........................................................
Phase 2....................................................................
Preferred Stock............................................................
Properties.................................................................
Property...................................................................
Proposal 1.................................................................
Proposal 2.................................................................
Proposal 3.................................................................
Record Date................................................................
Redemption Percentage......................................................
REIT.......................................................................
Restricted Stockholders....................................................
SDAT.......................................................................
Securities Act.............................................................
Securities.................................................................
Shelf Registration.........................................................
Special Meeting............................................................
Stated Value...............................................................
8
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GLOSSARY OF DEFINED TERMS (CONT.)
Stock Purchase Agreement...................................................
Supplemental Offering......................................................
Transaction................................................................
TREP Loan..................................................................
TREP Investor..............................................................
TREP Funding...............................................................
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SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. This Summary is not intended to be complete and is subject to and
qualified in its entirety by reference to the more detailed information set
forth elsewhere in this Proxy Statement and the appendices attached hereto.
Stockholders are urged to read this Proxy Statement in its entirety. As used
herein, the term the "Company" means Essex Property Trust, Inc., a Maryland
corporation. Certain terms used in this Summary may be defined elsewhere in
this Proxy Statement.
THE SPECIAL MEETING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board of Directors" or
the "Board"). The proxies will be exercised at the Special Meeting of the
stockholders of the Company (as the same may be postponed or adjourned, the
"Special Meeting") to be held on Friday, September 27, 1996, at 10:00 a.m.
local time, at the Stanford Park Hotel, 100 El Camino Real, Menlo Park,
California.
At the Special Meeting, holders of the Common Stock will be asked to consider
and vote upon the terms of the Stock Purchase Agreement and the Transaction,
including the investment by TREP Investor of up to $40 million in the Company
through the purchase by TREP Investor of up to 1,600,000 shares of Preferred
Stock, for a purchase price of $25.000 per share, as more fully described in
this Proxy Statement. The investment will be consummated in two phases: (i) the
purchase by TREP Investor of 340,000 shares of Preferred Stock, for an
aggregate purchase price of $8.5 million, paid in cash, which purchase was
completed on July 1, 1996; and (ii) the purchase by TREP Investor of up to
1,260,000 additional shares of Preferred Stock, the purchase price for which
will be comprised of (A) exchanging $11.5 million, constituting the outstanding
principal balance of the TREP Loan for shares of Preferred Stock, and (B)
utilizing funds otherwise comprising the remainder of the Maximum Loan
Principal Amount to acquire the remaining shares of Preferred Stock, as more
fully described in this Proxy Statement. Completion of the purchase of up to
1,260,000 additional shares of Preferred Stock is scheduled to occur on or
prior to June 20, 1997.
As of the date of this Proxy Statement, there are 340,000 outstanding shares
of Preferred Stock. TREP Investor owns 100% of the 340,000 outstanding shares
of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or
approximately 3.52% of the outstanding shares of Common Stock as of the Record
Date on a fully-diluted basis. If TREP Investor acquires all 1,600,000 shares
of Preferred Stock directly from the Company, as contemplated by the
Transaction, and assuming no other change in the number of outstanding shares
of Common Stock or shares of Preferred Stock and further assuming TREP Investor
does not dispose of all or any portion of its shares of Preferred Stock, TREP
Investor will own 100% of the 1,600,000 outstanding shares of Preferred Stock,
which are equivalent to 1,828,571 shares of Common Stock or approximately
14.64% of the outstanding shares of Common Stock on a fully-diluted basis.
From and after June 20, 1997, 400,000 shares of Preferred Stock shall become
convertible into Common Stock. Thereafter, at the beginning of each of the next
three three-month periods, an additional 400,000 shares of Preferred Stock
shall become convertible into Common Stock, provided that, in the case of the
voluntary or involuntary liquidation, dissolution or winding up of the Company,
all outstanding shares of Preferred Stock shall, at the option of the holder
thereof, become immediately convertible into Common Stock at the Conversion
Price. See "Terms of the Preferred Stock--Conversion of Preferred Stock Into
Common Stock."
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The Transaction also involves the Additional Terms, as more fully described
in this Proxy Statement, including, without limitation, the following: (i) the
right of the holders of Preferred Stock to nominate and elect, voting as a
separate class, one director to the Board and, if at the Special Meeting the
stockholders do not approve Proposal 3, to nominate and elect, voting as a
separate class, up to four additional directors to the Board, in the event of a
sustained failure to pay dividends with respect to the Preferred Stock or a
breach of certain protective provisions, as more particularly described in this
Proxy Statement (see "Terms of the Preferred Stock--Voting Rights of Holders of
Preferred Stock"), for an aggregate of five directors, representing
approximately 33% of the directors on the Board; (ii) the grant to TREP
Investor of certain rights to information regarding the Company (see "Terms of
the Transaction--Information Rights"); (iii) limitations on the Company's
ability to engage in certain transactions and certain corporate actions without
the consent of the holders of Preferred Stock (see "Terms of the Preferred
Stock--Prohibited Actions"); (iv) provisions that restrict the holders of
Preferred Stock from transferring the shares of Preferred Stock except in
accordance with applicable securities laws and subject to the ownership limits
in the Charter (see "Terms of the Transaction--Resale Restrictions"); (v) the
grant to TREP Investor of certain additional rights to purchase, under certain
circumstances, shares of the Company's stock in connection with future stock
issuances by the Company (see "Description of Participation Rights");
(vi) limitations on the rights of certain holders of Common Stock and of
limited partnership interests in the Operating Partnership to transfer their
shares of Common Stock or limited partnership interests in the Operating
Partnership (see "Terms of the Transaction--Limitations on Certain
Stockholders"); and (vii) the grant to the holders of Preferred Stock of
certain registration rights to enable such holders to resell outstanding shares
of Preferred Stock (and/or shares of Common Stock issuable upon conversion of
shares of Preferred Stock) to the public under certain conditions (see
"Registration Rights Agreement").
The first phase of the Transaction (including, without limitation, the
purchase by TREP Investor of 340,000 shares of Preferred Stock and the making
by TREP Funding of the TREP Loan to the Company) was completed and all of the
Additional Terms were effective as of July 1, 1996, and neither the first phase
of the Transaction nor any of the Additional Terms (including, without
limitation, all of the approval rights, preferences, privileges and other
rights and terms of the Preferred Stock) requires the approval of the
stockholders of the Company. Stockholder approval is, however, required to
complete the entire $40 million investment, in the manner contemplated by the
Company, and, consequently, the Company is relying on such approval for the
Company to maximize the potential benefits that the Company believes the
Transaction can provide if the Transaction is fully consummated, as more
particularly discussed in this Proxy Statement (see "Potential Material
Beneficial Effects of the Transaction").
A vote in favor of the Transaction also will constitute a vote in favor of
the transactions contemplated by the Stock Purchase Agreement, all of the other
documents referenced therein or executed in connection therewith (as more fully
described in this Proxy Statement), and the terms thereof, including each of
the additional matters set forth above. The Company does not expect the
Transaction to have a material effect on the current management of the Company.
Copies of the following documents are attached hereto: Stock Purchase
Agreement and Amendment No. 1 to Stock Purchase Agreement ("Appendix A"), Loan
Facility Agreement and Amendment No. 1 to Loan Facility Agreement ("Appendix
B"), Registration Rights Agreement ("Appendix C") and Articles Supplementary
("Appendix D").
At the Special Meeting, the stockholders also will be asked to approve
proposed amendments to the Charter that are necessary or desirable in
connection with the Transaction (i) to amend the limitations on ownership of
the Company's stock to facilitate the acquisition of the Company's stock by
TREP Investor and to provide the Board with increased flexibility to waive the
Charter ownership limitations in certain circumstances (Proposal 2), and (ii)
to provide for certain changes in the composition of the Board of Directors in
the event of the breach of certain protective provisions of the Charter
relating to the Preferred Stock (Proposal 3).
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<PAGE>
Approval of each of the Transaction and Proposal 2 is conditioned upon
approval of the other (but is not conditioned upon approval of Proposal 3).
Failure by the stockholders to approve the Transaction at the Special Meeting
or Proposal 2 will result in neither the Transaction nor Proposal 2 being
approved (except for certain portions of the Transaction with respect to which
stockholder approval is not required, as more particularly described in this
Proxy Statement (see "Potential Effects of Stockholder Approval or Disapproval
of the Transaction--Effects of Failure to Approve the Transaction")) and may
require the Company to pay a yield maintenance fee in connection with the TREP
Loan (see "Terms of the Transaction--Yield Maintenance Fee"). Failure by the
stockholders to approve Proposal 3 will not affect the approval of the
Transaction or Proposal 2.
THE BOARD HAS APPROVED THE TRANSACTION AND THE OTHER PROPOSALS SUBMITTED TO
THE STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF EACH
OF THE THREE PROPOSALS.
VOTE BY PROXY
A proxy card is enclosed for use in connection with the Special Meeting. The
proxy may be revoked at any time before it is voted by (i) filing prior to the
Special Meeting a written notice of revocation bearing a later date with the
Company (to the attention of Mr. Jordan E. Ritter), (ii) delivering to the
Company a duly executed proxy bearing a later date, or (iii) attending the
Special Meeting and voting in person.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Special Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Special Meeting to beneficial owners of the
Common Stock. The Company may use the services of Corporate Investor
Communications, a third-party solicitor, to assist in soliciting proxies and,
in such event, the Company expects to pay approximately $5,500 for such
services. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.
VOTING OF SHARES
Only stockholders of record on the close of business on August 23, 1996 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting.
The only securities that can be voted at the Special Meeting consist of
8,805,000 issued and outstanding shares of Common Stock, with each share
entitling its owner to one vote on all matters. Stockholders on the Record Date
are eligible to vote at the Special Meeting in person or by proxy. Holders of
shares of the issued and outstanding Preferred Stock are not entitled to vote
at the Special Meeting.
If proxies representing sufficient votes to approve all or any one of the
Proposals have not been received by the scheduled date of the Special Meeting,
the chairman of the Special Meeting shall adjourn the Special Meeting to a
later date and time (but not later than 120 days after the Record Date), or the
individuals named as proxies may vote to so adjourn the Special Meeting, for
the purpose of soliciting additional proxies.
Stockholders are not entitled under Maryland law to appraisal rights with
respect to the Transaction.
QUORUM
Holders of a majority of the issued and outstanding shares of Common Stock,
present in person or represented by proxy at the Special Meeting, shall
constitute a quorum. Abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Special Meeting but which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum.
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<PAGE>
Stockholder votes will be tabulated by the persons appointed by the Board to
act as inspectors of election for the Special Meeting. Shares represented by a
properly executed and delivered proxy will be voted at the Special Meeting and,
when instructions have been given by the stockholder, will be voted in
accordance with those instructions. If no instructions are given, the shares
will be voted FOR each of the three Proposals.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
The Company is seeking stockholder approval of the Transaction pursuant to
certain requirements of the New York Stock Exchange, Inc. regarding the
continued listing of the Common Stock on the NYSE. Approval of the Transaction
is not required by Maryland law, the Charter or the Bylaws. If the Company were
to consummate the entire Transaction without stockholder approval, the Common
Stock could not remain listed on the NYSE. The Company is seeking stockholder
approval of the proposed amendments to the Charter in the manner required by
Maryland law and the Charter.
VOTE REQUIRED
The affirmative vote of a majority of all of the votes cast by stockholders
at a meeting at which a quorum is present is required to approve the
Transaction (Proposal 1). Only holders of shares of Common Stock issued and
outstanding on the Record Date are entitled to vote on Proposal 1. APPROVAL OF
THE TRANSACTION BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE COMPANY IS A
CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION.
The affirmative vote of the holders of a majority of the shares of Common
Stock issued and outstanding as of the Record Date is required to amend the
limitations in the Charter on ownership of stock to facilitate the acquisition
of the Company's stock by TREP Investor and to provide the Board with increased
flexibility to waive the Charter ownership limitations in certain circumstances
(Proposal 2). Only holders of shares of Common Stock issued and outstanding on
the Record Date are entitled to vote on Proposal 2. APPROVAL OF THIS AMENDMENT
TO THE CHARTER BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE COMPANY IS A
CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION.
The affirmative vote of the holders of two-thirds of the shares of Common
Stock issued and outstanding as of the Record Date is required to approve
amendments to the Charter to provide for certain changes in the membership of
the Board of Directors in the event of the breach of certain protective
provisions relating to the Preferred Stock (Proposal 3). Only holders of shares
of Common Stock issued and outstanding on the Record Date are entitled to vote
on Proposal 3. However, holders of shares of Preferred Stock are entitled to
notice of the proposed amendments pursuant to Maryland law. APPROVAL OF THIS
AMENDMENT TO THE CHARTER BY THE STOCKHOLDERS OF THE COMPANY IS NOT A CONDITION
TO CONSUMMATION OF THE TRANSACTION.
Approval of each of the Transaction (Proposal 1) and Proposal 2 is
conditioned upon approval of the other (but is not conditioned upon approval of
Proposal 3). Failure by the stockholders to approve the Transaction and
Proposal 2 at the Special Meeting will result in neither the Transaction nor
Proposal 2 being approved (except for certain portions of the Transaction with
respect to which stockholder approval is not required, as more particularly
described in this Proxy Statement (see "Potential Effects of Stockholder
Approval or Disapproval of the Transaction--Effects of Failure to Approve the
Transaction")) and may require the Company to pay a yield maintenance fee in
connection with the TREP Loan (see "Terms of the Transaction--Yield Maintenance
Fee"). Failure by the stockholders to approve Proposal 3 will not affect the
approval of the Transaction or Proposal 2.
At the close of business on the Record Date, the Company had outstanding
8,805,000 shares of Common Stock, held of record by approximately
persons.
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APPROVAL OF THE INVESTMENT IN THE COMPANY BY TREP INVESTOR (PROPOSAL 1)
TERMS OF THE TRANSACTION
Purchase of Preferred Stock. The terms of the Stock Purchase Agreement
anticipate that TREP Investor will invest up to $40 million in the Company
through the purchase of up to 1,600,000 shares of Preferred Stock, at a
purchase price of $25.000 per share. The investment will be consummated in two
phases: (i) the purchase by TREP Investor of 340,000 shares of Preferred Stock,
for an aggregate purchase price of $8.5 million, paid in cash, which purchase
was completed on July 1, 1996; and (ii) the purchase by TREP Investor of up to
1,260,000 additional shares of Preferred Stock, the purchase price for which
will be comprised of (A) exchanging $11.5 million, constituting the outstanding
principal balance of the TREP Loan, for shares of Preferred Stock, and (B)
utilizing funds otherwise comprising the remainder of the Maximum Loan
Principal Amount to acquire the remaining shares of Preferred Stock. Completion
of the purchase of up to 1,260,000 additional shares of Preferred Stock is
scheduled to occur on or prior to June 20, 1997. The purchase price per share
for the shares of Preferred Stock and the Conversion Price were determined as
the result of arm's-length negotiations between the Company and its advisors
and TREP Investor and its advisors. See "TREP Loan Terms" for a summary of the
principal terms of the TREP Loan.
The second phase of the Transaction ("Phase 2") will be consummated in
accordance with one of the following options (collectively, the "Options", and,
individually, an "Option"):
Option A and Option B. If the stockholders approve Proposal 1 and
Proposal 2 at the Special Meeting, subject to the absence of certain legal
prohibitions, (i) the $11.5 million principal outstanding under the TREP
Loan will be immediately exchanged for shares of Preferred Stock, and (ii)
TREP Funding shall, at the request of the Company, advance to the Company
funds otherwise comprising the remainder of the Maximum Loan Principal
Amount to acquire the remainder of the shares of Preferred Stock on or
prior to June 20, 1997, with each such advance being immediately applied to
purchase shares of Preferred Stock. The Company may solicit and, prior to
the Special Meeting, may receive a ruling from the Internal Revenue
Service, as required under Article EIGHTH(a)(9) of the Charter, enabling
the Company to exempt TREP Investor from the Ownership Limits (as defined
in the Charter) (the "IRS Approval"). In the event such IRS Approval is
received prior to the stockholder approval of the Transaction at the
Special Meeting, "Option B" is triggered under the Stock Purchase Agreement
and the Loan Facility Agreement. The nature and timing of the transactions
contemplated by Option B, however, are identical to that of Option A. For
example, under Option B, even after the IRS Approval is obtained, the $11.5
million principal amount outstanding under the TREP Loan would not be
exchanged for shares of Preferred Stock unless and until the stockholders
approved the Transaction at the Special Meeting. Pursuant to the
consummation of Option A or Option B, if applicable, TREP Investor will own
an aggregate of 1,600,000 shares of Preferred Stock, for an aggregate
purchase price of $40 million, unless TREP Investor disposes of all or
portions of its shares of Preferred Stock. Upon the consummation of all of
the transactions contemplated by Option A or Option B, the TREP Loan will
be terminated.
Option D. If the stockholders fail to approve Proposal 1 and Proposal 2
at the Special Meeting and the Company shall have received the IRS Approval
on or before December 15, 1996, subject to the absence of certain legal
prohibitions, (i) the $11.5 million principal outstanding under the TREP
Loan will be immediately exchanged for shares of Preferred Stock (provided
that, if the IRS Approval is obtained prior to the date of the Special
Meeting, the exchange will occur on the date of the Special Meeting;
otherwise, the exchange will occur on the date that the IRS Approval is
obtained), and (ii) TREP Funding, at its option, may purchase up to a
maximum of $7 million in value of shares of Preferred Stock, in which event
(under both clause (i) and clause (ii)) the TREP Loan will terminate.
Pursuant to the consummation of Option D, if applicable, unless TREP
Investor disposes of all or portions of its shares of Preferred Stock, TREP
Investor will own an aggregate of either (a) 800,000 shares of the
Preferred Stock, for an aggregate purchase price
15
<PAGE>
of $20 million, or (b) as provided in clause (ii) above, up to 1,080,000
shares of the Preferred Stock, for an aggregate purchase price of up to $27
million.
Option C. If the stockholders fail to approve Proposal 1 and Proposal 2
at the Special Meeting and the IRS Approval is not obtained by the Company
on or before December 15, 1996, or if the Stock Purchase Agreement is
terminated, for any reason, or any material provision thereof shall have
ceased to be in full force and effect such that TREP Investor shall not be
able to realize the material benefits thereof, TREP Investor shall not
purchase any additional shares of Preferred Stock. Pursuant to the
consummation of Option C, if applicable, unless TREP Investor disposes of
all or portions of its shares of Preferred Stock, TREP Investor will own an
aggregate of 340,000 shares of the Preferred Stock, for an aggregate
purchase price of $8.5 million. Pursuant to Option C, the interest and
outstanding $11.5 million principal balance under the TREP Loan will mature
and be due and payable on December 31, 1996, provided that the Company may
extend such maturity until April 30, 1997.
Preferred Stockholders' Stock Ownership. As of the date of this Proxy
Statement, there are 340,000 outstanding shares of Preferred Stock. TREP
Investor owns 100% of the 340,000 outstanding shares of Preferred Stock, which
are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the
outstanding shares of Common Stock as of the Record Date on a fully-diluted
basis. If TREP Investor acquires all 1,600,000 shares of Preferred Stock
directly from the Company, as contemplated by the Transaction, and assuming no
other change in the number of outstanding shares of Common Stock or Preferred
Stock, unless TREP Investor disposes of all or portions of its shares of
Preferred Stock, TREP Investor will own 100% of the 1,600,000 outstanding
shares of Preferred Stock, which are equivalent to 1,828,571 shares of Common
Stock or approximately 14.64% of the outstanding shares of Common Stock on a
fully-diluted basis. If TREP Investor does not acquire any further shares of
the Preferred Stock, as contemplated by Option C, and assuming no other change
in the number of outstanding shares of Common Stock or Preferred Stock, unless
TREP Investor disposes of all or portions of its shares of Preferred Stock,
TREP Investor will own 100% of the 340,000 outstanding shares of Preferred
Stock, which are equivalent to 388,571 shares of Common Stock or approximately
3.52% of the outstanding shares of Common Stock on a fully-diluted basis. If
TREP Investor acquires an aggregate of 800,000 shares of the Preferred Stock,
as contemplated by Option D (assuming TREP Funding does not exercise its option
under Option D to acquire up to an additional $7 million of Preferred Stock),
and assuming no other change in the number of outstanding shares of Common
Stock or Preferred Stock, unless TREP Investor disposes of all or portions of
its shares of Preferred Stock, TREP Investor will own 100% of the 800,000
outstanding shares of Preferred Stock, which are equivalent to 914,285 shares
of Common Stock or approximately 7.90% of the outstanding shares of Common
Stock on a fully-diluted basis. If TREP Investor acquires an aggregate of
1,080,000 shares of the Preferred Stock, as contemplated by Option D (assuming
TREP Funding exercises its option under Option D and utilizes the entire $7
million for the purchase of shares of Preferred Stock), and assuming no other
change in the number of outstanding shares of Common Stock or Preferred Stock,
unless TREP Investor disposes of all or portions of its shares of Preferred
Stock, TREP Investor will own 100% of the 1,080,000 outstanding shares of
Preferred Stock, which are equivalent to 1,234,285 shares of Common Stock or
approximately 10.38% of the outstanding shares of Common Stock on a fully-
diluted basis.
Also, if Option A or Option B is consummated, TREP Investor may be the
largest single stockholder of the Company (owning Preferred Stock equivalent to
approximately 14.64% of the outstanding shares of Common Stock on a fully-
diluted basis (based on the number of shares of Common Stock outstanding as of
the Record Date, unless TREP Investor disposes of all or portions of its shares
of Preferred Stock)), while, subject to certain exemption provisions set forth
in the Charter, no other stockholder will be permitted to own more than 6% of
the outstanding shares of Common Stock (other than George M. Marcus, who can
currently own up to 25% of the outstanding shares of Common Stock, and
qualified pension trusts (as defined in the Charter), which can currently own
up to 9.9% of the outstanding shares of Common Stock), subject to certain
exceptions set forth in the Charter or approved by the Board. George M. Marcus,
the Company's Chairman, owns Common Stock and limited partnership interests in
the Operating Partnership equivalent to 14.59% of the outstanding shares of
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Common Stock (based on the number of shares of Common Stock outstanding as of
the Record Date) on a fully-diluted basis (assuming the issuance and conversion
of all 1,600,000 shares of Preferred Stock). Upon conversion of the shares of
Preferred Stock to Common Stock, unless TREP Investor disposes of all or a
portion of its shares of Preferred Stock (or Common Stock into which Preferred
Stock has been converted), TREP Investor, by virtue of its ownership of
approximately 14.64% the outstanding shares of Common Stock (based on the
number of shares of Common Stock outstanding as of the Record Date) on a fully-
diluted basis, will have a substantial influence over the composition of the
Board and over Company policy.
Conversion of Preferred Stock to Common Stock. From and after June 20, 1997,
400,000 shares of Preferred Stock shall become convertible into Common Stock.
Thereafter, at the beginning of each of the next three three-month periods, an
additional 400,000 shares of Preferred Stock shall become convertible into
Common Stock, provided that, in the case of the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, all outstanding
shares of Preferred Stock shall, at the option of the holder thereof, become
immediately convertible into Common Stock. The conversion price (the
"Conversion Price") per share of Preferred Stock will initially be $21.875,
subject to adjustment as more fully described in this Proxy Statement. Based on
the conversion ratio, the Conversion Price represents an approximately 5%
premium over the average per share closing price of the Common Stock for the 30
trading days prior to June 20, 1996, the date on which definitive agreements
with respect to the Transaction were executed. See "Terms of the Preferred
Stock-- Conversion of Preferred Stock to Common Stock."
Representation on the Board. TREP Investor and the other holders of Preferred
Stock, if any, have the right to nominate and elect, voting as a separate
class, one director to the Board and to nominate and elect, voting as a
separate class, up to four additional directors to the Board, in the event of a
sustained failure to pay dividends with respect to the Preferred Stock or a
breach of certain protective provisions, for an aggregate of five directors,
representing approximately 33% of the directors on the Board (see "Terms of the
Preferred Stock--Voting Rights of Holders of Preferred Stock"). The number of
directors elected by the holders of the Preferred Stock and the composition of
the Board may be modified, in certain circumstances, if the stockholders
approve Proposal 3 (see "PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN
CERTAIN CIRCUMSTANCES").
Information Rights. Pursuant to the Stock Purchase Agreement, so long as TREP
Investor holds 100,000 or more shares of Preferred Stock, the Company and its
subsidiaries are required to (i) provide TREP Investor with access to the
Company's and its subsidiaries' properties, books, contracts, commitments,
records and personnel, and (ii) furnish to TREP Investor with (a) a copy of all
reports, schedules and other documents required to be filed by the Company with
or received by the Company from any state or federal securities regulating
body, and (b) all other information concerning the Company's business,
personnel and properties as TREP Investor may reasonably request.
In addition, pursuant to the Loan Facility Agreement, the Company has agreed
to provide TREP Funding and TREP Investor with (i) the right to consult with
and advise Company management regarding significant business activities, (ii)
the right to communicate directly with the Company's independent certified
public accountants and tax advisors, and (iii) the right to receive quarterly
unaudited and yearly audited financial reports and a monthly report displaying,
by property, gross income, net operating income, cash flow and, on an aggregate
basis, funds from operations and adjusted funds from operations per share.
Also, under circumstances in which TREP Funding or TREP Investor reasonably
believes that a Material Adverse Effect (as hereinafter defined) has occurred,
TREP Funding and TREP Investor may conduct audits of Company income and
expenses.
Participation Rights. Pursuant to the Stock Purchase Agreement, so long as
any Preferred Stock is outstanding, in the event that the Company issues or
sells shares of stock, or the Operating Partnership issues or sells limited
partnership interests, as the case may be, TREP Investor will be entitled
(except in certain limited circumstances) to a participation right to purchase
or subscribe for, either as part of such issuance or in a
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concurrent issuance, a total number of shares or partnership interests, as the
case may be, equal to TREP Investor's pro rata share of the total number of
shares proposed to be issued by the Company. TREP Investor waived its
participation rights in connection with the Supplemental Offering (as
hereinafter defined). See "Description of Participation Rights."
Limitations on Transactions and Corporate Actions. Pursuant to the Stock
Purchase Agreement, the Company has agreed that all transactions between the
Company and any affiliate of the Company shall be conducted on an arm's-length
basis, and if any such transaction involves a cost to the Company or to such
affiliate in excess of $500,000 in a single transaction, or in excess of an
aggregate $1 million for a series of transactions with all affiliates in any
twelve-month period, such transaction shall be on terms and conditions no less
favorable (when all aspects of the transactions are considered) to the Company
than could be obtained from non-related persons except for transactions
disclosed to TREP Investor prior to June 20, 1996.
Pursuant to the Articles Supplementary relating to the Preferred Stock (the
"Articles Supplementary"), the Company has agreed that, while any Preferred
Stock is outstanding, the Company will not, without the approval of holders of
at least 66 2/3% of the outstanding shares of Preferred Stock, voting
separately as a class, (i) increase the number of authorized shares of
Preferred Stock or issue any shares of Preferred Stock other than to existing
holders of Preferred Stock, (ii) increase the authorized number of shares of or
create, reclassify or issue any class of stock ranking prior to or on a parity
with the Preferred Stock either as to dividends or upon liquidation,
(iii) amend, alter or repeal any of the provisions of the Charter so as to
impair the rights and privileges of the Preferred Stock, (iv) amend, alter or
repeal certain provisions of the Bylaws in a manner which would adversely
affect the rights of the holders of the Preferred Stock, (v) authorize any
reclassification of the Preferred Stock, (vi) except pursuant to a conversion
of the Preferred Stock, require the exchange of Preferred Stock for other
securities, or (vii) effect a voluntary liquidation, dissolution or winding up
of the Company, the sale of substantially all of the assets of the Company, the
merger or consolidation of the Company or the Operating Partnership or any
recapitalization (except a merger of a wholly-owned subsidiary of the Company
into the Company in which the Company's capitalization is unchanged as a result
of such merger) of more than 40% of the Company's total market capitalization
(market value of the Company's equity plus total indebtedness) in a single
transaction or a series of related transactions, provided that successive
offerings of the Company's equity or debt to the public shall not be considered
related transactions.
Also, pursuant to the Articles Supplementary, the Company has agreed that,
while any Preferred Stock is outstanding, the Company and the Operating
Partnership will not, directly or indirectly, without the approval of the
holders of a majority of the outstanding shares of Preferred Stock, voting
separately as a class, take or allow to occur any of the following actions: (i)
substantial sales or other transfers of the assets of the Company or the
Operating Partnership or any other entity owned, directly or indirectly, by the
Company or the Operating Partnership; (ii) the termination of the Company as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended (the "Code"); (iii) any alteration in the Company's or the Operating
Partnership's business; or (iv) any change in control of the Company or the
Operating Partnership. See "Terms of Preferred Stock--Prohibited Actions."
Resale Restrictions. Pursuant to the Stock Purchase Agreement, TREP Investor
has acknowledged and agreed that the shares of Preferred Stock acquired or to
be acquired by TREP Investor, together with any shares of Common Stock into
which such shares of Preferred Stock may be converted, are not, and, subject to
registration pursuant to the Registration Rights Agreement or otherwise, will
not be, registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and that such Preferred
Stock or Common Stock may be sold only in one or more transactions registered
under the Securities Act and, where applicable, state securities laws or as to
which an exemption from registration requirements of the Securities Act and,
where applicable, state securities laws, is available.
Modifications to Structure for Tax and ERISA Purposes. Pursuant to the Stock
Purchase Agreement, the Company and TREP Investor have agreed to negotiate in
good faith any modifications necessary to the structure
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of the Operating Partnership and/or the Operating Partnership's investments in,
and ownership of, the property of the Operating Partnership, (i) to minimize
certain adverse tax consequences to TREP Investor, and (ii) to assist TREP
Investor with its obligations under the Employee Retirement Income Security Act
("ERISA").
Registration Rights. Neither the shares of the Preferred Stock currently held
by TREP Investor nor the shares of Preferred Stock issued to TREP Investor as
contemplated by Phase 2 of the Transaction (nor any shares of Common Stock into
which any such shares of Preferred Stock may be converted) are or will be
registered under the Securities Act and will be issued by the Company in
reliance upon an exemption from registration. Such shares will be deemed
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available. Pursuant to the
Registration Rights Agreement, the Company will grant certain registration and
listing rights to the holders of the Preferred Stock that will enable the
holders of the Preferred Stock to resell certain shares of Preferred Stock
(and/or shares of Common Stock into which shares of Preferred Stock have been
converted) to the public under certain conditions. See "Registration Rights
Agreement."
Limitations on Certain Stockholders. Pursuant to the Stockholder Agreements,
subject to certain exceptions, George M. Marcus, the Company's Chairman, and
Keith R. Guericke, the Company's Chief Executive Officer and President
(collectively, the "Restricted Stockholders"), have each agreed that, prior to
July 1, 1998, neither of the Restricted Stockholders shall transfer (provided
that pledges and grants of security interests are not restricted) an aggregate
of more than 30% of their respective ownership, as of July 1, 1996, of shares
of Common Stock (including the pro rata portions of all Common Stock held by
affiliates of such Restricted Stockholder based on the Restricted Stockholder's
ownership interest in such affiliate and Common Stock issuable upon exchange of
such Restricted Stockholder's respective limited partnership interest in the
Operating Partnership).
Solicitation Restrictions. The Company and the Operating Partnership have
agreed that, until any Option has been exercised and all funds available
thereunder have been requested by the Company, they will not solicit or receive
from any third party (including, without limitation, by way of a public
offering or private offering of securities) funds in exchange for interests in
the Company or the Operating Partnership, other than (i) pursuant to a sale of
Common Stock in connection with the Company's existing shelf registration
statement that is commenced before funding is available pursuant to an Option,
or (ii) transactions in which the Company or the Operating Partnership receives
only non-cash consideration, e.g., real estate.
Negotiation of Management Agreement. Pursuant to the Agreement to Negotiate
Management Agreement, the Company and TREP Investor have agreed to negotiate
(without being legally bound to enter into) a management agreement with respect
to the management by the Company of approximately 800 multi-family rental units
located in Ventura County, California, which TREP Investor owns through an
affiliate.
Use of Proceeds. The net proceeds of TREP Investor's investment will be
contributed by the Company to the Operating Partnership. The Operating
Partnership will use the net proceeds to reduce outstanding indebtedness and/or
to purchase and develop properties and for other corporate purposes.
Conditions to Closing. Each of the Company's and TREP Investor's obligations
to effect Phase 2 of the Transaction are subject to various mutual and
unilateral conditions, including, without limitation, the following: (i) the
stockholders shall have approved the Transaction (Proposal 1); (ii) the
stockholders shall have approved the proposed amendment to the Charter to amend
the limitations on ownership of stock to permit TREP Investor to acquire the
shares of Preferred Stock (Proposal 2); (iii) the Company shall continue to
qualify as a REIT for federal income tax purposes; (iv) there shall have been
no change or circumstance that has had or would reasonably be expected to have
a material adverse effect on the financial condition, results of operations or
business of the Company and its subsidiaries taken as a whole (a "Material
Adverse Effect"); (v) there shall not be in effect any order, decree or
injunction of any court or agency which prohibits the Transaction and there
shall not be any legal proceedings which could reasonably be expected to have a
Material Adverse Effect on the
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ability of the Company to consummate the Transaction; (vi) the Company shall
have performed all covenants required to be performed by the Company, except
for failures to perform as would not in the aggregate reasonably be expected to
have a Material Adverse Effect; (vii) TREP Investor shall have performed all
covenants required to be performed by TREP Investor except for failures to
perform as would not in the aggregate reasonably be expected to have a Material
Adverse Effect on the Company's or TREP Investor's ability to consummate Phase
2 of the Transaction (other than, among other things, TREP Funding's
obligations under the Loan Facility Agreement and TREP Investor's obligation to
purchase the applicable number of shares of Preferred Stock pursuant to an
Option, with respect to which the Material Adverse Effect limitation shall not
apply); and (viii) various other customary conditions shall have been
satisfied.
Yield Maintenance Fee. If the Stockholders do not approve Proposal 1 and
Proposal 2 at the Special Meeting, the Company is required to pay to TREP
Funding a prepayment fee on the TREP Loan equal to the product of (i) the
recent average market price of a share of Common Stock minus $21.875 times (ii)
a fraction, the numerator of which is the then outstanding principal amount of
the TREP Loan and the denominator of which is $21.875.
Amendment or Termination of the Stock Purchase Agreement. Although the Board
reserves the right to amend the provisions of the Stock Purchase Agreement
without approval of the stockholders, the Company intends to solicit further
approval of the stockholders in the event that any such amendment would change
the Transaction in a way that would be materially adverse to stockholders. The
Board also reserves the right to terminate the Stock Purchase Agreement, in
accordance with its terms, without obtaining further approval of the
stockholders. The Board does not, however, currently anticipate either the
amendment of the terms of, or the termination of, the Stock Purchase Agreement,
other than amendments for the purpose of extending any deadline set forth
therein for obtaining stockholder approval of the Proposals.
POTENTIAL MATERIAL BENEFICIAL EFFECTS OF THE TRANSACTION
The Company believes that the Transaction will have a number of potential
material beneficial effects on the Company and its stockholders, including the
following:
Increased Capital. The Company believes that the capital provided to the
Company pursuant to the Transaction will enable the Company to (i) increase its
equity market capitalization which may, in the future, enable the Company to
raise additional equity capital, (ii) increase its asset base by using a
portion of the proceeds of the sale of the Preferred Stock to finance real
estate acquisitions and development by the Operating Partnership, and (iii)
develop and improve existing Operating Partnership assets by using a portion of
the proceeds of the sale of the Preferred Stock to fund development and
improvement of the Operating Partnership's existing properties. Also, the
Company currently anticipates that the Company will be able to use the name and
valued reputation of TREP Investor and its affiliates and the nature of the
Company's relationship with TREP Investor and such affiliates to further assist
the Company to raise capital.
Subsequent to the consummation of the first phase of the Transaction, on
August 14, 1996, the Company completed an underwritten follow-on public
offering (the "Supplemental Offering") of 2,530,000 shares of Common Stock at a
price per share of $22.75. The net proceeds of the Supplemental Offering are
anticipated to be used to fund the acquisition and development by the Operating
Partnership of multi-family properties and for general corporate purposes.
Indirect Affiliation with TREP Investor and Its Affiliates. TREP Investor and
its affiliates have a history of investing in companies that are highly valued
in the marketplace. The Board believes that the Company will benefit
significantly from its association with TREP Investor and such affiliates and
its access to their market knowledge and operating experience. In addition, the
Company and TREP Investor and its affiliates may be in a synergistic position
to combine their resources and expertise in portfolio purchases. For example,
with respect to
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the acquisition of a mixed multi-family and office-use portfolio of properties,
the Company may consider purchasing the multi-family portion of the portfolio,
consistent with its expertise, and TREP Investor or one of its affiliates may
consider purchasing the office-use portion of the portfolio. Similar mutually
beneficial synergies may be present with multi-purpose land development
projects. An early result of the new affiliation has produced the Agreement to
Negotiate Management Agreement, pursuant to which the Company and TREP Investor
have agreed to negotiate (without being legally bound to enter into) a
management agreement with respect to the management by the Company of
approximately 800 multi-family rental units located in Ventura County,
California, which TREP Investor owns through an affiliate. In addition, the
Company and TREP Investor are considering other management service arrangements
with respect to other multi-family properties that TREP Investor (or its
affiliates) may purchase on an individual property or portfolio basis.
Potential Return to Stockholders. The Transaction will not result in any
direct return to stockholders of cash or other consideration. The Company,
however, believes that the Transaction offers stockholders an opportunity to
realize long-term value through the potential appreciation in the value of the
Common Stock primarily as a result of (i) debt reduction (if the Company elects
to apply proceeds of the Transaction to reduce debt), which among other things,
should increase the Company's access to capital, permitting increased growth,
and (ii) the potential yields to stockholders from the properties that the
Company will be in a position to acquire or develop with portions of the net
proceeds from the Transaction (provided that, there is no assurance as to the
existence or extent of such yields), all of which may enable stockholders to
sell their shares in the future at a price that is higher than the Common Stock
price at the time that the Transaction was publicly announced. However, there
can be no assurance that the price of the Common Stock will rise in the future.
Access to Future Capital. The Company believes that, as a result of the
Transaction, it will have greater access to the capital markets because the
Transaction will (i) decrease the Company's debt-to-equity ratio, and (ii)
increase its total capitalization and equity market capitalization. The Company
believes that greater access to the capital markets should further enhance its
ability to grow. However, there is no assurance that the Company will in fact
have greater access to the capital markets as a result of the Transaction.
Reduction of Company Debt. The Company may apply a portion of the net
proceeds of the Transaction to reduce outstanding Company and/or Operating
Partnership debt. The Company believes that, among other things, this reduction
of debt (if undertaken) will increase the attractiveness of the Company to the
capital markets, resulting in the Company's greater access to future financing,
which will permit greater growth.
POTENTIAL MATERIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction will have certain potential
material adverse effects on the Company and its stockholders, including the
following:
Substantial Ownership of Common Stock. If Option A or Option B is
consummated, unless TREP Investor disposes of all or portions of its shares of
Preferred Stock, TREP Investor will own Preferred Stock equivalent to up to
approximately 14.64% of the outstanding shares of the Common Stock (based on
the number of shares of Common Stock outstanding as of the Record Date) on a
fully-diluted basis. However, subject to certain exemption provisions set forth
in the Charter, no other stockholder will be permitted to own more than 6% of
the outstanding shares of Common Stock (other than George M. Marcus, who can
currently own up to 25% of the outstanding shares of Common Stock, and
qualified pension trusts (as defined in the Charter), which can currently own
up to 9.9% of the outstanding shares of Common Stock). Consequently, TREP
Investor will have a substantial influence over the affairs of the Company as a
result of the Transaction. This concentration of ownership in one stockholder
could potentially be disadvantageous to other stockholders' interests. In
addition, George M. Marcus, the Company's Chairman, owns Common Stock and
limited partnership interests in the Operating Partnership equivalent to 14.59%
of the outstanding shares of Common Stock (based on the number of shares of
Common Stock outstanding as of the Record Date) on a fully-diluted basis
(assuming the issuance and conversion of all 1,600,000 shares of Preferred
Stock).
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Limitations on Transactions and Corporate Actions. Pursuant to the various
limitations on the Company's actions described in this Proxy Statement, the
Company will be proscribed from or limited with respect to certain transactions
and corporate actions which may otherwise be in the Company's interest.
Although the Company does not believe that these limitations on the Company's
activities will materially impair the Company's ability to conduct its
business, there can be no assurance that these limitations will not adversely
affect the Company's operations in the future.
Ownership and Voting Dilution. The Transaction will dilute (i) the percentage
ownership interests of the existing stockholders in the Company, and (ii) upon
conversion of the Preferred Stock to Common Stock, the voting rights of the
existing stockholders.
Effect on Market Price of Common Stock. The conversion of TREP Investor's
shares of Preferred Stock to shares of Common Stock could reduce the market
price per share of the then outstanding shares of Common Stock to the extent
that the market price of the Common Stock exceeds the Conversion Price at the
time of conversion.
Risk to Dividends. The cash dividends payable on the Preferred Stock will
substantially increase the cash required to continue to pay cash dividends on
the Common Stock at current levels. The terms and conditions of the Preferred
Stock provide that dividends may be paid on shares of Common Stock in any
fiscal quarter only if full, cumulative cash dividends have been paid on all
shares of Preferred Stock in the annual amount equal to the greater of (i)
$2.1875 per share (8.75% of the $25.000 per share price), or (ii) the dividends
(subject to adjustment) paid with respect to the Common Stock plus, in both
cases, any accumulated but unpaid dividends on the Preferred Stock.
Chilling Effect. The consummation of the Transaction may have the effect of
delaying, deferring or preventing a change in control of the Company which
could be beneficial to the stockholders.
Registration Rights. The registration rights provided to the holders of
Preferred Stock pursuant to the Registration Rights Agreement may adversely
affect the price of the Common Stock.
Rights of Preferred Stock. Pursuant to the Articles Supplementary, and as
more fully described in this Proxy Statement, the holders of the Preferred
Stock is afforded several rights and preferences which may be disadvantageous
to the holders of Common Stock, including (i) cumulative preferential dividends
such that no dividends are payable with respect to the Common Stock until all
accrued and unpaid dividends on the Preferred Stock are paid in full, (ii) the
right to elect at least one director to the Board, (iii) a liquidation
preference senior to that of the Common Stock, and (iv) the right to convert to
Common Stock under certain circumstances. See "Terms of the Preferred Stock."
CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS
Preferred Stock Directors. Pursuant to the Articles Supplementary, the
holders of Preferred Stock have the right to elect one director to the Board
and, in July 1996, TREP Investor, the then sole holder of shares of Preferred
Stock, selected Gregory J. Hartman ("Mr. Hartman") to be the Preferred Stock
director. Directors elected by any single stockholder or group of stockholders
may have interests that diverge from the interests of other stockholders.
Accordingly, Mr. Hartman (or any replacement thereof or substitution therefor),
as the director designated by TREP Investor pursuant to the Articles
Supplementary, may be deemed to have interests which may not necessarily be
consistent with the interests of the stockholders generally. Under certain
circumstances, the holders of Preferred Stock may have the right to certain
Board representation in addition to Mr. Hartman (or any replacement or
substitution therefor) (see "Terms of the Preferred Stock--Voting Rights of
Holders of Preferred Stock"). To the extent that any such director nominees are
affiliated or associated with the holders of the Preferred Stock, such persons
may thereby be deemed to have interests that are in addition to,
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and potentially in conflict with, the interests of the stockholders generally.
The Board was aware of these interests and considered them, among other
factors, in approving the Transaction and making its recommendation to the
stockholders.
Effect on Restricted Stockholders. As provided in the Stockholder Agreements,
subject to certain exceptions, the Restricted Stockholders have each agreed
that, prior to July 1, 1998, neither of the Restricted Stockholders shall
transfer an aggregate of more than 30% of their respective ownership, as of
July 1, 1996, of outstanding shares of Common Stock (including the pro rata
portions of all Common Stock held by affiliates of such Restricted Stockholder,
based on the Restricted Stockholder's ownership interest in such affiliate and
Common Stock issuable upon exchange of such Restricted Stockholder's respective
limited partnership interests in the Operating Partnership), provided that
pledges and grants of security interests are not restricted.
POTENTIAL EFFECTS OF STOCKHOLDER APPROVAL OR DISAPPROVAL OF THE TRANSACTION
Effects of Stockholder Approval. Approval of the Transaction by the
stockholders will constitute approval of all of the various terms of the
Transaction (including, without limitation, the initial purchase of 340,000
shares of Preferred Stock by TREP Investor and the consummation of either
Option A or Option B) set forth in the Stock Purchase Agreement, the Loan
Facility Agreement, the Articles Supplementary and the Registration Rights
Agreement and the transactions contemplated thereby. Approval of the
Transaction would also effectively ratify (although such ratification is not
required by Maryland law, the Charter or the Bylaws) all prior actions of the
Board in connection with the transactions contemplated by the Stock Purchase
Agreement, including, without limitation, (i) the reclassification of 1,600,000
shares of Common Stock as 1,600,000 shares of Preferred Stock and the terms,
rights and obligations of the Preferred Stock (including, without limitation,
dividend, voting, liquidation, conversion, redemption and preemptive rights),
(ii) the sale of 340,000 shares of Preferred Stock to TREP Investor, (iii) the
obtaining of the TREP Loan by the Company and the terms and conditions thereof,
(iv) the covenants, conditions and agreements agreed to by the Company in the
Stock Purchase Agreement, the Loan Facility Agreement, the Registration Rights
Agreement, the Articles Supplementary and all other agreements, documents and
certificates executed by the Company in connection with the transactions
described in the Stock Purchase Agreement.
Such approval also may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the
Transaction and all of the other items described in the preceding paragraph.
Effects of Failure to Approve the Transaction. If the Transaction is not
approved, pursuant to the terms of the Stock Purchase Agreement, either (i) if
the IRS Approval is obtained by the Company on or prior to December 15, 1996,
then Option D will be consummated (see "Terms of the Transaction--Option D"),
or (ii) if the IRS Approval is not obtained by the Company on or prior to
December 15, 1996, then Option C will be consummated, which Option C results
in, among other things, the maturity of the TREP Loan on December 15, 1996,
subject to extension until April 30, 1997 (see "Terms of the Transaction--
Option C"), and payment of a yield maintenance fee by the Company (see "Terms
of the Transaction--Yield Maintenance Fee"). In addition, failure to approve
the Transaction will not disapprove, void or alter, in any manner, certain of
the transactions contemplated by the Stock Purchase Agreement, including,
without limitation, (a) the reclassification of 1,600,000 shares of Common
Stock as 1,600,000 shares of Preferred Stock and the terms, rights and
obligations of the Preferred Stock (including, without limitation, dividend,
voting, liquidation, conversion, redemption and preemptive rights), (b) the
initial sale of 340,000 shares of Preferred Stock to TREP Investor, (c) the
obtaining of the TREP Loan (and the initial $11.5 million principal advance
thereunder) by the Company and the terms and conditions thereof, (d) the
information rights provided to TREP Investor, (e) the right of TREP Investor to
participate in future Company equity offerings, (f) the limitations on Company
transactions and corporate actions, (g) TREP Investor's registration rights,
and (h) the limitation on sales by the Restricted Stockholders.
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RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN
ITS DETERMINATION
The Board has unanimously approved the Transaction and has determined that
the Transaction is in the best interests of the Company and its stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION.
The Board believes that the Transaction is in the best interests of the
Company and its stockholders because it represents, in the Board's view, an
attractive opportunity reasonably available to improve long-term stockholder
value by reducing debt and improving the Company's short-term and long-term
growth prospects. By providing up to $40 million of capital to the Company on
favorable economic terms, the Transaction will enable the Company to exploit
growth opportunities that are more favorable than are currently available to
the Company.
In reaching its determination that the Transaction is in the best interests
of the Company and the stockholders, the Board considered, among other things,
the following material factors:
. Potential Return to Stockholders. The Board believes that the
Transaction offers stockholders an opportunity to realize long-term
value through the potential appreciation in the value of the Common
Stock primarily as a result of (i) the Company's increased access to
capital (for example, among other things, subsequent to June 20, 1996,
the date on which definitive agreements with respect to the Transaction
were executed, the Company completed the Supplemental Offering),
permitting increased growth, and (ii) the potential yields to
stockholders from the properties that the Company will be in a position
to acquire or develop with portions of the net proceeds from the
Transaction (provided that there is no assurance as to the existence or
extent of such yields), all of which may enable stockholders to sell
their shares in the future at a price that is higher than the Common
Stock price on the date on which the Transaction was publicly announced.
However, there can be no assurance that the price of the Common Stock
will rise in the future.
. Indirect Affiliation with TREP Investor and Its Affiliates. The Board
believes that TREP Investor and its affiliates have a history of
investing in companies that are highly valued in the marketplace. The
Board believes that the Company will benefit significantly from its
association with TREP Investor and such affiliates and its access to
their market knowledge and operating experience. Therefore, due to such
benefits and the potential to jointly pursue mutually beneficial
investment opportunities (see "Potential Material Beneficial Effects of
the Transaction--Indirect Affiliation with TREP Investor and Its
Affiliates"), the Company considers the indirect affiliation with TREP
Investors and its affiliates to be a positive factor in favor of the
Transaction.
. Impact on the Market Price of Common Stock. The Board considered the
actual and potential adverse effects of the Transaction on the market
price of the Common Stock, and, in particular, that, if, as of the date
of conversion of the Preferred Stock into Common Stock, the market price
of the Common Stock exceeded the Conversion Price, the market price of
the Common Stock could decrease. However, the Board noted, at the time
the Board approved the transaction, that the Conversion Price, which
represents an approximately 5% premium over the average closing price of
the Common Stock for the 30 trading days prior to June 20, 1996 (the
date on which definitive agreements with respect to the Transaction were
executed), represented, in the Board's estimation, the alternative with
the least potential adverse impact on the market price of the Common
Stock for increasing the Company's capital. Therefore, the Board
believes that this potential negative factor is outweighed by the
potentially higher stock price and other potential benefits of the
Transaction described in this Proxy Statement.
. Substantial Stockholder. The Board considered that, as a result of the
Transaction, unless TREP Investor disposes of all or portions of its
shares of Preferred Stock, TREP Investor may be the largest single
stockholder of the Company, owning Preferred Stock equivalent to as much
as approximately
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14.64% of the outstanding shares of Common Stock (based on the number of
shares of Common Stock outstanding as of the Record Date) on a fully-
diluted basis under certain circumstances, while, subject to certain
exemption provisions set forth in the Charter, no other stockholder will
be permitted to own more than 6% of the outstanding shares of Common
Stock (other than George M. Marcus, who can currently own up to 25% of
the outstanding shares of Common Stock, and qualified pension trusts (as
defined in the Charter), which can currently own up to 9.9% of the
outstanding shares of Common Stock). George M. Marcus, the Company's
Chairman, owns Common Stock and limited partnership interests in the
Operating Partnership equivalent to 14.59% of the outstanding shares of
Common Stock (based on the number of shares of Common Stock outstanding
as of the Record Date) on a fully-diluted basis (assuming the issuance
and conversion of all 1,600,000 shares of Preferred Stock). The Board
considered that TREP Investor also will have substantial information
rights, the right to nominate Board members, and numerous other rights.
Although the Board believes that this concentration of ownership in TREP
Investor could potentially be disadvantageous to the other stockholders'
interests, the Board believes that, on balance, the potentially negative
aspects are outweighed by the benefits of obtaining a large amount of
capital at a favorable price, and the other potential benefits of the
Transaction (see "Potential Material Beneficial Effects of the
Transaction").
. Access to Future Capital. The Board considered that, as a result of the
Transaction, the Company expects to have greater access to the capital
markets because the Transaction will (i) decrease the Company's debt-to-
equity ratio, (ii) increase its total capitalization and equity market
capitalization, and (iii) establish an affiliation with TREP Investor
(and its affiliates), a well-known and highly regarded real estate
investment fund. The Board believes that greater access to the capital
markets should further enhance the Company's ability to fund future
acquisitions and development by the Operating Partnership and therefore
considers this to be a positive factor in favor of the Transaction.
However, there can be no assurances that the Company will continue to
grow in the future.
. Preferred Stock Dividend Rate. In considering the dividend rate payable
on the Preferred Stock, the Board reviewed the terms of several other
preferred stock issuances by other REITs. Although these transactions
were not directly comparable to the Transaction in that the particular
terms varied from the terms of the Transaction, the Board believes that
the dividend rate on the Preferred Stock is within the range of that
paid in connection with such other transactions.
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PROPOSED AMENDMENTS TO THE CHARTER
AMENDING THE OWNERSHIP LIMITATIONS (PROPOSAL 2)
The Board has unanimously approved and recommends the approval by the
stockholders of an amendment to Article EIGHTH of the Charter to amend the
limitations in the Charter on ownership of stock to facilitate the acquisition
of the Company's stock by TREP Investor and to provide the Board with increased
flexibility to waive the Charter ownership limitations in certain
circumstances. APPROVAL OF THIS AMENDMENT IS A CONDITION TO THE CONSUMMATION OF
PORTIONS (BUT NOT ALL) OF THE TRANSACTION.
REMOVAL OF DIRECTORS (PROPOSAL 3)
The Board has unanimously approved and recommends the approval by the
stockholders of an amendment to Article SIXTH of the Charter to provide for
certain changes in the composition of the Board of Directors in the event of
the breach of certain protective provisions relating to the Preferred Stock.
APPROVAL OF THIS AMENDMENT IS NOT A CONDITION TO THE CONSUMMATION OF THE
TRANSACTION.
Because TREP Investor and the Company have determined that the protections
provided in the Articles Supplementary are sufficient to preserve the interests
of the holders of Preferred Stock in the event of the breach of certain
protective provisions relating to the Preferred Stock, consummation of the
Transaction is not conditioned upon approval of Proposal 3. However, as more
particularly described in this Proxy Statement (see "PROPOSAL TO CHANGE THE
COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES"), the Board has determined
that the protections provided by Proposal 3 are more desirable for the Company
than those currently provided by the Articles Supplementary.
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THE SPECIAL MEETING
OUTSTANDING SHARES AND VOTING RIGHTS
Record Date. The record date for stockholders entitled to notice of and to
vote at the Special Meeting is the close of business on August 23, 1996.
Quorum. Holders of a majority of the issued and outstanding shares of Common
Stock, present in person or represented by proxy at the Special Meeting, shall
constitute a quorum. Abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Special Meeting but which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum.
Voting Rights. Only holders of shares of Common Stock on the close of
business on the Record Date are entitled to notice of the Special Meeting. The
only securities that can be voted at the Special Meeting consist of 8,805,000
issued and outstanding shares of Common Stock, with each share entitling its
owner to one vote on all matters. Holders of record of outstanding shares of
Common Stock on the Record Date are eligible to vote at the Special Meeting,
in person or by proxy. Stockholder votes will be tabulated by the persons
appointed by the Board to act as inspectors of election for the Special
Meeting. Shares represented by a properly executed and delivered proxy will be
voted at the Special Meeting and, when instructions have been given by the
stockholder, will be voted in accordance with those instructions. If no
instructions are given, the shares will be voted FOR each of the three
Proposals. Holders of shares of the issued and outstanding Preferred Stock are
not entitled to vote at the Special Meeting.
If proxies representing sufficient votes to approve all or any one of the
Proposals have not been received by the scheduled date of the Special Meeting,
the chairman of the Special Meeting shall adjourn the Special Meeting to a
later date and time (but not later than 120 days after the Record Date), or
the individuals named as proxies may vote to so adjourn the Special Meeting,
for the purpose of soliciting additional proxies.
No Appraisal Rights. Stockholders are not entitled under Maryland law to
appraisal rights with respect to the Transaction.
Reason for Seeking Stockholder Approval. The Company is seeking stockholder
approval of the Transaction pursuant to the requirements of Paragraph 312.03
of the New York Stock Exchange Listed Company Manual, regarding the continued
listing of the Common Stock on the NYSE. Approval of the Transaction is not
required by Maryland law, the Charter or the Bylaws. If the Company were to
consummate the entire Transaction without stockholder approval, the Common
Stock could not remain listed on the NYSE. The Company is seeking stockholder
approval of the proposed amendments to the Charter in the manner required by
Maryland law and the Charter.
Presence of Accountants. KMPG Peat Marwick LLP, the Company's principal
accountants for the current year and for the most recently completed fiscal
year, are expected to be present at the Special Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
VOTE REQUIRED
Vote Required to Approve the Transaction. The affirmative vote of a majority
of all of the votes cast by the stockholders at a meeting at which a quorum is
present is required to approve the Transaction (Proposal 1). The receipt of
such approval will be deemed to satisfy Paragraph 312.03 of the New York Stock
Exchange Listed Company Manual with respect to the continued listing of the
Common Stock on the NYSE. Only holders of shares of Common Stock issued and
outstanding on the Record Date are entitled to vote on Proposal 1. Abstentions
and broker non-votes will have no effect on the result of the vote to approve
the Transaction,
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although they will count toward the presence of a quorum. APPROVAL OF THE
TRANSACTION BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE COMPANY IS A
CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION.
Vote Required to Approve the Amendment to Article EIGHTH of the Charter. The
affirmative vote of the holders of a majority of the shares of Common Stock
issued and outstanding as of the Record Date is required to amend the
limitations in the Charter on ownership of stock to facilitate the acquisition
of the Company's stock by TREP Investor and to provide the Board with
increased flexibility to waive the Charter ownership limitations in certain
circumstances (Proposal 2). Only holders of shares of Common Stock issued and
outstanding on the Record Date are entitled to vote on Proposal 2. Abstentions
and broker non-votes will have the same effect as votes against Proposal 2.
APPROVAL OF THE PROPOSED AMENDMENT TO ARTICLE EIGHTH BY THE REQUISITE VOTE OF
STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT
NOT ALL) OF THE TRANSACTION.
Vote Required to Approve the Amendment to the Article SIXTH of the
Charter. The affirmative vote of the holders of two-thirds of the shares of
Common Stock issued and outstanding as of the Record Date is required to
approve amendments to the Charter to provide for certain changes in the
composition of the Board of Directors in the event of the breach of certain
protective provisions relating to the Preferred Stock (Proposal 3). Only
holders of shares of Common Stock issued and outstanding on the Record Date
are entitled to vote on Proposal 3. However, holders of shares of Preferred
Stock are entitled to notice of the proposed amendments pursuant to Maryland
law. Abstentions and broker non-votes will have the same effect as votes
against Proposal 3. APPROVAL OF THE PROPOSED AMENDMENT TO ARTICLE SIXTH BY THE
REQUISITE VOTE OF STOCKHOLDERS OF THE COMPANY IS NOT A CONDITION TO
CONSUMMATION OF THE TRANSACTION.
Approval of each of the Transaction (Proposal 1) and Proposal 2 is
conditioned upon approval of the other (but is not conditioned upon approval
of Proposal 3). Failure by the stockholders to approve the Transaction and
Proposal 2 at the Special Meeting will result in neither the Transaction nor
Proposal 2 being approved (except for certain portions of the Transaction with
respect to which stockholder approval is not required), as more particularly
described in this Proxy Statement (see "Potential Effects of Stockholder
Approval or Disapproval of the Transaction--Effects of Failure to Approve the
Transaction") and may require the Company to pay a yield maintenance fee in
connection with the TREP Loan (see "Terms of the Transaction--Yield
Maintenance Fee"). Failure by the stockholders to approve Proposal 3 will not
affect the approval of the Transaction or Proposal 2.
The first phase of the Transaction (including, without limitation, the
purchase by TREP Investor of 340,000 shares of Preferred Stock and the making
by TREP Funding of the TREP Loan to the Company) was completed and all of the
Additional Terms were effective as of July 1, 1996, and neither the first
phase of the Transaction nor any of the Additional Terms (including, without
limitation, all of the approval rights, preferences, privileges and other
rights and terms of the Preferred Stock) requires the approval of the
stockholders of the Company. Stockholder approval is, however, required to
complete the entire $40 million investment, in the manner contemplated by the
Company, and, consequently, the Company is relying on such approval for the
Company to maximize the potential benefits that the Company believes the
Transaction can provide if the Transaction is fully consummated, as more
particularly discussed in this Proxy Statement (See "Potential Material
Beneficial Effects of the Transaction").
PROXIES
The shares represented by each properly executed proxy not subsequently
revoked will be voted at the Special Meeting in accordance with the
instructions contained therein. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE
VOTED (I) FOR PROPOSAL 1 TO APPROVE THE TRANSACTION, (II) FOR PROPOSAL 2 TO
APPROVE AND ADOPT THE PROPOSED AMENDMENT TO THE CHARTER TO AMEND THE
LIMITATIONS IN THE CHARTER ON OWNERSHIP OF THE COMPANY'S STOCK TO FACILITATE
THE ACQUISITION OF THE COMPANY'S STOCK BY TREP INVESTOR AND TO PROVIDE THE
BOARD WITH INCREASED FLEXIBILITY TO WAIVE THE CHARTER OWNERSHIP LIMITATIONS IN
CERTAIN CIRCUMSTANCES, AND (III) FOR PROPOSAL 3 TO AMEND THE CHARTER TO
PROVIDE FOR CERTAIN CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS IN
THE EVENT OF THE BREACH OF CERTAIN PROTECTIVE PROVISIONS RELATING TO THE
PREFERRED STOCK.
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The presence of a stockholder at the Special Meeting will not automatically
revoke such stockholder's proxy. However, a stockholder giving a proxy in the
form accompanying this Proxy Statement has the power to revoke the proxy prior
to its exercise by (i) filing prior to the Special Meeting a written notice of
revocation bearing a later date with the Company (to the attention of Mr.
Jordan E. Ritter), (ii) delivering to the Company a duly executed proxy
bearing a later date, or (iii) attending the Special Meeting and voting in
person.
If proxies representing sufficient votes to approve all or any one of the
Proposals have not been received by the scheduled date of the Special Meeting,
the chairman of the Special Meeting shall adjourn the Special Meeting to a
later date and time (but not later than 120 days after the Record Date), or
the individuals named as proxies may vote to so adjourn the Special Meeting,
for the purpose of soliciting additional proxies.
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies that have effectively been revoked
or withdrawn prior to exercise).
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing
and mailing proxy materials for the Special Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Special Meeting to beneficial owners of
the Common Stock. The Company may use the services of Corporate Investor
Communications, a third-party solicitor, to assist in soliciting proxies and,
in such event, the Company expects to pay approximately $5,500 for such
services. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting
with the solicitation. Arrangements also will be made with brokerage houses
and other custodians, nominees and fiduciaries for forwarding solicitation
materials to the beneficial owners of shares of Common Stock held of record by
such persons, and the Company will reimburse such persons for their reasonable
expenses incurred in that connection.
STOCKHOLDERS ARE REQUESTED TO INDICATE THEIR VOTE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY TO THE COMPANY IN THE POSTAGE-PAID
ENVELOPE THAT HAS BEEN PROVIDED.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION AND FOR EACH OF THE OTHER PROPOSALS SET FORTH IN THIS PROXY
STATEMENT.
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APPROVAL OF THE INVESTMENT IN THE COMPANY
BY TREP INVESTOR
(PROPOSAL 1)
The following discussion summarizes the material aspects of the Transaction,
as set forth in the Stock Purchase Agreement and the documents referred to
therein, including, without limitation, the Loan Facility Agreement, the
Registration Rights Agreement and the Articles Supplementary. This summary is
not intended to be a complete description of the Stock Purchase Agreement or
any of the other documents listed above and is subject to, and qualified in
its entirety by, reference to the Stock Purchase Agreement, and such other
documents, copies of which are attached hereto as appendices and incorporated
herein by reference.
INFORMATION ABOUT THE COMPANY
The Company is a fully integrated self-administered REIT which was formed in
1994 to continue and expand the real estate investment and management
operations conducted by its predecessor since 1971. The Company has been
engaged in owning, managing, leasing, acquiring, developing and redeveloping
multi-family residential properties located throughout the west coast of the
United States for over 25 years through various cycles of the real estate
market. The Company's Chairman of the Board of Directors and four most senior
executives have worked at the Company (or its predecessor) for an average of
13 years and have an average of approximately 20 years of experience in the
real estate industry. Since its inception in 1971, the Company has acquired,
developed, managed and/or disposed of a combination of approximately 153
property and portfolio assets in seven major metropolitan markets with an
emphasis on the west coast of the United States at an aggregate investment in
excess of $780 million. Such properties have included various types of income-
producing properties, with a focus on multi-family residential properties.
As of June 30, 1996, the Company's multi-family residential portfolio
consisted of 22 properties comprising 4,832 apartment units, eleven of which
are located in the San Francisco Bay Area, nine of which are located in the
Seattle Metropolitan Area and two of which are located in Southern California.
The Company's multi-family residential properties had an average occupancy
rate (based on "Financial Occupancy," which refers to the percentage resulting
from dividing actual rents by total possible rents as determined by valuing
occupied units at contractual rates and vacant units at market rates for the
period in question) for the quarter ended June 30, 1996 of approximately 97%.
The Company also owns six retail properties, which are located in the Portland
Metropolitan Area and in Eugene, Oregon, and an office building located in
Palo Alto, California that houses the Company's headquarters (collectively the
"Commercial Properties," and together with the Company's 22 multi-family
residential properties, the "Properties" and each a "Property"). As of June
30, 1996, the Commercial Properties had an average occupancy rate (based on
leased and occupied square footage) of approximately 93%. The Company's multi-
family residential Properties accounted for approximately 90% of the Company's
rental revenues for the quarter ended June 30, 1996 and its Commercial
Properties accounted for approximately 10% of its rental revenues for this
same period.
The Company conducts substantially all of its activities through the
Operating Partnership. The Company owns an approximate 82% general partnership
interest and senior members of the Company's management and certain outside
investors own an approximate 18% limited partnership interest in the Operating
Partnership. 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 principal executive offices are located at 777 California
Avenue, Palo Alto, California 94304, and its telephone number is (415) 494-
3700.
INFORMATION ABOUT TREP INVESTOR
TREP Investor is a $784 million real estate investment vehicle sponsored by
Westbrook Partners, L.L.C. ("Westbrook") and Tiger Management Corporation
("Tiger"). The investors of TREP Investor are mainly public and private
pension funds, endowments and foundations. TREP Investor targets investments
in a broad
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range of real estate related assets, portfolios and companies. Westbrook is a
real estate investment management company founded in April 1994 by Paul D.
Kazilionis and William H. Walton (the "Managing Principal"), who were formerly
senior executives at Morgan Stanley Realty Incorporated ("Morgan Stanley
Realty"). Tiger is a global investment manager that currently manages
approximately $7 billion through two offshore investment funds, three private
limited partnerships and a registered investment company for more than 700
investors, including pension funds, endowments, foundations and individual
investors.
Prior to forming Westbrook, Mr. Kazilionis and Mr. Walton worked together
for 12 years at Morgan Stanley Realty where they were responsible for major
real estate businesses. Mr. Kazilionis wa President of the general partner of
The Morgan Stanley Real Estate Fund, L.P. (together with its affiliates,
("MSREF"), Morgan Stanley Realty's sole vehicle for principal investing in
real estate. On behalf of MSREF, Mr. Kazilionis oversaw the acquisition and
ongoing management of over a dozen investments, comprising 1,500 individual
properties located throughout much of the United States, with an aggregate
purchase price of approximately $2 billion. While at Morgan Stanley Realty,
Mr. Walton was instrumental in originating or executing a substantial portion
of its real estate advisory business, including discrete sale and financing
assignments, company and portfolio liquidations and financings, and public and
private placement of debt and equity.
As of July 1, 1996, TREP Investor had completed or committed to several
dozen investments, with an aggregate capitalization approaching $2.0 billion.
TREP Investor's investments range in size from $10 million to over $300
million and encompass multi-family residential, office and industrial
properties, residential lot developments, lodging and leisure assets, and debt
investments including commercial mortgage-backed securities. Virtually all of
TREP Investor's investments have been made in existing operating companies or
with a local operating partner who has invested along side TREP Investor.
BACKGROUND OF THE TRANSACTION
In May 1996, the Company received a written proposal describing the general
outlines of the Transaction (including the investment by an affiliate of TREP
Investor of up to $40 million in the Company by the purchase by an affiliate
of TREP Investor of up to 1,600,000 shares of Preferred Stock) from an
affiliate of TREP Investor. On May 21, 1996, the Board discussed the proposal,
at which time the Board (i) authorized the officers of the Company to
negotiate the final terms of the Transaction with TREP Investor and such
affiliates, and (ii) delegated to the Executive Committee of the Board (the
"Executive Committee") the task of approving the final terms of the
Transaction.
On May 28, 1996, the Company and an affiliate of TREP Investor entered into
a letter of intent setting forth the terms and conditions under which TREP
Investor would agree to invest the $40 million in the Company and the Company
would agree to sell the Preferred Stock to TREP Investor.
On June 19, 1996, at a meeting of the Executive Committee, the Executive
Committee, among other things, (i) approved the form and terms of the Stock
Purchase Agreement, the Registration Rights Agreement and the Loan Facility
Agreement, (ii) recommended to the Board that the Board recommend that the
stockholders of the Company vote in favor of and approve the Transaction,
(iii) reclassified 1,600,000 authorized but unissued shares of Common Stock as
Preferred Stock with such designation, preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption as set forth in the then
current draft of the Articles Supplementary, and (iv) directed the officers to
execute and file the Articles Supplementary with the State Department of
Assessments and Taxation of Maryland (the "SDAT").
The Stock Purchase Agreement, the Loan Facility Agreement, the Registration
Rights Agreement, and ancillary agreements were executed on June 20, 1996 by
the Company, TREP Investor and TREP Funding, as applicable.
On June 26, 1996, the Board, among other things, (i) ratified the actions of
the Executive Committee in connection with the approval of the Transaction,
(ii) as provided in the Articles Supplementary, elected Mr. Hartman, TREP
Investor's nominee for director, to the Board (and appointed him to all Board
committees),
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(iii) approved an amendment to the Charter with respect to the designation and
composition of the Board, which amendment is set forth in Proposal 3, and (iv)
agreed to recommend to the stockholders that the stockholders approve the
Transaction and the other Proposals at the Special Meeting.
An amendment to each of the Stock Purchase Agreement and the Loan Facility
Agreement, the approval of which amendments were within the authority
delegated by the Board to the officers of the Company, was executed on July 1,
1996 by the Company, TREP Investor and TREP Funding, as applicable. Also on
July 1, 1996, among other things, (i) the Articles Supplementary were executed
and filed for record with, and accepted by, the SDAT, (ii) 340,000 shares of
Preferred Stock were sold to TREP Investor in consideration of $8.5 million,
in cash, paid by TREP Investor to the Company, and (iii) pursuant to the Loan
Facility Agreement, TREP Funding made the TREP Loan to the Company, with the
purpose of exchanging all principal outstanding under the TREP Loan for shares
of Preferred Stock upon stockholder approval of the Transaction.
TERMS OF THE TRANSACTION
Purchase of Preferred Stock. The terms of the Stock Purchase Agreement
anticipate that TREP Investor will invest up to $40 million in the Company
through the purchase of up to 1,600,000 shares of Preferred Stock, at a
purchase price of $25.000 per share. The investment will be consummated in two
phases: (i) the purchase by TREP Investor of 340,000 shares of Preferred
Stock, for an aggregate purchase price of $8.5 million, paid in cash, which
purchase was completed on July 1, 1996; and (ii) the purchase by TREP Investor
of up to 1,260,000 additional shares of Preferred Stock, the purchase price
for which will be comprised of (A) exchanging $11.5 million, constituting the
outstanding principal balance of the TREP Loan, for shares of Preferred Stock,
and (B) utilizing funds otherwise comprising the remainder of the Maximum Loan
Principal Amount to acquire the remaining shares of Preferred Stock.
Completion of the purchase of up to 1,260,000 additional shares of Preferred
Stock is scheduled to occur on or prior to June 20, 1997. The purchase price
per share for the shares of Preferred Stock and the Conversion Price were
determined as the result of arm's-length negotiations between the Company and
its advisors and TREP Investor and its advisors. See "TREP Loan Terms" for a
summary of the principal terms of the TREP Loan.
Phase 2 of the Transaction will be consummated in accordance with one of the
Options, as follows:
Option A and Option B. If the stockholders approve Proposal 1 and Proposal 2
at the Special Meeting, subject to the absence of certain legal prohibitions,
(i) the $11.5 million principal outstanding under the TREP Loan will be
immediately exchanged for shares of Preferred Stock, and (ii) TREP Funding
shall, at the request of the Company, advance to the Company funds otherwise
comprising the remainder of the Maximum Loan Principal Amount to acquire the
remainder of the shares of Preferred Stock on or prior to June 20, 1997, with
each such advance being immediately applied to purchase shares of Preferred
Stock. The Company may solicit and, prior to the Special Meeting, may receive
the IRS Approval. In the event such IRS Approval is received prior to the
stockholder approval of the Transaction at the Special Meeting, "Option B" is
triggered under the Stock Purchase Agreement and the Loan Facility Agreement.
The nature and timing of the transactions contemplated by Option B, however,
are identical to that of Option A. For example, under Option B, even after the
IRS Approval is obtained, the $11.5 million principal amount outstanding under
the TREP Loan would not be exchanged for shares of Preferred Stock unless and
until the stockholders approved the Transaction at the Special Meeting.
Pursuant to the consummation of Option A or Option B, if applicable, TREP
Investor will own an aggregate of 1,600,000 shares of Preferred Stock, for an
aggregate purchase price of $40 million, unless TREP Investor disposes of all
or a portion of its shares of Preferred Stock. Upon the consummation of all of
the transactions contemplated by Option A or Option B, the TREP Loan will be
terminated.
Option D. If the stockholders fail to approve Proposal 1 and Proposal 2 at
the Special Meeting and the Company shall have received the IRS Approval on or
before December 15, 1996, subject to the absence of certain legal
prohibitions, (i) the $11.5 million principal outstanding under the TREP Loan
will be immediately exchanged for shares of Preferred Stock (provided that, if
the IRS Approval is obtained prior to the date of the Special Meeting, the
exchange will occur on the date of the Special Meeting; otherwise, the
exchange will occur
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on the date that the IRS Approval is obtained), and (ii) TREP Funding, at its
option, may purchase up to a maximum of $7 million in value of shares of
Preferred Stock, in which event (under both clause (i) and clause (ii)) the
TREP Loan will terminate. Pursuant to the consummation of Option D, if
applicable, unless TREP Investor disposes of all or portions of its shares of
Preferred Stock, TREP Investor will own an aggregate of either (a) 800,000
shares of the Preferred Stock, for an aggregate purchase price of $20 million,
or (b) as provided in clause (ii) above, up to 1,080,000 shares of the
Preferred Stock, for an aggregate purchase price of up to $27 million.
Option C. If the stockholders fail to approve Proposal 1 and Proposal 2 at
the Special Meeting and the IRS Approval is not obtained by the Company on or
before December 15, 1996, or if the Stock Purchase Agreement is terminated,
for any reason, or any material provision thereof shall have ceased to be in
full force and effect such that TREP Investor shall not be able to realize the
material benefits thereof, TREP Investor shall not purchase any additional
shares of Preferred Stock. Pursuant to the consummation of Option C, if
applicable, unless TREP Investor disposes of all or portions of its shares of
Preferred Stock, TREP Investor will own an aggregate of 340,000 shares of the
Preferred Stock, for an aggregate purchase price of $8.5 million. Pursuant to
Option C, the interest and outstanding $11.5 million principal balance under
the TREP Loan will mature and be due and payable on December 31, 1996,
provided that the Company may extend such maturity until April 30, 1997.
Listing of the Preferred Stock and the Common Stock Upon Conversion of the
Preferred Stock. The Company has no plans to list, on the NYSE or any other
exchange, either the shares of Preferred Stock or the Common Stock with
respect to which the shares of Preferred Stock may be converted (other than as
required pursuant to the registration rights of the holders of Preferred Stock
(see "Registration Rights Agreement")). Any listing on the NYSE of the
Preferred Stock or any as yet unissued Common Stock is subject to the approval
of the NYSE in accordance with the rules set forth in the New York Stock
Exchange Listed Company Manual.
Preferred Stockholders' Stock Ownership. As of the date of this Proxy
Statement, there are 340,000 outstanding shares of Preferred Stock. TREP
Investor owns 100% of the 340,000 outstanding shares of Preferred Stock, which
are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the
outstanding shares of Common Stock as of the Record Date on a fully-diluted
basis. If TREP Investor acquires all 1,600,000 shares of Preferred Stock
directly from the Company, as contemplated by the Transaction, and assuming no
other change in the number of outstanding shares of Common Stock or Preferred
Stock, unless TREP Investor disposes of all or portions of its shares of
Preferred Stock, TREP Investor will own 100% of the 1,600,000 outstanding
shares of Preferred Stock, which are equivalent to 1,828,571 shares of Common
Stock or approximately 14.64% of the outstanding shares of Common Stock on a
fully-diluted basis. If TREP Investor does not acquire any further shares of
the Preferred Stock, as contemplated by Option C, and assuming no other change
in the number of outstanding shares of Common Stock or Preferred Stock, unless
TREP Investor disposes of all or portions of its shares of Preferred Stock,
TREP Investor will own 100% of the 340,000 outstanding shares of Preferred
Stock, which are equivalent to 388,571 shares of Common Stock or approximately
3.52% of the outstanding shares of Common Stock on a fully-diluted basis. If
TREP Investor acquires an aggregate of 800,000 shares of the Preferred Stock,
as contemplated by Option D (assuming TREP Funding does not exercise its
option under Option D to acquire up to an additional $7 million of Preferred
Stock), and assuming no other change in the number of outstanding shares of
Common Stock or Preferred Stock, unless TREP Investor disposes of all or
portions of its shares of Preferred Stock, TREP Investor will own 100% of the
800,000 outstanding shares of Preferred Stock, which are equivalent to 914,285
shares of Common Stock or approximately 7.90% of the outstanding shares of
Common Stock on a fully-diluted basis. If TREP Investor acquires an aggregate
of 1,080,000 shares of the Preferred Stock, as contemplated by Option D
(assuming TREP Funding exercises its option under Option D and utilizes the
entire $7 million for the purchase of shares of Preferred Stock), and assuming
no other change in the number of outstanding shares of Common Stock or
Preferred Stock, unless TREP Investor disposes of all or portions of its
shares of Preferred Stock, TREP Investor will own 100% of the 1,080,000
outstanding shares of Preferred Stock, which are equivalent to 1,234,285
shares of Common Stock or approximately 10.38% of the outstanding shares of
Common Stock on a fully-diluted basis.
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Also, if Option A or Option B is consummated, TREP Investor may be the
largest single stockholder of the Company (owning Preferred Stock equivalent
to approximately 14.64% of the outstanding shares of Common Stock on a fully-
diluted basis (based on the number of shares of Common Stock outstanding as of
the Record Date, unless TREP Investor disposes of all or portions of its
shares of Preferred Stock)) while, subject to certain exemption provisions set
forth in the Charter, no other stockholder will be permitted to own more than
6% of the outstanding shares of Common Stock (other than George M. Marcus, who
can currently own up to 25% of the outstanding shares of Common Stock, and
qualified pension trusts (as defined in the Charter), which can currently own
up to 9.9% of the outstanding shares of Common Stock), subject to certain
exceptions set forth in the Charter or approved by the Board. George M.
Marcus, the Company's Chairman, owns Common Stock and limited partnership
interests in the Operating Partnership equivalent to 14.59% of the outstanding
shares of Common Stock (based on the number of shares of Common Stock
outstanding as of the Record Date) on a fully-diluted basis (assuming the
issuance and conversion of all 1,600,000 shares of Preferred Stock). Upon
conversion of the shares of Preferred Stock to Common Stock, unless TREP
Investor disposes of all or a portion of its shares of Preferred Stock (or
Common Stock into which Preferred Stock has been converted), TREP Investor, by
virtue of its ownership of approximately 14.64% the outstanding shares of
Common Stock (based on the number of shares of Common Stock outstanding as of
the Record Date) on a fully-diluted basis, will have a substantial influence
over the composition of the Board and over Company policy.
Conversion of Preferred Stock to Common Stock. From and after June 20, 1997,
400,000 shares of Preferred Stock shall become convertible into Common Stock.
Thereafter, at the beginning of each of the next three three-month periods, an
additional 400,000 shares of Preferred Stock shall become convertible into
Common Stock, provided that, in the case of the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, all outstanding
shares of Preferred Stock shall, at the option of the holder thereof, become
immediately convertible into Common Stock. The Conversion Price per share of
Preferred Stock will initially be $21.875, subject to adjustment as more fully
described in this Proxy Statement. Based on the conversion ratio, the
Conversion Price represents an approximately 5% premium over the average per
share closing price of the Common Stock for the 30 trading days prior to June
20, 1996, the date on which definitive agreements with respect to the
Transaction were executed. See "Terms of the Preferred Stock--Conversion of
Preferred Stock to Common Stock."
Representation on the Board. TREP Investor and the other holders of
Preferred Stock, if any, have the right to nominate and elect, voting as a
separate class, one director to the Board and to nominate and elect, voting as
a separate class, up to four additional directors to the Board, in the event
of a sustained failure to pay dividends with respect to the Preferred Stock or
a breach of certain protective provisions, for an aggregate of five directors,
representing approximately 33% of the directors on the Board (see Terms of the
Preferred Stock--Voting Rights of Holders of Preferred Stock). The number of
directors elected by the holders of the Preferred Stock and the composition of
the Board may be modified, in certain circumstances, if the stockholders
approve Proposal 3 (see "PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN
CERTAIN CIRCUMSTANCES").
Information Rights. Pursuant to the Stock Purchase Agreement, so long as
TREP Investor holds 100,000 or more shares of Preferred Stock, the Company and
its subsidiaries are required to (i) provide TREP Investor with access to the
Company's and its subsidiaries' properties, books, contracts, commitments,
records and personnel, and (ii) furnish to TREP Investor with (a) a copy of
all reports, schedules and other documents required to be filed by the Company
with or received by the Company from any state or federal securities
regulating body, and (b) all other information concerning the Company's
business, personnel and properties as TREP Investor may reasonably request.
In addition, pursuant to the Loan Facility Agreement, the Company has agreed
to provide TREP Funding and TREP Investor with (i) the right to consult with
and advise Company management regarding significant business activities, (ii)
the right to communicate directly with the Company's independent certified
public accountants and tax advisors, and (iii) the right to receive quarterly
unaudited and yearly audited financial reports and a monthly report
displaying, by property, gross income, net operating income, cash flow and, on
an aggregate basis, funds from operations and adjusted funds from operations
per share. Also, under circumstances in which
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TREP Funding or TREP Investor reasonably believes that a Material Adverse
Effect has occurred, TREP Funding and TREP Investor may conduct audits of
Company income and expenses.
Participation Rights. Pursuant to the Stock Purchase Agreement, so long as
any Preferred Stock is outstanding, in the event that the Company issues or
sells shares of stock, or the Operating Partnership issues or sells limited
partnership interests, as the case may be, TREP Investor will be entitled
(except in certain limited circumstances) to a participation right to purchase
or subscribe for, either as part of such issuance or in a concurrent issuance,
a total number of shares or partnership interests, as the case may be, equal
to TREP Investor's pro rata share of the total number of shares proposed to be
issued by the Company. TREP Investor waived its participation rights in
connection with the Supplemental Offering. See "Description of Participation
Rights."
Limitations on Transactions and Corporate Actions. Pursuant to the Stock
Purchase Agreement, the Company has agreed that all transactions between the
Company and any affiliate of the Company shall be conducted on an arm's-length
basis, and if any such transaction involves a cost to the Company or to such
affiliate in excess of $500,000 in a single transaction, or in excess of an
aggregate $1 million for a series of transactions with all affiliates in any
twelve-month period, such transaction shall be on terms and conditions no less
favorable (when all aspects of the transactions are considered) to the Company
than could be obtained from non-related persons except for transactions
disclosed to TREP Investor prior to June 20, 1996.
Pursuant to the Articles Supplementary, the Company has agreed that, while
any Preferred Stock is outstanding, the Company will not, without the approval
of holders of at least 66 2/3% of the outstanding shares of Preferred Stock,
voting separately as a class, (i) increase the number of authorized shares of
Preferred Stock or issue any shares of Preferred Stock other than to existing
holders of Preferred Stock, (ii) increase the authorized number of shares of
or create, reclassify or issue any class of stock ranking prior to or on a
parity with the Preferred Stock either as to dividends or upon liquidation,
(iii) amend, alter or repeal any of the provisions of the Charter so as to
impair the rights and privileges of the Preferred Stock, (iv) amend, alter or
repeal certain provisions of the Bylaws in a manner which would adversely
affect the rights of the holders of the Preferred Stock, (v) authorize any
reclassification of the Preferred Stock, (vi) except pursuant to a conversion
of the Preferred Stock, require the exchange of Preferred Stock for other
securities, or (vii) effect a voluntary liquidation, dissolution or winding up
of the Company, the sale of substantially all of the assets of the Company,
the merger or consolidation of the Company or the Operating Partnership or any
recapitalization (except a merger of a wholly-owned subsidiary of the Company
into the Company in which the Company's capitalization is unchanged as a
result of such merger) of more than 40% of the Company's total market
capitalization (market value of the Company's equity plus total indebtedness)
in a single transaction or a series of related transactions, provided that
successive offerings of the Company's equity or debt to the public shall not
be considered related transactions.
Also, pursuant to the Articles Supplementary, the Company has agreed that,
while any Preferred Stock is outstanding, the Company and the Operating
Partnership will not, directly or indirectly, without the approval of the
holders of a majority of the outstanding shares of Preferred Stock, voting
separately as a class, take or allow to occur any of the following actions:
(i) substantial sales or other transfers of the assets of the Company or the
Operating Partnership or any other entity owned, directly or indirectly, by
the Company or the Operating Partnership; (ii) the termination of the Company
as a REIT under the Code; (iii) any alteration in the Company's or the
Operating Partnership's business; or (iv) any change in control of the Company
or the Operating Partnership. See "Terms of Preferred Stock--Prohibited
Actions."
Resale Restrictions. Pursuant to the Stock Purchase Agreement, TREP Investor
has acknowledged and agreed that the shares of Preferred Stock acquired or to
be acquired by TREP Investor, together with any shares of Common Stock into
which such shares of Preferred Stock may be converted, are not, and, subject
to registration pursuant to the Registration Rights Agreement or otherwise,
will not be, registered under the Securities Act or the securities laws of any
state, and that such Preferred Stock or Common Stock may be sold only in one
or more transactions registered under the Securities Act and, where
applicable, state securities laws
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or as to which an exemption from registration requirements of the Securities
Act and, where applicable, state securities laws, is available.
Modifications to Structure for Tax and ERISA Purposes. Pursuant to the Stock
Purchase Agreement, the Company and TREP Investor have agreed to negotiate in
good faith any modifications necessary to the structure of the Operating
Partnership and/or the Operating Partnership's investments in, and ownership
of, the property of the Operating Partnership, (i) to minimize certain adverse
tax consequences to TREP Investor, and (ii) to assist TREP Investor with its
obligations under ERISA. Unless and until such date as TREP Investor has
distributed to its investors aggregate funds exceeding 50% of the net
acquisition cost of all assets it has purchased to such date, the Company and
the Operating Partnership, considered as a single entity, or any entity in
which the partners and/or the Company and the Operating Partnership,
considered as a single entity, owns an interest and which owns any portion of
the Company's property, shall qualify as and/or remain an "operating company"
under the plan asset rules of ERISA at 29 C.F.R. Section 2510.3-101, provided
that such action shall not have a material adverse effect on Operating
Partnership limited partners, considered as a whole.
Registration Rights. Neither the shares of the Preferred Stock currently
held by TREP Investor nor the shares of Preferred Stock issued to TREP
Investor as contemplated by Phase 2 of the Transaction (nor any shares of
Common Stock into which any such shares of Preferred Stock may be converted)
are or will be registered under the Securities Act and will be issued by the
Company in reliance upon an exemption from registration. Such shares will be
deemed "restricted securities" within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. Pursuant to
the Registration Rights Agreement, the Company will grant certain registration
and listing rights to the holders of the Preferred Stock that will enable the
holders of the Preferred Stock to resell certain shares of Preferred Stock
(and/or shares of Common Stock into which shares of Preferred Stock have been
converted) to the public under certain conditions. See "Registration Rights
Agreement."
Limitations on Certain Stockholders. Pursuant to the Stockholder Agreements,
subject to certain exceptions, the Restricted Stockholders have each agreed
that, prior to July 1, 1998, neither of the Restricted Stockholders shall
transfer (provided that pledges and grants of security interests are not
restricted) an aggregate of more than 30% of their respective ownership, as of
July 1, 1996, of the shares of Common Stock (including the pro rata portions
of all Common Stock held by affiliates of such Restricted Stockholder, based
on the Restricted Stockholder's ownership interest in such affiliate and
Common Stock issuable upon exchange of such Restricted Stockholder's
respective limited partnership interests in the Operating Partnership).
Solicitation Restrictions. The Company and the Operating Partnership have
agreed that, until any Option has been exercised and all funds available
thereunder have been requested by the Company, they will not solicit or
receive from any third party (including, without limitation, by way of a
public offering or private offering of securities) funds in exchange for
interests in the Company or the Operating Partnership, other than (i) pursuant
to a sale of Common Stock pursuant to the Company's existing shelf
registration statement that is commenced before funding is available pursuant
to the consummation of an Option, or (ii) transactions in which the Company or
the Operating Partnership receives only non-cash consideration, e.g., real
estate.
Negotiation of Management Agreement. Pursuant to the Agreement to Negotiate
Management Agreement, the Company and TREP Investor have agreed to negotiate
(without being legally bound to enter into) a management agreement with
respect to the management by the Company of approximately 800 multi-family
rental units located in Ventura County, California, which TREP Investor owns
through an affiliate.
Use of Proceeds. The Company expects that the net proceeds of the investment
will be contributed by the Company to the Operating Partnership. The Operating
Partnership will use the net proceeds (i) to repay outstanding borrowings
under the Operating Partnership's current credit facility and other loans,
(ii) to finance the acquisition and/or development of additional (or already
owned) multi-family properties, and/or (iii) for general corporate purposes,
including working capital. As part of the transaction expenses payable, the
Company will pay to Merrill Lynch & Co. a fee of approximately $1 million.
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Conditions to Closing. Each of the Company's and TREP Investor's obligations
to effect Phase 2 of the Transaction are subject to various mutual and
unilateral conditions, including, without limitation, the following: (i) the
stockholders shall have approved the Transaction (Proposal 1); (ii) the
stockholders shall have approved the proposed amendment to the Charter to
amend the limitations on ownership of stock to permit TREP Investor to acquire
the shares of Preferred Stock (Proposal 2); (iii) the Company shall continue
to qualify as a REIT for federal income tax purposes; (iv) there shall have
been no Material Adverse Effect; (v) there shall not be in effect any order,
decree or injunction of any court or agency which prohibits the Transaction
and there shall not be any legal proceedings which could reasonably be
expected to have a Material Adverse Effect on the ability of the Company to
consummate the Transaction; (vi) the Company shall have performed all
covenants required to be performed by the Company, except for failures to
perform as would not in the aggregate reasonably be expected to have a
Material Adverse Effect; (vii) TREP Investor shall have performed all
covenants required to be performed by TREP Investor except for failures to
perform as would not in the aggregate reasonably be expected to have a
Material Adverse Effect on the Company's or TREP Investor's ability to
consummate Phase 2 of the Transaction (other than, among other things, TREP
Funding's obligations under the Loan Facility Agreement and TREP Investor's
obligation to purchase the applicable number of shares of Preferred Stock
pursuant to an Option, with respect to which the Material Adverse Effect
limitation shall not apply); and (viii) various other customary conditions
shall have been satisfied.
Yield Maintenance Fee. If the stockholders do not approve Proposal 1 and
Proposal 2 at the Special Meeting, the Company is required to pay to TREP
Funding a prepayment fee on the TREP Loan equal to the product of (i) the
recent average market price of a share of Common Stock minus $21.875 times
(ii) a fraction, the numerator of which is the then outstanding principal
amount of the TREP Loan and the denominator of which is $21.875.
Amendment or Termination of the Stock Purchase Agreement. Although the Board
reserves the right to amend the provisions of the Stock Purchase Agreement
without approval of the stockholders, the Company intends to solicit further
approval of the stockholders in the event that any such amendment would change
the Transaction in a way that would be materially adverse to stockholders. The
Board also reserves the right to terminate the Stock Purchase Agreement, in
accordance with its terms, without obtaining further approval of the
stockholders. The Board does not, however, currently anticipate either the
amendment of the terms of, or the termination of, the Stock Purchase
Agreement, other than amendments for the purpose of extending any deadline set
forth therein for obtaining stockholder approval of the Proposals.
TREP LOAN TERMS
The following discussion summarizes the material terms of the TREP Loan, as
set forth in the Loan Facility Agreement, to the extent not otherwise
described in other portions of this Proxy Statement. This summary is not
intended to be a complete description of the terms of the TREP Loan or of the
Loan Facility Agreement or any of the other documents evidencing the TREP Loan
and is subject to, and qualified in its entirety by, reference to the Loan
Facility Agreement, and such other documents, copies of which are attached
hereto as Appendix B and incorporated herein by reference.
Principal Amount. The maximum principal amount of the TREP Loan is $31.5
million. However, the outstanding principal amount of the TREP Loan shall not
exceed $11.5 million except solely to fund purchases of additional shares of
Preferred Stock by TREP Investor pursuant to the consummation of Option A or
Option B. Also, all subsequent advances of principal under the TREP Loan (in
the amounts required pursuant to the applicable of Option A, Option B or
Option D, if applicable), if any, will be immediately applied to purchase
shares of Preferred Stock in accordance with the applicable Option. It is
anticipated that the initial $11.5 million of principal currently outstanding
will itself be applied to purchase Preferred Stock under all circumstances
other than pursuant to the consummation of Option C.
Maturity. Except pursuant to the consummation of Option C, if applicable,
the principal amount of the TREP Loan is repayable in full in exchange for
shares of Preferred Stock in accordance with the consummation
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of the Options, other than Option C. Upon the consummation of Option C, if
applicable, the entire principal balance of the TREP Loan shall be due and
payable in full on December 31, 1996, which date may be extended by the
Company until April 30, 1997.
Interest. Interest will accrue on all portions of the principal amount of
the TREP Loan from time to time outstanding at the greater of (i) 8.75% per
annum, and (ii) the rate that is equal to the quarterly dividend on the Common
Stock, annualized, divided by $21.875, provided that upon the Company's
default under the terms of the TREP Loan, the interest rate will be the sum of
the rate provided above and 4% per annum. All interest is payable quarterly in
arrears on the last day of each calendar quarter and on the date on which the
applicable Option is consummated.
Yield Maintenance Fee. If the stockholders do not approve Proposal 1 and
Proposal 2 at the Special Meeting, the Company will be required to pay to TREP
Funding a prepayment fee equal to the product of (i) the recent average market
price of a share of Common Stock minus $21.875 times (ii) a fraction, the
numerator of which is the then outstanding principal amount of the TREP Loan
and the denominator of which is $21.875.
Guaranty. Repayment of the TREP Loan is guaranteed by the Operating
Partnership.
REGISTRATION RIGHTS AGREEMENT
The following discussion summarizes the material terms of the Registration
Rights Agreement to the extent not otherwise described in other portions of
this Proxy Statement. This summary is not intended to be a complete
description of the terms of TREP Investor's Registration rights or of the
Registration Rights Agreement and is subject to, and qualified in its entirety
by, reference to the Registration Rights Agreement, a copy of which is
attached hereto as Appendix C and incorporated herein by reference.
Registration of Stock. As to all but not less than all of the Preferred
Stock purchased by TREP Investor, at any time after the consummation of the
Transaction, and with respect to shares of Common Stock, only after February
20, 1997, and from time to time thereafter, at TREP Investor's request, the
Company will use its best efforts to cause all Preferred Stock or such Common
Stock to be registered (or otherwise qualified) in accordance with the rules
and regulations of the Securities and Exchange Commission (the "Commission"),
subject to certain limitations, including, without limitation, as to the value
of the shares included in the registration (generally, a minimum of $7
million), size of the registration (the registration must be for all of the
outstanding Preferred Stock or at least 25% of the Preferred Stock holders'
shares of Common Stock), and timing (the Company is not required to make more
than one registration per year).
Shelf Registration. As to all but not less than all of the Preferred Stock
purchased by TREP Investor, at any time after the consummation of the
Transaction, and, with respect to any shares of the Common Stock, only at any
time after February 20, 1997, and from time to time thereafter, at the request
of TREP Investor, the Company will use its best efforts to file with the
Commission a registration statement or statements under the Securities Act for
the offering on a continuous or delayed basis in the future of such Preferred
Stock or Common Stock in such amount and type as aforesaid (collectively, the
"Shelf Registration"). The Company shall use its best efforts to keep the
Shelf Registration continuously effective for up to two years.
The Company shall not be required to comply with a request by TREP Investor
for a shelf registration, except to the extent that the securities to be
included in any such registration statement aggregate at least $7 million in
expected offering price to the public or are such lesser amount of securities
as shall constitute all of the securities then outstanding. The obligations of
the Company to file shelf registrations shall terminate if TREP Investor and
its assignees hereunder do not hold at least the lesser of (i) 200,000 shares
of Preferred Stock (or such number of shares of Common Stock as shall have
resulted from a conversion thereof) (subject to adjustment to give effect to
stock splits, stock dividends and other similar transactions), or (ii) 12.5%
of the total amount of shares of Preferred Stock that TREP Investor purchases
pursuant to the Stock Purchase Agreement.
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Company Registration. Subject to certain limitations, if, on or after June
20, 1997, the Company registers (or decides to issue under its current shelf
registration) any Common Stock (or any other security junior to the Preferred
Stock), at the request of TREP Investor, the Company will include in such
registration, all (or any portion) of the shares of Common Stock (but not
Preferred Stock) owned by holders of Preferred Stock, if any, as specified by
TREP Investor. The rights of the holders of Preferred Stock to participate in
a Company registration shall not apply to any registration (i) relating to
employee stock option or purchase plans, (ii) relating to a transaction
pursuant to Rule 145 under the Securities Act, (iii) pursuant to a
registration form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Common Stock, or (iv) of primary shares of Common Stock by the Company on a
form that does not permit both primary and secondary shares to be included in
the same registration statement.
TERMS OF THE PREFERRED STOCK
The following discussion summarizes the material terms of the Preferred
Stock, as set forth in the Articles Supplementary, to the extent not otherwise
described in other portions of this Proxy Statement. This summary is not
intended to be a complete description of the terms of the Preferred Stock or
of the Articles Supplementary and is subject to, and qualified in its entirety
by, reference to the Articles Supplementary, a copy of which is attached
hereto as Appendix D and incorporated herein by reference.
Source of Preferred Stock. Pursuant to authority conferred on the Board of
Directors under Article FIFTH of the Charter, in accordance with Section 2-105
of the Maryland General Corporation Law, the Board of Directors, at a meeting
held on June 26, 1996, duly adopted a resolution reclassifying 1,600,000
authorized but unissued shares of Common Stock as Preferred Stock (par value
$0.0001 per share), designating such newly classified Preferred Stock as 8.75%
Convertible Preferred Stock, Series 1996A, and setting forth the preferences,
conversion and other rights, voting powers, limitations as to dividends and
other distributions, qualifications and terms or conditions of redemption
thereof.
Dividends. Holders of shares of Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the payment of dividends, cumulative cash dividends equal to the
greater of (i) 8.75% of $25.000 per share (such $25.000, the "Stated Value")
per annum (rounded up to the nearest whole cent), payable quarterly, in
arrears, on the 15th day of January, April, July and October of each year,
commencing October 15, 1996 (each a "Dividend Payment Date"), or (ii) the
dividend (determined as of the most recent dividend payment date for the
Common Stock) paid with respect to each share of Common Stock multiplied by a
fraction of which the numerator is the Conversion Price in effect as of such
Dividend Payment Date and the denominator of which is the initial Conversion
Price. The dividend will accrue daily on the basis of a 360-day year of twelve
30-day months, whether or not the Company has earnings or surplus, and the
dividend payable to the holder of a share of Preferred Stock on the first
Dividend Payment Date after the share is issued will be the accrued dividend
calculated from the day the share is issued to the Dividend Payment Date.
Each dividend will be payable to holders of record of the Preferred Stock on
a date (a "Dividend Record Date") selected by the Board of Directors which is
not less than ten nor more than forty-five days before the Dividend Payment
Date on which the dividend is to be paid.
Unless and until all accrued dividends on the Preferred Stock through the
last preceding Dividend Payment Date have been paid, the Company may not (i)
declare or pay any dividend, make any distribution (other than a distribution
payable solely in shares of Common Stock), or set aside any funds or assets
for payment or distribution with regard to any Junior Shares (as herein
defined), (ii) redeem or purchase (directly or through subsidiaries), or set
aside any funds or other assets for the redemption or purchase of, any Junior
Shares, or (iii) authorize, take or cause to be taken any action as general
partner of the Operating Partnership that will result in (A) the declaration
or payment by the Operating Partnership of any distribution to its partners
(other than distributions payable to the Company as general partner of the
Operating Partnership that will be used by the Company to fund the payment of
dividends on the Preferred Stock (such distributions to the Company being
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referred to as "Authorized GP Distributions")), or set aside any funds or
assets for payment of any distributions (other than Authorized GP
Distributions) or (B) the redemption or purchase (directly or through
subsidiaries), or the setting aside of any funds or other assets for the
redemption or purchase of, any partnership interests in the Operating
Partnership. As used with regard to the Preferred Stock, the term "Junior
Shares" means all shares of Common Stock and all shares of any other class or
series of stock of the Company to which the shares of Preferred Stock are
prior in rank with regard to payment of dividends.
Voting Rights of Holders of Preferred Stock. The voting rights of the
holders of shares of Preferred Stock are as follows: (i) The holders of the
Preferred Stock, voting as a separate class, have the right to elect one
director of the Company, in addition to the other directors elected by the
holders of Common Stock; and (ii) the holders of the Preferred Stock, voting
as a separate class, have the right, as specified below, to elect additional
directors of the Company, in addition to the director specified in clause (i)
above, and in addition to the other directors elected by the holders of Common
Stock, provided that, if the stockholders approve Proposal 3, then, pursuant
to the proposed amendment to the Charter discussed in Proposal 3, the right of
the holders provided in this clause (ii) shall be modified, as more fully
discussed in the description of Proposal 3.
In the event of the breach of certain corporate action restrictions
described below (a "Charter Breach"), the number of directors shall be
increased by three directors, who shall be elected as soon as practicable
pursuant to the Charter by the holders of the Preferred Stock, voting as a
separate class, to serve until the next annual meeting of stockholders and
until such directors' successors are elected and qualify.
In the event of a Dividend Default (as hereinafter defined) or in the event
of both a Dividend Default and a Charter Breach, the number of directors shall
be increased by four directors, who shall be elected as soon as practicable
pursuant to the Charter by the holders of the Preferred Stock, voting as a
separate class, to serve until the next annual meeting of stockholders and
until such directors' successors are elected and qualified. A "Dividend
Default" shall occur if, at any time, dividends are not paid in full with
respect to all shares of Preferred Stock on any four Dividend Payment Dates
such that dividends due on such four dates have not been fully paid and are
outstanding in whole or in part at the same time.
In the event of a Dividend Default and/or a Charter Breach, the number of
directors elected by the holders of the Preferred Stock at each subsequent
annual meeting of stockholders shall be increased as provided in the two
preceding paragraphs, e.g., if a Charter Breach has occurred, the holders of
Preferred Stock shall elect, voting as a separate class, four directors at
each subsequent annual meeting and, if a Dividend Default has occurred, or if
both a Dividend Default and a Charter Breach have occurred, the holders of
Preferred Stock shall elect, voting as a separate class, five directors at
each subsequent annual meeting, subject to the classification required by
Section 2.3 of the Bylaws.
A director elected by the holders of the Preferred Stock will serve until
the next annual meeting of stockholders of the Company and until his or her
successor is elected and qualified by the holders of the Preferred Stock,
except as otherwise provided in the Charter or Bylaws.
Prohibited Actions. While any shares of Preferred Stock are outstanding, the
Company will not, directly or indirectly, including through a merger or
consolidation with any other entity or otherwise, without approval of holders
of at least 66 2/3% of the outstanding shares of Preferred Stock, voting
separately as a class, (i) increase the number of authorized shares of
Preferred Stock or authorize the issuance or issue of any shares of Preferred
Stock other than to existing holders of Preferred Stock, (ii) increase the
authorized number of shares of or create, reclassify or issue any class or
series of stock ranking prior to or on a parity with the Preferred Stock
either as to dividends or upon liquidation, (iii) amend, alter or repeal any
of the provisions of the Charter so as to affect adversely the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption of the Preferred Stock, (iv) amend, alter or repeal (a) the final
paragraph of Section 1.11, the final paragraph of Section 1.12, Section 2.2,
Section 3.1, Section 6.7 or Section 8.6 of the Bylaws of the Company, (b) any
other provision of the Bylaws relating to nomination, election,
classification, qualification or removal of directors elected by the holders
of
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Preferred Stock or size of the Board, or (c) any other provision of the Bylaws
of the Company in a manner which would adversely affect the rights of the
holders of the Preferred Stock, (v) authorize any reclassification of the
Preferred Stock, (vi) except as otherwise provided herein, require the
exchange of Preferred Stock for other securities, or (vii) effect a voluntary
liquidation, dissolution or winding up of the Company, the sale of
substantially all of the assets of the Company, the merger or consolidation of
the Company or the Operating Partnership or recapitalization (except a merger
of a wholly-owned subsidiary of the Company into the Company in which the
Company's capitalization is unchanged as a result of such merger) of more than
40% of the Company's total market capitalization (market value of the
Company's equity plus total indebtedness) in a single transaction or a series
of related transactions, provided that successive offerings of the Company's
equity or debt to the public shall not be considered related transactions.
While any shares of the Preferred Stock are outstanding, the Company and the
Operating Partnership will not, directly or indirectly, including through a
merger or consolidation with any other entity or otherwise, without the
approval of the holders of a majority of the outstanding shares of Preferred
Stock, voting separately as a class, propose, authorize, take, or cause to be
taken or allow to occur any of the following actions: (i) the sale, transfer
or assignment, in a single transaction or series of transactions, of
beneficial interests in or voting rights with respect to assets of the Company
or the Operating Partnership or any other person (except that with respect to
any such other person in which the Company or Operating Partnership has a
minority interest such that a sale, transfer or assignment is not within the
Company's or Operating Partnership's control, this prohibition shall not
apply) owned directly or indirectly by the Company to the extent of the
Company's attributed interest in such other person, having a fair market value
(based on the value of the total consideration of each such transaction,
including, without limitation, any debt assumed by any purchaser in connection
therewith) in excess of $45 million within any 90-day period or $125 million
within any 360-day period; (ii) the Company's termination of the election, or
the taking of any action by the Company which would cause termination other
than by election, of the Company as a REIT under the Code; (iii) any
alteration in the Company's or the Operating Partnership's business such that
(A) less than 65% of the Company's or the Operating Partnership's assets (in
terms of book value plus accumulated depreciation) are located in the States
of California, Oregon and Washington, (B) less than 80% of the Company's or
the Operating Partnership's assets (in terms of book value plus accumulated
depreciation) are located west of the Mississippi River, or (C) less than 80%
of the Company's or the Operating Partnership's assets (in terms of book value
plus accumulated depreciation) are classified as multi-family residential
properties; or (iv) any Change in Control (as hereinafter defined) of the
Company or the Operating Partnership.
As used herein, the Company shall be deemed to have allowed a "Change of
Control" of the Company or the Operating Partnership to have occurred if any
of the following occur: (i) the Company takes or fails to take any action such
that it ceases to be required to file reports under Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor to that Section; (ii) any "person" (as defined in Sections 13(d) and
14(d) of the Exchange Act) is permitted by the Board or the Company to become
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of either (a) 30% or more of the outstanding shares of
Common Stock, or (b) 30% (by right to vote or grant or withhold any approval)
of the outstanding securities of any other class or classes which individually
or together have the power to elect a majority of the members of the Board;
(iii) the Board determines to recommend the acceptance of any proposal set
forth in a tender offer statement or proxy statement filed by any person with
the Commission which indicates the intention on the part of that person to
acquire, or acceptance of which would otherwise have the effect of that person
acquiring, control of the Company; (iv) other than as a result of the death or
disability of one or more of the directors within a three-month period, a
majority of the members of the Board for any period of three consecutive
months are not persons who (a) had been directors of the Company for at least
the preceding 24 consecutive months or were elected by the holders of the
Preferred Stock, voting separately as a class, or (b) when they initially were
elected to the Board, (x) were nominated (if they were elected by the
stockholders) or elected (if they were elected by the directors) with the
affirmative concurrence of 66 2/3% of the directors who were Continuing
Directors at the time of the nomination or election by the Board, and (y) were
not elected as a result of an actual or threatened solicitation of proxies or
consents by a person other than the Board or an
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agreement intended to avoid or settle such a proxy solicitation (the directors
described in clauses (a) and (b) of this clause (iv) being "Continuing
Directors"); (v) the Company ceases to be the sole general partner of the
Operating Partnership or grants or sells to any third party the power to
control or direct the actions of the Operating Partnership as if such third
party were a general partner of the Operating Partnership; or (vi) the
Operating Partnership is a party to any entity conversion or any merger or
consolidation in which the Operating Partnership is not the surviving entity
in such merger or consolidation.
Liquidation Preferences. Upon the liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, the holders of the Preferred
Stock will be entitled to receive out of the assets of the Company available
for distribution to its stockholders, whether from capital, surplus or
earnings, before any distribution is made to holders of any Junior Shares, an
amount per share equal to 105% of the sum of (i) Stated Value plus (ii) all
accrued dividends with regard to the Preferred Stock to the date of final
distribution (whether or not declared).
Conversion of Preferred Stock Into Common Stock.
Optional Conversion. Each holder of shares of Preferred Stock will have the
option to convert all or any of the shares of Preferred Stock held by the
holder into (i) a number of fully paid and non-assessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share)
equal to Stated Value plus the amount, if any, of accrued dividends as of the
effective date of the conversion, divided by the Conversion Price then in
effect, or (ii) such other securities or assets as the holder is entitled to
receive (as described below).
Notwithstanding the foregoing, the shares of Preferred Stock shall not be
convertible into Common Stock until June 20, 1997, and, beginning on such
date, 400,000 of the 1,600,000 authorized shares of Preferred Stock, and then
at the beginning of each of the next three three-month periods thereafter,
400,000 of such authorized shares, shall become convertible into Common Stock
as provided herein; provided, further, however, that, in the case of the
liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, shares of Preferred Stock shall, at the option of the holder
thereof, immediately become convertible into Common Stock as provided herein.
Mandatory Conversion. If after June 20, 2001, the closing price of the
Common Stock on each of at least 20 trading days (including the trading day
immediately before the notice of mandatory conversion is delivered by the
Company) out of the preceding period of 30 consecutive trading days
immediately prior to the Company's notice of mandatory conversion shall be
greater than the Conversion Price in effect on each of such 20 trading days,
the Company shall, subject to the holders' redemption rights, have the right,
to convert all, but not less than all, of the outstanding shares of Preferred
Stock into a number of fully paid and non-assessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) equal to
Stated Value plus the amount, if any, of accrued dividends as of the effective
date of the conversion, divided by the Conversion Price then in effect.
Fractional Shares. No fractional shares of Common Stock will be issued upon
conversion of shares of Preferred Stock. Any fractional interest in a share of
Common Stock resulting from conversion of shares of Preferred Stock will be
paid in cash (computed to the nearest cent) based on the current market price
of the Common Stock on the trading day next preceding the day of conversion.
Conversion Price. The "Conversion Price" per share of Preferred Stock will
initially be $21.875, and will be adjusted as follows from time to time if any
of the events described below occurs:
If the Company (i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock, (ii) subdivides its outstanding Common
Stock into a greater number of shares, or (iii) combines its outstanding
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to that event will be reduced so that the holder of a share
of Preferred Stock surrendered for conversion after that event will receive
the number of shares of Common Stock which the holder would have received if
the share of
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Preferred Stock had been converted immediately before the happening of the
event (or, if there is more than one such event, if the share of Preferred
Stock had been converted immediately before the first of those events and the
holder had retained all the Common Stock or other securities or assets
received after the conversion).
If the Company issues rights or warrants to the holders of its Common Stock
as a class entitling them to subscribe for or purchase Common Stock at a price
per share less than the Conversion Price at the record date for the
determination of stockholders entitled to receive the rights or warrants, the
Conversion Price in effect immediately before the issuance of the rights or
warrants will be reduced as provided in the Articles Supplementary. The
adjustment will be made successively whenever any rights or warrants are
issued, and will become effective immediately after each record date.
If the Company distributes to the holders of its Common Stock as a class any
shares of stock of the Company (other than Common Stock) or evidences of
indebtedness or assets (other than cash dividends or distributions) or rights
or warrants (other than those referred to in the previous paragraph) to
subscribe for or purchase any of its securities, then, in each such case, the
Conversion Price will be reduced so that it will equal the price determined by
multiplying the Conversion Price in effect immediately prior to the record
date for the distribution by a fraction, of which the numerator is the Current
Market Price (as hereinafter defined) of the Common Stock on the record date
for the distribution less the then fair market value (as determined by the
Board of Directors) of the stock, evidences of indebtedness, assets, rights or
warrants which are distributed with respect to one share of Common Stock, and
of which the denominator is the Current Market Price of the Common Stock on
that record date. Each adjustment will become effective immediately after the
record date for the determination of the stockholders entitled to receive the
distribution.
If the Company issues or sells (or the Operating Partnership issues or
sells) any equity or debt securities which are convertible, directly or
indirectly, into or exchangeable for shares of Common Stock ("Convertible
Securities") or any rights, options (other than the issuance or exercise after
the date hereof of stock options covering no more than 715,400 shares of
Common Stock, subject to appropriate adjustment to the extent that the Company
(i) pays a dividend or makes a distribution on its Common Stock in shares of
its Common Stock, (ii) subdivides its outstanding Common Stock into a greater
number of shares, or (iii) combines its outstanding Common Stock into a
smaller number of shares, issued to employees or directors of the Company or
its subsidiaries under the Company's existing employee stock incentive plans)
or warrants to purchase Common Stock at a conversion, exchange or exercise
price per share which is less than the Conversion Price, the Company will
generally be deemed to have issued or sold the maximum number of shares of
Common Stock into or for which the Convertible Securities may then be
converted or exchanged or which are then issuable upon the exercise of the
rights, options or warrants, and the Conversion Price shall be adjusted
downward as if it were an event covered by the next paragraph. However, no
further adjustment of the Conversion Price will be made as a result of the
actual issuance of shares of Common Stock upon conversion, exchange or
exercise of the Convertible Securities, rights, options or warrants. The price
of shares of Common Stock issued or sold upon conversion or exchange of
Convertible Securities or upon exercise of rights, options or warrants will be
(A) the consideration paid to the Company for the Convertible Securities,
rights, options or warrants, plus (B) the consideration paid to the Company
upon conversion, exchange or exercise of the Convertible Securities, rights,
options or warrants, with the value of the consideration, if other than cash,
to be determined by the Board of Directors.
If the Company issues or sells any Common Stock (other than on conversion or
exchange of Convertible Securities or exercise of rights, options or warrants
to which any of the three preceding paragraphs applies) for a consideration
per share less than the Conversion Price on the date of the issuance or sale
(or on exercise of options or warrants, for less than the Conversion Price on
the day the options or warrants are issued), upon consummation of the issuance
or sale, the Conversion Price in effect immediately prior to the issuance or
sale will be reduced as provided in the Articles Supplementary.
For the purpose of any computation, the "Current Market Price" of the Common
Stock on any date will be the average of the last reported sale prices per
share of the Common Stock on each of the 20 consecutive trading days preceding
the date of the computation.
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The Company will seek to list the shares of Common Stock required to be
delivered upon conversion of the Preferred Stock, prior to the delivery, upon
each national securities exchange, if any, upon which the outstanding shares
of Common Stock are listed at the time of delivery.
The Company will pay any documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock on
conversion of Preferred Stock.
Status of Converted Preferred Stock. Upon any conversion, exchange or
redemption of shares of Preferred Stock, the shares of Preferred Stock which
are converted, exchanged or redeemed will be reclassified as authorized and
unissued shares of Common Stock, and the number of shares of Preferred Stock
which the Company will have authority to issue will be decreased by the
conversion, exchange or redemption of shares of Preferred Stock, so that the
shares of Preferred Stock which were converted, exchanged or redeemed may not
be re-issued.
Redemption Rights Upon Company Required Mandatory Conversion. In the event
that the Company exercises its right to require a mandatory conversion of
Preferred Stock into Common Stock (but in no other circumstances), each holder
of Preferred Stock will have the right to require the Company to redeem in
cash any or all the shares of Preferred Stock owned of record by the holder,
at a redemption price per share equal to the Redemption Percentage (as
hereinafter defined), multiplied by the sum of (i) Stated Value plus (ii) the
sum of all accrued dividends with regard to the Preferred Stock through the
date of redemption. As used herein, the "Redemption Percentage" shall mean the
percentage specified in the following table:
<TABLE>
<CAPTION>
REDEMPTION
REDEMPTION DATE PERCENTAGE
--------------- ----------
<S> <C>
June 20, 2001 to June 19, 2002................................ 105%
June 20, 2002 to June 19, 2003................................ 104%
June 20, 2003 to June 19, 2004................................ 103%
June 20, 2004 to June 19, 2005................................ 102%
June 20, 2005 to June 19, 2006................................ 101%
June 20, 2006 and thereafter.................................. 100%
</TABLE>
At such time as there ceases to be in excess of 40,000 shares of Preferred
Stock outstanding, the Company may at its option purchase all of the
outstanding shares of the Preferred Stock from the holders thereof at a price
equal to the greater of (a) 110% of the sum of the Stated Value of such shares
(together with all accrued dividends thereon), and (b) the fair market value
of such shares, which shall be equal to the fair market value of the Common
Stock, as of such date, issuable upon conversion of such shares, together with
all accrued dividends thereon.
Ranking of Preferred Stock. The shares of Preferred Stock will, with respect
to the payment of dividends and the distribution of assets on the liquidation,
dissolution or winding-up of the Company, generally rank prior to any other
class or series of preferred stock or Common Stock issued by the Company.
DESCRIPTION OF PARTICIPATION RIGHTS
The following discussion summarizes the material terms of TREP Investor's
participation rights, as set forth in the Stock Purchase Agreement, to the
extent not otherwise described in other portions of this Proxy Statement. This
summary is not intended to be a complete description of the terms of TREP
Investor's participation rights and is subject to, and qualified in its
entirety by, reference to the Stock Purchase Agreement, a copy of which is
attached hereto as Appendix A and incorporated herein by reference
Participation Rights. For so long as any shares of Preferred Stock are
outstanding, TREP Investor (but no other holder of Preferred Stock) has the
preemptive right to purchase, in the case of the proposed issuance by the
Company of, or the proposed granting by the Company of shares of, any class of
the Company's stock ("Capital Stock"), or any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any
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<PAGE>
stock or securities convertible into or exchangeable for Common Stock
(including, without limitation, interests in the Operating Partnership) (such
rights or options being hereinafter referred to as "Conversion Options" and
such convertible or exchangeable stock or securities being hereinafter
referred to as "Convertible Securities"). Upon exercise of such right, TREP
Investor shall receive its pro rata share of the applicable shares or other
securities represented by Capital Stock, Conversion Options or Convertible
Securities, or any of the foregoing, in accordance herewith, for the price and
upon the terms specified by the Company in its notice to TREP Investor (the
"Company Notice") of a Company issuance of Capital Stock, Conversion Options
or Convertible Securities, such pro rata share to be that number of Capital
Stock, Conversion Options or Convertible Securities, or any of the foregoing,
as shall bear the same proportion to the aggregate number of such Capital
Stock, Conversion Options or Convertible Securities, or any of the foregoing,
to be issued or sold as (i) the number of shares of Common Stock as are
issuable upon conversion of the Preferred Stock issued and outstanding on the
date of the Company Notice bears to (ii) the sum of (A) the total number of
shares of Common Stock issued and outstanding on the date of the Company
Notice and (B) the number of shares of Common Stock issuable upon conversion
or exercise of the Preferred Stock and any Convertible Securities or
Conversion Options, or both, issued and outstanding at the time of the new
issuance, and at a price or prices no less favorable to TREP Investor than the
price or prices at which such Capital Stock, Convertible Securities or
Conversion Options are proposed to be offered for sale to others. If, in
connection with any proposed issue of Capital Stock, Convertible Securities or
Conversion Options, TREP Investor fails to timely exercise in full its
preemptive rights, then the Company may sell the unsold Capital Stock,
Convertible Securities or Conversion Options at any time within 180 days (60
days in the case of a public offering) thereafter at a price and upon terms no
more favorable to the purchasers thereof than specified to TREP Investor;
provided, that the Company shall not sell or grant, or permit conversion
under, any Capital Stock, Convertible Securities or Conversion Options, or any
of the foregoing, after such 180-day period (or 60-day period in the case of a
public offering) without again subjecting the same to TREP Investor's
preemptive rights.
TREP Investor's preemptive rights do not apply to any shares of any class of
the Company's Capital Stock or Options or Convertible Securities, or both,
among other things, (i) issuable in connection with stock splits, stock
dividends or recapitalizations as to the effects of which other adjustments
are provided for; or (ii) issuable to employees and prospective employees
pursuant to any plan or pattern of employee equity participation or issuable
in connection with the Company's dividend reinvestment plan.
Notwithstanding the foregoing, in the event the Company delivers the Company
Notice to TREP Investor on a date prior to the earliest to occur of (A)
December 15, 1996, (B) the date of the Special Meeting, if the stockholders
approve the Transaction, and (C) the later of (x) the date of the Special
Meeting, if the stockholders disapprove the Transaction, and (y) the date on
which IRS Approval is obtained (the earliest to occur of (A), (B) and (C),
above, shall hereinafter be referred to as the "Defining Event"), the
following applies:
Subject to clauses (i) and (ii), below, TREP Investor shall have
the preemptive right to purchase all or part of its pro rata share
of Capital Stock, Options or Convertible Securities (collectively,
"Securities"), which pro rata share shall equal such number of
Securities which bears the same proportion to the aggregate number
of Securities to be issued or sold as (a) the number of shares
issuable upon conversion of 800,000 shares of Preferred Stock
bears to (b) the sum of (I) the total number of shares of Common
Stock issued and outstanding on the date of the Company Notice and
(II) the number of shares of Common Stock issuable upon conversion
of 800,000 shares of Preferred Stock and any Convertible
Securities or Options issued and outstanding on the date of the
Company Notice, provided that, (i) if and to the extent that on
the date of or following the Defining Event, TREP Investor is
prevented or prohibited from the exercise in full or in part of
its preemptive right to purchase any Securities due to
restrictions on the ownership by TREP Investor (or any group of
holders with which TREP Investor may be affiliated or may be
deemed to be affiliated) of any of such Securities, whether under
applicable Maryland law, provisions of the Charter or Bylaws, or
by reason of restrictions applicable for purposes of the Company's
continued qualification as a real estate investment trust for
purposes of the Code (the "Exercise Restriction"), such number of
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Securities required to be purchased pursuant to such preemptive
right shall automatically be reduced to such amount as to not
exceed the Exercise Restriction; and (ii) provided further, in the
event that, after the date of the Defining Event, the Company
issues Securities (the date of such issuance, the "Issuance Date")
specified in the Company Notice applicable to such securities and
such Company Notice was dated a date before the date of the
Defining Event, TREP Investor shall have the preemptive right to
purchase all or part of its pro rata share of Securities, which
pro rata share shall equal such number of Securities which bears
the same proportion to the aggregate number of Securities sold on
the Issuance Date as (a) the number of shares issuable upon
conversion of the issued and outstanding Preferred Stock on the
Issuance Date bears to (b) the sum of (I) the total number of
shares of Common Stock issued and outstanding on the Issuance Date
and (II) the number of shares of Common Stock issuable upon
conversion of the issued and outstanding Preferred Stock on the
Issuance Date and any other Securities issued and outstanding on
the Issuance Date.
POTENTIAL MATERIAL BENEFICIAL EFFECTS OF THE TRANSACTION
The Company believes that the Transaction will have a number of potential
material beneficial effects on the Company and its stockholders, including the
following:
Increased Capital. The Company believes that the capital provided to the
Company pursuant to the Transaction will enable the Company to (i) increase
its equity market capitalization which may, in the future, enable the Company
to raise additional equity capital, (ii) increase its asset base by using a
portion of the proceeds of the sale of the Preferred Stock to finance real
estate acquisitions and development by the Operating Partnership, and (iii)
develop and improve existing Operating Partnership assets by using a portion
of the proceeds of the sale of the Preferred Stock to fund development and
improvement of the Operating Partnership's existing properties. Also, the
Company currently anticipates that the Company will be able to use the name
and valued reputation of TREP Investor and its affiliates and the nature of
the Company's relationship with TREP Investor and such affiliates to further
assist the Company to raise capital.
Subsequent to the consummation of the first phase of the Transaction, the
Company completed the Supplemental Offering. The net proceeds of the
Supplemental Offering are anticipated to be used to fund the acquisition and
development by the Operating Partnership of multi-family properties and for
general corporate purposes.
Indirect Affiliation with TREP Investor and Its Affiliates. TREP Investor
and its affiliates have a history of investing in companies that are highly
valued in the marketplace. The Board believes that the Company will benefit
significantly from its association with TREP Investor and such affiliates and
its access to their market knowledge and operating experience. In addition,
the Company and TREP Investor and its affiliates may be in a synergistic
position to combine their resources and expertise in portfolio purchases. For
example, with respect to the acquisition of a mixed multi-family and office-
use portfolio of properties, the Company may consider purchasing the multi-
family portion of the portfolio, consistent with its expertise, and TREP
Investor or one of its affiliates may consider purchasing the office-use
portion of the portfolio. Similar mutually beneficial synergies may be present
with multi-purpose land development projects. An early result of the new
affiliation has produced the Agreement to Negotiate Management Agreement,
pursuant to which the Company and TREP Investor have agreed to negotiate
(without being legally bound to enter into) a management agreement with
respect to the management by the Company of approximately 800 multi-family
rental units located in Ventura County, California, which TREP Investor owns
through an affiliate. In addition, the Company and TREP Investor are
considering other management service arrangements with respect to other multi-
family properties that TREP Investor (or its affiliates) may purchase on an
individual property or portfolio basis.
Potential Return to Stockholders. The Board believes that the Transaction
offers stockholders an opportunity to realize long-term value through the
potential appreciation in the value of the Common Stock primarily as a result
of (i) the Company's increased access to capital (for example, among other
things,
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<PAGE>
subsequent to June 20, 1996, when definitive agreements with respect to the
transaction were executed, the Company completed the Supplemental Offering),
permitting increased growth, and (ii) the potential yields to stockholders
from the properties that the Company will be in a position to acquire or
develop with portions of the net proceeds from the Transaction (provided that,
there is no assurance as to the existence or extent of such yields), all of
which may enable stockholders to sell their shares in the future at a price
that is higher than the Common Stock price on the date on which the
Transaction was publicly announced. However, there can be no assurance that
the price of the Common Stock will rise in the future.
Access to Future Capital. The Company believes that, as a result of the
Transaction, it will have greater access to the capital markets because the
Transaction will (i) decrease the Company's debt-to-equity ratio, and (ii)
increase its total capitalization and equity market capitalization. The
Company believes that greater access to the capital markets should further
enhance its ability to grow. However, there is no assurance that the Company
will in fact have greater access to the capital markets as a result of the
Transaction.
Reduction of Company Debt. The Company may apply a portion of the net
proceeds of the Transaction to reduce outstanding Company and/or Operating
Partnership debt. The Company believes that, among other things, this
reduction of debt (if undertaken) will increase the attractiveness of the
Company to the capital markets, resulting in the Company's greater access to
future financing, which will permit greater growth.
POTENTIAL MATERIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction will have certain potential
material adverse effects on the Company and its stockholders, including the
following:
Substantial Ownership of Common Stock. If Option A or Option B is
consummated, unless TREP Investor disposes all or portions of its shares of
Preferred Stock, TREP Investor will own Preferred Stock equivalent to up to
approximately 14.64% of the outstanding shares of Common Stock (based on the
number of shares of Common Stock outstanding as of the Record Date) on a
fully-diluted basis. However, subject to certain exemption provisions set
forth in the Charter, no other stockholder will be permitted to own more than
6% of the outstanding shares of Common Stock (other than George M. Marcus, who
can currently own up to 25% of the outstanding shares of Common Stock, and
qualified pension trusts (as defined in the Charter), which can currently own
up to 9.9% of the outstanding shares of Common Stock). Consequently, TREP
Investor will have a substantial influence over the affairs of the Company as
a result of the Transaction. This concentration of ownership in one
stockholder could potentially be disadvantageous to other stockholders'
interests. In addition, George M. Marcus, the Company's Chairman, owns Common
Stock and limited partnership interests in the Operating Partnership
equivalent to 14.59% of the outstanding shares of Common Stock (based on the
number of shares of Common Stock outstanding as of the Record Date) on a
fully-diluted basis (assuming the issuance and conversion of all 1,600,000
shares of Preferred Stock).
Limitations on Transactions and Corporate Actions. Pursuant to the various
limitations on the Company's actions described in this Proxy Statement, the
Company will be proscribed from or limited with respect to certain
transactions and corporate actions which may otherwise be in the Company's
interest. Although the Company does not believe that these limitations on the
Company's activities will materially impair the Company's ability to conduct
its business, there can be no assurance that these limitations will not
adversely affect the Company's operations in the future.
Ownership and Voting Dilution. The Transaction will dilute (i) the
percentage ownership interests of the existing stockholders in the Company,
and (ii) upon conversion of the Preferred Stock to Common Stock, the voting
rights of the existing stockholders.
Effect on Market Price of Common Stock. The conversion of TREP Investor's
shares of Preferred Stock to shares of Common Stock could reduce the market
price per share of the then outstanding shares of Common Stock to the extent
that the market price of the Common Stock exceeds the Conversion Price at the
time of conversion.
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Risk to Dividends. The cash dividends payable on the Preferred Stock will
substantially increase the cash required to continue to pay cash dividends on
the Common Stock at current levels. The terms and conditions of the Preferred
Stock provide that dividends may be paid on shares of Common Stock in any
fiscal quarter only if full, cumulative cash dividends have been paid on all
shares of Preferred Stock in the annual amount equal to the greater of (i)
$2.1875 per share (8.75% of the $25.000 per share price), or (ii) the
dividends (subject to adjustment) paid with respect to the Common Stock plus,
in both cases, any accumulated but unpaid dividends on the Preferred Stock.
Chilling Effect. The consummation of the Transaction may have the effect of
delaying, deferring or preventing a change in control of the Company which
could be beneficial to the stockholders.
Registration Rights. The registration rights provided to the holders of
Preferred Stock pursuant to the Registration Rights Agreement may adversely
affect the price of the Common Stock.
Rights of Preferred Stock. Pursuant to the Articles Supplementary, and as
more fully described in this Proxy Statement, the holders of the Preferred
Stock is afforded several rights and preferences which may be disadvantageous
to the holders of Common Stock, including (i) cumulative preferential
dividends, which means that no dividends are payable with respect to the
Common Stock until all accrued and unpaid dividends on the Preferred Stock are
paid in full, (ii) the right to elect at least one director to the Board,
(iii) a liquidation preference senior to that of the Common Stock, and (iv)
the right to convert to Common Stock under certain circumstances. See "Terms
of the Preferred Stock."
CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS
Preferred Stock Directors. Pursuant to the Articles Supplementary, the
holders of Preferred Stock have the right to elect one director to the Board
and, in July 1996, TREP Investor, the then sole holder of shares of Preferred
Stock, selected Mr. Hartman to be the Preferred Stock director. Directors
elected by any single stockholder or group of stockholders may have interests
that diverge from the interests of other stockholders. Accordingly, Mr.
Hartman (or any replacement thereof or substitution therefor), as the director
designated by TREP Investor pursuant to the Articles Supplementary, may be
deemed to have interests which may not necessarily be consistent with the
interests of the stockholders generally. Under certain circumstances, the
holders of Preferred Stock may have the right to certain Board representation
in addition to Mr. Hartman (or any replacement or substitution therefor) (see
"Terms of the Preferred Stock Voting Rights of Holders of Preferred Stock").
To the extent that any such director nominees are affiliated or associated
with the holders of the Preferred Stock, such persons may thereby be deemed to
have interests that are in addition to, and potentially in conflict with, the
interests of the stockholders generally. The Board was aware of these
interests and considered them, among other factors, in approving the
Transaction and making its recommendation to the stockholders.
Effect on Restricted Stockholders. As provided in the Stockholder
Agreements, subject to certain exceptions, the Restricted Stockholders have
each agreed that, prior to July 1, 1998, neither of the Restricted
Stockholders shall transfer an aggregate of more than 30% of their respective
ownership, as of July 1, 1996, of outstanding shares of Common Stock
(including the pro rata portions of all Common Stock held by affiliates of
such Restricted Stockholder, based on the Restricted Stockholder's ownership
interest in such affiliate and Common Stock issuable upon exchange of such
Restricted Stockholder's respective limited partnership interests in the
Operating Partnership), provided that pledges and grants of security interests
are not restricted.
POTENTIAL EFFECTS OF STOCKHOLDER APPROVAL OR DISAPPROVAL OF THE TRANSACTION
Effects of Stockholder Approval. Approval of the Transaction by the
stockholders will constitute approval of all of the various terms of the
Transaction (including, without limitation, the initial purchase of 340,000
shares of Preferred Stock by TREP Investor and the consummation of either
Option A or Option B) set forth in the Stock Purchase Agreement, the Loan
Facility Agreement, the Articles Supplementary and the Registration Rights
Agreement and the transactions contemplated thereby. Approval of the
Transaction would also effectively ratify
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(although such ratification is not required by Maryland Law, the Charter or
the Bylaws) all prior actions of the Board in connection with the transactions
contemplated by the Stock Purchase Agreement, including, without limitation,
(i) the reclassification of 1,600,000 shares of Common Stock as 1,600,000
shares of Preferred Stock and the terms, rights and obligations of the
Preferred Stock (including, without limitation, dividend, voting, liquidation,
conversion, redemption and preemptive rights), (ii) the sale of 340,000 shares
of Preferred Stock to TREP Investor, (iii) the obtaining of the TREP Loan by
the Company and the terms and conditions thereof, (iv) the covenants,
conditions and agreements agreed to by the Company in the Stock Purchase
Agreement, the Loan Facility Agreement, the Registration Rights Agreement, the
Articles Supplementary and all other agreements, documents and certificates
executed by the Company in connection with the transactions described in the
Stock Purchase Agreement.
Such approval also may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the
Transaction and all of the other items described in the preceding paragraph.
As described in "Terms of the Transaction--Conditions to Closing," approval
of the Transaction is a condition to consummation of the Transaction, but
there also are numerous other conditions that must be satisfied in order for
the Transaction to be consummated. There can be no assurance that all of these
conditions will be satisfied, or that the consummation of the Transaction will
occur.
Effects of Failure to Approve the Transaction. If the Transaction is not
approved, pursuant to the terms of the Stock Purchase Agreement, either (i) if
the IRS Approval is obtained by the Company on or prior to December 15, 1996,
then Option D will be consummated (see "Terms of the Transaction--Option D"),
or (ii) if the IRS Approval is not obtained by the Company on or prior to
December 15, 1996, then Option C will be consummated, which Option C results
in, among other things, the maturity of the TREP Loan on December 15, 1996,
subject to extension until April 30, 1997 (see "Terms of the Transaction--
Option C"), and payment of a yield maintenance fee by the Company (see "Terms
of the Transaction--Yield Maintenance Fee"). In addition, failure to approve
the Transaction will not disapprove, void or alter, in any manner, certain of
the transactions contemplated by the Stock Purchase Agreement, including,
without limitation, (a) the reclassification of 1,600,000 shares of Common
Stock as 1,600,000 shares of Preferred Stock and the terms, rights and
obligations of the Preferred Stock (including, without limitation, dividend,
voting, liquidation, conversion, redemption and preemptive rights), (b) the
initial sale of 340,000 shares of Preferred Stock to TREP Investor, (c) the
obtaining of the initial TREP Loan (and the initial $11.5 million principal
advance thereunder) by the Company and the terms and conditions thereof, (d)
the information rights provided to TREP Investor, (e) the right of TREP
Investor to participate in future Company equity offerings, (f) the
limitations on Company transactions and corporate actions, (g) TREP Investor's
registration rights, and (h) the limitation on sales by the Restricted
Stockholders.
RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN
ITS DETERMINATION
The Board has unanimously approved the Transaction and has determined that
the Transaction is in the best interests of the Company and its stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION.
The Board believes that the Transaction is in the best interests of the
Company and its stockholders because it represents, in the Board's view, an
attractive opportunity reasonably available to improve long-term stockholder
value by reducing debt and improving the Company's short-term and long-term
growth prospects. By providing up to $40 million of capital to the Company on
favorable economic terms, the Transaction will enable the Company to exploit
growth opportunities that are more favorable than are currently available to
the Company.
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In reaching its determination that the Transaction is in the best interests
of the Company and the stockholders, the Board considered, among other things,
the following material factors:
. Potential Return to Stockholders. The Board considered that the
Transaction, unlike certain other transactions the Company could have
pursued, would not result in any direct return to stockholders of cash
or other consideration. The Board, however, believes that the
Transaction offers stockholders an opportunity to realize long-term
value through the potential appreciation in the value of the Common
Stock primarily as a result of (i) debt reduction, which among other
things, should increase the Company's access to capital (among other
things, subsequent to June 20, 1996, the date on which definitive
agreements with respect to the Transaction were executed, the Company
completed the Supplemental Offering), permitting increased growth, and
(ii) the potential yields to stockholders from the properties that the
Company will be in a position to acquire with portions of the net
proceeds from the Transaction (provided that there is no assurance as to
the existence or extent of such yields), all of which may enable
stockholders to sell their shares in the future at a price that is
higher than the Common Stock price at the time that the Transaction was
publicly announced. However, there can be no assurance that the price of
the Common Stock will rise in the future.
. Indirect Affiliation with TREP Investor and Its Affiliates. The Board
believes that TREP Investor and its affiliates have a history of
investing in companies that are highly valued in the marketplace. The
Board believes that the Company will benefit significantly from its
association with TREP Investor and such affiliates and its access to
their market knowledge and operating experience. Therefore, due to such
benefits and the potential to jointly pursue mutually beneficial
investment opportunities (see "Potential Material Beneficial Effects of
the Transaction--Indirect Affiliation with TREP Investor and Its
Affiliates"), the Company considers the indirect affiliation with TREP
Investors and its affiliates to be a positive factor in favor of the
Transaction.
. Impact on the Market Price of Common Stock. The Board considered the
actual and potential adverse effects of the Transaction on the market
price of the Common Stock, and, in particular, that, if, as of the date
of conversion of the Preferred Stock into Common Stock, the market price
of the Common Stock exceeded the Conversion Price, the market price of
the Common Stock could decrease. However, the Board noted, at the time
the Board approved the transaction, that the Conversion Price, which
represents an approximately 5% premium over the average closing price of
the Common Stock for the 30 trading days prior to June 20, 1996 (the
date on which definitive agreements with respect to the Transaction were
executed), represented, in the Board's estimation, the alternative with
the least potential adverse impact on the market price of the Common
Stock for increasing the Company's capital. Therefore, the Board
believes that this potential negative factor is outweighed by the
potentially higher stock price and other potential benefits of the
Transaction described in this Proxy Statement.
. Substantial Stockholder. The Board considered that, as a result of the
Transaction, unless TREP Investor disposes of all or portions of its
shares of Preferred Stock, TREP Investor may be the largest single
stockholder of the Company, owning Preferred Stock equivalent to as much
as approximately 14.64% of the outstanding shares of Common Stock (based
on the number of shares of Common Stock outstanding as of the Record
Date) on a fully-diluted basis under certain circumstances, while,
subject to certain exemption provisions set forth in the Charter, no
other stockholder will be permitted to own more than 6% of the
outstanding shares of Common Stock (other than George M. Marcus, who can
currently own up to 25% of the outstanding shares of Common Stock, and
qualified pension trusts (as defined in the Charter), which can
currently own up to 9.9% of the outstanding shares of Common Stock).
George M. Marcus, the Company's Chairman, owns Common Stock and limited
partnership interests in the Operating Partnership equivalent to 14.59%
of the outstanding shares of Common Stock (based on the number of shares
of Common Stock outstanding as of the Record Date) on a fully-diluted
basis (assuming the issuance and conversion of all 1,600,000 shares of
Preferred Stock). The Board considered that TREP Investor also will have
substantial information rights, the right to nominate Board members, and
numerous other rights. Although the Board believes that this
concentration of ownership in TREP Investor could potentially be
disadvantageous to the other stockholders' interests,
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the Board believes that, on balance, the potentially negative aspects
are outweighed by the benefits of obtaining a large amount of capital at
a favorable price, and the other potential benefits of the Transaction
(see "Potential Material Beneficial Effects of the Transaction).
. Access to Future Capital. The Board considered that, as a result of the
Transaction, the Company expects to have greater access to the capital
markets because the Transaction will (i) decrease the Company's debt-to-
equity ratio, (ii) increase its total capitalization and equity market
capitalization, and (iii) establish an affiliation with TREP Investor
(and its affiliates), a well-known and highly regarded real estate
investment fund. The Board believes that greater access to the capital
markets should further enhance the Company's ability to fund future
acquisitions and development by the Operating Partnership and therefore
considers this to be a positive factor in favor of the Transaction.
However, there can be no assurances that the Company will continue to
grow in the future.
. Preferred Stock Dividend Rate. In considering the dividend rate payable
on the Preferred Stock, the Board reviewed the terms of several other
preferred stock issuances by other REITs. Although these transactions
were not directly comparable to the Transaction in that the particular
terms varied from the terms of the Transaction, the Board believes that
the dividend rate on the Preferred Stock is within the range of that
paid in connection with those other transactions.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth the beneficial ownership of shares of Common
Stock as of the Record Date and the projected percentage ownership of the
Common Stock assuming completion of the Transaction (the sale of 1,600,000
shares of Preferred Stock to TREP Investor) for (i) TREP Investor, (ii) each
person known by the Company to hold more than 5% of the outstanding shares of
Common Stock, (iii) the Chief Executive Officer and the other executive
officer who was named in the Summary Compensation Table in the Company's Proxy
Statement for its 1996 Annual Meeting, dated April 1, 1996 (the "Executive
Officers") and (iv) all directors and Executive Officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
PERCENTAGE OF SHARES AND
AMOUNT AND NATURE SHARES OPERATING
OF BENEFICIAL OUTSTANDING PARTNERSHIP
OWNERSHIP OF AND OPERATING INTERESTS ASSUMING
NAME AND BUSINESS ADDRESS OF COMMON PARTNERSHIP CONSUMMATION OF
BENEFICIAL OWNER STOCK(1)(2)(3) INTEREST(3) THE TRANSACTION(4)
- ---------------------------- ----------------- ------------- ------------------
<S> <C> <C> <C>
George M. Marcus(5)(6)...... 1,834,563 16.47% 14.59%
William A. Millichap(5)(7).. 695,296 6.24 5.53
Keith R. Guericke(5)(8)..... 120,392 1.09 *
Michael J. Schall(5)(9)..... 95,985 * *
All directors and Executive
Officers as a group
(11 persons)(10)........... 2,071,192 18.51 16.33
TREP Investor(11)........... 388,571 3.52 14.64
The Equitable Companies In-
corporated(12)............. 710,800 6.43 5.69
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership
of that person, shares of Common Stock subject to options held by
that person that are currently exercisable or exercisable within
60 days of the Record Date are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing
the percentage ownership of each other person. With respect to
TREP Investor, beneficial ownership is determined as if all of the
shares of Preferred Stock held by TREP Investor were immediately
convertible into shares of Common Stock at a Conversion Price of
$21.875 per share. To the Company's knowledge,
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except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table
has sole voting and investment power with respect to the shares set
forth opposite such person's name.
(2) In consideration of the contributions of their interests in the
Company's original properties as part of the formation of the
Company, Mr. Guericke, certain officers and directors of the
Company and certain other entities and investors retained
beneficial ownership, in aggregate, of an approximately 18% limited
partnership interest in the Operating Partnership in which the
Company has an approximately 82% general partnership interest. The
limited partners of the Operating Partnership share with the
Company, as general partner, in the net income or loss and any
distributions of the Operating Partnership. Pursuant to the
partnership agreement of the Operating Partnership, limited
partnership interests are convertible into shares of Common Stock.
(3) Assumes exchange of all outstanding limited partnership interests
in the Operating Partnership into shares of Common Stock and the
conversion of all 340,000 shares of Preferred Stock currently owned
by TREP Investor into shares of Common Stock at a Conversion Price
of $21.875 per share.
(4) Assumes exchange of all outstanding limited partnership interests
into shares of Common Stock and the issuance of all 1,600,000
authorized shares of Preferred Stock, the ownership by TREP
Investor of all such shares and the conversion of all such shares
into shares of Common Stock at a Conversion Price of $21.875 per
share.
(5) The business address of such person is 777 California Avenue, Palo
Alto, California 94304.
(6) Includes 1,131,393 shares of Common Stock that may be issued upon
the conversion of all of Mr. Marcus' limited partnership interests
in the Operating Partnership and 301,494, 4,834, 15,941, and 43,413
shares of Common Stock that may be issued upon the conversion of
all the limited partnership interests in the Operating Partnership
held by The Marcus & Millichap Company ("M&M"), Herakles
Corporation ("Herakles"), Essex Portfolio Management Company
("EPMC") and GMMS Partners ("GMMS"), respectively. Also includes
155,000 shares of Common Stock held by M&M, 2,900 shares of Common
Stock held by GMMS, 88,000 shares of Common Stock subject to an
option granted to M&M and exercisable within 60 days of the Record
Date, 11,988 shares of Common Stock held in the Marcus & Millichap
Company 401(k) Plan (the "M&M 401(k) Plan") and 8,000 shares of
Common Stock held by Mr. Marcus' children. Mr. Marcus is a
principal stockholder of each of M&M, Herakles and EPMC and a
partner in GMMS and may be deemed to own beneficially, and to share
the voting and dispositive power of, 565,682 shares of Common
Stock. Mr. Marcus disclaims beneficial ownership of (i) all shares,
options and limited partnership interests held by M&M, (ii) 6,376
shares of the 15,941 shares of Common Stock that may be issued upon
conversion of limited partnership interest held by EPMC and (iii)
all limited partnership interests and shares held by GMMS.
(7) Includes 73,100 shares of Common Stock that may be issued upon the
conversion of all of Mr. Millichap's limited partnership interests
in the Operating Partnership and 301,494, 15,941, and 43,413 shares
of Common Stock that may be issued upon the conversion of all of
the limited partnership interests in the Operating Partnership held
by M&M, EPMC and GMMS, respectively. Also includes 155,000 shares
of Common Stock held by M&M, 2,900 shares of Common Stock held by
GMMS, 88,000 shares of Common Stock subject to an option granted to
M&M and exercisable within 60 days of the Record Date and 8,049
shares of Common Stock held in the M&M 401(k) Plan. Mr. Millichap
is a principal stockholder of M&M and EPMC and a partner in GMMS
and may be deemed to own beneficially, and to share the voting and
dispositive power of, 560,848 shares of Common Stock. Mr. Millichap
disclaims beneficial ownership of (i) all shares, options and
limited partnership interest held by M&M, (ii) 9,565 shares of the
15,941 shares of Common Stock that may be issued upon conversion of
limited partnership interests held by EPMC and (iii) all limited
partnership interests and shares held by GMMS.
(8) Includes 48,115 shares of Common Stock that may be issued upon the
conversion of all of Mr. Guericke's limited partnership interests
in the Operating Partnership, 43,413 shares of Common
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Stock that may be issued upon conversion of all of the limited
partnership interests in the Operating Partnership held by GMMS and 2,900
shares of Common Stock held by GMMS. Also includes 22,000 shares of
Common Stock subject to options that are exercisable within 60 days of
the Record Date and 2,924 shares of Common Stock held in the Essex
Property Trust, Inc. 401(k) Plan (the "Essex 401(k) Plan"). Mr. Guericke
is a partner in GMMS and may be deemed to own beneficially, and to share
the voting and dispositive power of, 46,313 shares of Common Stock. Mr.
Guericke disclaims beneficial ownership of 9,726 of such 46,313 shares.
(9) Includes 26,388 shares of Common Stock that may be issued upon the
conversion of all of Mr. Schall's limited partnership interests in
the Operating Partnership, 43,413 shares of Common Stock that may
be issued upon conversion of all of the limited partnership
interests in the Operating Partnership held by GMMS and 2,900
shares of Common Stock held by GMMS. Also includes 16,000 shares of
Common Stock subject to options that are exercisable within 60 days
of the Record Date and 2,384 shares of Common Stock held in the
Essex 401(k) Plan. Mr. Schall is a partner in GMMS and may be
deemed to own beneficially, and to share the voting and dispositive
power of 46,313 shares of Common Stock. Mr. Schall disclaims
beneficial ownership of 36,587 of such 46,313 shares. Further
includes 600 shares of Common Stock held by Mr. Schall's three
minor children.
(10) Includes 1,644,678 shares of Common Stock that may be issued upon
the conversion of all of the Executive Officers' and directors'
limited partnership interests in the Operating Partnership and
140,330 shares of Common Stock subject to options that are
exercisable within 60 days of the Record Date.
(11) The business address of such person is c/o Westbrook Partners, LLC,
101 Park Avenue, 47th Floor, New York, New York 10178.
(12) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 14, 1996. The business address of such
person is 787 Seventh Avenue, New York, New York 10019. Includes
70,000 shares owned by The Equitable Life Assurance Society of the
United States, a majority owned subsidiary of Equitable Companies
Incorporated, and which is deemed to have shared voting power and
sole dispositive power of such shares. Also includes 640,800 shares
owned by Alliance Capital Management L.P., a subsidiary of The
Equitable Companies Incorporated, and which holds such shares for
investment advisory clients and is deemed to have sole voting power
and sole dispositive power of all such 640,800 shares. Five French
mutual insurance companies, AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha
Assurances Vie Mutuelle and Uni Europe Assurances Mutuelle, as a
group, and AXA, a French corporation, may each be deemed to be a
parent holding company of The Equitable Companies Incorporated, and
may also be deemed to beneficially own such shares.
DIRECTOR ELECTED BY THE HOLDERS OF THE PREFERRED STOCK
In July 1996, TREP Investor, in its capacity as holder of all of the
outstanding shares of Preferred Stock, designated Gregory J. Hartman to serve
as a director on the Company's Board. Biographical information concerning Mr.
Hartman is set forth below.
Gregory J. Hartman, Director, is a principal of Westbrook Partners, L.L.C.,
national real estate investment and management entities. Prior to joining
Westbrook Partners, L.L.C., Mr. Hartman was a co-founder of Milestone
Partners, Ltd. and spent seven years with Morgan Stanley Realty, completing
over $3 billion in commercial, residential and resort transactions throughout
the western United States. During Mr. Hartman's last two years at Morgan
Stanley Realty, he was in charge of that firm's Western United States Real
Estate Sales and Financing activities. Mr. Hartman is a member of the Urban
Land Institute and the University of California at Berkeley's Center for Real
Estate and Urban Economics. Mr. Hartman received his A.B. from Dartmouth
College in 1980 and an M.B.A. from the Stanford Graduate School of Business in
1984.
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REQUIRED VOTE AND RELATED MATTERS OF THE COMPANY
Vote Required to Approve the Transaction. The affirmative vote of a majority
of all of the votes cast by the stockholders at a meeting at which a quorum is
present is required to approve the Transaction (Proposal 1). The receipt of
such approval will be deemed to satisfy Paragraph 312.03 of the New York Stock
Exchange Listed Company Manual with respect to the continued listing of the
Common Stock on the NYSE. Only holders of shares of Common Stock issued and
outstanding on the Record Date are entitled to vote on Proposal 1. Abstentions
and broker non-votes will have no effect on the result of the vote to approve
the Transaction, although they will count toward the presence of a quorum.
APPROVAL OF THE TRANSACTION BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE
COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE
TRANSACTION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
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<PAGE>
PROPOSAL TO AMEND THE OWNERSHIP RESTRICTIONS
(PROPOSAL 2)
In order to permit TREP Investor to acquire all 1,600,000 shares of
Preferred Stock and to provide the Board with increased flexibility to waive
the Charter ownership limitations in certain circumstances, the Board has
approved and recommends the approval by the stockholders of an amendment to
Article EIGHTH of the Charter to amend the limitations on ownership of the
Company's stock, by providing that the Board may exempt an entity from the
ownership limits set forth in the Charter based solely upon an opinion of
counsel (and suitable representations and agreements from the proposed
purchaser) that such waiver will not violate the applicable tax law
requirements to preserve the Company's status as a REIT. Article EIGHTH
currently requires a written ruling from the Internal Revenue Service to grant
such a waiver. As discussed below, such a ruling is not required by the Code.
The proposed amendment is necessary to permit TREP Investor to acquire all
1,600,000 shares of Preferred Stock (without approval of the proposed
amendment TREP Investor could purchase at most an aggregate of 1,080,000
shares of Preferred Stock and may not be able to purchase more than the
340,000 shares of Preferred Stock it currently owns (see "Terms of the
Transaction--Option C and Option D")). In addition, the proposed amendment
would also provide the Board with increased flexibility in the future to waive
the ownership limits set forth in the Charter with respect to investments by
other entities, without jeopardizing the Company's status as a REIT under the
Code.
SUMMARY OF RELEVANT PORTIONS OF THE CURRENT ARTICLE EIGHTH
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of stock may be owned, directly or
constructively under the applicable attribution rules of the Code, by five or
fewer "individuals" (as defined in the Code to include certain entities)
during the last half of a taxable year (the "Five or Fewer Requirement"). In
order to assist the Company in meeting the Five or Fewer Requirement, Article
EIGHTH of the Charter, as presently in effect, provides, in part, that,
subject to certain exceptions specified in the Charter, no holder may own, or
be deemed to own by virtue of the attribution provisions of the Code, more
than 6% (the "Ownership Limit") of the issued and outstanding shares of Common
Stock (other than George M. Marcus, who can currently own up to 25% of the
Common Stock, and qualified pension trusts (as defined in the Charter), which
can own up to 9.9% of the Common Stock). The present exception provision in
the Charter (the "Exception Section") provides, in part, that, upon receipt of
a ruling (an "IRS Ruling") from the Internal Revenue Service to the effect
that the Five or Fewer Requirement will not be violated, the Board may exempt
a holder (other than an individual for purposes of Section 542(a)(2) of the
Code) of the Common Stock from the Ownership Limit, provided that, among other
things, such holder demonstrates to the Board that none of the ultimate
beneficial ownership of the purchased Common Stock will violate the Five or
Fewer Requirement. Specifically, the present Exception Section provides as
follows:
(9) Exception. The Board of Directors, upon receipt of a ruling from
the Internal Revenue Service to the effect that the restrictions
contained in subparagraph (a)(2)(A), (a)(2)(B), (a)(2)(C), (a)(2)(D)
and/or subparagraph (a)(2)(E) [of the Charter] will not be violated,
may exempt a Person from the Ownership Limit or Existing Holder Limit
if such Person is not an individual for purposes of Section 542(a)(2)
of the Code or is an underwriter which participates in a public
offering of the Equity Stock for a period of 90 days following the
purchase by such underwriter of the Equity Stock and the Board of
Directors obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain that no individual's
Beneficial Ownership of Equity Stock will violate the Ownership Limit
or Existing Holder Limit, and such Person agrees that any violation or
attempted violation will result in such Equity Stock being exchanged
for Excess Stock in accordance with subparagraph (a)(3) of this
Article EIGHTH [of the Charter].
REASONS FOR AND POSSIBLE EFFECTS OF THE AMENDMENT
Under the present Exception Section, TREP Investor cannot purchase all
1,600,000 shares of Preferred Stock contemplated by the Transaction unless an
IRS Ruling is obtained and the Board waives the Ownership Limit based upon
such IRS Ruling. Although the Company is seeking such an IRS Ruling, there can
be no
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<PAGE>
assurance that the IRS Ruling will be obtained on a timely basis or at all.
Consequently, the Company is proposing to amend the Exception Section to
provide the Board with flexibility to waive the Ownership Limit based solely
on an opinion of counsel that the Five or Fewer Requirement will not be
violated and on certain representations and agreements from the holder.
Pursuant to this amendment, upon receipt of such opinion of counsel and such
representations and agreements from the holder, the Board could exempt TREP
Investor from the Ownership Limit with respect to its Preferred Stock
purchases and, thus, this amendment would enable this sale to proceed. In
addition, apart from facilitating the consummation of the Preferred Stock
purchases by TREP Investor, the Board believes that this amendment is
beneficial to the Company because compliance with the present Exception
Section, with its IRS Ruling requirement, is cumbersome and costly and may be
a deterrent to investment (such as the investment made by TREP Investor) in
the Company. The Board also believes that, by providing the Board with
increased flexibility to grant exemptions from the Ownership Limit, the
proposed amendment will improve stockholder value by attracting more capital
to the Company. Therefore, the Board believes that it is in the best interest
of the Company to amend the Charter to allow the Board, without the necessity
of a prior IRS Ruling, upon receipt of an opinion of counsel for the
applicable stockholder, to exempt holders (other than individuals--generally,
entities who own stock for their beneficiaries (such as TREP Investor) and not
for their own account) from the Ownership Limit for purposes of applying the
Five or Fewer Requirement, provided, however, that for any such holder to own
more than 25% of the value of the outstanding shares of stock of the Company,
both a prior IRS Ruling and counsel opinion will be required. Accordingly, the
Board is asking the stockholders to approve the amendment to Article EIGHTH of
the Charter set forth below.
TEXT OF AMENDMENTS
Article EIGHTH (a)(1) is amended as follows:
The definition of "Ownership Limit" is amended to delete the
word "stock", wherever such word appears, and add the term "Equity
Stock" in its place.
The definition of "Person" is amended to delete the phrase "and
also includes a group as that term is used for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended" at
the end of such definition.
The following definition is added to Article EIGHTH (a)(1):
"Exempt Person" shall mean any Person exempt from the Ownership
Limit or the Existing Holder Limit pursuant to Article EIGHTH
(a)(9) from time to time."
Article Eighth (a)(2)(A) and (B) are amended to add "with
respect to the exemption of a Person from the Ownership Limit or
otherwise" after "Article EIGHTH" and before", from the date", and
to add "or an Exempt Person" before the close of the parenthetical
that begins "(other than an Existing Holder".
Article Eighth (a)(3)(A) is amended to add "or an Exempt Person"
before the close of the parenthetical that begins "(other than an
Existing Holder".
Article EIGHTH (a)(9), is replaced in its entirety with the
following:
(9) "Exception." The Board of Directors may exempt a Person from
the Ownership Limit or Existing Holder Limit, thereby permitting
such Person's Beneficial or Constructive Ownership of Equity Stock
to exceed the Ownership Limit or Existing Holder Limit, if (i)
such Person is not an individual for purposes of Section 542(a)(2)
of the Code (provided that, for such purposes, the rules of Code
Section 856(h)(3)(A) shall apply) or (ii) is an underwriter that
participates in a public offering of the Equity Stock for a period
of 90 days following the purchase by such underwriter of the
Equity Stock, conditioned upon (i) the Corporation's prior receipt
of an opinion of counsel or a ruling from the Internal Revenue
Service, in each case to the effect that such Person's exemption
from the Ownership Limit or Existing Holder Limit will not cause
the Corporation (A) to be closely held within the meaning of
Section 856(a)(6)
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<PAGE>
of the Code, (B) to be Beneficially Owned by fewer than 100
persons within the meaning of Section 856(a)(5) of the Code, and
(C) to receive any amounts excluded from "rent from real property"
for purposes of Section 856(c) of the Code by application of
Section 856(d)(2)(B) of the Code, (ii) the Board of Directors
obtaining such representations from such Person as are reasonably
necessary to ascertain that no individual's Beneficial Ownership
will violate the Ownership Limit or the Existing Holder Limit as a
result of such Person's Beneficial Ownership (provided that, for
purposes of such representations, the rules contained in
Section 856(h)(3)(A) of the Code shall apply), and (iii) such
Person agreeing that any individual's violation or attempted
violation of the Ownership Limit or Existing Holder Limit because
of such Person's Beneficial Ownership (provided that, for purposes
of such agreement, the rules of Section 856(h)(3)(A) of the Code
will apply) will result in the portion of such Person's Equity
Stock causing such violation or attempted violation to be
converted to Excess Stock in accordance with subparagraph (a)(3)
of this Article EIGHTH unless such Person has previously obtained
an exemption from the Board of Directors in accordance with this
Article EIGHTH (a)(9) with respect to such Person's Equity Stock
causing such violation or attempted violation; provided that, any
exemption from the Ownership Limit or Existing Holder Limit
pursuant to this Article EIGHTH(a)(9) that would allow a Person to
Beneficially Own or Constructively Own shares of Equity Stock of
the Corporation with an aggregate value that is greater than 25.0%
of the value of the outstanding shares of Equity Stock of the
Corporation shall not be based solely on the receipt of an opinion
of counsel but shall require a receipt of a ruling from the
Internal Revenue Service.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Common
Stock issued and outstanding as of the Record Date is required to approve this
amendment to the Charter (Proposal 2). Only holders of shares of Common Stock
issued and outstanding on the Record Date are entitled to vote on Proposal 2.
Abstentions and broker non-votes will have the same effect as votes against
Proposal 2. APPROVAL OF THE PROPOSED AMENDMENT TO ARTICLE EIGHTH BY THE
REQUISITE VOTE OF STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF
PORTIONS (BUT NOT ALL) OF THE TRANSACTION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
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PROPOSAL TO CHANGE THE COMPOSITION
OF THE BOARD IN CERTAIN CIRCUMSTANCES
(PROPOSAL 3)
The Board has approved and recommends the approval by the stockholders of
the following amendment to Article SIXTH of the Charter to modify the
composition of the Board upon the occurrence of a Charter Breach or a Dividend
Default or both.
SUMMARY OF RELEVANT PORTIONS OF THE CURRENT ARTICLE SIXTH, AS MODIFIED BY THE
ARTICLES SUPPLEMENTARY
Article SIXTH of the Charter provides, in relevant part, that (i) the Board
shall initially consist of four members, all of which are nominated and
elected by the holders of the shares of Common Stock, which number of members
may be increased or decreased as provided in the Bylaws, and (ii) the members
of the Board be classified into three staggered classes, with the term of one
class expiring each year. The Articles Supplementary provide the holders of
Preferred Stock with the right to nominate and elect, voting as a separate
class, one director to the Board and to nominate and elect, voting as a
separate class, upon a Charter Breach or Dividend Default or both, up to four
additional directors to the Board, for an aggregate of five directors,
representing approximately 33% of the directors on the Board (see "Terms of
the Preferred Stock--Voting Rights of Holders of Preferred Stock"). The Board
currently consists of eleven members, one of whom was nominated and elected by
TREP Investor and the rest of whom were nominated and elected by the holders
of shares of the Common Stock.
REASONS FOR AND POSSIBLE EFFECTS OF THE AMENDMENT
Proposal 3 stems from the desire of the Company to streamline the Board in
the event of a Dividend Default or Charter Breach, or both, and to ensure
continued efficient operation of the Company in such event. As currently
prescribed by the Charter and the Articles Supplementary and in light of the
Board's present eleven-member composition, in the event of a Charter Breach,
the size of the Board will increase by three members, for a total of fourteen
members, and, in the event of a Dividend Default or both a Charter Breach and
a Dividend Default, the size of the Board will increase by four members, for a
total of fifteen members (see "Terms of Preferred Stock--Voting Rights of
Holders of Preferred Stock"). The Company believes that, upon the occurrence
of a Charter Breach, a Dividend Default or both, an increase in the size of
the Board of the magnitude contemplated by the Articles Supplementary will
result in a Board that is too large and, hence, unwieldy and inefficient. As
an alternative to such increases in the size of the Board in the event of a
Dividend Default, a Charter Breach or both, the Board has considered and
approved Proposal 3, which will reduce the size of the Board at the next
annual meeting of the stockholders following the Dividend Default, Charter
Breach or both, while substantially retaining the relative voting rights of
the holders of shares of Common Stock and the holders of shares of Preferred
Stock, as currently set forth in the Articles Supplementary, upon such event.
The proposed amendment to the Charter contemplated by Proposal 3 would cause
the following changes to occur in the composition of the Board upon the
occurrence of and during the continuance of a Dividend Default, a Charter
Breach or both: (i) upon the occurrence of such event, the number of directors
nominated and elected by the holders of shares of Preferred Stock, voting as a
separate class, would immediately increase in the manner provided in the
Articles Supplementary (see "Terms of the Preferred Stock--Voting Rights of
Holders of Preferred Stock"); (ii) at the next annual meeting of the
stockholders, the terms of all then-current directors would terminate
(notwithstanding any classification of the Board) and the Board would be
reduced to nine members, three of which shall be nominated and elected by the
holders of shares of Preferred Stock, voting as a separate class, and six of
which shall be nominated and elected by the holders of shares of Common Stock;
and (iii) the directors of the Board would not be classified. The proposed
amendment will not affect the percentage of directors of the Board elected by
the holders of shares of Preferred Stock from that provided in the Articles
Supplementary, except that, in the event of a Charter Breach, the percentage
of the directors of the Board elected by the holders of shares of Preferred
Stock, will increase from approximately 29% under the Articles Supplementary
(based on the current eleven-member Board) to approximately 33% under the
proposed
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amendment. The Board believes that it is in the best interest of the Company
to amend the Charter in accordance with Proposal 3 to maintain an economic and
efficient size of the Board in the event of a Dividend Default, a Charter
Breach or both. Accordingly, the Board is asking the stockholders to approve
the amendment to the Charter set forth below.
TEXT OF AMENDMENT
Add the following as Article SIXTH, subsection (d):
(d) Notwithstanding the provisions of the foregoing subsection (c) of
this Article SIXTH, while there are any shares of Series 1996A Stock (as
such term is defined elsewhere this Charter) outstanding, the following
provisions shall be in effect; however, to the extent that the provisions
of such subsection (c) are not inconsistent with the provisions of this
subsection, the provisions of such subsection (c) shall remain in full
force and effect:
(1) At each annual meeting of the stockholders, the holders of
shares of Series 1996A Stock shall be entitled to elect one director,
to serve until the next annual meeting of the stockholders and his
successor is elected and qualifies.
(2) The number of directors may be (A) decreased upon the vote of a
majority of the directors (but no such decrease shall affect the term
of any incumbent director), or (B) increased upon the vote of a
majority of the directors, so long as each Series 1996A Director (as
such term is defined in the terms of the Series 1996A Stock) votes for
such increase.
(3) In the event of the occurrence of a Dividend Default (as such
term is defined in the terms of the Series 1996A Stock) or a Charter
Breach (as such term is defined in the terms of the Series 1996A
Stock), (A) the number of Series 1996A Directors shall be increased
and elected, in accordance with the terms of the Articles
Supplementary, and (B) at the next annual meeting of the stockholders
(provided however, that, a Dividend Default or Charter Breach still
exists as of the record date for such annual meeting), (i) the term of
all the directors shall terminate and (ii) the number of directors
shall be reduced or increased to nine.
(4) (A) At the first annual meeting of stockholders at which the
provisions of subsections (d)(3)(B)(i) and (ii) are implemented, and
at each successive annual meeting of stockholders until (i) no
Dividend Default or Charter Breach exists as of the applicable record
date for such annual meeting or (ii) there are no shares of Series
1996A Stock outstanding as of such record date, at which time the
number of directors shall be determined in accordance with the
provisions of subsection (d)(1) or subsection (c), as applicable, the
holders of Common Stock shall be entitled to elect six directors and
the holders of Series 1996A Stock, if any, shall be entitled to elect
three directors, all such directors to serve until the next annual
meeting of stockholders and until their successors are elected and
qualify.
(B) At the first annual meeting of stockholders at which the number
of directors is again determined by subsection (d)(1) or by subsection
(c) and the provisions of subsection (c) relating to the
classification of directors are again effective, one class of
directors shall be elected to hold office initially until the next
annual meeting of stockholders; another class shall be elected to hold
office initially until the second annual meeting of the stockholders;
and another class shall be elected to hold office initially until the
third annual meeting of stockholders, with the members of each class
to hold office until their successors are duly elected and qualify. At
each annual meeting of stockholders, the successors to the class of
directors whose term expires at such meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election and the other
directors shall continue in office. Notwithstanding the foregoing or
anything else to the contrary set forth in this subsection (d), each
Series 1996A Director shall serve only until the next annual meeting
of stockholders and his successor is elected and qualifies.
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(5) To the extent that the provisions of this subsection (d)
conflict with the terms of the Series 1996A Stock or the Bylaws, this
subsection shall be controlling.
(6) As of the date on which there are no longer any shares of Series
1996A Stock outstanding, (i) the provisions of this subsection (d),
except subsection (d)(4)(B), shall terminate and no longer be of any
force or effect and (ii) the provisions of subsection (c) shall be in
effect in accordance solely with the terms thereof.
REQUIRED VOTE
The affirmative vote of the holders of two-thirds of the shares of Common
Stock issued and outstanding as of the Record Date is required to approve
amendments to the Charter to provide for certain modifications to the
composition of Board of Directors in the event of the breach of certain
protective provisions relating to the Preferred Stock (Proposal 3). Only
holders of shares of Common Stock issued and outstanding on the Record Date
are entitled to vote on Proposal 3. However, holders of shares of Preferred
Stock are entitled to notice of the proposed amendments pursuant to Maryland
law. Abstentions and broker non-votes will have the same effect as votes
against Proposal 3. APPROVAL OF THIS PROPOSAL 3 BY THE REQUISITE VOTE OF THE
STOCKHOLDERS IS NOT A CONDITION TO CONSUMMATION OF THE TRANSACTION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
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POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSALS
The Proposals contained in this Proxy Statement are not part of a plan by
the Board to adopt a series of anti-takeover measures; however, they may have
the effect of delaying, deferring or preventing a transaction or change in
control of the Company that may involve a premium price for the Common Stock
or otherwise be in the best interest of the stockholders. The Board does not
presently intend to propose any additional measures designed to discourage any
unsolicited takeovers, but reserves the right to propose and adopt additional
measures if the Board determines that such measures are in the best interests
of the Company and its stockholders.
POSSIBLE ANTI-TAKEOVER EFFECT OF THE TRANSACTION (PROPOSAL 1)
The Company did not seek TREP Investor's investment as an "anti-takeover
measure." TREP Investor's acquisition of the Preferred Stock, however, and the
director nomination, voting and other rights (including, without limitation,
the right to approve certain transactions and corporate actions) granted to
TREP Investor and the other holders of Preferred Stock under the terms of the
Transaction may make it more difficult for, among other things, (i) other
stockholders to challenge the Company's director nominees, elect their own
nominees as directors, or remove incumbent directors, even if a significant
number of the stockholders believe that such action would be in the best
interest of the Company, and (ii) the Company to sell substantially all of its
assets or voluntarily undergo a change in control. In addition, the
Transaction and the transactions contemplated thereby may render the Company a
less attractive target for an unsolicited acquisition by an outsider by making
it more difficult for such a person to obtain control of the Board. As a
result of the Transaction, the aggregate ownership of the outstanding shares
of Common Stock by TREP Investor, unless TREP Investor disposes of all or
portions of its shares of Preferred Stock, may reach up to approximately
14.64% (based on the number of shares of Common Stock outstanding as of the
Record Date) on a fully-diluted basis.
The potential concentration of stock ownership in TREP Investor and the
concentration of ownership in George M. Marcus, may have the effect of
delaying, deferring or preventing a change in control of the Company (see
"Terms of the Transaction--Preferred Stockholders' Stock Ownership").
POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSAL TO AMEND THE OWNERSHIP
RESTRICTIONS (PROPOSAL 2)
The principal purposes of the amendment to the ownership restrictions in the
Charter are to permit TREP Investor to purchase all of the 1,600,000
authorized shares of Preferred Stock and to provide the Board with increased
flexibility to waive the Charter ownership limitations in certain
circumstances. The Board believes that the proposed amendment of Article
EIGHTH, except insofar as it facilitates the completion of the Transaction by
TREP Investor (and the consequent potential extent of TREP Investor's
ownership interest in the Company (see "Terms of the Transaction--Preferred
Stockholders' Stock Ownership"), would not make a change of control more
difficult than would be the case under the existing Article EIGHTH.
POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSAL TO MODIFY THE COMPOSITION OF THE
BOARD IN CERTAIN CIRCUMSTANCES (PROPOSAL 3)
The principal purpose of the amendment to the Charter providing for
modifications to the composition of the Board under certain circumstances is
to prevent the increase in the size of the Board that otherwise might be
required by the Articles Supplementary, in the event of a Charter Breach, a
Dividend Default or both, which increase the Board believes would be
excessive. The proposed amendment does not significantly alter the relative
voting rights of the holders of shares of Common Stock and the holders of
shares of Preferred Stock from that set forth in the Articles Supplementary
(see "PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN
CIRCUMSTANCES--Reasons for and Possible Effects of the Amendment").
Consequently, the Board does not believe that the proposed amendment makes a
change of control significantly more difficult than would currently be the
case pursuant to the Articles Supplementary.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement the
following sections of the Company's Form 10-K for the year ended December 31,
1995: (i) Management's Discussion and Analysis of Financial Condition and
Results of Operations, set forth at pages 16-21 thereof; and (ii) the
Company's Financial Statements and Supplementary Data, set forth on pages F1-
F26 thereof. In addition, the Company hereby incorporates by reference into
this Proxy Statement (i) the unaudited Financial Statements, set forth at
pages 3-8, and Management's Discussion and Analysis of Financial Condition and
Results of Operations, set forth at pages 9-12, of the Company's Form 10-Q for
its first quarter ended March 31, 1996, and (ii) the unaudited Financial
Statements, set forth at pages 3-10, and Management's Discussion and Analysis
of Financial Condition and Results of Operation, set forth at pages 11-15 of
the Company's Form 10-Q for its second quarter ended June 30, 1996.
The Company will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, on the written or oral request of such
person and by first class mail or other equally prompt means within one
business day of receipt of such request, a copy of any and all of the
documents referred to above which may have been or may be incorporated by
reference in this Proxy Statement. Such written or oral request should be
directed to Essex Property Trust, Inc., 777 California Avenue, Palo Alto,
California, Attention: Investor Relations, (415) 494-3700.
OTHER MATTERS
No business may be brought before the Special Meeting other than the
Proposals and procedural matters that may arise in connection with the
Proposals. Any stockholder proposal intended for inclusion in the Company's
proxy statement and form of proxy relating to the Company's 1997 annual
meeting of stockholders, scheduled to be held on or about May 29, 1997, must
be received by the Company's General Counsel, Jordan E. Ritter, at Essex
Property Trust, Inc., 777 California Avenue, Palo Alto, California, no later
than December 12, 1996, pursuant to the Bylaws and the proxy soliciting
regulations promulgated under the Exchange Act. Nothing in this paragraph
shall be deemed to require the Company to include in its proxy statement and
form of proxy for such meeting any stockholder proposal which does not meet
the requirements of the Exchange Act in effect at the time.
By Order of the Board of Directors
Keith R. Guericke
Chief Executive Officer and President
August , 1996
Palo Alto, California
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APPENDIX AND EXHIBIT INDEX
Appendix A Stock Purchase Agreement dated as of June 20, 1996 by and
between Essex Property Trust, Inc. and Tiger/Westbrook Real
Estate Fund, L.P. and Tiger/Westbrook Real Estate Co-
Investment Partnership, L.P.
Amendment No. 1 to Stock Purchase Agreement dated as of July
1, 1996 by and between Essex Property Trust, Inc. and
Tiger/Westbrook Real Estate Fund, L.P. and Tiger/Westbrook
Real Estate Co-Investment Partnership, L.P.
Appendix B Loan Facility Agreement dated as of June 20, 1996 by and
between Essex Property Trust, Inc. and T/W Essex Funding,
L.L.C.
Amendment No. 1 to Loan Facility Agreement dated as of July
1, 1996 by and between Essex Property Trust, Inc. and T/W
Essex Funding, L.L.C.
Appendix C Registration Rights Agreement, dated as of June 20, 1996 by
and between Essex Property Trust, Inc. and Tiger/Westbrook
Real Estate Fund, L.P. and Tiger/Westbrook Real Estate
Co-Investment Partnership, L.P.
Appendix D Articles Supplementary of Essex Property Trust, Inc. for the
8.75% Convertible Preferred Stock, Series 1996A
Exhibit 1 1995 Form 10-K/A for Essex Property Trust, Inc.
Exhibit 2 Form 10-Q for the quarter ending March 31, 1996 for Essex
Property Trust, Inc.
Exhibit 3 Form 10-Q for the quarter ending June 30, 1996 for Essex
Property Trust, Inc.
<PAGE>
APPENDIX A
STOCK PURCHASE AGREEMENT
by and between
TIGER/WESTBROOK REAL ESTATE FUND, L.P.
and
TIGER/WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP, L.P.,
and
ESSEX PROPERTY TRUST, INC., a Maryland corporation
dated as of
June 20, 1996
<PAGE>
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June 20,
1996, is made by and between Essex Property Trust, Inc., a Maryland corporation
(the "Company") and Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited
partnership, and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a
Delaware limited partnership (individually and collectively, "Buyer").
RECITALS:
WHEREAS, Buyer wishes to purchase from the Company, and the Company
wishes to issue and sell to Buyer, an aggregate of 280,000 shares of a newly
authorized series of preferred stock of the Company designated as 8.75%
Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), having the
terms set forth in the form of Company's Articles Supplementary attached as
Exhibit A (the "Articles Supplementary") establishing the rights, privileges and
preferences of the Preferred Stock, at a price of $25.00 per share;
WHEREAS, an affiliate of Buyer and the Company have entered into that
certain Loan Facility Agreement (the "Loan Agreement") as of even date herewith
whereby T/W Essex Funding, L.L.C. ("Lender") has agreed to lend to the Company
and the Company has agreed to borrow from the Lender up to an aggregate of
$33,000,000 which borrowed funds shall under the circumstances set forth in the
Loan Agreement be exchangeable for additional shares of Preferred Stock or, if
the Company and Buyer so agree, Operating Partnership Units, subject to the
terms and conditions set forth herein and therein; and
WHEREAS, Buyer and the Company are entering into this Agreement to
provide for such purchase and sale of the Preferred Stock and to establish
various rights and obligations in connection therewith.
AGREEMENT:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have the following
respective meanings: Capitalized terms used herein but not defined herein shall
have the meanings set forth in the Loan Agreement.
Section 1.1 "Action" shall mean any suit, arbitration, inquiry,
proceeding or injunction by or before any Government Authority, court or
arbitrator.
Section 1.2 "Additional Purchase Price" shall mean the consideration
payable by Buyer to the Company for the shares of Preferred Stock acquired by
Buyer at any Initial Exchange Closing or any Subsequent Closing, consisting of
an exchange of principal amount of the Loan, cash, or a combination thereof, as
the case may be.
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Section 1.3 "Affiliate" shall have the meaning ascribed thereto in
Rule 12b-2 promulgated under the Exchange Act, and as in effect on the date
hereof.
Section 1.4 "Agreement" shall have the meaning set forth in the first
paragraph hereof.
Section 1.5 "Annual Report" shall have the meaning set forth in
Section 3.1(e).
Section 1.6 "Articles Supplementary" shall have the meaning set forth
in the second paragraph hereof.
Section 1.7 "Benefit Arrangements" shall have the meaning set forth in
Section 3.15 (b).
Section 1.8 "Blue Sky Laws" shall have the meaning set forth in
Section 3.4(e).
Section 1.9 "Buyer" shall have the meaning set forth in the first
paragraph hereof.
Section 1.10 "CERCLA" shall have the meaning set forth in Section
3.14(b).
Section 1.11 "Charter Amendment" shall mean an amendment to the
Company Charter mutually satisfactory to the Company and Buyer which provides
that the Company may issue to the Buyer the Preferred Stock under the terms and
conditions set forth herein.
Section 1.12 "Closing Agreement" shall mean a written and legally
binding agreement with a taxing authority relating to Taxes.
Section 1.13 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and regulations
promulgated thereunder.
Section 1.14 "Common Stock" shall mean the common stock, par value
$.0001 per share, of the Company.
Section 1.15 "Company" shall have the meaning set forth in the first
paragraph hereof.
Section 1.16 "Company Charter" shall mean the Articles of Amendment
and Restatement of the Company, as in effect on the date hereof.
Section 1.17 "Company Leases" shall mean all ground leases residential
or shopping center leases relating to the Company Properties.
Section 1.18 "Company Plan" shall have the meaning set forth in
Section 3.15(a).
Section 1.19 "Company Properties" shall mean all real property owned
or leased by the Company or any of its Subsidiaries (collectively, and together
with all buildings, structures and other improvements and fixtures located on or
under such land and all easements, rights and other appurtenances to such land).
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Section 1.20 "Company Registration Statement" shall have the meaning
set forth in Section 3.5(a).
Section 1.21 "Company Reports" shall have the meaning set forth in
Section 3.5(a).
Section 1.22 "Debt Instruments" shall mean all notes, mortgages, deeds
of trust or similar instruments which evidence or secure any indebtedness.
Section 1.23 "Election" shall have the meaning set forth in Section
3.10(b).
Section 1.24 "Employee Benefit Plans" shall have the meaning set forth
in Section 3.15(b).
Section 1.25 "Employees" shall have the meaning set forth in Section
3.15(b).
Section 1.26 "Environment" shall have the meaning set forth in Section
3.14(b).
Section 1.27 "Environmental Laws" shall have the meaning set forth in
Section 3.14(b).
Section 1.28 "EPA" shall have the meaning set forth in Section
3.14(a).
Section 1.29 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and any successor thereto.
Section 1.30 "ERISA Affiliates" shall mean, with respect to any
entity, trade or business, any other entity, trade or business that is a member
of a group described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or that
is a member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA.
Section 1.31 "Exchange Act" shall have the meaning set forth in
Section 3.4(e).
Section 1.32 "GAAP" shall have the meaning set forth in Section
3.5(b).
Section 1.33 "Government Authority" shall mean any government or state
(or any subdivision thereof) of or in the United States, or any agency,
authority, bureau, commission, department or similar body or instrumentality
thereof, or any governmental court or tribunal thereof.
Section 1.34 "Hazardous Substance" shall have the meaning set forth in
Section 3.14(b).
Section 1.35 "HSR Act" shall have the meaning set forth in Section
3.4(e).
Section 1.36 "Indemnified Party" shall mean Buyer or the Company, as
the context may require.
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Section 1.37 "Initial Closing" shall mean the consummation of the
purchase and sale of shares of Preferred Stock pursuant to Section 2.1.
Section 1.38 "Initial Closing Date" shall have the meaning set forth
in Section 2.1.
Section 1.39 "Initial Exchange Closing" shall mean any of the closings
with respect to the issuance of Preferred Stock contemplated by Section 2.10 of
the Loan Agreement.
Section 1.40 "Initial Purchase Price" shall have the meaning set forth
in Section 2.1.
Section 1.41 "IRS" shall mean the Internal Revenue Service.
Section 1.42 "Leases" shall have the meaning set forth in Section
3.15(h).
Section 1.43 "Liabilities" shall mean, as to any person, all debts,
adverse claims, liabilities and obligations, direct, indirect, absolute or
contingent of such person, whether accrued, vested or otherwise, whether in
contract, tort, strict liability or otherwise and whether or not actually
reflected, or required by GAAP to be reflected, in such person's or entity's
balance sheets or other books and records, including (i) obligations arising
from non-compliance with any law, rule or regulation of any Government Authority
or imposed by any court or any arbitrator of any kind, (ii) all indebtedness or
liability of such person for borrowed money, or for the purchase price of
property or services (including trade obligations), (iii) all obligations of
such person as lessee under leases, capital or other, (iv) liabilities of such
person in respect of plans covered by Title IV of ERISA, or otherwise arising in
respect of plans for employees or former employees or their respective families
or beneficiaries, (v) reimbursement obligations of such person in respect of
letters of credit, (vi) all obligations of such person arising under acceptance
facilities, (vii) all liabilities of other persons or entities, directly or
indirectly, guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business) or discounted with recourse by such person or with
respect to which the person in question is otherwise directly or indirectly
liable, (viii) all obligations secured by any Lien on property of such person,
whether or not the obligations have been assumed, and (ix) all other items which
have been, or in accordance with GAAP would be, included in determining total
liabilities on the liability side of the balance sheet.
Section 1.44 "Liens" shall mean all liens, mortgages, deeds of trust,
deeds to secure debt, security interests, pledges, claims, charges, easements
and other encumbrances of any nature whatsoever.
Section 1.45 "Loan" shall have the meaning set forth in the Loan
Agreement.
Section 1.46 "Loan Agreement" shall have the meaning set forth in
Section 2.1.
Section 1.47 "Material Adverse Effect" shall mean a material adverse
effect on the financial condition, results of operations or business of the
Company and its Subsidiaries (to the extent of the Company's interests therein)
taken as a whole.
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Section 1.48 "NYSE Advice" shall mean such advice as may be requested
by, and reasonably acceptable to, Buyer and/or the Company regarding the
Company's compliance with New York Stock Exchange listing requirements regarding
the issuance of Preferred Stock in accordance with the transactions contemplated
hereby.
Section 1.49 "OP Subscription Agreement" shall mean an agreement
mutually satisfactory to the Company and Buyer pertaining to Buyer's possible
purchase of preferred Operating Partnership Units and reflecting the terms and
conditions of an amendment to the Partnership Agreement mutually satisfactory to
the Company and Buyer in accordance with Section 7.2.
Section 1.50 "Operating Partnership" shall mean Essex Portfolio, L.P.,
a California limited partnership, or any successor thereto.
Section 1.51 "Other Filings" shall have the meaning set forth in
Section 5.1(b).
Section 1.52 "Partnership Agreement" shall mean that certain Agreement
of Limited Partnership of the Operating Partnership, dated as of March 15, 1994
as amended on April 15, 1994.
Section 1.53 "Pension Plans" shall have the meaning set forth in
Section 3.15(b).
Section 1.54 "Permitted Liens" shall mean (i) Liens (other than Liens
imposed under ERISA or any Environmental Law or in connection with any
Environmental Claim) for taxes or other assessments or charges of Governmental
Authorities that are not yet delinquent or that are being contested in good
faith by appropriate proceedings, in each case, with respect to which adequate
reserves or other appropriate provisions are being maintained by the Company or
its Subsidiaries to the extent required by GAAP, (ii) statutory Liens of
landlords, carriers, warehousemen, mechanics, materialmen and other Liens (other
than Liens imposed under ERISA or any Environmental Law or in connection with
any Environmental Claim) imposed by law and created in the ordinary course of
business for amounts not yet overdue or which are being contested in good faith
by appropriate proceedings, in each case, with respect to which adequate
reserves or other appropriate provisions are being maintained by the Company or
its Subsidiaries to the extent required by GAAP and which do not exceed $750,000
in the aggregate, (iii) the Company Leases, (iv) easements, rights-of-way,
covenants and restrictions which are customary and typical for commercial or
residential properties similar to the commercial and residential Company
Properties, as the case may be, and which do not (x) interfere materially with
the ordinary conduct of any Company Property or the business of the Company and
its Subsidiaries as a whole or (y) detract materially from the value or
usefulness of the Company Property to which they apply, (v) the other Liens
relating to the Company's Camarillo property and (vi) such imperfections of
title and encumbrances, if any, as would not, individually, or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 1.55 "Per Unit Purchase Price" shall have the meaning set
forth in Section 2.3.
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Section 1.56 "Per Share Purchase Price" shall mean the price of $25.00
per share for the Preferred Stock.
Section 1.57 "person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
organization, other form of business or legal entity or Government Authority.
Section 1.58 "Preferred Stock" shall have the meaning set forth in the
second paragraph hereof.
Section 1.59 "Proxy Statement" shall have the meaning set forth in
Section 5.1(b).
Section 1.60 "Registration Rights Agreement" shall have the meaning
set forth in Section 2.2(a).
Section 1.61 "Regulatory Filings" shall have the meaning set forth in
Section 3.4(e).
Section 1.62 "REIT" shall have the meaning set forth in Section
3.10(b).
Section 1.63 "Release" shall have the meaning set forth in Section
3.14(c).
Section 1.64 "REOC" shall have the meaning set forth in Section
3.15(h).
Section 1.65 "REOC Qualification Date" shall have the meaning set
forth in Section 3.14(d).
Section 1.66 "SEC" shall have the meaning set forth in Section 3.5(a).
Section 1.67 "Securities Act" shall mean the Securities Act of 1933,
as amended.
Section 1.68 "Securities Laws" shall have the meaning set forth in
Section 3.5(a).
Section 1.69 "Stockholders Agreement" shall have the meaning set forth
in Section 2.2(a).
Section 1.70 "Subsidiaries" shall mean, collectively, the Operating
Partnership and any other company of which the Company is the direct or indirect
general partner or as to which the Company has the right or power, direct or
indirectly, to elect a majority of the board of directors or other persons
performing similar functions or as to which the Company, directly or indirectly,
has a majority economic ownership interest.
Section 1.71 "Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether
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disputed or not. The term "Tax" also includes any amounts payable pursuant to
any tax sharing agreement to which any relevant entity is liable as a successor
or pursuant to contract.
Section 1.72 "Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Section 1.73 "Tax Ruling" shall mean a written ruling of a taxing
authority relating to Taxes.
Section 1.74 "Welfare Plans" shall have the meaning set forth in
Section 3.15(b).
ARTICLE 2
Purchase and Sale of Securities; Closings
Section 2.1 "Initial Closing". Subject to the terms and conditions
hereof, on the Initial Closing Date, the Company will sell, convey, assign,
transfer and deliver, and Buyer will purchase and acquire from the Company,
280,000 shares of Preferred Stock at a price of $25.00 per share for an
aggregate purchase price in immediately available funds of $7,000,000 (the
"Initial Purchase Price"). The Initial Closing shall take place at the offices
of Morrison & Foerster LLP, 755 Page Mill Road, Palo Alto, California, at 10:00
a.m. on such date as the parties hereto may mutually agree (the "Initial Closing
Date").
Section 2.2 "Initial Closing Deliveries".
(a) At the Initial Closing, and as a condition to the
parties' obligations hereunder to effect the transactions contemplated hereby at
the Initial Closing, the Company and Buyer shall enter into a registration
rights agreement substantially in the form attached as Exhibit C (the
"Registration Rights Agreement"), the Company, Buyer and Messrs. Marcus and
Guericke each shall enter into a stockholders agreement substantially in the
form attached as Exhibit D (the "Stockholders Agreement").
(b) In addition to the other things required to be
done hereby including the delivery of the Diligence Fee, at the Initial Closing,
the Company shall deliver, or cause to be delivered, to Buyer the following: (i)
certificates representing the number of shares of Preferred Stock to be issued
and delivered at the Initial Closing, free and clear of all Liens (unless
created by Buyer or any of its Affiliates) with all necessary stock transfer and
other documentary stamps attached, (ii) a certificate, dated the Initial Closing
Date and validly executed by an appropriate officer of the Company, as
contemplated by Section 7.1(a), (iii) evidence or copies of any consents,
approvals, orders, qualifications or waivers required pursuant to Section 7.1,
(iv) all certificates and other instruments and documents required by this
Agreement to be delivered by the Company to Buyer at or prior to the Initial
Closing, and (v) such other instruments reasonably requested by Buyer, as may be
necessary or appropriate to confirm or carry out the provisions of this
Agreement.
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(c) In addition to the delivery of the Initial
Purchase Price and the other things required to be done hereby, at the Initial
Closing, Buyer shall deliver, or cause to be delivered, to the Company the
following: (i) a certificate, dated the Initial Closing Date and validly
executed by Buyer, as contemplated by Section 7.3(a), (ii) if not previously
delivered to the Company, all other certificates, documents, instruments and
writings required pursuant hereto to be delivered by or on behalf of Buyer at or
before the Initial Closing, and (iii) such other instruments reasonably
requested by the Company, as may be necessary or appropriate to confirm or carry
out the provisions of this Agreement.
Section 2.3 "Initial Exchange Closings and Subsequent Closings".
(I) "Initial Exchange Closings"
(a) Option A. If Option A is applicable, effective as
of the Option A Maturity Date, (i) Buyer shall, or cause the Lender to, exchange
$13,000,000 principal amount of the Loan for 520,000 shares of Preferred Stock
to be issued by the Company (subject to the antidilution and "Organic Change"
provisions of the Loan Agreement).
(b) Option B. If Option B is applicable, effective as
of the Option B Maturity Date, (i) Buyer shall, or cause the Lender to, exchange
$13,000,000 principal amount of the Loan for 520,000 shares of Preferred Stock
to be issued by the Company (subject to the anti-dilution and "Organic Change"
provisions of the Loan Agreement).
(c) Option C. If Option C is applicable, effective as
of the Option C Maturity Date, Buyer shall, or cause the Lender to, exchange up
to $1,500,000 principal amount of the Loan for 60,000 shares of Preferred Stock
to be issued by the Company at an Additional Purchase Price of $25.00 per share
(subject to the antidilution and "Organic Change" provisions of the Loan
Agreement).
(d) Option D. If Option D is applicable, effective as
of the Option D Maturity Date, Buyer (i) shall or cause the Lender to, exchange
$13,000,000 principal amount of the Loan for 520,000 shares of Preferred Stock
to be issued by the Company (subject to the antidilution and "Organic Change"
provisions of the Loan Agreement) and (ii) shall have the option to acquire up
to an additional 240,000 shares of Preferred Stock to be issued by the Company
at a per share Additional Purchase Price of $25.00 (subject to the antidilution
and "Organic Change" provisions of the Loan Agreement).
(II) "Subsequent Closings". If Option A or B is applicable, Buyer
shall purchase from the Company an additional 800,000 shares of Preferred Stock
at an Additional Purchase Price of $25.00 per share prior to June 20, 1997
(subject to the antidilution and "Organic Change" provisions of the Loan
Agreement), pursuant to no more than three Subsequent Closings each involving
the purchase of not less than 200,000 shares of Preferred Stock.
(III) "Place of Closing". The consummation of each Subsequent Closing
shall take place at the Palo Alto offices of Morrison & Foerster LLP at 10:00
a.m. on the Subsequent Closing Date or such other place as agreed upon by the
parties.
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Section 2.4 "Initial Exchange Closing and Subsequent Closing
Deliveries".
(a) At each Initial Exchange Closing and Subsequent
Closing, the Company shall deliver or cause to be delivered, to Buyer the
following (i) such documentation as may be reasonably required to be delivered
by the Company pursuant to the terms of the Loan Agreement, (ii) certificates
representing the number of shares of Preferred Stock free and clear of all Liens
(unless created by Buyer or any of its Affiliates) with all necessary stock
transfer and other documentary stamps attached, (iii) a certificate dated such
Subsequent Closing Date and validly executed by an appropriate officer of the
Company, as contemplated by Section 7.2(a), (iv) as to Subsequent Closings,
evidence or copies of any consents, approvals, orders, qualifications or waivers
required pursuant to Section 7.2, (v) all certificates and other instruments and
documents required by this Agreement or the Loan Agreement to be delivered by
the Company to Buyer at or prior to each Subsequent Closing, and (vi) such other
instruments reasonably requested by Buyer as may be necessary or appropriate to
confirm or carry out the provisions of this Agreement.
(b) Buyer shall deliver to the Company, by wire
transfer of immediately available funds in U.S. dollars to an account designated
by the Company, the amount of the Additional Purchase Price in excess of the
principal amount of the Loan exchanged therefore together with all interest or
fees due to the Lender under the Loan Agreement, if any. In addition to the
delivery of the Additional Purchase Price and the other things required to be
done hereby, at the Initial Exchange Closing and each Subsequent Closing, Buyer
shall deliver, or cause to be delivered, to the Company the following: (i) at
each Subsequent Closing a certificate, dated such Subsequent Closing Date and
validly executed by Buyer, as contemplated by Section 7.3(a), (ii) at the
Initial Exchange Closing and each Subsequent Closing, if not previously
delivered to the Company, all other certificates, documents, instruments and
writings required pursuant hereto to be delivered by or on behalf of Buyer at or
before each such closing, and (iii) such other instruments reasonably requested
by the Company, as may be necessary or appropriate to confirm or carry out the
provisions of this Agreement.
Section 2.5 "Operating Partnership Units". Notwithstanding the
foregoing, provided that the Company and Buyer shall have previously entered
into the OP Subscription Agreement, Buyer may purchase such number of Operating
Partnership Units in lieu of any shares of Preferred Stock on any Subsequent
Closing Date on economically equivalent terms. At any Subsequent Closing at
which Operating Partnership Units are to be purchased, Buyer shall deliver to
the Company the Purchase Price for such Operating Partnership Units upon such
terms and together with such other documentation set forth in Section 2.4(b) and
the Company shall deliver to Buyer an amended and restated Partnership Agreement
(in form and substance satisfactory to both Company and Buyer) and any other
appropriate documents evidencing the Operating Partnership Units, such Operating
Partnership Units to be free and clear of all Liens (unless created by Buyer or
any of its Affiliates) together with such other appropriate documentation set
forth in Section 2.4(a).
Section 2.6 "Exchange of Preferred Stock for Units; Units for
Preferred Stock". Provided that the Company and Buyer shall have previously
entered into the OP Subscription Agreement, at any time and from time to time
after the later of the Stockholder Approval Date and
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the date on which the Partnership Agreement shall have been amended in
accordance with Section 7.2:
(a) Buyer shall have the right to exchange its shares
of Preferred Stock into such number of Operating Partnership Units as is equal
to the product of (i) the number of shares of Preferred Stock held by Buyer
multiplied by (ii) the quotient of (x) the Per Share Purchase Price divided by
(y) the Per Unit Purchase Price then in effect. Any accrued and unpaid dividends
on Buyer's Preferred Stock may be exchanged into such number of Operating
Partnership Units achieved by dividing the aggregate amount of such dividend
accrued on the Preferred Stock by the Per Unit Purchase Price then in effect;
(b) Buyer shall have the right to exchange its
Operating Partnership Units into such number of shares of Preferred Stock as is
equal to the product of (i) the number of Operating Partnership Units then held
by Buyer multiplied by (ii) the quotient of (x) the Per Unit Purchase Price then
in effect divided by (y) the Per Share Purchase Price.
ARTICLE 3
Representations and Warranties of the Company
The Company hereby represents and warrants to Buyer as follows:
Section 3.1 "Organization and Qualification; Subsidiaries".
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Maryland.
The Company has all requisite corporate power and authority to enter into this
Agreement, the Registration Rights Agreement, the Stockholders Agreement, the
Loan Agreement and the Promissory Note and to perform its obligations hereunder
and thereunder. The Company has all requisite governmental licenses,
authorizations, consents and approvals to own, operate, lease and encumber its
properties and carry on its business as now conducted, except where the failure
to so have could not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
(b) The Operating Partnership is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California. The Operating Partnership has all requisite
partnership power and authority to enter into the Guarantee. The Operating
partnership has all requisite governmental licenses, authorizations, consents
and approvals to own, operate, lease and encumber its properties and carry on
its business as now conducted, except where the failure to do so could not have,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(c) Each of the Subsidiaries of the Company is a
corporation, partnership or limited liability company duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has the corporate or partnership power and
authority to own its properties and carry on its business as it is now being
conducted. Each of the Subsidiaries has all requisite governmental licenses,
authorizations, consents and
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approvals , except where the failure to could not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(d) Each of the Company and its Subsidiaries is duly
qualified to do business and in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except for any failures to be so qualified or to be in good
standing as would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
(e) The Company's Annual Report on Form 10-K, as
amended, for the year ended December 31, 1995 (as amended, together with all
information incorporated by reference therein, the "Annual Report") sets forth
all information regarding the Company's Subsidiaries required to be stated
therein. All of the outstanding shares of capital stock of, or other equity
interest in, each of the Subsidiaries owned by the Company or the Operating
Partnership are duly authorized, validly issued, fully paid and nonassessable,
and are owned, directly or indirectly, by the Company free and clear of all
Liens. Except as described in the Company Reports, there are no existing
options, warrants, calls, subscriptions, convertible securities or other rights,
agreements or commitments which obligate the Company or any of the Subsidiaries
to issue, transfer or sell any shares of capital stock or equity interests in
any of the Subsidiaries.
(f) The financial statements to the Annual Report set
forth a description of all allocations among the Company and any Subsidiary of
the material expenses incurred by the Company and its Subsidiaries, taken as a
whole as are required to be stated therein.
Section 3.2 "Authority Relative to Agreements; Board Approval".
(a) The execution, delivery and performance by the
Company of this Agreement, the Registration Rights Agreement, the Stockholders
Agreement, the Articles Supplementary, the Loan Agreement and the Promissory
Note and the issuance and delivery of shares of Common Stock upon conversion of
shares of Preferred Stock in accordance with the provisions of the Articles
Supplementary and Bylaws of the Company, have been duly and validly authorized
(or by the Initial Closing Date will have been authorized) by all necessary
corporate action on the part of the Company. Each of this Agreement, the
Registration Rights Agreement, the Stockholders Agreement, the Loan Agreement
and the Promissory Note has been duly executed and delivered by the Company and
constitutes the valid and legally binding obligations of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights or general principles of equity, subject to the approval of
the Board of Directors to recommend to the stockholders that they approve the
issue to Buyer of the Preferred Stock under the terms and conditions set forth
herein, including approval of amendments to the Charter and Bylaws of the
Company and the recommendation of any action to be taken by the stockholders.
Upon issuance of any shares of Preferred Stock, the Articles Supplementary will
constitute a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights or general principles of equity.
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(b) The Executive Committee has determined to
recommend to the Board of Directors of the Company that it recommend that the
stockholders of the Company vote in favor of and approve the issuance to Buyer
of Preferred Stock under the terms and conditions set forth herein.
(c) The shares of Preferred Stock to be acquired
pursuant to this Agreement have been duly authorized for issuance, and upon
issuance and delivery by the Company in accordance with this Agreement will be
duly and validly issued, fully paid and nonassessable. The shares of Common
Stock issuable upon conversion of the Preferred Stock to be acquired pursuant to
this Agreement will, upon issuance, be duly and validly issued, fully paid and
nonassessable.
(d) The conversion of the Preferred Stock pursuant to
the terms of the Articles Supplementary, will not give any stockholder of the
Company the right to demand payment for his shares under the Corporations &
Associations Code of Maryland.
(e) The Guaranty has been duly executed and delivered
by the Operating Partnership and constitutes the valid and legally binding
obligations of the Operating Partnership enforceable against the Operating
Partnership in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or similar laws relating to creditors' rights or general
principals of equity.
Section 3.3 "Capital Stock and Voting Rights".
(a) The authorized capital stock of the Company on
the date hereof consists of 670,000,000 shares of Common Stock, and 330,000,000
shares of excess stock. As of the date hereof, there are 6,275,000 shares of
Common Stock issued and outstanding, and no shares of any other class or series
of stock issued and outstanding. All such issued and outstanding shares of
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. The Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities the holders of which have the
right to vote) with the stockholders of the Company on any matter. Other than as
set forth in the Company Reports, there are no existing options, warrants,
calls, subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company to issue, transfer or sell directly or
indirectly any shares of capital stock or other equity interests of the Company
or which entitle any person to acquire from the Company any shares of capital
stock or other equity interest of the Company.
(b) Except for interests in the Subsidiaries of the
Company, and except as set forth in the Company Reports, none of the Company or
any of its Subsidiaries owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or entity (other than investments in short-term investment
securities), which would have a material effect on the business prospects and
condition (financial or otherwise) and operations of the Company;
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(c) The outstanding shares of Common Stock have been
issued in accordance with the registration or qualification provisions of the
Securities Act and relevant state securities laws or pursuant to valid
exemptions thereto;
(d) Except as set forth in the Company Reports, the
Company is not obligated to register under the Securities Act any of its
currently outstanding securities or any of its securities that may subsequently
be issued.
Section 3.4 "No Conflicts; No Defaults; Required Filings and
Consents". Except as contemplated hereby, neither the execution and delivery by
the Company hereof nor the consummation by the Company of the transactions
contemplated hereby in accordance with the terms hereof, will:
(a) Violate, conflict with, or result in a breach of,
any provisions of the Company Charter or Bylaws of the Company;
(b) Result in a breach or violation of, a default
under, or the triggering of any payment or other obligations pursuant to, or
accelerate vesting under, any of the Company stock option plans or Operating
Partnership Unit option plans or similar compensation plan or any grant or award
made under any of the foregoing;
(c) Violate or conflict with any law, regulation,
judgment, order, writ, decree or injunction applicable to the Company or its
Subsidiaries except where any such violation or conflict, individually or in the
aggregate, could not result in a Material Adverse Effect;
(d) Except as set forth in Schedule 3.4, violate or
conflict with or result in a breach of any provision of, or constitute a default
(or any event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
creation of any Lien upon any of the properties of the Company or its
Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which the Company or its Subsidiaries is a party, or by which the Company or its
Subsidiaries or any of their properties is bound or affected which could,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect; or
(e) Require any consent, approval or authorization
of, or declaration, filing or registration with, any Government Authority, other
than any filings required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), state securities laws ("Blue Sky Laws") (collectively, the
"Regulatory Filings"), and any filings required to be made with the Maryland
State Department of Assessments and Taxation, the Recorder of Deeds or similar
office in any applicable jurisdiction or any national securities exchange on
which the Common Stock is listed.
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Section 3.5 "SEC and Other Documents; Financial Statements;
Undisclosed Liabilities".
(a) The Company has delivered or made available to
Buyer the registration statement of the Company filed with the Securities and
Exchange Commission ("SEC") in connection with the Company's initial public
offering of Common Stock, and all exhibits, amendments and supplements thereto
(collectively, the "Company Registration Statement"), and each registration
statement, report, proxy statement or information statement and all exhibits
thereto prepared by it or relating to its properties since the effective date of
the Company Registration Statement, each in the form (including exhibits and any
amendments thereto) filed with the SEC (collectively, the "Company Reports").
The Company Reports were filed with the SEC in a timely manner and constitute
all forms, reports and documents required to be filed by the Company under the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder (the "Securities Laws"). As of their respective dates, the Company
Reports (i) complied as to form in all material respects with the applicable
requirements of the Securities Laws and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. To the Company's
knowledge, there is no unresolved violation asserted by any Government Authority
with respect to any of the Company Reports.
(b) Each of the balance sheets included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presented the financial position of the entity or entities
to which it relates as of its date and each of the statements of operations,
stockholders' equity (deficit) and cash flows included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presented the results of operations, retained earnings or cash flows, as
the case may be, of the entity or entities to which it relates for the periods
set forth therein, in each case in accordance with United States generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except as may be noted therein and except, in the case of the
unaudited statements, normal recurring year-end adjustments which would not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(c) Except as, and to the extent, set forth in the
Company Reports or any Schedule hereto, to the Company's knowledge, none of the
Company or any of its Subsidiaries has any Liabilities (nor do there exist any
circumstances) that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
Section 3.6 "Litigation; Compliance With Law".
(a) Except as disclosed in the Company Reports, there
are no Actions pending or, to the Company's knowledge, threatened against the
Company or any of its Subsidiaries that would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect or result in any
material change in the equity ownership of the Company, or which in any manner
question the validity of this Agreement, the Loan Agreement, the Stockholders
Agreement or the Registration Rights Agreement.
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(b) None of the Company or its Subsidiaries is in
violation of any law, rule, regulation, order, writ, decree or injunction of any
Government Authority or any body having jurisdiction over them or any of their
respective properties which could, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
Section 3.7 "Investment Company." The Company is not, and after giving
effect to the sale and issuance of the Preferred Stock, will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 3.8 "Solicitation; Access to Information." No form of general
solicitation or general advertising was used by the Company or, to the best of
its knowledge, any other person acting on its behalf, in respect of or in
connection with the offer and sale of the Preferred Stock.
Section 3.9 "Absence of Certain Changes or Events". Since March 31,
1996, the Company and each of its Subsidiaries has conducted its business only
in the ordinary course of such business and has not acquired any real estate
other than in the ordinary course of business or entered into any financing
arrangements in connection therewith other than in the ordinary course of
business, and there has not been (a) any change, circumstance or event that
could reasonably be expected to result in a Material Adverse Effect, (b) any
declaration, setting aside or payment of any dividend or other distribution with
respect to the Common Stock other than any publicly declared quarterly dividends
on the Common Stock, (c) any commitment, contractual obligation, borrowing,
capital expenditure or transaction (each, a "Commitment") entered into by the
Company or any of its Subsidiaries, other than Commitments which could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect, or (d) any change in the Company's accounting principles,
practices or methods which could, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
Section 3.10 "Tax Matters; REIT and Partnership Status".
(a) The Company and each of its Subsidiaries have
timely filed with the appropriate taxing authority all Tax Returns required to
be filed by it or has timely requested extensions and such request has been
granted and has not expired. Each such Tax Return is true, complete and correct
in all material respects. Except as set forth on Schedule 3.10, the Company and
its Subsidiaries have paid, within the time and manner prescribed by law all
Taxes that are due and payable, except where the failure to do so could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. The Company and each of its Subsidiaries have properly accrued
all Taxes for such periods subsequent to the periods covered by such Tax Returns
as required by GAAP. None of the Company or any of its Subsidiaries has executed
or filed with the IRS or any other taxing authority any agreement now in effect
extending the period for assessment or collection of any Tax. None of the
Company or any of its Subsidiaries is a party to any pending action or
proceedings by any taxing authority for assessment or collection of any Tax, and
no claim for assessment or collection of any Tax has been asserted against it
and no basis exists for any such claim or assessment. True and complete copies
of all federal, state and local income or franchise Tax Returns filed by the
Company and each of its Subsidiaries for 1994 and 1995 and all written
communications between the relevant taxing authorities and Buyer relating
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thereto have been delivered to Buyer or will be made available to
representatives of Buyer. No claim of which the Company has received notice has
been made by an authority in a jurisdiction where the Company or any of its
Subsidiaries does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. Except as set forth on Schedule 3.10, there are no Tax
Liens upon the assets of the Company or any Subsidiary. The Company has not
received a Tax Ruling (other than the Tax Ruling previously received by the
Company regarding its status as a REIT) or entered into a Closing Agreement with
any Tax Authority that would have a continuing adverse effect after the Initial
Closing Date. No event, transaction, act or omission has occurred which will
result in the Company becoming liable to pay or to bear any Tax as a transferee,
successor or otherwise which is primarily or directly chargeable or attributable
to any other person, firm or company, which has not been properly accrued as
required by GAAP and which could, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. The Company and each
Subsidiary have no actual or contingent material liability (whether by reason of
any indemnity, warranty, tax sharing agreement or otherwise) to any other person
in respect of any actual, contingent or deferred liability of such person for
Taxes. The Company and each Subsidiary have complied (and will comply) in all
respects with the provisions of the Code relating to the payment and withholding
of Taxes, including, without limitation, the withholding and reporting
requirements under Code Sections 1441 through 1464, 3401 through 3606, and 6041
and 6049, as well as similar provisions under any other laws, and have, within
the time and in the manner prescribed by law, withheld and paid over to the
proper governmental authorities all amounts required in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party which could, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(b) The Company (i) has in its federal income tax
return for its tax year ended December 31, 1994 elected to be taxed as a real
estate investment trust ("REIT") within the meaning of Section 856 of the Code
(the "Election"), such Election has remained in effect, (ii) has complied (or
will comply) with all applicable provisions of the Code relating to a REIT, for
each of its taxable years, (iii) has operated, and intends to continue to
operate, in such a manner as to qualify as a REIT for each of its taxable years,
(iv) has not taken or omitted to take any action which could result in a
challenge to its status as a REIT, and, no such challenge of which the Company
has received notice is pending or threatened, and (v) will not be rendered
unable to qualify as a REIT for federal income tax purposes as a consequence of
the transactions contemplated hereby. As of the date hereof, (x) the Company is
a "domestically-controlled" REIT within the meaning of Code Section
897(h)(4)(B), and (y) all non-domestic beneficial owners of Common Stock are set
forth in Schedule 3.10 as of the date set forth therein. Except as set forth in
the Company Reports, to the Company's knowledge no person or entity which would
be treated as an "individual" for purposes of Section 542(a)(2) of the Code (as
modified by Section 856(h) of the Code) owns or would be considered to own
(taking into account the ownership attribution rules under Section 544 of the
Code, as modified by Section 856(h) of the Code) in excess of 6% of the value of
the outstanding equity interest in the Company.
(c) Any amount or other entitlement that could be
received (whether in cash or property or the vesting of property) as a result of
any of the transactions contemplated hereby by any employee, officer, or
director of the Company or the Operating Partnership or any of
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their Affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or plan currently in
effect would not be characterized as an "excess parachute payment" (as such term
is defined in Section 280G(b)(1) of the Code).
(d) The disallowance of a deduction under Section
162(m) of the Code for employee remuneration will not apply to any amount paid
or payable by the Company or any of its Subsidiaries under any contract, stock
plan, program, arrangement or understanding currently in effect.
(e) The Operating Partnership and each Subsidiary of
the Company and the Operating Partnership organized as a partnership (and any
other Subsidiary that files Tax Returns as a partnership for federal income tax
purposes) have at all times been classified as partnerships for federal income
tax purposes.
Section 3.11 "Agreements, Etc."
(a) Neither the Company nor any of its Subsidiaries
is in default under or in violation of any provision of the Company Charter, the
Bylaws of the Company or the Partnership Agreement (or equivalent documents) or
any agreement filed as an exhibit to the Company Reports except where such
default or violation would not result in a Material Adverse Effect.
(b) Other than agreements relating to the Camarillo
refinancing, all material agreements, as of the date hereof, entered into by the
Company or any of its Subsidiaries, except for agreements entered into in the
ordinary course of business, relating to the indebtedness of the Company, the
development or construction of, additions or expansions to, or management or
leasing services for commercial or residential buildings or other real
properties which are currently in effect and under which the Company or any of
its Subsidiaries currently has, or expects to incur, any material obligation and
which are required to be described in the Company Reports, are described in the
Company Reports. No payment, if any thereunder, are delinquent and no notice of
such delinquency thereunder has been received by the Company, except where such
default or violation would not result in a Material Adverse Effect. True and
complete copies of such agreements with all amendments and supplements thereto
have been delivered to Buyer.
Section 3.12 "Financial Records; Company Charter and Bylaws; Corporate
Records".
(a) The books of account and other financial records
of the Company and each of its Subsidiaries are in all material respects true
and complete, have been maintained in accordance with good business practices,
and are accurately reflected in all material respects, as required by GAAP, in
the financial statements included in the Company Reports. Except as set forth in
the notes thereto, all such financial statements were prepared in accordance
with GAAP and fairly present the consolidated financial results of operation of
the Company and its consolidated Subsidiaries as of the respective dates thereof
and for respective periods covered thereby. Except as described in the Company
Reports, the financial conditions of each Subsidiary are consolidated with those
of the Company.
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(b) The Company has previously delivered or made
available to Buyer true and complete copies of the Company Charter and the
Bylaws of the Company, as amended to date, the Partnership Agreement, and the
charter, Bylaws, organization documents, partnership agreements and joint
venture agreements of the Subsidiaries, and all amendments thereto.
(c) The minute books and other records of corporate
or partnership proceedings of the Company and each of its Subsidiaries will be
made available to Buyer and contain in all material respects accurate records of
all meetings and accurately reflect in all material respects all other corporate
action of the stockholders and directors and any committees of the Board of
Directors of the Company and its Subsidiaries which are corporations and all
actions of the partners of the Operating Partnership and Subsidiaries which are
partnerships, except for documentation of discussions relating to or in
connection with the transactions contemplated hereby or matters related hereto.
Section 3.13 "Properties".
(a) The Company has the requisite power, right
and authority to conduct its business as now conducted, or as proposed to be
conducted by it, and to own and operate the Company Properties consistent with
past practice and in compliance with applicable law and to enjoy uninterrupted
ownership, operation and maintenance of the Company Properties, except where any
such failure could not, individually, or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(b) Except as described in the Company Reports
and except as to earthquake insurance, each of the Company and the Subsidiaries
is insured by insurers of recognized financial responsibility against such
losses and risks in such amounts as are prudent and customary in the Company's
business, and none of Company and the Subsidiaries have any reason to believe
that it will be unable to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue it's business, at a cost that could not reasonably be
expected to result in a Material Adverse Effect.
(c) Each of the Company and the Subsidiaries
possesses such certificates, authorizations or permits issued by the appropriate
regulatory agencies or bodies necessary to conduct the business now conducted by
it, or proposed to be conducted by it, and none of the Company or any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit which, individually or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
could reasonably be expected to result in a Material Adverse Effect.
3.14 "Environmental Matters".
(a) Except as disclosed in the environmental
reports set forth on Schedule 3.14 or in the Company Reports, (A) to the
knowledge of the Company, the Environment at each Company Property is free of
any Hazardous Substance except for any Hazardous Substance that could not
reasonably be expected to have a Material Adverse Effect;
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(B) none of the Company, or any Subsidiary and, to the knowledge of the Company,
no prior owner of any Company Property has caused or suffered to occur any
Release of any Hazardous Substance into the Environment on, in, under or from
any Company Property in violation of any Environmental Law applicable to such
Company Property in an amount that would reasonably be expected to have a
Material Adverse Effect and no condition exists on, in or under any Company
Property or, to the knowledge of the Company, any property adjacent to any
Company Property that could reasonably be expected to result in the occurrence
of material liabilities under, or any material violations of, any Environmental
Law applicable to such Company Property, give rise to the imposition of any
material Lien under any Environmental Law, or cause or constitute a material
environmental hazard to any property, person or entity, except where such
condition or violation could not result in a Material Adverse Effect; (C)
neither of the Company, nor any Subsidiary is engaged in or intends to engage in
any manufacturing or any other similar operations at any Company Property and,
to the knowledge of the Company, no prior owner of any Company Property engaged
in any manufacturing or any similar operations at any Company Property that (1)
require the use, handling, transportation, storage, treatment or disposal of any
Hazardous Substance (other than paints, stains, cleaning solvents, insecticides,
herbicides, or other substances that are used in the ordinary course of
operating any Property and in compliance with all applicable Environmental Laws)
or (2) require permits or are otherwise regulated pursuant to any Environmental
Law; (D) neither of the Company, nor any Subsidiary and, to the knowledge of the
Company, no prior owner of any Company Property has received any notice of a
claim under or pursuant to any Environmental Law applicable to a Company
Property or under common law pertaining to Hazardous Substances on any Company
Property or pertaining to other property at which Hazardous Substances generated
at any Company Property have come to be located; (E) none of the Company or any
Subsidiary and, to the best knowledge of the Company, no prior owner of any
Company Property has received any notice from any Governmental Authority
claiming any violation of any Environmental Law that is uncured or unremediated
as of the date hereof; and (F) no Company Property (1) is included or proposed
for inclusion on the National Priorities List issued pursuant to CERCLA (as
defined below) by the United States Environmental Protection Agency (the "EPA")
or on the Comprehensive Environmental Response, Compensation, and Liability
Information System database maintained by the EPA as a potential CERCLA removal,
remedial or response site or (2) is included or proposed for inclusion on, any
similar list of potentially contaminated sites pursuant to any other applicable
Environmental Law nor has the Company, or any Subsidiary received any written
notice from the EPA or any other Governmental Authority proposing the inclusion
of any Property on such list.
(b) As used herein, "Hazardous Substance" shall
include any hazardous substance, hazardous waste, toxic or dangerous substance,
pollutant, asbestos-containing materials, PCBs, pesticides, explosives,
radioactive materials, dioxins, urea formaldehyde insulation, pollutant or
waste, including any such substance, pollutant or waste identified, listed or
regulated under any Environmental Law (including, without limitation, materials
listed in the United States Department of Transportation Optional Hazardous
Material Table, 49 C.F.R. Section 172.101, as the same may now or hereafter be
amended, or in the EPA's List of Hazardous Substances and Reportable Quantities,
40 C.F.R. Part 3202, as the same may now or hereafter be amended); "Environment"
shall mean any surface water, drinking water, ground
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water, land surface, subsurface strata, river sediment, buildings and
structures; "Environmental Law" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act, as amended (42 U.S.C. Section 9601, et
seq.,) ("CERCLA"), the Resource Conservation Recovery Act, as amended (42 U.S.C.
Section 6901, et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401,
et seq.), the Clean Water Act, as amended (33 U.S.C. Section 1251, et seq.), the
Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et seq.), the
Toxic Substances Control Act, as amended (29 U.S.C. Section 651, et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et
seq.), together with all rules, regulations and orders promulgated thereunder
and all other federal, state and local laws, ordinances, rules, regulations and
orders relating to the protection of the environment from environmental effects;
and "Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, emanating or
disposing of any Hazardous Substance into the Environment, including, without
limitation, the abandonment or discard of barrels, containers, tanks (including,
without limitation, underground storage tanks) or other receptacles containing
or previously containing any Hazardous Substance or any release, emission,
discharge or similar term, as those terms are defined or used in any
Environmental Law.
3.15 "Employees and Employee Benefit Plans"
(a) The Company Reports or Schedule 3.15(a) sets
forth a complete and accurate list of all Employee Benefit Plans which affect
Employees of the Company or any of its Subsidiaries. With respect to each
Employee Benefit Plan and each material Benefit Arrangement (collectively,
"Company Plan") (i) the Company and each of its Subsidiaries is in compliance in
all material respects with the terms of each Company Plan and with the
requirements prescribed by all applicable statutes, orders or government rules
or regulations, (ii) the Company and each of its Subsidiaries has contributed
all amounts due under each Company Plan, and (iii) none of the Company or any of
its Subsidiaries has any funding commitment or other liabilities except as
reserved for in the financial statements in or incorporated by reference into
the Company Reports, and, in the case of clauses (i) through (iii), except for
such matters as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. None of the Company or any of
its Subsidiaries has made any commitment to establish any new Employee Benefit
Plan, to modify any Employee Benefit Plan, or to increase benefits or
compensation of Employees of the Company or any of its Subsidiaries (except for
normal increases in compensation consistent with past practices), and to the
Company's knowledge, no intention to do so has been communicated to Employees of
the Company or any of its Subsidiaries. There are no pending or, to the
Company's knowledge, anticipated claims against or otherwise involving any of
the Company Plans or any fiduciaries thereof with respect to their duties to the
Company Plans and no suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of Company Plan activities) has been
brought against or with respect to any such Company Plans that can reasonably be
expected to result in a Material Adverse Effect.
(b) For purposes hereof, "Employee Benefit Plans"
means each and all "employee benefit plans" as defined in Section 3(3) of ERISA
maintained or contributed to by a party hereto or in which a party hereto
participates or participated and which provides benefits to
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Employees, including (i) any such plans that are "employee welfare benefit
plans" as defined in Section 3(1) of ERISA, including retiree medical and life
insurance plans ("Welfare Plans"), and (ii) any such plans that constitute
"employee pension benefit plans" (including "multiemployer plans") as defined in
Section 3(2) of ERISA ("Pension Plans"). "Benefit Arrangements" means life and
health insurance, hospitalization, savings, bonus, deferred compensation,
incentive compensation, holiday, vacation, severance pay, sick pay, sick leave,
disability, tuition refund, service award, company car, scholarship, relocation,
patent award, fringe benefit, individual employment, consultancy or severance
contracts and agreements and other policies or practices of a party hereto
providing employee or executive compensation or benefits to Employees, other
than Employee Benefit Plans. "Employees" mean all current employees, former
employees and retired employees of a party hereto or any of its Subsidiaries,
including employees on disability, layoff or leave status.
(c) Neither the Company nor any other employer
that is (or at any relevant time was) part of a controlled group (as defined in
Section 412(l)(8)(C) of the Code) of which the Company is (or at any relevant
time was) a member maintains or has ever maintained a plan covered by Title IV
of ERISA. Neither the Company nor any such employer has engaged in any
transaction described in Section 4069 or Section 4212(c) of ERISA.
(d) The Company represents and warrants
that through its investment in the Operating Partnership of which it is the sole
general partner and owner of 77.2% of the ownership interests therein, it has
been actively engaged in the management or development of real estate in the
ordinary course of its business at all times from the date of its first
long-term investment that was not a short-term investment of funds pending
long-term commitment, ("REOC Qualification Date") to and including the Initial
Closing Date, and that it will continue to be so engaged in the management or
development of real estate so long as Buyer has any interest in any equity or
debt issued by the Company.
(e) The Company represents and warrants that the
"real estate" referenced above which was purchased on the REOC Qualification
Date and thereafter includes the Company Properties. To the extent any of the
Company Properties are subject to tenant leases (the "Leases"), the Company has
substantial responsibilities under each of the Leases, and none of the Leases
provide that substantially all management and maintenance activities with
respect to the Property in question or any portion thereof are the
responsibility of the tenant leases.
(f) The Company represents that it has not
merely passively assumed the risks of its real estate ownership, but that the
return to its stockholders from its investment in the Properties has been and is
based in part on the cash flow and capital appreciation of the Properties, and
that such return depends in substantial part on the success of the Company's
management and development efforts with respect to the Company Properties.
(g) The Company represents and warrants that the
employees of the Company perform most of the development and management
functions of the real estate business described herein, except that the Company
has employed independent contractors, each of which
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is terminable without cause and without substantial penalty upon reasonable
short notice, to perform certain of the day-to-day management activities
associated with the Company Properties. In any event, the Company represents and
warrants that it devotes substantial resources to such management and
development activities and to the oversight of its independent contractors who
perform such activities.
(h) The Company covenants and warrants that it
will comply with requirements, and take all procedural action and cause the
Operating Partnership to take all procedural actions necessary, to maintain its
status as a "real estate operating company" as such term is defined in 29 C.F.R.
Section 2510.3-101 (a "REOC"). Specifically, but without limitation, the Company
covenants that it has or it will establish an "annual valuation period" (as such
term is defined in 29 C.F.R., Section 2510.3-101). The Company agrees to certify
to Buyer its compliance with the requirements recited in this paragraph within
10 days after the close of each annual valuation period.
Section 3.16 "Affiliate Transactions". The Company Reports set forth
an accurate description of all transactions with Affiliates, which are
required to be included therein. A true and complete copy of all agreements or
contracts relating to any such transaction has been made available to Buyer.
Except as set forth in the Company Reports, all such Affiliate transactions were
conducted on an arm's-length basis.
Section 3.17 "Maryland Takeover Law". The terms of Section 3-602 and
Subtitle 7 of Title 3 of the Corporations & Associations Code of Maryland will
not apply to Buyer or any transaction contemplated hereby.
Section 3.18 "Brokers or Finders". No agent, broker, investment banker
or other firm or person, including any of the foregoing that is an Affiliate of
the Company, is or will be entitled to any broker's or finder's fee or any other
commissions or similar fee from the Company in connection with this Agreement or
any of the transactions contemplated hereby for which Buyer will be responsible
except as a result of actions by Buyer.
Section 3.19 "Knowledge Defined". As used herein, the phrase "to the
Company's knowledge" (or words of similar import) shall include the actual
knowledge after due inquiry of George Marcus, Keith Guericke, Michael J. Schall,
and Jordan Ritter and includes any facts, matters or circumstances set forth in
any written notice from any Government Authority, and also including any matter
of which Buyer informs the Company in writing. The term "due inquiry" is hereby
defined to mean such inquiry by the applicable person as such person would
normally be reasonably expected to make in the ordinary course of his regular
and usual duties as either an employee or as a board member, as the case may be,
of the Company.
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ARTICLE 4
Representations and Warranties of Buyer
Each Buyer hereby represents and warrants to the Company, as follows:
Section 4.1 "Organization". (a) Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has all requisite partnership power and authority to own,
operate, lease and encumber its properties and carry on its business as now
conducted, and to enter into this Agreement, the Stockholders Agreement and to
perform its obligations hereunder and thereunder.
Section 4.2 "Due Authorization". The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, and the Stockholders
Agreement have been duly and validly authorized by all necessary partnership
action on the part of Buyer. The execution, delivery and performance of the Loan
Agreement has been duly and validly authorized by all necessary limited
liability company action on the part of Lender. This Agreement has been duly
executed and delivered by Buyer for itself and constitutes the valid and legally
binding obligations of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights or general principles of equity. The Loan
Agreement has been duly executed and delivered by the Lender for itself and
constitutes the valid and legally binding obligations of the Lender enforceable
against the Lender in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights or general principles of equity.
Section 4.3 "Conflicting Agreements and Other Matters". Neither the
execution and delivery of this Agreement nor the performance by Buyer of its
obligations hereunder nor the execution and delivery of the Loan Agreement nor
the performance by the Lender of its obligations thereunder will conflict with,
result in a breach of the terms, conditions or provisions of, constitute a
default under, result in the creation of any mortgage, security interest,
encumbrance, Lien or charge of any kind upon any of the properties or assets of
Buyer or Lender pursuant to, or require any consent, approval or other action by
or any notice to or filing with any Government Authority pursuant to, the
organizational documents or agreements of Buyer or Lender, or any agreement,
instrument, order, judgment, decree, statute, law, rule or regulation by which
Buyer or Lender is bound, except for filings after the Initial Closing, the
Initial Exchange Closing or any Subsequent Closing under Section 13(d) of the
Exchange Act.
Section 4.4 "Acquisition for Investment; Sophistication; Source of Funds".
Buyer is acquiring the Preferred Stock being purchased by it for its own account
for the purpose of investment and not with a view to or for sale in connection
with any distribution thereof, and Buyer has no present intention or plan to
effect any distribution of shares of Preferred Stock, provided that the
disposition of Preferred Stock owned by Buyer shall at all times be and remain
within its control and, in the ordinary course of its affairs, the Buyer may
effect transfer of any of its assets, including the Preferred Stock, subject to
the provisions of this Agreement and the Registration Rights Agreement. Buyer is
able to bear the economic risk of the acquisition of Preferred Stock pursuant
hereto and can afford to sustain a total loss on such investment, and has such
knowledge
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and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment, and therefore has
the capacity to protect its own interests in connection with the acquisition of
Preferred Stock pursuant hereto.
Section 4.5 "Brokers or Finders". No agent, broker, investment banker
or other firm or person, including any of the foregoing that is an Affiliate of
Buyer is or will be entitled to any broker's or finder's fee or any other
commission or similar fee from Buyer in connection with this Agreement or any of
the transactions contemplated hereby for which the Company will be responsible
except as a result of actions by the Company.
Section 4.6 "Investment Company Matters". Buyer is not and after
giving effect to the purchase of Preferred Stock contemplated hereby will not
be, an "investment company" or an entity "controlled" by an "investment
company", as such terms are defined in the Investment Company Act of 1940, as
amended.
Section 4.7 "Accredited Investor". Buyer is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, as presently in effect.
ARTICLE 5
Covenants Relating to Closings
Section 5.1 "Taking of Necessary Action".
(a) Each party hereto agrees to use commercially
reasonable efforts promptly to take or cause to be taken all action and promptly
to do or cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, the Loan Agreement, the
Registration Rights Agreement and the Stockholders Agreement, subject to the
terms and conditions hereof and thereof, including, without limitation, to cause
necessary or appropriate amendments to the Operating Partnership's Partnership
Agreement; provided, however, this proviso shall not apply to a party's ability
to exercise its discretionary rights hereunder to the extent such party's
obligations hereunder are conditioned upon the performance of certain conditions
precedent which shall be satisfactory to such party in such party's sole
discretion. The Company shall use its best efforts promptly to take or cause to
be taken all action and promptly to do or cause to be done all things necessary,
proper or advisable under applicable laws or regulations to consummate and make
effective the Charter Amendment and the IRS Approval.
(b) As promptly as practicable after the date hereof,
the Company shall prepare and file with the SEC a preliminary proxy statement
(the "Proxy Statement") by which the Company's stockholders will be asked to
approve the Charter Amendment and other matters in connection with the
transactions contemplated hereby as the Company may reasonably suggest and the
Buyer may reasonably request, which proposed Charter Amendment shall be in form
and substance satisfactory to Buyer. The Proxy Statement as initially filed with
the SEC, as it may be amended and refiled with the SEC and as it may be mailed
to the Company's stockholders, shall be in form and substance reasonably
satisfactory to Buyer. The Company shall use its reasonable
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efforts to respond to any comments of the SEC, and to cause the Proxy Statement
to be mailed to the Company's stockholders at the earliest practicable time. As
promptly as practicable after the date hereof, the Company shall prepare and
file any other filings required under the Exchange Act, the Securities Act or
any other federal, state or local laws relating to this Agreement and the
transactions contemplated hereby, including under the HSR Act (and shall
promptly on request therefore provide Buyer with information requested by Buyer
in connection with Buyer's HSR matters and filings) and state takeover laws (the
"Other Filings"), and Buyer shall prepare and file any filings required by Buyer
under the HSR Act and shall cooperate with the Company in the preparation of any
such filings. The Company will notify Buyer promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff or
any other government officials for amendments or supplements to the Proxy
Statement or any Other Filing or for additional information and will supply
Buyer with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Proxy Statement or
any Other Filing. The Proxy Statement and any Other Filing shall comply in all
material respects with all applicable requirements of law. Buyer shall provide
the Company all information about Buyer required to be included or incorporated
by reference in the Proxy Statement or any Other Filing and shall otherwise
cooperate with the Company in taking the actions described in this paragraph.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement or any Other Filing, the Company or Buyer, as
the case may be, shall promptly inform the other party of such occurrence and
cooperate in filing with the SEC or its staff or any other government officials,
and/or mailing to stockholders of the Company, such amendment or supplement. The
Proxy Statement shall include the recommendation of the Board of Directors of
the Company that the stockholders of the Company vote in favor of and approve
the Charter Amendment and the issuance of Preferred Stock pursuant to this
Agreement.
(c) Buyer agrees to assist the Company in its
preparation of a submission to the IRS seeking IRS Approval, including
information as to the nature of Buyer's investors, provided that Buyer may
refuse information if it reasonably believes that not doing so would be adverse
to its interests. Such submission shall be in form and substance reasonably
satisfactory to Buyer. The Company will notify Buyer promptly of the receipt of
any comments, notices or requests for additional information from IRS or its
staff and will supply Buyer with copies of all correspondence between the
Company or any of its representatives on one hand and the IRS or its staff on
the other hand.
(d) The Company shall call a meeting of its
stockholders to be held as promptly as practicable for the purpose of voting
upon the Charter Amendment and shall use its best efforts to cause the
stockholder approval of the Charter Amendment by August 31, 1996.
(e) The parties agree to negotiate in good faith
whether to issue Operating Partnership Units to Buyer as contemplated hereby as
promptly as practicable after the date hereof. In the event the parties mutually
agree for the exchange of Operating Partnership Units, the Company shall propose
and submit an amendment to the Partnership Agreement to the limited partners of
the Operating Partnership to provide for the exchange of the Loan and Preferred
Stock for Operating Partnership Units and shall seek a written consent or call a
meeting to vote
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thereon. The Company shall vote all of the Operating Partnership
Units held by it at the time of such written consent or meeting in favor of such
Amended Partnership Agreement.
(f) The Company shall use its best efforts to obtain
the requisite lender consents required hereby.
Section 5.2 "Registration Rights Agreement". At the Initial Closing,
the Company and Buyer shall enter into the Registration Rights Agreement.
Section 5.3 "Stockholders Agreement". At the Initial Closing, the
Company, Buyer and the Messrs. Marcus and Guericke shall enter into the
Stockholders Agreement.
Section 5.4 "Modification to Structure". The parties agree to
negotiate in good faith modification to the structure of the Operating
Partnership and/or the Operating Partnership's investments in, and ownership of,
the Property of the Company, (a) to avoid the imposition of a corporate tax on
any income of the Operating Partnership, (b) to minimize the effects of UBTI on
a direct or indirect investor of the Buyer or (c) to assist Buyer in respect of
requirements pertinent to Buyer under ERISA. Unless and until such date Buyer
has distributed to its investors aggregate funds exceeding 50% of the net
acquisition cost of all assets which it has purchased to such date, the Company
and the Operating Partnership, considered as a single entity, or any entity in
which the partners and/or the Company and the Operating Partnership, considered
as a single entity, owns an interest and which owns any portion of the Property,
shall qualify as and/or remain an "operating company" under the plan asset rules
of ERISA at 29 C.F.R. 2510.3-101 provided that such actions shall not have a
material adverse effect on Operating Partnership limited partners, considered as
a whole.
Section 5.5 "Designation of Directors".
(a) The Company shall use its best efforts to cause
the stockholders of the Company to approve and adopt an amendment to the Company
Charter, which permits the termination of Directors such that, upon a failure by
the Company to pay dividends on the Preferred Stock in accordance with the
Articles Supplementary or in the event of certain breaches thereof: (i) the
holders of Preferred Stock shall have the power to cause the removal or
resignation of such requisite number of Directors and to appoint the designees
to fill such vacancies or, alternatively, (ii) that the Company shall increase
the number of authorized directors of its Board of Directors and appoint such
persons designated by the holders of Preferred Stock to fill such newly-created
vacancies.
(b) The Company shall cause the committees of the
Board of Directors to include Preferred Stockholder director designees, as set
forth in the Articles Supplementary.
Section 5.6 "Listing of Preferred Stock". Upon the request of the
Buyer, the Company shall use commercially reasonable efforts to list the
Preferred Stock on such securities exchanges as may be mutually agreeable
between the parties, including, without limitation, the Singapore, Amsterdam and
Luxembourg Securities Exchanges, provided that the cost thereof including any
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periodic reporting or listing costs shall be borne by the Buyer and provided
further that in the Company's reasonable discretion such listing shall not have
an adverse effect on the Company.
Section 5.7 "Public Announcements, Confidentiality".
(a) Subject to each party's disclosure obligations
imposed by law and any stock exchange or similar rules and the confidentiality
provisions contained in Section 5.7(b), the Company and Buyer will cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement, the
Registration Rights Agreement, the Stockholders Agreement and any of the
transactions contemplated hereby or thereby.
(b) Buyer agrees that all information provided to
Buyer or any of its representatives pursuant to this Agreement shall be kept
confidential, and Buyer shall not disclose such information to any persons other
than the directors, officers, employees, financial advisors, legal advisors,
accountants, consultants and affiliates of Buyer who reasonably need to have
access to the confidential information and who are advised of the confidential
nature of such information; provided, however, the foregoing obligation of Buyer
shall not (i) relate to any information that (1) is or becomes generally
available other than as a result of unauthorized disclosure by Buyer or by
persons to whom Buyer has made such information available, (2) is or becomes
available to Buyer on a non-confidential basis from a third party that is not,
to Buyer's knowledge, bound by any other confidentiality agreement with the
Company, or (ii) prohibit disclosure of any information if required by law,
rule, regulation, court order or other legal or governmental process.
(c) The Company agrees that all information provided
to the Company or any of its representatives pursuant to this Agreement shall be
kept confidential, and the Company shall not disclose such information to any
persons other than the directors, officers, employees, financial advisors, legal
advisors, accountants, consultants and affiliates of the Company who reasonably
need to have access to the confidential information and who are advised of the
confidential nature of such information; provided, however, the foregoing
obligation of the Company shall not (i) relate to any information that (1) is or
becomes generally available other than as a result of unauthorized disclosure by
the Company or by persons to whom the Company has made such information
available, (2) is or becomes available to the Company on a non-confidential
basis from a third party that is not, to the Company's bound by any other
confidentiality agreement with Buyer, or (ii) prohibit disclosure of any
information if requested by law, rule, regulation, court order or other legal or
governmental process.
Section 5.8 "Information and Access". For so long as Buyer owns
100,000 shares or more of Preferred Stock, the Company and its Subsidiaries
shall afford to Buyer and Buyer's accountants, counsel and other representatives
full and reasonable access during normal business hours (and at such other times
as the parties may mutually agree) to its properties, books, contracts,
commitments, records and personnel and, during such period, shall furnish
promptly to Buyer (x) a copy of each report, schedule and other document filed
or received by it pursuant to the requirements of the Securities Laws, and (y)
all other information concerning its business, personnel and the Company
Properties as Buyer may reasonably request. Buyer and its
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accountants, counsel and other representatives shall, in the exercise of the
rights described in this Section, not unduly interfere with the operation of the
business of the Company or its Subsidiaries.
Section 5.9 "Notification of Certain Matters". Each of Buyer and the
Company shall use its good faith efforts to notify the other party in writing of
its discovery of any matter that would render any of such party's or the other
party's representations and warranties contained herein untrue or incorrect in
any material respect, but the failure of either party to so notify the other
party shall not be deemed a breach of this Agreement.
ARTICLE 6
Certain Additional Covenants
Section 6.1 "Resale". Buyer acknowledges and agrees that the
securities that Buyer acquires hereunder will not, as of the relevant Closing
thereof, be registered under the Securities Act or the securities laws of any
state and that it may be sold or otherwise disposed of only in one or more
transactions registered under the Securities Act and, where applicable, state
securities laws or as to which an exemption from the registration requirements
of the Securities Act and, where applicable, state securities laws is available.
Section 6.2 "Use of Funds". The Company shall use the funds received
pursuant to the terms hereof, first to repay outstanding indebtedness (of either
the Company or the Operating Partnership) and second for the acquisition or
development by the Operating Partnership of assets.
Section 6.3 "REIT Status". From and after the date hereof and so long
as Buyer owns 10% or more of the Company's outstanding Common Stock (for
purposes of this provision, the Company's convertible securities, including
Preferred Stock, shall be treated as Common Stock on an as-converted basis), the
Company will elect to be taxed as a REIT in its federal income tax returns for
each of its tax years, will comply with all applicable laws, rules and
regulations of the Code relating to a REIT, and will not take any action or fail
to take any action which would result in the loss of its status as a REIT for
federal income tax purposes.
Section 6.4 "Affiliated Transactions". All transactions by and between
the Company and any Affiliate of the Company shall be conducted on an
arm's-length basis, and if any such transaction involves a cost to the Company
to such Affiliate in excess of $500,000 in a single transaction, or in excess of
an aggregate $1,000,000 for a series of transactions with all Affiliates in any
twelve-month period, shall be on terms and conditions no less favorable (when
all aspects of the transactions are considered) to the Company than could be
obtained from non-related persons except as disclosed in the Company Reports.
Section 6.5 "Loan Agreement Covenants". The Company agrees to take
such actions necessary or as may be requested by Buyer to afford Buyer the
rights set forth in the Loan Agreement, which is incorporated herein by
reference, and hereby authorizes Buyer to take such actions as are reasonably
necessary to accomplish such rights. The Buyer agrees to cause Lender to take
such actions necessary or as may be requested by the Company to afford the
Company the rights set forth in the Loan Agreement, which is incorporated herein
by reference, and hereby authorizes the Company to take such actions as are
reasonably necessary to accomplish such rights.
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ARTICLE 7
Conditions to Closings
Section 7.1 "Conditions of Purchase at Initial Closing". The
obligations of Buyer to purchase and pay for the Preferred Stock at the Initial
Closing are subject to satisfaction or waiver of each of the following
conditions precedent:
(a) "Representations and Warranties; Covenants". The
representations and warranties of the Company contained herein shall have been
true and correct in all respects on and as of the date hereof, and shall be true
and correct in all respects on and as of the date of the Initial Closing with
the same effect as though such representations and warranties had been made on
and as of the date of the Initial Closing (except for representations and
warranties that speak as of a specific date or time other than the date of the
Initial Closing), other than, in all such cases, such failures to be true and/or
correct as would not in the aggregate reasonably be expected to have a Material
Adverse Effect; provided, however, that if any of the representations and
warranties is already qualified in any respect by materiality or as to Material
Adverse Effect for purposes of this Section 7.1(a) such materiality or Material
Adverse Effect qualification will be in all respects ignored (but subject to the
overall standard as to Material Adverse Effect set forth immediately prior to
this proviso). The covenants and agreements of the Company to be performed on or
before the date of the Initial Closing in accordance with this Agreement shall
have been duly performed in all respects, other than (except for the Company's
obligation to deliver the relevant shares of Preferred Stock at the Initial
Closing, and for the covenants set forth in Sections 5.2, 5.3 and 6.3 as to
which the proviso set forth in this other-than clause shall not apply) for such
failures to have been performed as would not in the aggregate reasonably be
expected to have a Material Adverse Effect (provided, however, that if any such
covenant or agreement is already qualified in any respect by materiality or as
to Material Adverse Effect for purposes of determining whether this condition
has been satisfied, such materiality or Material Adverse Effect qualification
will be in all respects ignored and such covenant or agreement shall have been
performed in all respects without regard to such qualification (but subject to
the overall exception as to Material Adverse Effect set forth immediately prior
to this proviso)). The Company shall have delivered to Buyer at the Initial
Closing a certificate of an appropriate officer in form and substance reasonably
satisfactory to Buyer dated the date of the Initial Closing to such effect.
In making any determination as to Material Adverse Effect under this
Section 7.1(a) or under Section 7.2(a), the matters set forth in each such
Section shall be aggregated and considered together.
(b) "Preferred Stock; Articles Supplementary". The
Articles Supplementary shall have been duly filed with the State Department of
Assessments and Taxation of the State of Maryland and shall be in full force and
effect in form and substance satisfactory to Buyer.
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(c) "Consents". The Company shall have obtained the
consents set forth in Schedule 3.4.
(d) "No Injunction". There shall not be in effect any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby and
there shall be no pending Actions which could reasonably be expected to have a
Material Adverse Effect on the ability of the Company to consummate the
transactions contemplated hereby or to issue the Preferred Stock.
(e) "Proceedings". All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to Buyer and Buyer shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
(f) "Opinion of Counsel". Buyer shall have received
an opinion from Morrison & Foerster LLP substantially in form and substance
reasonably satisfactory to Buyer.
(g) "Bylaws". The Company shall have adopted the
amendments to the Company's Bylaws relating to alterations to the size and
composition of the Board of Directors in form and substance reasonably
satisfactory to Buyer.
(h) "Resolutions". Buyer shall have received a
certified copy or resolutions of the Board of Directors in form and substance
satisfactory to Buyer, relating to the Buyer's and its Affiliates' exemption
from the provisions of Section 3 - 602 of the Maryland Corporations and
Associations Code.
(i) "Registration Rights Agreement". Buyer shall have
received the Registration Rights Agreement executed by the Company, in form and
substance reasonably satisfactory to Buyer.
(j) "Stockholders Agreement". Buyer shall have
received the Stockholders Agreement executed by the Company, in form and
substance reasonably satisfactory to Buyer.
(k) "Disclosure Statement". Buyer shall have received
from the Company a Disclosure Statement attaching all Schedules to the
Agreement.
(l) "NYSE Advice". Buyer shall have received the NYSE
Advice.
(m) "Maryland Counsel Opinion". If requested by
Buyer, Buyer shall have received an opinion of the Company's Maryland counsel in
form and substance reasonably satisfactory to Buyer.
(n) "Amendment to Investor Rights Agreement". Buyer
shall have received from the Company a copy of an amendment to that certain
Investor Rights Agreement
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dated as of June 13, 1994 between the Company and the investors party thereto,
whereby such investors shall have agreed that their rights thereunder shall be
subordinated to the rights of holders of Preferred Stock;
(o) "Appointment of Buyer's Designees to Board of
Directors and Committees". The Buyer's designee shall have been appointed to the
Board of Directors and to all committees pursuant to the terms of the Bylaws and
Articles Supplementary.
(p) "Preemptive Rights Agreements". Buyer and Company
shall have executed an agreement providing for preemptive rights of Buyer, in
form and substance reasonably satisfactory to Buyer.
Section 7.2 "Conditions of Purchase at Subsequent Closings". The
obligations of Buyer to purchase and pay for the shares of Preferred Stock at
each Subsequent Closing are subject to satisfaction or waiver of each of the
following conditions precedent:
(a) "Representations and Warranties; Covenants". The
representations and warranties of the Company contained herein shall have been
true and correct in all respects on and as of the date hereof, and as of the
Initial Closing Date. The covenants and agreements of the Company to be
performed on or before the relevant Subsequent Closing Date in accordance with
this Agreement shall have been duly performed in all respects, other than
(except for the Company's obligation to deliver the relevant shares of Preferred
Stock at the relevant Subsequent Closing, as to which the proviso set forth in
this other-than clause shall not apply) for such failures to have been performed
as would not in the aggregate reasonably be expected to have a Material Adverse
Effect, provided, however, that if any such covenant or agreement is already
qualified in any respect by materiality or as to Material Adverse Effect for
purposes of determining whether this condition has been satisfied, such
materiality or Material Adverse Effect or qualification will be in all respects
ignored and such covenant or agreement shall have been performed in all respects
without regard to such qualification (but subject to the overall exception as to
Material Adverse Effect set forth immediately prior to this proviso). The
Company shall have delivered to Buyer at the relevant Subsequent Closing a
certificate of an appropriate officer in form and substance reasonably
satisfactory to Buyer dated the relevant Subsequent Closing Date to such effect.
(b) "No Material Adverse Change". Since the Initial
Closing Date, there shall not have been any change, circumstance or event which
has had or could reasonably be expected to have a Material Adverse Effect.
(c) "Operating Partnership Agreement". If Operating
Partnership Units are to be purchased by Buyer, the Partnership Agreement shall
have been duly and validly amended and restated so that it is in a form which is
satisfactory to both the Company and Buyer (the "Amended Partnership Agreement")
by the requisite vote or consent of the partners of the Operating Partnership,
all as required by and in accordance with the Partnership Agreement.
(d) "Amended Company Charter; Modification of
Ownership Limit". As to Subsequent Closings under Option A or Option B, the
Charter Amendment shall have been approved by the requisite vote of holders of
Common Stock, all as required by and in accordance
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with the Company Charter, and duly filed with the State Department of
Assessments and Taxation of the State of Maryland and shall be in full force and
effect.
(e) "No Injunction". There shall not be in effect any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby and
there shall be no pending Actions which could reasonably be expected to have a
Material Adverse Effect on the ability of the Company to consummate the
transactions contemplated hereby or to issue the Preferred Stock.
(f) "Proceedings". All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to Buyer and Buyer shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
(g) "REIT Status". The Company shall have elected to
be taxed as a REIT in its most recent federal income tax return, and shall be in
compliance with all applicable laws, rules and regulations, including the Code,
necessary to permit it to be taxed as a REIT. The Company shall not have taken
any action or have failed to take any action which would reasonably be expected
to, alone or in conjunction with any other factors, result in the loss of its
status as a REIT for federal income tax purposes.
(h) "Opinion of Counsel". Buyer shall have received
an opinion from Morrison & Foerster LLP in such form and substance reasonably
satisfactory to Buyer.
(i) "IRS Approval". As to the Initial Exchange
Closing under Option D, the IRS Approval shall have been obtained and shall be
in full force and effect.
(j) "Certain Conditions Still True". The conditions
precedent set forth in Sections 7.1(c), (e), (h) and (i) shall continue to be
satisfied or waived in all respects on and as of each relevant Closing Date.
With respect to the Initial Exchange Closing and each
Subsequent Closing:
(k) "HSR Act". Any waiting period applicable to the
consummation of the transactions contemplated hereby under the HSR Act shall
have expired or been terminated, and no action shall have been instituted by the
United States Department of Justice or the United States Federal Trade
Commission challenging or seeking to enjoin the consummation of the transactions
contemplated hereby, which action shall not have been withdrawn or terminated,
or the Company and Buyer shall have mutually concluded that no filing under the
HSR Act is required with respect to the transactions contemplated hereby.
Section 7.3 "Conditions of Sale". The obligation of the Company to
issue and sell any Preferred Stock at any closing (including the Initial
Closing) is subject to satisfaction or waiver of each of the following
conditions precedent:
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(a) "Representations and Warranties; Covenants". The
representations and warranties of Buyer contained herein shall have been true
and correct in all respects on and as of the date hereof and as of the date of
the Initial Closing, other than, in all such cases, such failures to be true
and/or correct as would not in the aggregate reasonably be expected to have a
Material Adverse Effect on the Company or Buyer's ability to consummate the
transactions contemplated hereby; provided, however, that if any of the
representations and warranties is already qualified in any respect by
materiality or as to Material Adverse Effect for purposes of this Section 7.3(a)
such materiality or Material Adverse Effect qualification will be in all
respects ignored (but subject to the overall standard as to Material Adverse
Effect set forth immediately prior to this proviso). The covenants and
agreements of Buyer to be performed on or before the relevant Closing Date in
accordance with this Agreement shall have been duly performed in all respects,
other than (except for Lender's obligations under the Loan Agreement, Buyer's
obligation to pay the relevant Purchase Price at the relevant Closing, including
any Closing under Section 2.5(b), and except for Buyer's covenants set forth in
Sections 5.2 and 5.3, as to which the proviso set forth in this other-than
clause shall not apply) for such failures to have been performed as would not in
the aggregate reasonably be expected to have a Material Adverse Effect on the
Company or Buyer's ability to consummate the transactions contemplated hereby
(provided, however, that if any such covenant or agreement is already qualified
in any respect by materiality or as to Material Adverse Effect for purposes of
determining whether this condition has been satisfied, such materiality or
Material Adverse Effect qualification will be in all respects ignored and such
covenant or agreement shall have been performed in all respects without regard
to such qualification (but subject to the overall exception as to Material
Adverse Effect set forth immediately prior to this proviso)). Buyer shall have
delivered to the Company at the relevant Closing a certificate of an appropriate
officer in form and substance reasonably satisfactory to the Company dated the
relevant Closing Date to such effect.
(b) "No Injunction". There shall not be in effect any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby and
there shall be no pending Actions which would reasonably be expected to have a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby or to acquire the Preferred Stock.
(c) "Consents". The Company shall have obtained the
consents set forth in Schedule 3.4.
(d) "Proceedings". All corporate and other
proceedings to be taken by Buyer in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company and the Company shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(e) "Opinion of Counsel". The Company shall have
received an opinion from counsel to Buyer in form and substance reasonably
satisfactory to the Company.
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(f) "Bylaws". The Company shall have adopted the
amendments to the Company's Bylaws relating to alterations to the size and
composition of the Board of Directors.
(g) "Registration Rights Agreement". The Company
shall have received the Registration Rights Agreement executed by the Buyer in
form and substance satisfactory to the Company.
(h) "Stockholders Agreement". The Company shall have
received the Stockholders Agreement executed by the Buyer in form and substance
satisfactory to the Company.
With respect to any Subsequent Closing only:
(x) "Amended Company Charter; Modification of Ownership Limit". As to
Subsequent Closings under Option A or Option B, the Charter Amendment shall have
been approved by the requisite vote of holders of Common Stock, all as required
by and in accordance with the Company Charter, and duly filed with the State
Department of Assessments and Taxation of the State of Maryland and shall be in
full force and effect.
(y) "Operating Partnership Agreement". If Operating Partnership Units
are to be purchased by Buyer, the Partnership Agreement shall have been duly and
validly amended and restated as the Amended Partnership Agreement by the
requisite vote or consent of the partners of the Operating Partnership, all as
required by and in accordance with the Partnership Agreement.
(z) "HSR Act". Any waiting period applicable to the consummation of
the transactions contemplated hereby under the HSR Act shall have expired or
been terminated, and no action shall have been instituted by the United States
Department of Justice or the United States Federal Trade Commission challenging
or seeking to enjoin the consummation of the transactions contemplated hereby,
which action shall not have been withdrawn or terminated, or the Company and
Buyer shall have mutually concluded that no filing under the HSR Act is required
with respect to the transactions contemplated hereby.
ARTICLE 8
Survival; Indemnification
Section 8.1 "Survival". All representations, warranties and (except as
provided by the last sentence of this Section 8.1) covenants and agreements of
the parties contained herein, including indemnity or indemnification agreements
contained herein, or in any Schedule or Exhibit hereto, or any certificate,
document or other instrument delivered in connection herewith shall survive the
Initial Closing until 18 months after the Initial Closing. No Action or
proceeding may be brought with respect to any of the representations and
warranties, or any of the covenants or agreements which survive until 18 months
after the Initial Closing, unless written notice thereof, setting forth in
reasonable detail the claimed misrepresentation or breach of warranty or breach
of covenant or agreement, shall have been delivered to the party alleged to have
breached such representation or warranty or such covenant or agreement prior to
18 months after the Initial Closing; provided, however, that, if Buyer shall
have complied with this Section 8.1, the damages
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for breach by the Company of any of the representations and warranties, or any
of the covenants or agreements which survive until 18 months after the Initial
Closing, shall be measured with respect to all of Buyer's purchases of Preferred
Stock hereunder and not with respect only to Buyer's purchases hereunder made
during the period ending 18 months after the Initial Closing, but such
measurement shall not in any event include any shares of Preferred Stock that
Buyer may have purchased other than from the Company. Notwithstanding the
foregoing, those covenants or agreements that contemplate or may involve actions
to be taken or obligations in effect after the Initial Closing shall survive in
accordance with their terms, and representations and warranties of the Company
contained in Section 3.10 herein shall survive until the running of the
applicable statutes of limitations.
Section 8.2 "Indemnification by Buyer or the Company".
(a) Subject to Section 8.1, from and after any
Closing Date, Buyer shall indemnify and hold harmless the Company, its
successors and assigns, from and against any and all damages, claims, losses,
expenses, costs, obligations, and liabilities, including liabilities for all
reasonable attorneys' fees and expenses (including attorney and expert fees and
expenses incurred to enforce the terms of this Agreement) (collectively, "Loss
and Expenses") suffered, directly or indirectly, by the Company by reason of, or
arising out of, (i) any breach as of the date made or deemed made or required to
be true of any representation or warranty made by Buyer in or pursuant to this
Agreement, or (ii) any failure by Buyer to perform or fulfill any of its
covenants or agreements set forth herein. Notwithstanding any other provision of
this Agreement to the contrary, in no event shall Loss and Expenses include a
party's incidental or consequential damages.
(b) Subject to Section 8.1, from and after any
Closing Date, the Company shall indemnify and hold harmless Buyer, its
successors and assigns, from and against any and all Loss and Expenses,
suffered, directly or indirectly, by Buyer by reason of, or arising out of, (i)
any breach as of the date made or deemed made or required to be true of any
representation or warranty made by the Company in or pursuant to this Agreement
and any statements made in any certificate delivered pursuant to this Agreement,
or (ii) any failure by the Company to perform or fulfill any of its covenants or
agreements set forth herein. Notwithstanding any other provision of this
Agreement to the contrary, in no event shall Loss and Expenses include a party's
incidental or consequential damages.
(c) Notwithstanding the foregoing, (i) neither Buyer
nor the Company shall be responsible for any Loss and Expenses as provided by
paragraphs (a) and (b), respectively, of this Section 8.2, until the cumulative
aggregate amount of such Loss and Expenses suffered by Buyer or the Company, as
the case may be, exceeds $1,000,000, and only to the extent such Losses and
Expenses exceed $1,000,000, in which case Buyer or the Company, as the case may
be, shall then be liable for all such Loss and Expenses, and (ii) the cumulative
aggregate indemnity obligation of each of Buyer and the Company under this
Section 8.2 shall in no event exceed $40,000,000. Except with respect to
third-party claims being defended in good faith or claims for indemnification
with respect to which there exists a good faith dispute, the indemnifying party
shall satisfy its obligations hereunder within 30 days of receipt of a notice of
claim under this Article 8.
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Section 8.3 "Third-Party Claims". If a claim by a third party is made
against an Indemnified Party and if such Indemnified Party intends to seek
indemnity with respect thereto under this Article, such Indemnified Party shall
promptly notify the indemnifying party in writing of such claims setting forth
such class in reasonable detail. The indemnifying party shall have 20 days after
receipt of such notice to undertake, through counsel of its own choosing and at
its own expense, the settlement or defense thereof, and the Indemnified Party
shall cooperate with it in connection therewith; provided, however, that the
Indemnified Party may participate in such settlement or defense through counsel
chosen by such Indemnified Party, provided that the fees and expenses of such
counsel shall be borne by such Indemnified Party. The Indemnified Party shall
not pay or settle any claim which the indemnifying party is contesting.
Notwithstanding the foregoing, the Indemnified Party shall have the right to pay
or settle any such claim, provided that in such event it shall waive any right
to indemnity therefor by the indemnifying party. If the indemnifying party does
not notify the Indemnified Party within 20 days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the Indemnified Party, with the Indemnifying
Party's consent not to be unreasonably withheld or delayed, shall have the right
to contest, settle or compromise the claim but shall not thereby waive any right
to indemnity therefor pursuant to this Agreement.
ARTICLE 9
Miscellaneous
Section 9.1 "Counterparts". This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each party hereto and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
Section 9.2 "Governing Law". THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 9.3 "Consequential Damages". In no event will either party be
liable to the other in contract, tort or otherwise for any consequential,
indirect, exemplary, incidental or special damages arising out of or relating to
this Agreement.
Section 9.4 "Entire Agreement". This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement is
not intended to confer upon any person not a party hereto (and their successors
and assigns) any rights or remedies hereunder.
Section 9.5 "Notices". All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by
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documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to the Company shall be addressed
to:
with a copy to: Essex Property Trust, Inc.
777 California Avenue
Palo Alto, CA 94304
Attn: Keith Guericke
with a copy to: Michael Schall
Essex Property Trust, Inc.
777 California Avenue
Palo Alto, CA 94304
and another copy to: Jordan Ritter
Essex Property Trust, Inc.
777 California Avenue
Palo Alto, CA 94304
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
with a copy to: Patrick K. Fox
General Counsel
Westbrook Partners, L.L.C.
14400 North Dallas Parkway, #200
Dallas, Texas 75240
with a copy to: Keith Gelb
Vice President
Westbrook Partners, L.L.C.
11150 Santa Monica Boulevard
Los Angeles, California 90023
and another copy to: Allen Curtis Greer, II
Rogers & Wells
200 Park Avenue
New York, New York 10166
Section 9.6 "Successors and Assigns". This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 9.7 "Headings". The Section, Article and other headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or
37
<PAGE>
interpretation of this Agreement. All references to Sections or Articles
contained herein mean Sections or Articles of this Agreement unless otherwise
stated.
Section 9.8 "Amendments and Waivers". This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
the party against whom enforcement of any such modification or amendment is
sought. Either party hereto may, only by an instrument in writing, waive
compliance by the other party hereto with any term or provision hereof on the
part of such other party hereto to be performed or compiled with. The waiver by
any party hereto of a breach of any term or provision hereof shall not be
construed as a waiver of any subsequent breach.
Section 9.9 "Interpretation; Absence of Presumption".
(a) For the purposes hereof, (i) words in the
singular shall be held to include the plural and vice versa and words of one
gender shall be held to include the other gender as the context requires, (ii)
the terms "hereof', "herein", and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole
(including all of the Schedules and Exhibits hereto) and not to any particular
provision of this Agreement, and Article, Section, paragraph, Exhibit and
Schedule references are to the Articles, Sections, paragraphs, Exhibits and
Schedules to this Agreement unless otherwise specified, (iii) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires or unless
otherwise specified, (iv) the word "or" shall not be exclusive, and (v)
provisions shall apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard
to any presumption or rule requiring construction or interpretation against the
party, drafting or causing any instrument to be drafted.
Section 9.10 "Severability". Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 9.11 "Further Assurances". The Company and Buyer agree that,
from time to time, whether before, at or after any Closing Date, each of them
will execute and deliver such further instruments of conveyance and transfer and
take such other action as may be necessary to carry out the purposes and intents
hereof.
Section 9.12 "Specific Performance". Buyer and the Company each
acknowledge that, in view of the uniqueness of the parties hereto, the parties
hereto would not have an adequate remedy at law for money damages in the event
that this Agreement were not performed in accordance with its terms, and
therefore agree that the parties hereto shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which the
parties hereto may be entitled at law or in equity.
38
<PAGE>
Section 9.13 "Schedules". Any matter set forth on any Schedule shall be
deemed to be referred to on all other Schedules to which such matter logically
relates and where such reference would be appropriate and can reasonably be
inferred from the matters disclosed on the first Schedule as if set forth on
such other Schedules.
Section 9.14 "Expenses". Except as set forth in this Agreement,
whether or not any purchase of Preferred Stock contemplated hereby is
consummated, all reasonable legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Company.
* * *
39
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by, or on behalf of
each of the parties hereto as of the day first above written.
TIGER/WESTBROOK REAL ESTATE FUND,
L.P., a Delaware limited partnership
By: Tiger/Westbrook Real Estate Partners
Management,
L.L.C., a Delaware limited
liability company, General Partner
By: Westbrook Real Estate Fund I,
L.L.C., a Delaware limited
liability company,
Managing Member
By: /s/ W. H. Walton
---------------------------------
William H. Walton III,
Managing Member
TIGER/WESTBROOK REAL ESTATE CO-
INVESTMENT PARTNERSHIP, L.P., a Delaware
limited partnership
By: Tiger/Westbrook Real Estate Partners
Management, L.L.C., a Delaware
limited liability company, General
Partner
By: Westbrook Real Estate Fund I,
L.L.C., a Delaware limited
liability company, Managing
Member
By: /s/ W. H. Walton
-----------------------------
William H. Walton III,
Managing Member
<PAGE>
ESSEX PROPERTY TRUST, INC.
By: /s/ Jordan E. Ritter
------------------------
Name: Jordan E. Ritter
Title: Vice President
<PAGE>
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT ("Amendment"), dated
as of July 1, 1996, is made by and between Essex Property Trust, Inc., a
Maryland corporation (the "Company"), and Tiger/Westbrook Real Estate Fund,
L.P., a Delaware limited partnership, and Tiger/Westbrook Real Estate
Co-Investment Partnership, L.P., a Delaware limited partnership (individually
and collectively, and including any nominee or nominees in whose name securities
may be held, "Buyer").
R E C I T A L S:
WHEREAS, the parties hereto entered into that certain Stock Purchase
Agreement, dated as of June 20, 1996 (the "Stock Purchase Agreement"), whereby,
subject to certain conditions, the Company agreed to sell to the Buyer and the
Buyer agreed to purchase from the Company an aggregate of 280,000 shares of a
newly authorized series of preferred stock of the Company designated as 8.75%
Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), having the
terms set forth in the form of Company's Articles Supplementary attached as
Exhibit A thereto (the "Articles Supplementary") establishing the rights,
privileges and preferences of the Preferred Stock, at a price of $25.00 per
share;
WHEREAS, an affiliate of Buyer and the Company entered into that
certain Loan Facility Agreement, dated as of June 20, 1996, as amended to the
date hereof (as amended, the "Loan Agreement"), whereby T/W Essex Funding,
L.L.C. (the "Lender"), agreed to lend to the Company and the Company agreed to
borrow from the Lender up to an aggregate of $31,500,000, and portions of such
borrowed funds were, under the circumstances set forth in the Loan Agreement, to
be repaid or exchangeable for additional shares of Preferred Stock or, if the
Company and Buyer so agree, Operating Partnership Units or other interests,
subject to the terms and conditions set forth therein;
WHEREAS, the parties hereto desire, among other things, to provide that
the Buyer shall purchase an aggregate of 340,000 shares of Preferred Stock at
the Initial Closing (as defined herein) and may, subject to the terms and
conditions hereof, of the Stock Purchase Agreement and the Loan Agreement,
purchase up to an aggregate of 1,600,000 shares of Preferred Stock; and
WHEREAS, the parties hereto have agreed, among other things, to amend
and modify the Stock Purchase Agreement as set forth herein.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises and
covenants hereinafter set forth, and other good and valuable consideration had
and received, the parties hereto, upon the terms and subject to the conditions
contained herein, hereby agree as follows:
1
<PAGE>
1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Stock Purchase
Agreement has the meaning ascribed to such term in the Stock Purchase Agreement.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference contained in the Stock Purchase Agreement shall from and after
the date hereof refer to the Stock Purchase Agreement as amended hereby.
2. Amendment to Preamble to Definitions. The Preamble to the
Definitions in Article I of the Stock Purchase Agreement shall be amended by
adding "All references in this Agreement to any other agreement or instrument
shall include such other agreement or instrument as the same may be amended,
modified, reaffirmed or supplemented on or before the date hereof in accordance
with the terms thereof." immediately following the first sentence thereof.
3. Amendment to Section 2.1. Section 2.1 of the Stock Purchase
Agreement is hereby amended (a) by deleting the term "280,000" in the third line
thereof and inserting the term "340,000" in its place and stead, and (b) by
deleting the term "$7,000,000" in the fourth line thereof and inserting the term
"$8,500,000" in its place and stead.
4. Amendment to Section 2.2(b). Section 2.2(b) of the Stock
Purchase Agreement shall be amended by deleting the words "including the
delivery of the Diligence Fee," in the first and second lines thereof.
5. Amendment to Section 2.3(I)(a). Section 2.3(I)(a) of the
Stock Purchase Agreement shall be amended (a) by deleting the term "$13,000,000"
in the second line thereof and inserting the term "$11,500,000" in its place and
stead, and (b) by deleting the term "520,000" in the third line thereof and
inserting the term "460,000" in its place and stead.
6. Amendment to Section 2.3(I)(b). Section 2.3(I)(b) of the
Stock Purchase Agreement shall be amended (a) by deleting the term "$13,000,000"
in the second line thereof and inserting the term "$11,500,000" in its place and
stead, and (b) by deleting the term "520,000" in the third line thereof and
inserting the term "460,000" in its place and stead.
7. Amendment to Section 2.3(I)(c). Section 2.3(I)(c) of the
Stock Purchase Agreement shall be deleted in its entirety.
8. Amendment to Section 2.3(I)(d). Section 2.3(I)(d) of the
Stock Purchase Agreement shall be amended (a) by deleting the term "$13,000,000"
in the second line thereof and inserting the term "$11,500,000" in its place and
stead, and (b) by deleting the term "520,000" in the third line thereof and
inserting the term "460,000" in its place and stead and (c) by deleting the term
"240,000" in the fifth line thereof and inserting the term "280,000" in its
place and stead.
9. Amendment to Section 5.1(d). Section 5.1(d) of the Stock
Purchase Agreement shall be amended by deleting the words "August 31" in the
third line thereof and inserting the words "September 30" in their place and
stead.
10. Amendment to Article 5. Article 5 of the Stock Purchase
Agreement shall be amended to add the following new Section 5.10:
2
<PAGE>
"Section 5.10 Stockholders Agreements. The Company
agrees that it shall not knowingly permit the transfer, or
knowingly allow the Operating Partnership to permit the
transfer, of the interests restricted from transfer pursuant
to the terms of the Stockholders Agreements each dated July 1,
1996 among Mr. Guericke, the Company and Buyer and among Mr.
Marcus, the Company and Buyer, respectively. If the Operating
Partnership is requested to transfer Partnership Units of the
Operating Partnership now held by either of Messrs. Marcus or
Guericke directly, or indirectly by the person or persons
holding of record as reflected in the Company's 1996 Proxy
Statement, the Company will make reasonable inquiries and use
its reasonable efforts to ascertain that any such transfer is
not in violation of the terms of the applicable Stockholders
Agreement. The Company will also monitor the Form 4 and Form 5
Reports that each of Messrs. Marcus or Guericke files with the
Securities and Exchange Commission to ascertain that their
transfers are in compliance with the terms of the applicable
Stockholders Agreement."
11. Addition of Article 10. The Stock Purchase Agreement shall
be amended by inserting the following Article 10 therein:
"ARTICLE 10
"Preemptive Right
"10.1 Preemptive Right. For so long as any shares of
Preferred Stock are outstanding, the Buyer shall have the
rights set forth in this Article 10 as if it was the holder of
record and beneficially of all such outstanding shares. The
rights set forth herein are in favor of the Buyer and its
successors and assigns, provided that any exercise procedures
to be accomplished hereunder shall be performed by the Buyer
or its nominee and no other person may accomplish such
procedures or seek to exercise the preemptive right set forth
in this Article 10. Absent an express assignment of the rights
of the Buyer under this Article 10, no transfer by the Buyer
of shares of Preferred Stock shall affect the rights of the
Buyer hereunder.
"The Buyer shall have, as if it were the holder of
each and every of the issued and outstanding shares of
Preferred Stock, at any time and from time to time the
preemptive right to purchase, in the case of the proposed
issuance by the Company of, or the proposed granting by the
Company of shares of, any class of the Company's stock
("Capital Stock"), or any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or
any stock or securities convertible into or exchangeable for
Common Stock (including, without limitation, interests in the
Operating Partnership) (such rights or options being
hereinafter referred to as "Options" and such convertible or
exchangeable stock or securities being hereinafter referred to
as "Convertible Securities"). On each occasion that the
Company proposes to issue Capital Stock, Options or
Convertible Securities, or any of the foregoing, the Company
shall give to the
3
<PAGE>
Buyer prior written notice (the "Company Notice") of its
intention, by first class mail, postage prepaid, addressed at
its last address as shown by the records of the Company,
describing the same, the price and the specific terms (or in
the context of an offering of Capital Stock, Convertible
Securities or Options to the public, a range of price and
terms) upon which the Company proposes to issue the same. The
Buyer shall have fifteen (15) days from the date of the receipt
by the Buyer of the Company Notice to deliver a notice (the
"Rights Exercise Notice") notifying the Company of the Buyer's
intention to purchase all or a part of its pro rata share of
shares or other securities represented by Capital Stock,
Options or Convertible Securities, or any of the foregoing, in
accordance herewith, for the price and upon the terms specified
by the Company Notice, such pro rata share to be that number of
such shares or securities or Capital Stock, Options or
Convertible Securities, or any of the foregoing, as shall bear
the same proportion to the aggregate number of such shares or
securities or Capital Stock, Options or Convertible Securities,
or any of the foregoing, to be issued or sold as (i) the number
of shares of Common Stock as are issuable upon conversion of
the Preferred Stock issued and outstanding on the date of the
Company Notice bears to (ii) the sum of (A) the total number of
shares of Common Stock issued and outstanding on the date of
the Company Notice and (B) the number of shares of Common Stock
issuable upon conversion or exercise of the Preferred Stock and
any Convertible Securities or Options, or both, issued and
outstanding on the date of the Company Notice, and at a price
or prices no less favorable to the Buyer than the price or
prices at which such Capital Stock, Convertible Securities or
Options are proposed to be offered for sale to others,
provided, however, that the purchase of such Capital Stock,
Convertible Securities or Options shall be consummated prior to
the later of (x) thirty (30) days after the date of the Rights
Exercise Notice and (y) the date the Company consummates the
issuance of the Capital Stock, Convertible Securities or
Options described in the Company Notice. If, in connection with
any proposed issue of Capital Stock, Convertible Securities or
Options, the Buyer fails to exercise in full its preemptive
right as set forth in this Article 10 then, subject to the next
following sentence, the Company may sell the unsold Capital
Stock, Convertible Securities or Options at any time within 180
days (60 days in the case of a public offering) thereafter at a
price and upon terms no more favorable to the purchasers
thereof than specified in the Company Notice; provided, that
the Company shall not sell or grant, or permit conversion
under, any Capital Stock, Convertible Securities or Options, or
any of the foregoing, after such 180 - day period (or 60 - day
period in the case of a public offering) without renewed
compliance with this Section 10.1; provided, further, that in
the case of an underwritten public offering of Securities, if
in the opinion of the Company and the underwriter, such renewed
compliance by the Company with the procedural requirements
hereunder (i.e., timing of notices, etc.) would otherwise
impede the consummation of such public offering, the parties
agree to take such further action as may be reasonably
necessary to effectuate such offering while preserving Buyer's
substantive preemptive right hereunder.
4
<PAGE>
"10.2 Certain Exclusions. The provisions of this
Section 10 shall not apply to any shares of any class of the
Company's Capital Stock or Options or Convertible Securities,
or both (i) issuable upon conversion of any Preferred Stock;
(ii) issuable upon conversion of Convertible Securities or the
exercise of Options, or both, if the Buyer was offered the
opportunity to purchase such shares or securities, or
Convertible Securities or Options, or both, pursuant to this
Article 10, and declined the same, or as to which the Buyer
was not given such opportunity by reason of the application of
this Article 10; (iii) issuable in connection with stock
splits, stock dividends or recapitalizations as to the effects
of which adjustment will be made as provided elsewhere herein
or in the Articles Supplementary pertaining to the Preferred
Stock; or (iv) issuable to employees and prospective employees
pursuant to any plan or pattern of employee equity
participation or issuable in connection with the Company's
Dividend Reinvestment Plan.
"10.3 Adjustments Prior to the Defining Event.
Notwithstanding the foregoing, in the event the Company
delivers the Company Notice to the Buyer on a date prior to
the earliest to occur of (A) December 15, 1996, (B) the
Stockholder Approval Date, (C) the later of (x) the
Stockholder Rejection Date and (y) the IRS Approval Date (the
earliest to occur of (A), (B) and (C), above, shall
hereinafter be referred to as the "Defining Event"), the
following shall apply:
(i) subject to subsections (iv) and (v),
below, the Buyer shall have the preemptive right to
purchase all or part of its pro rata share of Capital
Stock, Options or Convertible Securities
(collectively, "Securities"), which pro rata share
shall equal such number of Securities which bears the
same proportion to the aggregate number of Securities
to be issued or sold as (a) the number of shares
issuable upon conversion of 800,000 shares of
Preferred Stock bears to (b) the sum of (I) the total
number of shares of Common Stock issued and
outstanding on the date of the Company Notice and
(II) the number of shares of Common Stock issuable
upon conversion of 800,000 shares of Preferred Stock
and any Convertible Securities or Options issued and
outstanding on the date of the Company Notice;
(ii) the Buyer's Rights Exercise Notice
must be delivered to the Company within fifteen (15)
days of receipt by the Buyer of the Company Notice;
(iii) the Buyer must consummate any
purchases hereunder on or prior to the later of (a)
forty-five (45) days after the Defining Event and (b)
the date the Company consummates the issuance of the
Securities specified in the Company Notice;
5
<PAGE>
(iv) if and to the extent that on the date
of or following the Defining Event, the Buyer is
prevented or prohibited from the exercise in full or
in part of its preemptive right to purchase any
Securities due to restrictions on the ownership by
the Buyer (or any group of holders with which such
the Buyer may be affiliated or may be deemed to be
affiliated) of any of such Securities, whether under
applicable Maryland law, provisions of the Company's
Charter, any Articles Supplementary thereto or
ByLaws, or by reason of restrictions applicable for
purposes of the Company's continued qualification as
a 'real estate investment trust' for purposes of the
Internal Revenue Code of 1986, as amended from time
to time (the "Exercise Restriction"), such number of
Securities required to be purchased pursuant to such
preemptive right shall automatically be reduced to
such amount as to not exceed the Exercise
Restriction.
(v) Provided further, notwithstanding
Section 10.3(i), in the event that, after the date of
the Defining Event, the Company issues Securities
(the date of such issuance, the "Issuance Date")
specified in the Company Notice applicable to such
securities and such Company Notice was dated a date
before the date of the Defining Event, the Buyer
shall have the preemptive right to purchase all or
part of its pro rata share of Securities which pro
rata share shall equal such number of Securities
which bears the same proportion to the aggregate
number of Securities sold on the Issuance Date as (a)
the number of shares issuable upon conversion of the
issued and outstanding Preferred Stock on the
Issuance Date bears to (b) the sum of (I) the total
number of shares of Common Stock issued and
outstanding on the Issuance Date and (II) the number
of shares of Common Stock issuable upon conversion of
the issued and outstanding Preferred Stock on the
Issuance Date and any other Securities issued and
outstanding on the Issuance Date."
12. Amendment to Section 9.2. Section 9.2 of the Stock
Purchase Agreement is hereby amended by deleting Section 9.2 in its entirety and
inserting in lieu thereof:
"(a) OTHER THAN WITH RESPECT TO THE
PROVISIONS OF ARTICLE 10, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE
CHOICE OF LAW PRINCIPLES THEREOF. ARTICLE 10 OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND
WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES
THEREOF. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT OR
OF ANY COURT OF THE STATE OF MARYLAND WHICH IS
LOCATED IN THE CITY BALTIMORE, MARYLAND, IN ANY
6
<PAGE>
ACTION, SUIT OR PROCEEDING BROUGHT AND RELATED TO OR
IN CONNECTION WITH THE RIGHTS AND OBLIGATIONS SET
FORTH IN ARTICLE 10 OF THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY ARTICLE 10 AND, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY
HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH
COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT
THE RIGHTS AND OBLIGATIONS SET FORTH IN ARTICLE 10 OR
ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO THEREIN OR
THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR
BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE COMPANY AGREES NOT TO SEEK AND HEREBY WAIVES
THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH
COURT BY ANY COURT OF ANY OTHER NATION OR
JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN
ENFORCEMENT OF SUCH JUDGMENT.
"(b) The parties to this Agreement agree to
use their best efforts to cause the provisions of
Section 9.2(a) to be observed.
"(c) The parties hereto knowingly,
voluntarily and expressly waive all right to trial by
jury in any action, proceeding or counterclaim
enforcing or defending any rights arising out of or
relating to this Agreement or the transactions
contemplated hereby. Each of the parties acknowledge
that the provisions of this Section 9.2(c) have been
bargained for and that it has been represented by
counsel in connection therewith."
13. Full Force and Effect. Except as specifically amended and
modified hereby, the Stock Purchase Agreement shall remain in full force and
effect and no party hereto waives any of its rights under the Stock Purchase
Agreement.
14. Counterparts. This Amendment may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each party hereto and delivered to the other party. Copies of executed
counterparts have been signed by each party hereto and delivered to the other
party. Copies of executed counterparts transmitted by telecopy, telefax or other
electronic transmission service shall be considered original executed
counterparts for purposes of this Section, provided receipt of copies of such
counterparts is confirmed.
7
<PAGE>
15. Consequential Damages. In no event will either party be
liable to the other in contract, tort or otherwise for any consequential,
indirect, exemplary, incidental or special damages arising out of or relating to
this Amendment.
16. Entire Agreement. The Stock Purchase Agreement, as amended
hereby (including agreements incorporated herein or therein), and the Schedules
and Exhibits thereto contain the entire agreement between the parties with
respect to the subject matter hereof and thereof and there are no agreements,
understandings, representations or warranties between the parties other than
those set forth or referred to herein or therein. This Amendment is not intended
to confer upon any person not a party hereto (and their successors and assigns)
any rights or remedies hereunder.
17. Successors and Assigns. Except as otherwise provided
herein, this Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
18. Headings. The Section headings contained in this Amendment
are inserted for convenience of reference only and will not affect the meaning
or interpretation of this Amendment.
19. Amendments and Waivers. This Amendment may not be modified
or amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Either
party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision hereof on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of
a breach of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
20. Absence of Presumption. This Amendment shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party, drafting or causing any instrument to be
drafted.
21. Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
22. Further Assurances. The Company and Buyer agree that, from
time to time, each of them will execute and deliver such further instruments of
conveyance and transfer and take such other action as may be necessary to carry
out the purposes and intents hereof.
23. Specific Performance. Buyer and the Company each
acknowledge that, in view of the uniqueness of the parties hereto, the parties
hereto would not have an adequate remedy at law for money damages in the event
that this Amendment were not performed in accordance with its terms, and
therefore agree that the parties hereto shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which the
parties hereto may be entitled at law or in equity.
8
<PAGE>
24. Expenses. Whether or not any purchase of Preferred Stock
contemplated hereby is consummated, all reasonable legal and other costs and
expenses incurred in connection with this Amendment and the transactions
contemplated hereby shall be paid by the Company.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed, or have caused
their duly authorized officer or representative to execute, this Amendment No. 1
to Stock Purchase Agreement as of the date first above written.
TIGER/WESTBROOK REAL ESTATE FUND,
L.P., a Delaware limited partnership
By: Tiger/Westbrook Real Estate Partners Management,
L.L.C., a Delaware limited liability company,
General Partner
By: Westbrook Real Estate Fund I, L.L.C., a
Delaware limited liability company,
Managing Member
By: /s/ W.H. Walton III
-------------------------------------------
William H. Walton III,
Managing Member
By: /s/ Paul D. Kazilionis
-------------------------------------------
Paul D. Kazilionis
Managing Member
TIGER/WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP,
L.P., a Delaware limited partnership
By: Tiger/Westbrook Real Estate Partners Management,
L.L.C., a Delaware limited liability company,
General Partner
By: Westbrook Real Estate Fund I, L.L.C., a
Delaware limited liability company,
Managing Member
By: /s/ W.H. Walton III
-------------------------------------------
William H. Walton III,
Managing Member
By: /s/ Paul D. Kazilionis
-------------------------------------------
Paul D. Kazilionis
Managing Member
9
<PAGE>
ESSEX PROPERTY TRUST, INC.
By: /s/ Michael Schall
------------------------------------------------------
Name: Michael Schall
---------------------------------------------
Title: CFO
--------------------------------------------
10
<PAGE>
APPENDIX B
LOAN FACILITY AGREEMENT
Dated as of June 20, 1996
among
ESSEX PROPERTY TRUST, INC., as Borrower
and
T/W ESSEX FUNDING, L.L.C., as Lender
<PAGE>
LOAN FACILITY AGREEMENT dated as of June 20, 1996, among Essex
Property Trust, Inc., a Maryland corporation (the "Borrower") and T/W Essex
Funding, L.L.C., a Delaware limited liability company (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and certain affiliates of the Lender
(collectively, the "Buyer") have entered into a Stock Purchase Agreement dated
as of the date hereof (as the same may be amended, restated or supplemented from
time to time, the "Stock Purchase Agreement"), pursuant to which Buyer has
agreed to purchase up to 1,600,000 shares of convertible preferred stock of the
Borrower on the terms and subject to the conditions contained therein; and
WHEREAS, the terms of the Stock Purchase Agreement provide for
the execution and delivery of this Agreement simultaneously with the closing of
the initial transactions contemplated thereby;
NOW, THEREFORE, the Borrower and the Lender hereby agree as
follows:
ARTICLE 1
DEFINED TERMS
1.1 Definitions. Each term defined in this Section 1.1, when used in
this Agreement, has the meaning indicated below. Capitalized terms used herein
but not defined herein shall have the meanings given to them in the Stock
Purchase Agreement.
"Agreement" shall mean this Loan Agreement, as amended, restated,
modified or supplemented from time to time.
"Applicable Rate" shall mean the greater of (i) 8.75% per annum,
and (ii) the rate which is equal to the quarterly dividend on the Common Stock,
annualized, divided by $21.875.
"Appreciated Stock Price" shall mean (i) with respect to Loans
that are paid in full by the Borrower on or prior to December 31, 1996, the
average of the closing price (as reported in The Wall Street Journal, absent
manifest error) of Borrower's Common Stock for the twenty consecutive Business
Days immediately preceding, but not including, the earlier of the date of
payment or December 31, 1996, and (ii) with respect to Loans that are paid or
mature on February 28, 1997, or are paid or mature on April 30, 1997, as the
case may be, the average of the closing price (as reported in The Wall Street
Journal, absent manifest error) of Borrower's Common Stock for any twenty
consecutive Business Days, as selected by the Lender, from and including
December 1, 1996, through but not including the Option C Maturity Date.
"Business Day" shall mean any day on which both state and
federally chartered banks in New York, New York are required to be open for
general banking business.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Dollars" or "$" shall mean the lawful currency of the United
States of America and, in relation to any amount to be advanced or paid
hereunder, funds having same day value.
"Event of Default" shall mean each of the events set forth in
Section 6.1 hereof.
"Exchange Price" shall have the meaning set forth in Section 2.11
hereof.
"Guarantee" shall mean the guarantee to be executed and delivered
by the Guarantor, substantially in the form of Exhibit B hereto.
"Guarantor" shall mean Essex Portfolio L.P., a California limited
partnership, of which the Borrower is the sole general partner.
"Indebtedness" shall mean for any person all indebtedness or
other obligations of such person for borrowed money and all indebtedness of such
person with respect to any other items (other than accounts payable in the
ordinary course of business, income taxes payable, deferred taxes and deferred
credits) which would, all in accordance with generally accepted accounting
principles, be classified as a liability on the balance sheet of such person.
"Initial Commitment" means $13,000,000.
"Initial Exchange Closing" shall have the meaning set forth in
Section 2.10 below.
"Judicial Prohibition Maturity Date" shall mean if a Judicial
Prohibition Maturity Event has occurred, notwithstanding any other provision of
this Agreement, December 31, 1996; provided, however, Borrower may, in its sole
discretion, by delivery of written notice of same to Lender on or prior to
December 20, 1996 (unless the applicable Judicial Prohibition Maturity Event
shall have occurred on or after December 20, 1996, in which case not later than
three Business Days after such occurrence but in no event later than December
30, 1996), extend the date for repayment of the Loans from the Judicial
Prohibition Maturity Date (assuming there exists a Judicial Prohibition Maturity
Event on such date and, if not, Lender and Buyer shall follow the procedures for
the appropriate Option, and there shall be no extension) to February 28, 1997;
and, provided, further, Borrower may also, in its sole discretion, by delivery
of written notice of same to Lender not later than February 20, 1997, further
extend such date to April 30, 1997.
"Judicial Prohibition Maturity Event" shall mean an event whereby
the Lender is estopped from the exercise of any Option otherwise available as a
result of judicial process other than as a result of an action or claim brought
by the Lender itself or by Buyer, or by any other person in collusion with the
Lender or Buyer, and such estoppel shall remain in effect until and including
December 30, 1996.
IRS Approval Date" shall mean the date of receipt by the
Borrower of a Private Letter Ruling from the Internal Revenue Service as
required by Article EIGHTH(a)(9) of the Articles of Amendment and Restatement of
the Borrower enabling the Borrower to exempt Lender's affiliates from the
Ownership Limit as defined in such Articles of Amendment and
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Restatement ("IRS Approval"), provided, however, such event shall have occurred,
if at all, on or prior to December 15, 1996.
"Loan" shall mean each loan to be made by the Lender to the
Borrower pursuant to Article II hereof.
"Note" shall mean a promissory note of the Borrower in registered
form payable to the order of the Lender evidencing the Loans, substantially in
the form of Exhibit A hereto, and any promissory note or notes issued in
substitution thereof.
"Notice of Occurrence" shall have the meaning set forth in
Section 2.10.
"Obligations" shall mean any and all of the debts, obligations
and liabilities of the Borrower provided for or arising under this Agreement,
whether now existing or hereafter arising, voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred.
"Option A" shall mean the Lender's obligation (absent the
existence of a Judicial Prohibition Maturity Event which is not discharged prior
to the Judicial Prohibition Maturity Date) (i) to exchange the Loan comprising
the Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, and
(ii) to utilize the funds otherwise comprising the Subsequent Commitment to
acquire Preferred Stock in accordance with the Stock Purchase Agreement, in each
case if the Stockholder Approval Date has occurred.
"Option B" shall mean the Lender's obligation (absent the
existence of a Judicial Prohibition Maturity Event which is not discharged prior
to the Judicial Prohibition Maturity Date) (i) to exchange the Loan comprising
the Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, and
(ii) to utilize the funds otherwise comprising the Subsequent Commitment to
acquire Preferred Stock in accordance with the Stock Purchase Agreement, in each
case if the IRS Approval Date shall have occurred prior to the Stockholder
Approval Date and the Stockholder Approval Date shall have occurred.
"Option C" shall mean (i) the Lender's option to exchange up to
$1,500,000 principal amount of the Loan comprising the Initial Commitment for
Preferred Stock pursuant to Section 2.11 hereof, and (ii) the automatic
reduction of the Subsequent Commitment to zero if, but only if, (x) (A) the IRS
Approval Date shall not have occurred on or before December 15, 1996, and (B)
the Stockholder Rejection Date shall have occurred, or (y) the Stock Purchase
Agreement shall be terminated for any reason or any material provision thereof
shall have ceased to be in full force and effect such that the Buyer under the
Stock Purchase Agreement shall not be able to realize the material benefits
thereof.
"Option D" shall mean (i) the Lender's obligation (absent the
existence of a Judicial Prohibition Maturity Event which is not discharged prior
to the Judicial Prohibition Maturity Date) to exchange the Loan comprising the
Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, (ii) the
Lender's option to exchange up to $6,000,000 in Loans comprising the Subsequent
Commitment for Preferred Stock pursuant to Section 2.11 hereof, and
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(iii) the automatic reduction of the balance of the Subsequent Commitment to
zero upon the Lender's exercise of, or failure to exercise, the option set forth
in (ii) above if, but only if, (x) the IRS Approval Date shall have occurred,
and (y) the Stockholder Rejection Date shall have occurred.
"Option A Event" shall mean the occurrence of the Stockholder
Approval Date provided that the IRS Approval Date shall not have first occurred.
"Option B Event" shall mean the occurrence of the Stockholder
Approval Date provided that the IRS Approval Date shall have first occurred.
"Option C Event" shall mean either (i) (A) the IRS Approval Date
shall not have occurred on or prior to December 15, 1996, and (B) the
Stockholder Rejection Date shall have occurred, or (ii) the Stock Purchase
Agreement shall have terminated for any reason or any material provision thereof
shall have ceased to be in full force and effect such that Buyer under the Stock
Purchase Agreement shall not be able to realize the material benefits thereof.
"Option D Event" shall mean the IRS Approval Date shall have
occurred and the Stockholder Rejection Date shall have occurred.
"Option A Maturity Date" shall mean the Stockholder Approval
Date.
"Option B Maturity Date" shall mean the Stockholder Approval
Date.
"Option C Maturity Date" shall mean (i) December 16, 1996, in
respect of that portion of the Loan which comprised part of the Initial
Commitment which is exchanged for Preferred Stock, if any (i.e., pursuant to
Option C, up to $1,500,000), and (ii) with respect to the balance of the Loan,
December 31, 1996; provided, however, if the Borrower shall have notified the
Lender on or before December 20, 1996, that it requests an extension, the Option
C Maturity Date shall be extended to February 28, 1997; and provided, further,
that if the Borrower shall have notified the Lender on or before February 20,
1997, that it requests another extension, the Option C Maturity Date shall be
further extended to April 30, 1997.
"Option D Maturity Date" shall mean (i) the Shareholder Rejection
Date if the IRS Approval Date precedes the Stockholder Rejection Date or (ii)
the IRS Approval Date if the Stockholder Rejection Date precedes the IRS
Approval Date.
"Options" shall mean each of Option A, Option B, Option C and
Option D, one of which shall be available in accordance with the definitions
thereof upon the conditions set forth therein.
"Organic Change" shall have the meaning set forth in Section 2.11
hereof.
"Register" shall mean the Note Register maintained by Borrower
or by Borrower's bank.
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"Related Document" shall mean any agreement, certificate or other
document executed by the parties hereto in connection with this Agreement.
"Stock Purchase Agreement" shall have the meaning set forth in
the first recital hereof.
"Stockholder Approval Date" shall mean the date, which shall be
on or prior to October 30, 1996, on which the stockholders of the Borrower have
duly approved all necessary amendments to the Company Charter in form and
substance satisfactory to the Lender and Buyer, permitting issuance to
Affiliates of the Lender on and after the Initial Closing Date of up to
1,600,000 shares of Preferred Stock and covering such other matters as the
Borrower, the Lender and Buyer mutually agree should be properly presented for
approval by the Borrower's stockholders.
"Stockholder Rejection Date" shall mean the earlier to occur of
(i) the date on which the stockholders of the Borrower have duly rejected any
necessary transaction contemplated by this Agreement and by the Stock Purchase
Agreement; and (ii) October 30, 1996.
"Subsequent Commitment" means initially $20,000,000, as such
amount may be reduced pursuant to Section 2.9 hereof by stock purchase or as
otherwise provided herein.
"TWREF" means Tiger/Westbrook Real Estate Fund, L.P., a Delaware
limited partnership.
ARTICLE 2
TERMS OF THE LOANS; FEES
2.1 The Loans. On the terms and subject to the conditions of this
Agreement, the Lender shall make Loans to the Borrower of (i) an amount equal to
the amount of the Initial Commitment on July 1, 1996, and (ii) in accordance
with the applicable Option, the Subsequent Commitment on the Option A Maturity
Date if an Option A Event has occurred, the Option B Maturity Event if an Option
B Event has occurred, or the Option D Maturity Date if an Option D Event has
occurred.
2.2 Disbursement of Loan Proceeds.
(a) The Lender shall make the Loan proceeds of the Initial
Commitment available to the Borrower by transferring the amount thereof by 12:00
noon (New York time) on July 1, 1996, and, in accordance with the applicable
Option, fifteen Business Days after the Lender's receipt of a notice from the
Borrower specifying the date and amount of each Loan representing all or any
part of the Subsequent Commitment, in the case of the Loans representing the
Subsequent Commitment, to a bank account held by the Borrower at the Borrower's
bank and for credit to the account so identified on the signature page hereto.
Upon the Lender's receipt of any such notice in respect of any Loan representing
the Subsequent Commitment, the Lender shall have the right either to make such
Loan or to have the Buyer purchase Preferred Stock under the Stock Purchase
Agreement. However, upon the applicable event that gives rise to any such
finding
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of the Subsequent Commitment as a Loan, the principal amount of such Loan shall
be deemed to be immediately exchanged into Preferred Stock.
(b) The Loan representing the Initial Commitment shall be made
by a single disbursement on July 1, 1996, and, in accordance with the applicable
Option, the Loans representing the Subsequent Commitment shall, in the case of
an Option A Event or an Option B Event, be made in no more than three
disbursements of not less than $5,000,000 per disbursement on any date from and
including the Stockholder Approval Date to June 20, 1997, and, in the case of an
Option D Event, be made in one disbursement on the Option D Maturity Date;
provided, however, that, in the case of Option A and Option B, the Borrower
shall be deemed to have requested, and the Lender shall fund, Loans comprising
the unutilized portion of the Subsequent Commitment on June 20, 1997.
(c) Notwithstanding the provisions of Section 2.1 hereof and
this Section 2.2, in the event that each of the Lender and Buyer have reviewed
and approved the certificate of limited partnership of the Guarantor, the
agreement of limited partnership of the Guarantor and any and all amendments to
any of the foregoing and are satisfied, in their sole discretion, with the
provisions thereof (including a provision that the ownership of a preferred
limited partnership interest Guarantor will not require any indirect investors
of Lender to treat any income allocated to it from Guarantor as unrelated
business taxable income under the Code), the Borrower will be permitted to
request the Lender to exchange, and the Lender will, upon receipt of such
request from the Borrower, exchange, the Loan representing the Initial
Commitment for limited partnership interests in the Guarantor on such terms as
the Lender and the Guarantor shall mutually agree (reflecting the economics
contemplated in the Stock Purchase Agreement).
2.3 Repayment of Principal. The Borrower shall not be permitted to
prepay any amounts outstanding hereunder at any time. The Borrower shall repay
the principal amount of the Loans on the Option A Maturity Date if an Option A
Event has occurred, the Option B Maturity Date if an Option B Event has
occurred, the Option C Maturity Date if an Option C Event has occurred, or the
Option D Maturity Date if an Option D Event has occurred (i) in Dollars, but
only if an Option C Event has occurred, and (ii) in Preferred Stock as provided
in Sections 2.10 and 2.11 hereof if an Option A Event, Option B Event or Option
D Event has occurred. The Borrower shall, notwithstanding the foregoing, repay
the principal amount of the Loans, in Dollars, on the Judicial Prohibition
Maturity Date if a Judicial Prohibition Maturity Event shall have been in
continuous effect since the occurrence of an Option A Event, Option B Event or
Option D Event, as the case may be, with result that any of Option A, Option B
or Option D, as applicable, shall not have been exercised on or prior to the
Judicial Prohibition Maturity Date.
2.4 Rate of Interest. The Borrower shall pay interest on the unpaid
principal amount of the Loans from and including the date of each Loan to but
not including the date on which such Loan is paid in full at the Applicable
Rate, which shall be calculated and paid as specified in the definition of
Applicable Rate. Notwithstanding the foregoing, if the Borrower shall fail to
pay when due (whether at scheduled maturity, on acceleration or otherwise) any
principal amount owing under this Agreement, the Borrower will pay interest on
the amount in default from the date of such default until paid at the rate
specified in Section 6.4 hereof. Notwithstanding any other
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provisions contained in this Agreement, neither the Applicable Rate nor any
dividends payable on any Preferred Stock shall begin to accrue until the date
Lender or Buyer, as the case may be, actually funds the amount to be funded for
the Loan or Preferred Stock related thereto.
2.5 Payment of Interest. Accrued interest on the Loans shall be
payable quarterly in arrears on the last day of each calendar quarter, and on
the Option A Maturity Date, Option B Maturity Date, Option C Maturity Date or
the Option D Maturity Date, as the case may be, except that default interest
shall be payable on demand.
2.6 Computation of Interest. Interest payable under this Agreement
shall be computed on the basis of a year of 360 days and twelve 30-day months.
2.7 Manner of Payments. Each payment by the Borrower under this
Agreement shall be made by transferring the amount thereof in Dollars (unless
otherwise specified in Section 2.03 hereof) to the Lender's bank account at the
Lender's bank and for credit to the account so identified on the signature page
hereto, not later than 1:00 p.m. (New York City time) on the date on which such
payment shall become due. Each such payment shall be made without set-off or
counterclaim and free and clear of, and without deduction for, any taxes,
duties, levies, imposts or other charges of a similar nature.
2.8 Extension of Payments. If any payment under this Agreement shall
become due on a day which is not a Business Day, the due date thereof shall be
extended to the next following day which is a Business Day, and such extension
shall be taken into account in computing the amount of any interest then due and
payable hereunder.
2.9 Reduction of the Subsequent Commitment. The Subsequent Commitment
shall be automatically reduced by (i) the principal amount of each Loan (other
than the Initial Commitment, which shall already have been exchanged in full for
Preferred Stock), and (ii) amounts expended by Buyer in any purchase of
Preferred Stock representing the Subsequent Commitment under the Stock Purchase
Agreement or, if applicable, in any acquisition of limited partnership interests
in the Guarantor, in each case after the Initial Closing Date, (ii) in the case
of an Option C Event or Option D Event, the Subsequent Commitment shall be
reduced as provided under Option C and Option D, respectively, and (iii) in the
event of the existence of a Judicial Prohibition Maturity Event on the Judicial
Prohibition Maturity Date, the amount of the then unutilized portion thereof.
2.10 Procedures for Option Events.
(a) Within two Business Days following the occurrence of an
Option A Event, Option B Event, Option C Event or Option D Event, Borrower shall
provide Lender written notice of such occurrence (the "Notice of Occurrence"),
such notice specifying the type of Option which has occurred. In the case of an
Option A Event or Option B Event, the closing whereby the Loan comprising the
Initial Commitment shall be exchanged for Preferred Stock shall be held on the
third Business Day following Lender's receipt of the Notice of Occurrence;
provided, however, the Loan shall be deemed exchanged as of the Option A
Maturity Date or the Option B Maturity Date, as the case may be. In the case of
an Option C Event, Lender shall deliver a written notice to Borrower within
three Business Days of Lender's receipt of the Notice of Occurrence, which
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written notice shall specify Lender's election with respect to its option to
exchange up to $1,500,000 of the Loan which comprised part of the Initial
Commitment for Preferred Stock and shall specify the amount, if any, up to
$1,500,000 which Lender intends to exchange. The closing of such an exchange
shall take place on the second Business Day following the date Lender's written
notice is received by Borrower; provided, however, that up to $1,500,000
comprising the portion of the Initial Commitment shall be deemed exchanged as of
the date Lender makes such election. In the case of an Option D Event, Lender
shall deliver a written notice to Borrower within three Business Days of receipt
of the Notice of Occurrence which written notice shall specify Lender's election
with respect to the exchange of up to $6,000,000 of the Subsequent Commitment
for Preferred Stock. The closing of such an exchange of up to $6,000,000
together with the exchange of the Loan comprising the Initial Commitment shall
take place fifteen Business Days following the date Lender's written notice is
received by Borrower; provided, however, the Loan comprising the Initial
Commitment shall be deemed exchanged as of the Option D Maturity Date, and up to
$6,000,000 Loan comprising the portion of the Subsequent Commitment shall be
deemed exchanged as of the date Lender makes such election. Any such closing
pursuant to this Section 2.10(a) shall be referred to as an "Initial Exchange
Closing".
(b) In the case of Option A or Option B, each closing relating
to the funding of the Subsequent Commitment (or any portion thereof), and its
automatic exchange into Preferred Stock, shall be held fifteen Business Days
following Lender's receipt of a written notice from Buyer setting forth Buyer's
request for such an exchange and the principal amount of Loan to be exchanged
thereby. If any portion of the Subsequent Commitment remains as of June 20,
1997, the Loan, borrowing and exchange with respect to such amount shall be held
on June 20, 1997. Each such closing pursuant to this Section 2.10(b) shall be
referred to as a "Subsequent Closing", and the date of any such Subsequent
Closing shall be referred to as a "Subsequent Closing Date".
(c) All closings relating to the foregoing shall be held on
such date specified in this Section 2.10 at the Palo Alto offices of Morrison &
Foerster or such other date and place as the parties mutually agree.
2.11 Exchange; Construction. References to exchanges of Loans for
Preferred Stock shall refer to exchanges of the outstanding principal amount of
the Loans (but not any accrued and unpaid interest thereon) for fully paid and
nonassessable shares of Preferred Stock. Exchange of the Loans for Preferred
Stock shall be at a price (the "Exchange Price") of $25 per share. If the
Borrower at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Preferred Stock into a
greater number of shares, the corresponding Exchange Price in effect immediately
prior to such subdivision shall be proportionately reduced, and if the Borrower
at any time combines (by reverse stock split or otherwise) its outstanding
shares of Preferred Stock into a smaller number of shares, the corresponding
Exchange Price in effect immediately prior to such combination shall be
proportionately increased. Lender may cause an exchange to occur in its name or
in the name of its nominee, including Buyer.
Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another person or other transaction which is effected in such a manner that
holders of Preferred Stock are entitled to receive (either directly or
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upon subsequent liquidation) stock, securities or assets with respect to, in
exchange for or upon conversion of Preferred Stock is referred to herein as an
"Organic Change." Prior to the consummation of any Organic Change, the Borrower
shall make appropriate provisions (in form and substance reasonably satisfactory
to the Lender) to insure that the Lender shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Preferred Stock immediately theretofore acquirable and receivable upon
the exchange of the Loan, such shares of stock, securities or assets as the
Lender would have received in connection with such Organic Change if the Lender
had exchanged the Loan or converted the Preferred Stock issuable upon exchange
of the Loans immediately prior to such Organic Change. In each such case, the
Borrower shall also make appropriate provisions (in form and substance
reasonably satisfactory to the Lender) to insure that the provisions of this
paragraph and the immediately preceding paragraph shall thereafter be applicable
to the Loans. The Borrower shall not effect any such Organic Change unless,
prior to the consummation thereof, the successor corporation (if other than the
Borrower) resulting from such Organic Change or the corporation purchasing
assets in such Organic Change assumes by written instrument (in form reasonably
satisfactory to the Lender) the obligation to deliver to the Lender such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
the Lender may be entitled to acquire.
Each Loan shall be exchangeable by the Lender to the extent set
forth above and upon the occurrence of any event which requires or permits the
Lender to exchange loans under the Initial Commitment and/or the Subsequent
Commitment for Preferred Stock, and, upon the occurrence of any such event, the
rights of the Lender as Lender in respect of each exchanged Loan shall cease,
and the Buyer (or such other nominee as Lender shall utilize) shall thereafter
be treated for all purposes as the record holder of the equivalent amount of
Preferred Stock at such time. At each closing described above, the Borrower
shall issue and shall deliver at such office or at such other address requested
by the Lender a certificate or certificates in blank or in such name as Lender
shall direct for the number of full and fractional shares of Preferred Stock
issuable upon exchange and Lender hereby consents to all such shares of
Preferred Stock being issued and delivered.
The issuance of certificates for shares of Preferred Stock upon
exchange of each Loan shall be made without charge to the Lender or to Buyer for
any issuance tax in respect thereof or other cost incurred by the Borrower in
connection with such exchange and the related issuance of shares of Preferred
Stock. Upon exchange of each Loan, the Borrower shall take all such actions as
are necessary in order to insure that the Preferred Stock issuable with respect
to such conversion shall be validly issued, fully paid and nonassessable.
The Borrower's obligations on the Option A Maturity Date, the
Option B Maturity Date, the Option C Maturity Date or the Option D Maturity
Date, as the case may be, shall be governed by the terms of the Stock Purchase
Agreement as if such exchange were a purchase and sale of Preferred Stock
thereunder.
2.12 Use of Proceeds. The Borrower shall use the proceeds of each
Loan for lending to the Guarantor to acquire properties and to reduce
outstanding Indebtedness of the Guarantor.
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2.13 Fees. In the event that the Stockholder Rejection Date shall
have occurred, the Borrower shall pay to the Lender a prepayment fee on such
Stockholder Rejection Date equal to the product of (i) the Appreciated Stock
Price minus $21.875 times (ii) a fraction, the numerator of which is the amount
of Loans outstanding on such date and the denominator of which is $21.875.
ARTICLE 3
CONDITIONS PRECEDENT
3.1 Conditions. As conditions precedent to the Lender's obligation
to make the initial Loan, the Lender shall have received (i) the Note and a
counterpart of this Agreement, each duly executed by the Borrower, (ii) the
Guarantee, duly executed by the Guarantor, (iii) all other documents that are
required to be delivered by the Borrower pursuant to Articles 2 and 7 of the
Stock Purchase Agreement on or prior to the Initial Closing and evidence
reasonably satisfactory to the Lender that all other conditions precedent to
such Initial Closing have been met. As conditions precedent to the Lender's
obligation to make each Loan (including the initial Loan), (i) no Event of
Default or event which, with the giving of notice or lapse of time or both,
shall have occurred and be continuing or shall result from the making of such
Loan, (ii) there shall not have been a failure of a representation or warranty
incorporated by reference herein to be true when made and where such failure
would have or could reasonably be expected to have had a Material Adverse
Effect, and (iii) the Stock Purchase Agreement shall not have terminated for any
reason nor shall any material provision thereof have ceased to be in full force
and effect other than by the mutual consent of the parties to the Stock Purchase
Agreement such that the TWREF under the Stock Purchase Agreement shall not be
able to realize the material benefits thereof. In the case of Option A and
Option B, as a condition precedent to the Lender's obligation to make any Loan
in respect of a Subsequent Commitment, since March 31, 1996, there shall not
have been any change, circumstance or event which has or could reasonably be
expected to have a Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties. The Borrower repeats and
restates all of the representations and warranties set forth in Article 3 of the
Stock Purchase Agreement for the benefit of Lender, all of which are deemed to
be incorporated by reference into this Agreement as if such representations and
warranties were set forth in full herein.
ARTICLE 5
COVENANTS
5.1 Covenants. For so long as any of the Obligations shall be
outstanding hereunder, the Borrower covenants and agrees as follows:
(a) If the Lender or TWREF has a reasonable basis to believe
that a Material Adverse Effect has occurred, each of the Lender and TWREF may
conduct audits of income and
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expenses to verify the amounts of such items as stated in any financial
statements, reports or projections furnished to Lender and TWREF under this
Agreement or any Related Document at the Lender's expense. The Borrower will
keep adequate records and books of account with respect to each of the
Properties, in which proper entries, reflecting all of the financial
transactions with respect to such Properties, are made in accordance with
generally accepted accounting principles applied on a consistent basis.
(b) The Borrower shall take such actions as are reasonably
necessary or as are reasonably requested by the Lender or TWREF to afford the
Lender and TWREF the following rights, and hereby authorizes Lender and TWREF to
take such actions as are reasonably necessary to accomplish such rights:
(i) The right routinely to consult with and advise
the management of the Borrower regarding
significant business activities and business and
financial developments of the Borrower, as well
as to communicate directly with the Borrower's
independent certified public accountants and tax
advisors. The Borrower hereby authorizes those
advisors of the Borrower to disclose to the
Lender and TWREF any and all financial
statements, other supporting financial documents
and schedules, including copies of auditor
response letters and management letters with
respect to the business, financial condition and
other affairs of the Borrower. Borrower will
deliver authorizing letters to its advisors
confirming the above.
(ii) The right to examine the books and records of the
Borrower at any time upon reasonable notice, and,
at Lender's or TWREF's expense, to conduct audits
of income and expenses to verify the amounts of
such items as stated in any financial statements
or reports furnished to Lender and TWREF under
this Agreement or any related documents.
(iii) The right to receive quarterly unaudited and
yearly audited financial reports, including
balance sheets, statements of income,
shareholders' equity and cash flow, a management
report, schedules of outstanding indebtedness and
a monthly report displaying by property gross
income, net operating income, cash flow and, on
an aggregate basis, FFO and Adjusted FFO per
share, and copies of all filings with the
Securities and Exchange Commission promptly when
same have been filed.
In addition, by virtue of TWREF's representation on the several committees of
the Borrower (including the Executive Committee and the Audit Committee) and the
Board of Directors of the Borrower, as provided in or by reference in the Stock
Purchase Agreement, Lender and TWREF will be consulted and given an opportunity
to advise Borrower (and such committees and the
11
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Board) as to financing matters, property acquisitions and dispositions and
operating budget and capital expenditure matters.
(c) In addition to the foregoing, the Borrower agrees that all
of the covenants set forth in Articles 5 and 6 of the Stock Purchase Agreement
are incorporated by reference into this Agreement as if such affirmative
covenants were set forth in full herein and agrees to comply with all such
covenants.
ARTICLE 6
EVENTS OF DEFAULT
6.1 Events of Default. If any one or more of the following events (an
"Event of Default") shall occur and be continuing, the Lender shall be entitled
to exercise the remedies set forth in Section 6.2 hereof:
(a) Failure of the Borrower to pay when due (i) the principal
of or interest on the Loan or (ii) any other amount payable hereunder if the
failure to pay any such amount continues for five Business Days after receipt of
notice thereof; or
(b) Default in the performance of any material covenant or
obligation contained or incorporated by reference herein or in the Stock
Purchase Agreement or any document or instrument delivered hereunder or
thereunder if the failure to perform such covenant continues for 15 Business
Days after receipt of notice thereof; provided, however, that Borrower shall
have a reasonable time to cure same if such cure cannot reasonably be
accomplished in 15 Business Days but is being diligently pursued; or
(c) The entry of a decree or order for relief in respect of
the Borrower by a court having jurisdiction in the premises in an involuntary
case under the Federal bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal or state bankruptcy, insolvency or other similar law,
or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Borrower or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
60 consecutive days; or
(d) The commencement by the Borrower of a voluntary case under
the Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or other similar law, or the
consent by it to the entry of an order for relief in an involuntary case under
any such law or the consent by it to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Borrower or of any substantial part of its property, or
the making by it of a general assignment for the benefit of creditors, or the
failure of the Borrower generally to pay its debts as such debts become due or
the taking of any corporate action in furtherance of any of the foregoing; or
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<PAGE>
(e) Any of the assets of the Borrower shall be attached for
execution or become subject to the order of any court or any other process for
execution and attachment and such attachment, order or process shall remain in
effect and undischarged for 60 days.
6.2 Default Remedies. If any Event of Default shall occur and be
continuing, then and in every such event, and at any time thereafter during the
continuance of such Event of Default the Lender may (i) terminate the Initial
Commitment and the Subsequent Commitment, and (ii) declare the Loans to be
forthwith due and payable, whereupon the Loans shall become forthwith due and
payable both as to principal and interest together with all other amounts
payable by the Borrower under this Agreement which may be due or accrued and
unpaid, in each case without presentment, demand, protest or any other notice of
any kind, all of which are expressly waived.
6.3 Set-Off. The Lender is hereby authorized at any time and from
time to time, upon the occurrence and during the continuance of any Event of
Default, without prior notice to the Borrower, to the fullest extent permitted
by law, to set off and apply any and all balances, credits, deposits (general or
special, time or demand, provisional or final), accounts or monies at any time
held and other indebtedness at any time owing by the Lender to or for the
account of the Borrower against any and all of the amounts owing by the Borrower
under this Agreement whether or not the Lender shall have made any demand
hereunder or thereunder.
6.4 Default Interest. If the Borrower shall fail to pay when due any
amount owing to the Lender under this Agreement, then to the extent permitted by
law the Borrower will pay to the Lender on demand interest on the amount in
default from the date such payment became due until payment in full at a rate
equal to the sum of the amount due under Section 2.4 of this Agreement plus 4%
per annum.
ARTICLE 7
GENERAL PROVISIONS
7.1 Expenses; Indemnification The Borrower agrees to pay all
reasonable out-of-pocket costs and expenses, including the reasonable fees and
disbursements of counsel, incurred by the Lender in connection with the
preparation, execution and delivery of this Agreement and the Related Documents,
and any amendments and waivers hereof or thereof. The Borrower agrees to pay any
reasonable legal or other expenses incurred by the Lender in connection with
investigating, defending or participating in any loss, claim, damage, liability
or other proceeding in connection with the enforcement of this Agreement or any
of the Related Documents and the collection of any amounts owing hereunder or
thereunder; provided that the Borrower shall not be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Lender or its Affiliates or any of their respective agents or
employees.
7.2 Cumulative Rights; No Waiver. The rights, powers and remedies of
the Lender hereunder are cumulative and in addition to all rights, powers and
remedies provided under any and all agreements between the Borrower and the
Lender, at law, in equity or otherwise. Neither any delay nor any omission by
the Lender to exercise any right, power or remedy shall operate as a
13
<PAGE>
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise thereof or any exercise of any other right, power or
remedy.
7.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission service shall
be considered original executed counterparts for purposes of this Section,
provided receipt of copies of such counterparts is confirmed.
7.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED
IN THE CITY AND COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW,
JTHE BORROWER HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT
OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE
LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE
JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION
WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE BORROWER
AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED
MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD
AUTHORIZED BY THE LAWS OF NEW YORK.
7.5 Entire Agreement. This Agreement (including agreements
incorporated herein), the Schedule and the Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement is
not intended to confer upon any person not a party hereto (and their successors
and assigns) any rights or remedies hereunder.
7.6 Notices. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the extent
receipt is confirmed, telecopy, telefax or other electronic
14
<PAGE>
transmission service to the appropriate address or number as set forth below.
Notices to the Borrower shall be addressed to:
Essex Property Trust, Inc.
777 California Avenue
Palo Alto, CA 94304
Attn: Keith Guericke
with a copy to:
Michael Schall
Essex Property Trust, Inc.
777 California Avenue
Palo Alto, CA 94304
and another copy to:
Jordan Ritter
Essex Property Trust, Inc.
777 California Avenue
Palo Alto, CA 94304
Notices to the Lender shall be addressed to:
Patrick K. Fox
General Counsel
Westbrook Partners, L.L.C.
14400 North Dallas Parkway, #200
Dallas, Texas 75240
with a copy to:
Keith Gelb
Vice President
Westbrook Partners, L.L.C.
11150 Santa Monica Boulevard
Los Angeles, California 90023
and another copy to:
Allen Curtis Greer, II
Rogers & Wells
200 Park Avenue
New York, New York 10166
or at such other address and to the attention of such other person as either
party may designate by written notice to the other party delivered in accordance
with this Section.
15
<PAGE>
7.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Except as specifically provided by the Stock Purchase Agreement, the
Borrower shall not be permitted to assign any of its rights hereunder to any
third party, other than to one or more Affiliates of the Borrower of which the
Borrower, directly or indirectly, beneficially owns 98% or more of the voting
power and the economic interests, provided that such Affiliates agree to be
bound hereby , and provided that the Borrower shall remain liable hereunder, and
provided that any bona fide financial institution to which the Borrower or any
permitted transferee has transferred (including upon foreclosure of a pledge)
shares of Company Stock for the purpose of securing bona fide indebtedness of
the Borrower shall also be entitled to enforce the rights of the Borrower
hereunder. The Lender may assign, or grant participations in, all or any part of
its rights and interests herein and in the Note to any Person without the
consent of, or notice of, the Borrower.
7.8 Headings. The Section, Article and other headings contained in
this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
7.9 Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Either
party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision hereof on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of
a breach of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
7.10 Interpretation; Absence of Presumption. (a) For the purposes
hereof, (i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Exhibits hereto) and not to any
particular provision of this Agreement, and Article, Section, paragraph and
Exhibit references are to the Articles, Sections, paragraphs and Exhibit to this
Agreement unless otherwise specified, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party,
drafting or causing any instrument to be drafted.
7.11 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
7.12 Further Assurances. The Borrower agrees that, from time to
time, it will take such action as may reasonably be necessary to carry out the
purposes and intents hereof.
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<PAGE>
7.13 Waiver of Jury Trial. The parties hereto knowingly, voluntarily
and expressly waive all right to trial by jury in any action, proceeding or
counterclaim enforcing or defending any rights arising out of or relating to
this Agreement or the transactions contemplated hereby. Each of the Borrower and
the Lender acknowledges that the provisions of this Section 7.13 have been
bargained for and that it has been represented by counsel in connection
therewith.
7.14 Maximum Interest Rate. In no event shall the rate of any
interest or fee exceed the maximum rate permissible for corporate borrowers by
applicable law (the "Maximum Rate"). If, in any month, any rate for any such
interest or fee, absent such limitation, would have exceeded the Maximum Rate,
then the rate for that month shall be the Maximum Rate, and, if in future
months, that interest rate would otherwise be less than the Maximum Rate, then
that interest rate shall remain at the Maximum Rate until such time as the
amount of interest paid hereunder equals the amounts which would have been paid
if the same had not been limited by the Maximum Rate. In the event that, upon
payment in full of the Obligations, the total amount of interest and fees paid
or accrued under the terms of this Agreement is less than the total amount of
interest which would have been paid or accrued if the rates set forth in this
Agreement had at all times been in effect, then the Borrower agrees, to the
extent permitted by applicable law, to pay to the Lender an amount equal to the
difference between (a) the lesser of (i) the amount of interest which would have
been charged if the Maximum Rate had, at all times, been in effect, and (ii) the
amount of interest and fees which would have accrued had the rates set forth in
this Agreement, at all times, been in effect, and (b) the amount of interest and
fees actually paid or accrued under this Agreement (up to the maximum amount of
such shortfall). In addition to the foregoing provisions of this Section 7.14,
the Borrower agrees that in the event the rate of interest or fees hereunder (to
the extent that such fees are or are deemed by a court of competent jurisdiction
to be a payment for the use of money) exceeds the Maximum Rate at any time of
determination, the Lender shall have the right, but not the obligation, to the
extent permitted by applicable law, to apply such excess retroactively in
respect of interest or such fees such that the rate of interest or such fees
hereunder is less than the Maximum Rate at such time.
7.15 Note Register. The Note or Notes are issued in registered form
only and the Lender shall maintain or cause to be maintained the Note Register.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed on the date first above written.
LENDER: BORROWER:
T/W ESSEX FUNDING, L.L.C., ESSEX PROPERTY TRUST, INC.,
a limited liability company a Maryland corporation
By: ESSEX/TW FUNDING CORP., By: /s/ Jordan E. Ritter
as Managing member ---------------------------------
Name: Jordan E. Ritter
-------------------------------
Title: Vice President
------------------------------
By: /s/ Jeffrey M. Kaplan
-------------------------------
Name: Jeffrey M. Kaplan
--------------------------
Title: Vice President
-------------------------
By: /s/ Patricia K. Fox
-------------------------------
Name: Patricia K. Fox
--------------------------
Title: Secretary
-------------------------
Lender Bank: Borrower Bank:
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
Acct. No.: Acct. No.:
----------------------------- --------------------------
Call Advice: Call Advice:
--------------------------- ------------------------
Telephone: Telephone:
----------------------------- --------------------------
Facsimile: Facsimile:
----------------------------- --------------------------
NOTE REGISTER
NOTE HOLDER PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------
R-1 T/W Essex Funding, L.L.C. $33,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
18
<PAGE>
AMENDMENT NO. 1 TO LOAN FACILITY AGREEMENT
THIS AMENDMENT NO. 1 TO LOAN FACILITY AGREEMENT ("Amendment"), dated as of
July 1, 1996, is made by and between Essex Property Trust, Inc., a Maryland
corporation (the "Borrower"), and T/W Essex Funding, L.L.C., a Delaware limited
liability company (the "Lender").
RECITALS:
WHEREAS, the Lender and the Borrower entered into that certain Loan
Facility Agreement, dated as of June 20, 1996 (the "Loan Agreement"), whereby
the Lender agreed to lend to the Company and the Company agreed to borrow from
the Lender up to an aggregate of $33,000,000;
WHEREAS, the Borrower and certain affiliates of the Lender (such
affiliates, collectively, the "Buyer") entered into that certain Stock Purchase
Agreement, dated as of June 20, 1996, as amended to the date hereof (as so
amended, the "Stock Purchase Agreement"), whereby, subject to certain
conditions, the Borrower has agreed to sell to the Buyer and the Buyer has
agreed to purchase from the Borrower an aggregate of up to 1,600,000 shares of a
newly authorized series of preferred stock of the Borrower designated as 8.75%
Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), having the
terms set forth in the form of Borrower's Articles Supplementary attached as
Exhibit A thereto (the "Articles Supplementary") establishing the rights,
privileges and preferences of the Preferred Stock, at a price of $25.00 per
share;
WHEREAS, the parties hereto desire, among other things, to reduce the
amount available under the Loan Agreement to $31,500,000;
WHEREAS, the Buyer and the Borrower have agreed, among other things, to
enter into Amendment No. 1 to the Stock Purchase Agreement dated as of June 20,
1996; and
WHEREAS, the parties hereto have agreed, among other things, to amend and
modify the Loan Agreement as set forth herein.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises and covenants
hereinafter set forth, and other good and valuable consideration had and
received, the parties hereto, upon the terms and subject to the conditions
contained herein, hereby agree as follows:
1. Definitions; References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Loan Agreement has the
meaning ascribed to such term in the Loan Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and
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<PAGE>
each other similar reference contained in the Loan Agreement shall from and
after the date hereof refer to the Loan Agreement as amended hereby.
2. Amendment to Definitions. (a) The preamble to Section 1.1 shall
be amended by adding "All references in this Agreement to any other agreement or
instrument shall include such other agreement or instrument as the same may be
amended, modified, reaffirmed or supplemented from time to time in accordance
with the terms thereof." immediately following the first sentence thereof."
(b) The definition of "Initial Commitment" in the Loan Agreement
shall be amended by restating it in its entirety as follows: "'Initial
Commitment' means $11,500,000."
(c) The definition of "Option C" in the Loan Agreement shall be
amended by deleting the words "(i) the Lender's option to exchange up to
$1,500,000 principal amount of the Loan comprising the Initial Commitment for
Preferred Stock pursuant to Section 2.11 hereof, and (ii) "in the first through
third lines thereof.
(d) The definition of "Option D" in the Loan Agreement shall be
amended by deleting the term "$6,000,000" in the fourth line thereof and
inserting the term "$7,000,000" in its place and stead.
(e) The definition of "Option C Maturity Date" shall be amended
by restating it in its entirety as follows:
"'Option C Maturity Date' shall mean December 31, 1996; provided,
however, if the Borrower shall have notified the Lender on or before
December 20, 1996, that it requests an extension, the Option C Maturity
Date shall be extended to February 28, 1997; and provided, further, that
if the Borrower shall have notified the Lender on or before February 20,
1997, that it requests another extension, the Option C Maturity Date
shall be further extended to April 30, 1997."
3. Amendment to Section 2.10(a). Section 2.10(a) of the Loan
Agreement shall be amended by restating it in its entirety as follows:
"2.10(a) Procedures for Option Events. Within two Business Days
following the occurrence of an Option A Event, Option B Event, Option C
Event or Option D Event, Borrower shall provide Lender written notice of
such occurrence (the "Notice of Occurrence"), such notice specifying the
type of Option which has occurred. In the case of an Option A Event or
Option B Event, the closing whereby the Loan comprising the Initial
Commitment shall be exchanged for Preferred Stock shall be held on the
third Business Day following Lender's receipt of the Notice of
Occurrence; provided, however, the Loan shall be deemed exchanged as of
the Option A Maturity Date or the Option B Maturity Date, as the case
may be. In the case of an Option D Event, Lender shall deliver a written
notice to Borrower within three Business Days of receipt of the Notice
of Occurrence which written notice shall specify Lender's election with
respect to the
2
<PAGE>
exchange of up to $7,000,000 of the Subsequent Commitment for Preferred
Stock. The closing of such an exchange of up to $7,000,000 together with
the exchange of the Loan comprising the Initial Commitment shall take
place fifteen Business Days following the date Lender's written notice
is received by Borrower; provided, however, the Loan comprising the
Initial Commitment shall be deemed exchanged as of the Option D Maturity
Date, and up to $7,000,000 Loan comprising the portion of the Subsequent
Commitment shall be deemed exchanged as of the date Lender makes such
election. Any such closing pursuant to this Section 2.10(a) shall be
referred to as an 'Initial Exchange Closing'."
4. Amendment to Section 2.11. Section 2.11 of the Loan Agreement
shall be amended by deleting the words "the Option C Maturity Date" in the
second line of the last paragraph thereof.
5. Amendment to Note Register and Replacement of Note. The Note
Register on page 18 of the Loan Agreement shall be amended by deleting
"$33,000,000" in the Principal Amount column and inserting in lieu thereof
"$31,500,000." The Borrower has executed and delivered a Note in the principal
amount of $31,500,000, but otherwise identical to the Note previously executed,
and the Lender will, on the receipt of same at closing proceedings in New York
City, cancel and surrender to the Borrower the Note reflecting a principal
amount of $33,000,000.
6. Full Force and Effect. Except as specifically amended and modified
hereby, the Loan Agreement shall remain in full force and effect and no party
hereto waives any of its rights under the Loan Agreement.
7. Expenses; Indemnification. The Borrower agrees to pay all
reasonable out-of-pocket costs and expenses, including the reasonable fees and
disbursements of counsel, incurred by the Lender in connection with the
preparation, execution and delivery of this Amendment and any amendments and
waivers hereof. The Borrower agrees to pay any reasonable legal or other
expenses incurred by the Lender in connection with investigating, defending or
participating in any loss, claim, damage, liability or other proceeding in
connection with the enforcement of this Amendment and the collection of any
amounts owing hereunder or thereunder; provided that the Borrower shall not be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Lender or its Affiliates or any of their
respective agents or employees.
8. Cumulative Rights; No Waiver. The rights, powers and remedies of
the Lender hereunder are cumulative and in addition to all rights, powers and
remedies provided under any and all agreements between the Borrower and the
Lender, at law, in equity or otherwise. Neither any delay nor any omission by
the Lender to exercise any right, power or remedy shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise thereof or any exercise of any other right, power or remedy.
9. Counterparts. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become
3
<PAGE>
effective when one or more counterparts have been signed by each party hereto
and delivered to the other party. Copies of executed counterparts transmitted by
telecopy, telefax or other electronic transmission service shall be considered
original executed counterparts for purposes of this Section, provided receipt of
copies of such counterparts is confirmed.
10. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED
IN THE CITY AND COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWER HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT
OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE
LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE
JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION
WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE BORROWER
AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED
MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AMENDMENT OR ANY METHOD
AUTHORIZED BY THE LAWS OF NEW YORK.
11. Entire Agreement. The Loan Agreement, as amended hereby
(including agreements incorporated herein), the Schedule and the Exhibits
thereto contain the entire agreement between the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties other than those set forth or
referred to herein. This Amendment is not intended to confer upon any person not
a party hereto (and their successors and assigns) any rights or remedies
hereunder.
12. Successors and Assigns. The Loan Agreement, as amended hereby,
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Except as specifically provided by the Stock
Purchase Agreement, the Borrower shall not be permitted to assign any of its
rights hereunder to any third party, other than to one or more Affiliates of the
Borrower of which the Borrower, directly or indirectly, beneficially owns 98% or
more of the voting power and the economic interests, provided that such
Affiliates agree to be bound hereby, and provided that the Borrower shall remain
liable hereunder, and provided that any bona fide financial institution to which
the Borrower or any permitted transferee has
4
<PAGE>
transferred (including upon foreclosure of a pledge) shares of capital stock for
the purpose of securing bona fide indebtedness of the Borrower shall also be
entitled to enforce the rights of the Borrower hereunder. The Lender may assign,
or grant participations in, all or any part of its rights and interests herein
and in the Note to any Person without the consent of or notice of the Borrower.
13. Headings. The Section headings contained in this Amendment
are inserted for convenience of reference only and will not affect the meaning
or interpretation of this Amendment.
14. Amendments and Waivers. This Amendment may not be modified
or amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Either
party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision hereof on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of
a breach of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
15. Interpretation; Absence of Presumption. This Amendment shall be
construed without regard to any presumption or rule requiring construction or
interpretation against the party, drafting or causing any instrument to be
drafted.
16. Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
17. Further Assurances. The Borrower agrees that, from time to time,
it will take such action as may reasonably be necessary to carry out the
purposes and intents hereof.
18. Waiver of Jury Trial. The parties hereto knowingly, voluntarily
and expressly waive all right to trial by jury in any action, proceeding or
counterclaim enforcing or defending any rights arising out of or relating to
this Amendment or the transactions contemplated hereby. Each of the Borrower and
the Lender acknowledges that the provisions of this Section have been bargained
for and that it has been represented by counsel in connection therewith.
* * *
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IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed on the date first above written.
LENDER: BORROWER:
T/W ESSEX FUNDING, L.L.C., ESSEX PROPERTY TRUST, INC., a
a Delaware limited liability company Maryland corporation
By: ESSEX/TW FUNDING CORP., as
Managing Member By: /s/ Michael Schall
--------------------------------
Name: Michael Schall
----------------------------
Title: CFO
---------------------------
By: /s/ Jeffrey M. Kaplan
-----------------------------
Name: Jeffrey M. Kaplan
------------------------
Title: Vice President
-----------------------
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APPENDIX C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of this 20th day of June
1996, by and between Essex Property Trust, Inc., a Maryland corporation (the
"Company"), and Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited
partnership, and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a
Delaware limited partnership (collectively, and including any nominee or
nominees in whose name securities may be held, the "Investor").
RECITALS
WHEREAS, the Company and the Investor are parties to a Stock Purchase
Agreement, as amended on the date hereof (as amended, the "Stock Purchase
Agreement") of even date herewith relating to the purchase by Investor of
certain shares of the Company's 8.75% Convertible Preferred Stock, Series 1996A;
WHEREAS, in order to induce the Investor to invest funds in the Company
pursuant to the Stock Purchase Agreement and to induce the Company to enter into
the Stock Purchase Agreement, the Investor and the Company hereby agree that
this Agreement shall govern the rights of the Investor to cause the Company to
register shares of Preferred Stock and Common Stock issuable to the Investor
upon conversion of the Preferred Stock or otherwise as provided herein;
WHEREAS, the Company has entered into an amendment, of even date herewith,
a copy of which is attached hereto as Exhibit A-1, to that certain Investor
Rights Agreement dated as of June 13, 1994 (as amended, the "Existing Investor
Rights Agreement", a copy of which is attached hereto as Exhibit A-2), between
the Company and the investors party thereto (collectively, the "Existing Rights
Holders"), whereby the Existing Rights Holders have agreed their rights
thereunder shall be subordinated to the rights of the Investor hereunder;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definition. As used in this Agreement, the following:
1.1 The term "Common Stock" shall mean the Common Stock of the
Company, par value $.0001 per share.
1.2 The term "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.3 The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time.
1.4 The term "NYSE" shall mean the New York Stock Exchange.
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1.5 The terms "register," "registered," and "registration: refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
1.6 The term "Registrable Securities" means (i) the Preferred Stock,
(ii) Common Stock issuable or issued upon conversion of the Preferred Stock and
(iii) any Common Stock of the Company issued as a dividend or distribution or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, such Preferred Stock or Common Stock;
provided, however, that shares of Preferred Stock or such Common Stock or other
securities shall not be treated as Registrable Securities (A) if such securities
are sold by an entity or person in a transaction in which the registration
rights are not assigned, (B) if a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities have been disposed of in accordance with such registration
statement, (C) if such securities have been sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction pursuant to an effective registration statement or pursuant to Rule
144 ("Rule 144") under the Securities Act, or (D) if on the date of the proposed
sale, in the opinion of counsel to the Company such securities may be sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act so that all other restrictions and legends with respect
thereto are removed upon the consummation of such sale.
1.7 The term "Preferred Stock" shall mean the 8.75% Convertible
Preferred Stock, Series 1996A of the Company, par value $.0001 per share.
1.8 The term "Securities Act" shall mean the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time.
2. Requested Registration
2.1 Requested Registration. As to all but not less than all of the
Preferred Stock purchased by the Investor, at any time after the Investor has
completed its purchase of Preferred Stock under the Stock Purchase Agreement,
and with respect to shares of Common Stock that are Registrable Securities under
this Agreement only after the eight-month anniversary of the date of this
Agreement, and from time to time thereafter, if the Company shall receive from
the Investor on behalf of the Investor and the other holders of Registrable
Securities a written request for the Company to effect any registration,
qualification or compliance with respect to Registrable Securities with respect
to, if a requested registration of Preferred Stock (and underlying Common Stock
if necessary to permit the Preferred Stock to be registered in accordance within
the rules and regulations of the Commission), all of the Preferred Stock then
held by Investor and all other holders of Preferred Stock (but at least
$7,000,000 in expected aggregate offering price (as determined based on the
number of shares of Common Stock into which such Preferred Stock is convertible
and the highest closing price of the Common Stock on a public exchange within
five business days of such written request) to the public, net of underwriters'
discounts and commissions), and, if a requested registration of Common Stock, no
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less than 25% of the Registrable Securities (but at least $7,000,000 in expected
aggregate offering price (as determined based on the highest closing price of
the Common Stock on a public exchange within five business days of such written
request) to the public, net of underwriters' discounts and commissions) then
held by the Investor, the Company will use its best efforts to effect all such
registrations, qualifications and compliances within 120 days of such request
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under the applicable blue
sky or other state securities laws and appropriate compliance with regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of such Investor's Registrable Securities as are specified in
such request; provided that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 2:
(a) other than with respect to Registrable Securities;
(b) in an particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(c) if the Company has already effected one registration for
the Investor pursuant to this Section during the immediately preceding twelve-
month period; or
(d) if at the time of the request to register Registrable
Securities the Company gives notice within 30 days of such request that it is
engaged, or has fixed plans to engage within 60 days of the time of the request,
in a registered public offering as to which the Investor may include Registrable
Securities pursuant to Section 5 and provided that the Company may not exercise
this right more than once in any twelve-month period.
2.2 Underwriting. If the Investor intends to distribute the
Registrable Securities covered by its request by means of an underwritten public
offering, it shall so advise the Company and the Investor shall designate the
underwriter to be considered as the lead underwriter to be employed in
connection therewith subject to the approval of the Company, which approval
shall not be unreasonably withheld or delayed. The Company shall (together with
the Investor if legally required) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 2.2, if the
underwriter (in an underwritten offering in which such securities are to be
distributed by or through one or more underwriters of recognized standing under
underwriting terms customary for such transactions) advises the Company and the
Investor in writing that, in its belief the amount of securities requested to be
included in such registration or offering exceeds the amount which can be sold
in (or during the time of) such offering without delaying or jeopardizing the
success of the offering (but not including adjustments to the price per share of
such securities to be sold, which shall remain in the sole discretion of the
Investor) the number of Registrable Securities of the Investor to be included in
the registration and underwriting shall be reduced as such underwriter, the
Investor and the Company may agree. If the Investor disapproves of the terms of
any such underwriting, the Investor may elect to withdraw therefrom
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by written notice to the Company and the underwriter. The Registrable Securities
so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account or the account of others in such registration if the underwriter so
agrees and if the number of Registrable Securities which would otherwise have
been included in such registration and underwriting will not thereby be limited,
and, in the reasonable belief of such underwriter, if the per share sales price
for the Registrable Securities will not thereby be materially and adversely
affected.
3. Shelf Registration.
3.1 Shelf Registration; Obligation to File and Maintain. As to all
but not less than all of the Preferred Stock purchased by the Investor, at any
time after the Investor has completed its purchase of Preferred Stock under the
Stock Purchase Agreement, and, with respect to any shares of the Common Stock
that are Registrable Securities under this Agreement only at any time after the
eight-month anniversary of the date of this Agreement, and from time to time
thereafter, promptly upon the written request of the Investor, the Company will
use its best efforts to file with the Commission a registration statement or
statements under the Securities Act for the offering on a continuous or delayed
basis in the future of Registrable Securities in such amount and type as
aforesaid (collectively, the "Shelf Registration"). The Shelf Registration shall
be on an appropriate form and the Shelf Registration and any form of prospectus
included therein or prospectus supplement relating thereto shall reflect such
plan of distribution or method of sale as the Investor may from time to time
notify the Company, including the sale of some or all of the Registrable
Securities in a public offering or, if requested by the Investor, subject to
receipt by the Company of such information (including information relating to
purchasers) as the Company reasonably may require, (i) in a transaction
constituting an offering outside the United States which is exempt from the
registration requirements of the Securities Act in which the Company undertakes
to effect registration of such shares as soon as possible after the completion
of such offering in order to permit such shares freely to be tradeable in the
United States, (ii) in a transaction constituting a private placement under
Section 4(2) of the Securities Act in connection with which the Company
undertakes to register such shares after the conclusion of such placement to
permit such shares freely to be tradeable by the purchasers thereof, or (iii) in
a transaction under Rule 144A of the Securities Act in connection with which the
Company undertakes to register such shares after the conclusion of such
transaction to permit such shares freely to be tradeable by the purchasers
thereof. The Company shall use its best efforts to keep the Shelf Registration
continuously effective for the period beginning on the date on which the Shelf
Registration is declared effective and ending on the first date that there are
no Registrable Securities (provided that the Company may terminate the
effectiveness of a Shelf Registration on the second anniversary of the date of
effectiveness thereof plus a number of days equal to the number of days in all
Registration Suspension Periods relating to such Shelf Registration). During the
period during which the Shelf Registration is effective, the Company shall
supplement or make amendments to the Shelf Registration, if required by the
Securities Act or if reasonably requested by the Investor or an underwriter of
Registrable Securities, including to reflect any specific plan or distribution
or method of sale, and shall use its reasonable best efforts to have such
supplements and amendments declared effective, if required, as soon as
practicable after filing.
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Once any registration statement filed pursuant to this Section 3 has
been declared effective, any period during which the Company fails to keep such
registration statement effective and usable for resale of Registrable Securities
for the period required by Section 7(b) shall be referred to as a "Registration
Suspension Period." A Registration Suspension Period shall commence on and
include the date that the Company gives written notice to the Investor of its
determination that such registration statement is no longer effective or usable
for resale of Registrable Securities (the "Suspension Notice") to and including
the date when the Company notifies the Investor that the use of the prospectus
included in such registration statement may be resumed for the disposition of
Registrable Securities.
3.2 Minimum. The Company shall not be required to comply with a
request by the Investor pursuant to Section 3, except to the extent that the
Registrable Securities to be included in any such registration statement
aggregate at least $7,000,000 in expected offering price to the public as
determined based on the highest closing price of the Common Stock on a public
exchange within five business days of such written request, net of underwriters'
discounts and commissions or are such lesser amount of Registrable Securities as
shall constitute all of the Registrable Securities then outstanding. The
obligations of the Company under this Section 3 shall terminate if the Investor
and its assignees hereunder do not hold at least the lesser of (i) 200,000
shares of Preferred Stock (or such number of shares of Common Stock as shall
have resulted from a conversion thereof)(subject to adjustment to give effect to
stock splits, stock dividends and other similar transactions occurring after the
date hereof) or (ii) 12.5% of the total amount of shares of Preferred Stock that
the Investor purchases pursuant to the Stock Purchase Agreement.
3.3 Underwriting. Any and all underwriters or other agents involved
in any sale of Registrable Securities pursuant to a registration statement
contemplated by this Section 3 shall include such underwriter(s) or other
agent(s) as selected by the Investor and approved of by the Company, which
approval shall not be unreasonably withheld or delayed.
4. Delay of Registration. If the Company shall furnish to the Investor a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for a registration statement
required under Section 2 or 3 to be filed on or before the date filing would be
required and it is therefore essential to defer the filing of such registration
statement, then the Company may direct that such request for registration be
delayed for a period not in excess of 60 days, such right to delay a request to
be exercised by the Company not more than once in any twelve-month period.
5. Company Registration.
5.1 Notice of Registration. The Investor will have no rights under
this Section 5 until the first anniversary of the date of this Agreement. From
time to time thereafter, if the Company shall register (or shall determine to
issue under a shelf registration statement already on file) any of its Common
Stock (or any other security junior to the Preferred Stock), either for its own
account or the account of a security holder or holders (other than the
Investor), other than a registration (i) relating to employee stock option or
purchase plans, (ii) relating to a
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transaction pursuant to Rule 145 under the Securities Act, (iii) pursuant to a
registration form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Common Stock or (iv) of primary shares of Common Stock by the Company on a
form that does not permit both primary and secondary shares to be included in
the same registration statement, the Company will:
(a) promptly give to the Investor written notice thereof; and
(b) include in such registration and in any underwriting
involved therein, all shares of the Common Stock that are Registrable Securities
under this Agreement specified in a written request, made within 20 days after
receipt of such written notice from the Company, by the Investor.
5.2 Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Investor as a part of the written notice given
pursuant to Section 5.1, the right of the Investor to registration pursuant to
Section 5 shall be conditioned upon such Investor's participation in such
underwriting and the inclusion of such Investor's Registrable Securities in the
underwriting to the extent provided herein. The Investor shall (together with
the Company and other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 5.2, if the underwriter
advises the Company in writing that marketing factors require a limitation of
the number of shares to be underwritten, the number of Registrable Securities of
the Investor to be included in the registration and underwriting shall be
reduced provided that the shares of other holders of securities of the Company
included in the registration and underwriting shall be reduced prior to any
reduction in the number of shares of Registrable Securities of the Investor that
may be included in the registration and underwriting. The Registrable Securities
so withdrawn shall also be withdrawn from registration.
6. Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement, including
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company, expenses of any
special audits incidental to or required by such registration, qualification or
compliance and the reasonable fees and disbursements of one counsel for the
Investor shall be borne by the Company. The Company shall not be required to pay
underwriters' discounts, commissions, or stock transfer taxes relating to
Registrable Securities.
7. Registration Procedures. In the case of each registration, qualification
or compliance effected by the Company pursuant to this Agreement in which the
Investor is participating, the Company will keep the Investor advised in writing
as to the initiation of each registration, qualification and compliance and as
to the completion thereof. At its expense (except as otherwise provided in
Section 6 above), the Company will:
(a) prepare and file with the Commission the requisite
registration statement (including a prospectus therein) to effect such
registration and use its best efforts to
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cause such registration statement to become effective, provided that before
filing such registration statement or any amendments or supplements thereto, the
Company will furnish to Investor and counsel selected by Investor copies of all
documents required to be filed, which documents will be subject to review by
such counsel before such filing is made, and the Company will comply with any
reasonable request made by such counsel to make changes to any information
contained in such filing or in such documents relating to Investor;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
and to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until, in
the case of Section 2, the earlier of such time as all of such securities have
been disposed of and the date which is 180 days after the date of initial
effectiveness of such registration statement, or in the case of Section 3, the
termination of the period during which the Shelf Registration is required to be
kept effective;
(c) furnish to the Investor and to the underwriters of the
securities being registered such number of copies of the registration statement,
preliminary prospectus, final prospectus and other documents incident thereto as
such underwriters and the investor from time to time may reasonably request;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such the Investor may reasonably request, and keep
such registration or qualification in effect for so long as such registration
statement remains in effect;
(e) enter into a written underwriting agreement in customary
form and substance reasonably satisfactory to the Company, the Investor and the
managing underwriter or underwriters of the public offering of such securities,
if the offering is to be underwritten, in whole or in part;
(f) notify the Investor, at any time when a prospectus
relating thereto covered by such registration statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing and, at the
request of Investor properly prepare and furnish to Investor a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made;
(g) furnish, at the request of the Investor, if the Investor
is requesting registration of Registrable Securities pursuant to this Agreement,
on the date that such Registrable Securities are delivered to the underwriters
for sale in connection with a registration
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pursuant to this Agreement, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the registration statements with respect to such securities
becomes effective, (i) an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Investor, reasonably satisfactory in
form and substance to the Investor, and (ii) a letter dated such date, from the
independent certified public accountants of the Company, who have certified the
Company's financial statements included in such registration statement; covering
substantially the same matters with respect to such registration statement (and
the prospectus contained therein) and, in the case of the accountants' letter,
with respect to events subsequent to the date of such financial statements, all
as are customarily covered as opinions of various counsel and in accountants'
"comfort" letters delivered to underwriters in underwritten public securities
offerings;
(h) list all Registrable Securities covered by such
registration statement on the NYSE or such other securities exchange as may be
mutually agreed upon by the parties and such securities exchange;
(i) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement;
(j) comply or continue to comply in all material respects with
the Securities Act and the Exchange Act and with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least 12 months, but not more than 18 months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and not file any amendment or supplement to such registration
statement or prospectus to which the Investor shall have reasonably objected on
the grounds that such amendment or supplement to such registration statement or
prospectus to which the Investor shall have reasonably objected on the grounds
that such amendment or supplement does not comply in all material respects with
the requirements of the Securities Act, having been furnished with a copy
thereof at the earliest practicable date; and
(k) in connection with preparation and filing of a
registration statement under the Securities Act, furnish to the Investor, its
underwriters, if any, and their respective counsel, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein as filed with the Commission, and each amendment thereof or
supplement thereto, and shall give each of them access to its books and records
and such opportunities to discuss the business of the Company with its officers,
its counsel and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of Investor's and
such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
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The Company shall also have the obligations with regard to listing of
Preferred Stock as specified in the Stock Purchase Agreement.
The parties anticipate that any registration pursuant to this
Agreement shall be a registration on Form S-3 (or a substantially equivalent
registration form under the Securities Act subsequently adopted by the
Commission that permits inclusion or incorporation by reference to other
documents filed by the Company with the Commission), but agree that should Form
S-3 not be available to the Company such unavailability does not alter the
rights of the Investor or the obligations of the Company hereunder.
8. Indemnification.
8.1 Indemnification by the Company. In the event of any registration
of any Registrable Securities pursuant to this Agreement under the Securities
Act, the Company will, and hereby does, indemnify and hold harmless Investor,
each other person who participates as an underwriter in the offering or sale of
such securities and each other person who controls any such underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Investor or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and the Company will reimburse Investor and each such
underwriter and controlling person for any reasonable legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceedings; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by Investor or any other
person who participates as an underwriter in the offering or sale of such
securities, in either case, specifically stating that it is for use in the
preparation thereof, and provided, further, that the Company shall not be liable
to any person who participates as an underwriter in the offering or sale of
Registrable Securities or any other person, if any, who controls such
underwriter within the meaning of the Securities Act in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such person's failure to send or give
a copy of the final prospectus or supplement to the persons asserting an untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person if such
statement or omission was corrected in such final prospectus or supplement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf
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of Investor or any such underwriter or controlling person and shall survive the
transfer of such securities by Investor.
8.2 Indemnification by Investor. The Company may require, as a
condition to including any Registrable Securities in any registration statement,
that the Company shall have received an undertaking satisfactory to it from
Investor to indemnify and hold harmless (in the same manner and to the same
extent as set forth in paragraph (a) of this Section 8) the Company, each
director of the Company, each officer of the Company and each other person, if
any, who controls the Company within the meaning of the Securities Act, and each
other person who participates as an underwriter in the offering or sale of such
securities and each other person who controls any such underwriter within the
meaning of the Securities Act with respect to any untrue statement or alleged
untrue statement of a material fact in or omission or alleged omission to state
a material fact from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by Investor specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company or any such director,
officer, or controlling person and shall survive the transfer of such securities
by Investor.
8.3 Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the proceeding paragraphs of this Section 8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligation under the preceding paragraphs of this Section 8, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation.
8.4 Other Indemnification. Indemnification similar to that specified
in the preceding paragraphs of this Section 8 (with appropriate modifications)
shall be given by the Company and Investor with respect to any required
registration or other qualification or securities under any federal or state law
or regulation of any governmental authority other than under the Securities Act.
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8.5 Indemnification Payments. The indemnification required by this
Section 8 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
8.6 Contribution. If, for any reason, for the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of the expense, loss, damage or liability, (i) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged
statement of a material fact or omission relates to information supplied by the
indemnifying party on the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission), or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in the proportion as
is appropriate to reflect not only the relative fault of the indemnifying party
and the indemnified party, but also the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other, as
well as any other relevant equitable considerations. No indemnified party guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any indemnifying party
who was not guilty of such fraudulent misrepresentation.
9. Information by Investor. If the Investor's Registrable Securities are
included in any registration, the Investor shall furnish to the Company such
information regarding the Investor and the distribution proposed by the Investor
as the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
10. Reporting. With a view to making available to the Investor the
benefits of certain rules and regulations of the Commission which may permit the
sale of Registrable Securities to the public without registration or through
short form registration forms the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required to the Company under the
Securities Act and the Securities Exchange Act; and
(c) furnish to the Investor, so long as the Investor owns any
Registrable Securities, forthwith upon written request a written statement by
the Company that it has complied with the reporting requirements of said Rule
144, the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed by the Company as the Investor may reasonably request in availing itself
of any rule or regulation of the Commission permitting the Investor to sell any
such securities without registration.
11
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11. Transfer of Registration Rights. The rights to cause the Company to
register securities granted by the Company hereunder may be assigned or
otherwise conveyed to a transferee or assignee of Registrable Securities;
provided that (i) only the Investor may request, on behalf of itself and other
holders of Registrable Securities, registration pursuant to this Agreement, (ii)
such transfer is effected in accordance with applicable federal and state
securities laws, (iii) such transferee or assignee becomes a party to this
Agreement or agrees in writing to be subject to the terms hereof to the same
extent as if it were the Investor hereunder, and (iv) the Company is given
written notice by the Investor of said transfer, stating the name and address of
said transferee and identifying the securities with respect to which such
registration rights are being assigned.
12. Delivery of Shares. The Company agrees that any time after the
Company delivers to the Investor an opinion of counsel to the Company
(reasonably satisfactory to Investor) or Investor arranges for the delivery to
the Company of an opinion of counsel (reasonably satisfactory to the Company),
to the effect that the Registrable Securities may be sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act so that all transfer restrictions and legends with respect
thereto (other than those required by the Charter of the Company in effect on
the date hereof) are removed upon the consummation of such sale, the Investor
may request that its certificates evidencing such Registrable Securities be
exchanged by the Company for certificates free and clear of all transfer
restrictions and legends (other than those required by the charter of the
Company in effect on the date hereof, unless deleted from the Charter after the
date hereof and before any such delivery). The Company agrees to deliver such
legend free shares to the Investor within three days of the Investor's request
therefor. Should the Company fail to deliver such certificates within such three
day period, the Company agrees to indemnify the Investor for all losses
sustained by the Investor as a result of any decrease in value of such
Registrable Securities from such date beginning on the third day following the
Investor's request for exchange and continuing until such date as new
certificates, free and clear of all legends, has been delivered to the Investor.
13. Miscellaneous.
13.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
13.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California.
13.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed or original, but all of which
together shall constitute one and the same instrument.
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13.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing and interpreting this Agreement.
13.5 Notices. Except as otherwise provided, all notices and other
communications required as permitted hereunder shall be in writing and shall be
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Postal Service, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate for ten (10) days' advance written notice to the
other parties.
13.6 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Investor. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities and the Company.
13.7 Entire Agreement. This Agreement and the other documents and
agreements referred to therein constitute the entire understanding and agreement
among the parties with regard to the subject matter hereof and thereof.
13.8 Severability. If one or more provisions of this Agreement are
determined to be unenforceable under applicable law, such provisions shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
13.9 Attorneys' Fees. If any action of law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which such party may be entitled.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ESSEX PROPERTY TRUST, INC. TIGER/WESTBROOK REAL ESTATE FUND,
L.P., a Delaware limited partnership
By: Tiger/Westbrook Real Estate Partners
By: /s/ Keith Guericke Management, L.L.C., a Delaware limited
------------------------ liability company, General Partner
Address: By: Westbrook Real Estate Fund I, L.L.C.,
777 California Avenue a Delaware limited liability company,
Palo Alto, CA 94340 Managing Member
Tel:_______________________
Fax:_______________________ By: /s/ William H. Walton III
----------------------------
William H. Walton III,
Managing Member
By: /s/ Paul D. Kazilionis
----------------------------
Paul D. Kazilion
Managing Member
TIGER/WESTBROOK REAL ESTATE CO-
INVESTMENT PARTNERSHIP, L.P., a
Delaware limited partnership
By: Tiger/Westbrook Real Estate Partners
Management, L.L.C., a Delaware limited
liability company, General Partner
By: Westbrook Real Estate Fund I, L.L.C.,
a Delaware limited liability company,
Managing Member
By: /s/ William H. Walton III
----------------------------
William H. Walton III,
Managing Member
By: /s/ Paul D. Kazilionis
----------------------------
Paul D. Kazilionis
Managing Member
14
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EXHIBIT A-1
15
[Not Attached]
<PAGE>
EXHIBIT A-2
16
[Not Attached]
<PAGE>
APPENDIX D
ESSEX PROPERTY TRUST, INC.
ARTICLES SUPPLEMENTARY
Reclassifying 1,600,000 shares of Common Stock
as 1,600,000 shares of
8.75% CONVERTIBLE PREFERRED STOCK, SERIES 1996A
Essex Property Trust, Inc., a corporation organized and existing under the
laws of Maryland (the "Corporation"), does hereby certify to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority conferred upon the Board of Directors of the
Corporation by Article FIFTH of its Charter (the "Charter") in accordance with
Section 2-105 of the Maryland General Corporation Law (the "MGCL"), the Board of
Directors of the Corporation, at a meeting held on June 26, 1996, duly adopted a
resolution reclassifying 1,600,000 authorized but unissued shares of Common
Stock (par value $.0001 per share) as Preferred Stock (par value $.0001 per
share), designating such newly reclassified Preferred Stock as 8.75% Convertible
Preferred Stock, Series 1996A, the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption as set
forth below and authorizing the issuance of such series of Preferred Stock as
set forth below. Upon any restatement of the Charter, Sections 1 through 11 of
this Article FIRST shall become subsection (e) of Article FIFTH of the Charter.
Section 1. Designation and Amount.
Of the 670,000,000 authorized shares of Common Stock, 1,600,000 shares
are reclassified and designated 8.75% Convertible Preferred Stock, Series 1996A
(the "Series 1996A Stock").
<PAGE>
Section 2. Dividends and Distributions.
(a) Holders of shares of Series 1996A Stock will be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the payment of dividends, cumulative cash dividends equal to the
greater of (i) 8.75% of $25.00 per share (such $25.00, the "Stated Value") per
annum (rounded up to the nearest whole cent), payable quarterly, in arrears, on
the 15th day of January, April, July and October of each year, commencing
October 15, 1996 (each a "Dividend Payment Date") or (ii) the dividend
(determined as of the most recent dividend payment date for the Common Stock)
paid with respect to each share of Common Stock multiplied by a fraction of
which the numerator is the Conversion Price in effect as of such Dividend
Payment Date and the denominator of which is the initial Conversion Price. The
dividend will accrue daily on the basis of a 360-day year of twelve 30-day
months, whether or not the Corporation has earnings or surplus, and the dividend
payable to the holder of a share of Series 1996A Stock on the first Dividend
Payment Date after the share is issued will be the accrued dividend calculated
from the day the share is issued to the Dividend Payment Date. If any Dividend
Payment Date is not a Business Day, the dividend due on that Dividend Payment
Date will be paid on the Business Day immediately succeeding that Dividend
Payment Date. As used with regard to the Series 1996A Stock, the term "Business
Day" means a day on which both state and federally chartered banks in New York,
New York are required to be open for general banking business.
(b) Each dividend will be payable to holders of record of the Series
1996A Stock on a date (a "Record Date") selected by the Board of Directors which
is not less than ten nor more than forty-five days before the Dividend Payment
Date on which the dividend is to be paid. No Record Date will precede the close
of business on the date the Record Date is fixed.
(c) Unless and until all accrued dividends on the Series 1996A Stock
under Section 2(a) through the last preceding Dividend Payment Date have been
paid, the Corporation may not (i) declare or pay any dividend, make any
distribution (other than a distribution payable solely in shares of Common
Stock), or set aside any funds or assets for payment or distribution
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with regard to any Junior Shares (as herein defined), (ii) redeem or purchase
(directly or through subsidiaries), or set aside any funds or other assets for
the redemption or purchase of, any Junior Shares or (iii) authorize, take or
cause to be taken any action as general partner of Essex Portfolio L.P., a
California limited partnership (the "Operating Partnership"), that will result
in (A) the declaration or payment by the Operating Partnership of any
distribution to its partners (other than distributions payable to the
Corporation as general partner that will be used by the Corporation to fund the
payment of dividends on the Series 1996A Stock (such distributions to the
Corporation being referred to as "Authorized GP Distributions")), or set aside
any funds or assets for payment of any distributions (other than Authorized GP
Distributions) or (B) the redemption or purchase (directly or through
subsidiaries), or the setting aside of any funds or other assets for the
redemption or purchase of, any partnership interests in the Operating
Partnership. As used with regard to the Series 1996A Stock, the term "Junior
Shares" means all shares of Common Stock and all shares of any other class or
series of stock of the Corporation to which the shares of Series 1996A Stock are
prior in rank with regard to payment of dividends.
(d) While any shares of Series 1996A Stock are outstanding, the
Corporation may not pay any dividend, or set aside any funds for the payment of
a dividend, with regard to any shares of any class or series of stock of the
Corporation which ranks on a parity with the Series 1996A Stock as to payment of
dividends unless at least a proportionate payment is made with regard to all
accrued dividends together with all accrued but not yet due dividends (whether
or not authorized) (collectively, "Accrued Dividends") on the Series 1996A
Stock. A payment of dividends with regard to the Series 1996A Stock will be
proportionate to a payment of a dividend with regard to another class or series
of stock if the dividend per share of Series 1996A Stock is the same percentage
of the Accrued Dividends with regard to a share of Series 1996A Stock that the
dividend paid with regard to a share of stock of the other class or series is of
the Accrued Dividends with regard to a share of stock of that other class or
series.
(e) Any dividend paid with regard to shares of Series 1996A Stock will
be paid equally with regard to each outstanding share of Series 1996A Stock.
3
<PAGE>
Section 3. Voting Rights.
The voting rights of the holders of shares of Series 1996A Stock will
be only the following:
(a) (i) The holders of the Series 1996A Stock, voting as a
separate class, shall have the right to elect one director of the Corporation (a
"Series 1996A Director"), in addition to the other directors elected by the
holders of Common Stock (the "Common Directors") or any holders of any other
class or series of stock of the Corporation voting as a separate class with the
holders of the Common Stock.
(ii) The holders of the Series 1996A Stock, voting as a
separate class, shall have the right, as specified below, to elect additional
directors (and to fill vacancies occurring with respect to any director, so
elected by the holders of the Series 1996A Stock) of the Corporation, in
addition to the director elected pursuant to Section 3(a)(i) and in addition to
the other directors elected by the holders of Common Stock or any holders of any
other class or series of stock of the Corporation voting as a separate class
with the holders of the Common Stock.
(A) In the event of a Charter Breach, as hereinafter
defined, the number of directors shall be increased by three directors, who
shall be elected as soon as practicable pursuant to the Charter by the holders
of the Series 1996A Stock, to serve until the next annual meeting of
stockholders and until such directors' successors are elected and qualify. A
Charter Breach shall mean a breach by the Corporation of Sections 3(b) or 3(c)
hereof or any successor provisions contained in any amendment to or restatement
of the Charter.
(B) In the event of a Dividend Default, as hereinafter
defined, or in the event of both a Dividend Default and a Charter Breach, the
number of directors shall be increased by four directors, who shall be elected
as soon as practicable pursuant to the Charter by the holders of the Series
1996A Stock, to serve until the next annual meeting of stockholders and until
such directors' successors are elected and qualify. A Dividend Default shall
occur if, at any time, dividends are not paid in full with respect to all shares
of Series 1996A Stock on any four
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Dividend Payment Dates such that dividends due on such four dates have not been
fully paid and are outstanding in whole or in part at the same time.
(C) In the event of a Dividend Default and/or a Charter
Breach, the number of Series 1996A Directors elected at each subsequent annual
meeting of shareholders shall be increased as provided in subparagraphs A and B
above, e.g., if a Charter Breach has occurred, the holders of Series 1996A Stock
shall elect four Series 1996A Directors at subsequent annual meetings and, if a
Dividend Default has occurred, or if both a Dividend Default and a Charter
Breach have occurred, the holders of Series 1996A Stock shall elect five Series
1996A Directors at subsequent annual meetings, subject to the classification
required by Section 2.3 of the Bylaws.
(iii) The holders of the Series 1996A Stock may exercise any
right under Section 3(a)(i) or (ii) to elect a director either at a special
meeting of the holders of the Series 1996A Stock or at an annual meeting of the
stockholders of the Corporation held for the purpose of electing directors.
(iv) Whenever the holders of the Series 1996A Stock have the
right under Section 3(a)(i) or (ii) to elect a director, but have not done so,
the Secretary of the Corporation will, upon the written request of the holders
of record of at least 25% of the outstanding shares of Series 1996A Stock, call
a special meeting of the holders of the Series 1996A Stock for the purpose of
electing a director or directors, as the case may be. That meeting will be held
at the earliest practicable date upon the notice required for annual meetings of
stockholders of the Corporation (or such shorter notice as is agreed to in
writing by the holders of all the outstanding shares of Series 1996A Stock
before or within ten days after the meeting) at the place specified in the
request for a meeting, or if there is none, at a place in New York, New York
designated by the Secretary of the Corporation. If the meeting has not been
called within fifteen days after delivery of the written request to the
Secretary of the Corporation, or within twenty days after the request is mailed
by registered mail, addressed to the Secretary of the Corporation at the
Corporation's principal office, the holders of record of at least 25% of the
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<PAGE>
outstanding shares of Series 1996A Stock may designate in writing one holder to
call the meeting at the expense of the Corporation, and the meeting may be
called by that person upon the notice required for annual meetings of
stockholders (or such shorter notice as is agreed to in writing by the holders
of all the outstanding Series 1996A Stock before or within ten days after the
meeting). Any holder of Series 1996A Stock or its representatives will have
access to the stock ledger of the Corporation relating to the Series 1996A Stock
for the purpose of causing a meeting of stockholders to be called in accordance
with this Section 3(a)(iv).
(v) A director elected in accordance with Section 3(a)(i) or
(ii) will serve until the next annual meeting of stockholders of the Corporation
and until his or her successor is elected and qualified by the holders of the
Series 1996A Stock, except as otherwise provided in the Charter or Bylaws.
(b) While any shares of Series 1996A Stock are outstanding, the
Corporation will not, directly or indirectly, including through a merger or
consolidation with any other corporation or otherwise, without approval of
holders of at least 66-2/3% of the outstanding shares of Series 1996A Stock,
voting separately as a class, (i) increase the number of authorized shares of
Series 1996A Stock or authorize the issuance or issue of any shares of Series
1996A Stock other than to existing holders of Series 1996A Stock, (ii) increase
the authorized number of shares of or create, reclassify or issue any class or
series of stock ranking prior to or on a parity with the Series 1996A Stock
either as to dividends or upon liquidation, (iii) amend, alter or repeal any of
the provisions of the Charter so as to affect adversely the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption of the Series 1996A Stock, (iv) amend, alter or repeal (a) the final
paragraph of Section 1.11, the final paragraph of Section 1.12, Section 2.2,
Section 3.1, Section 6.7 or Section 8.6 of the Bylaws of the Corporation, (b)
any other provision of the Bylaws relating to nomination, election,
classification, qualification or removal of directors elected by the holders of
Series 1996A Stock or size of the Board or (c) any other provision of the Bylaws
in a manner which would adversely affect the rights of the holders of the
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<PAGE>
Series 1996A Stock, (v) authorize any reclassification of the Series 1996A
Stock, (vi) except as otherwise provided herein, require the exchange of Series
1996A Stock for other securities, or (vii) effect a voluntary liquidation,
dissolution or winding up of the Corporation, the sale of substantially all of
the assets of the Corporation, the merger or consolidation of the Corporation or
the Operating Partnership or recapitalization (except a merger of a wholly-owned
subsidiary of the Corporation into the Corporation in which the Corporation's
capitalization is unchanged as a result of such merger) of more than 40% of the
Corporation's total market capitalization (market value of the Corporation's
equity plus total indebtedness) in a single transaction or a series of related
transactions, provided that successive offerings of the Corporation's equity or
debt to the public shall not be considered related transactions.
(c) While any shares of the Series 1996A Stock are outstanding,
the Corporation and the Operating Partnership will not, directly or indirectly,
including through a merger or consolidation with any other corporation or
otherwise, without the approval of the holders of a majority of the outstanding
shares of Series 1996A Stock, voting separately as a class, propose, authorize,
take, or cause to be taken or allow to occur any of the following actions: (i)
the sale, transfer or assignment, in a single transaction or series of
transactions, of beneficial interests in or voting rights with respect to assets
of the Corporation or the Operating Partnership or any other person (except that
with respect to any such other person in which the Corporation or Operating
Partnership has a minority interest such that a sale, transfer or assignment is
not within the Corporation's or Operating Partnership's control, this
prohibition shall not apply) owned directly or indirectly by the Corporation to
the extent of the Corporation's attributed interest in such other person, having
a fair market value (based on the value of the total consideration of each such
transaction, including, without limitation, any debt assumed by any purchaser in
connection therewith) in excess of $45,000,000 within any 90-day period or
$125,000,000 within any 360-day period; (ii) the Corporation's termination of
the election, or the taking of any action by the Corporation which would cause
termination other than by election, of the Corporation as a real estate
investment trust under the Internal Revenue Code of 1986, as
7
<PAGE>
amended; (iii) any alteration in the Corporation's or the Operating
Partnership's business such that (A) less than 65% of the Corporation's or the
Operating Partnership's assets (in terms of book value plus accumulated
depreciation) are located in the States of California, Oregon and Washington,
(B) less than 80% of the Corporation's or the Operating Partnership's assets (in
terms of book value plus accumulated depreciation) are located west of the
Mississippi River or (C) less than 80% of the Corporation's or the Operating
Partnership's assets (in terms of book value plus accumulated depreciation) are
classified as multi-family residential properties; or (iv) any Change in Control
of the Corporation or the Operating Partnership (as defined below).
As used herein, the Corporation shall be deemed to have allowed a
"Change of Control" of the Corporation or the Operating Partnership to have
occurred if any of the following occur: (i) the Corporation takes or fails to
take any action such that it ceases to be required to file reports under Section
13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor to that Section; (ii) any "person" (as defined in Sections 13(d)
and 14(d) of the Exchange Act) is permitted by the Board or the Corporation to
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of either (a) 30% or more of the outstanding shares of
Common Stock, or (b) 30% (by right to vote or grant or withhold any approval) of
the outstanding securities of any other class or classes which individually or
together have the power to elect a majority of the members of the Board; (iii)
the Board determines to recommend the acceptance of any proposal set forth in a
tender offer statement or proxy statement filed by any person with the
Securities and Exchange Commission which indicates the intention on the part of
that person to acquire, or acceptance of which would otherwise have the effect
of that person acquiring, control of the Corporation; (iv) other than as a
result of the death or disability of one or more of the directors within a
three-month period, a majority of the members of the Board for any period of
three consecutive months are not persons who (a) had been directors of the
Corporation for at least the preceding 24 consecutive months or were elected
by the holders of the Series 1996A Stock, voting separately as a class, or
(b) when they initially were elected to the Board, (x) were nominated (if they
were elected by the
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<PAGE>
stockholders) or elected (if they were elected by the directors) with the
affirmative concurrence of 66-2/3% of the directors who were Continuing
Directors at the time of the nomination or election by the Board and (y) were
not elected as a result of an actual or threatened solicitation of proxies or
consents by a person other than the Board or an agreement intended to avoid or
settle such a proxy solicitation (the directors described in clauses (a) and (b)
of this subsection (iv) being "Continuing Directors"); (v) the Corporation
ceases to be the sole General Partner of the Operating Partnership or grants or
sells to any third party the power to control or direct the actions of the
Operating Partnership as if such third party were a general partner of the
Operating Partnership; or (vi) the Operating Partnership is a party to any
entity conversion or any merger or consolidation in which the Operating
Partnership is not the surviving entity in such merger or consolidation.
Section 4. Liquidation. Upon the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, the holders of the Series
1996A Stock will be entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, whether from capital, surplus or
earnings, before any distribution is made to holders of any Junior Shares, an
amount per share (the "Liquidation Preference") equal to 105% of the sum of (i)
Stated Value plus (ii) all Accrued Dividends with regard to the Series 1996A
Stock to the date of final distribution (whether or not declared). If, upon any
liquidation, dissolution or winding-up of the Corporation, the assets of the
Corporation, or proceeds of those assets, available for distribution to the
holders of Series 1996A Stock and of shares of all other classes or series which
are on a parity as to distributions on liquidation with the Series 1996A Stock
are not sufficient to pay in full the Liquidation Preference to the holders of
the Series 1996A Stock and any liquidation preference of all other classes or
series which are on a parity as to distributions on liquidation with the Series
1996A Stock, then the assets, or the proceeds of those assets, which are
available for distribution to the holders of Series 1996A Stock and of the
shares of all other classes or series which are on a parity as to distributions
on liquidation with the Series 1996A Stock will be distributed to the holders of
the Series 1996A Stock and of the
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shares of all other classes or series which are on a parity as to distributions
on liquidation with the Series 1996A Stock ratably in accordance with the
respective amounts of the liquidation preferences of the shares held by each of
them. After payment of the full amount of the Liquidation Preference, the
holders of Series 1996A Stock will not be entitled to any further distribution
of assets of the Corporation. For the purposes of this Section, neither a
consolidation or merger of the Corporation with another corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities, will be considered a liquidation, dissolution or winding-up of the
Corporation.
Section 5. Conversion Into Common Stock.
(a) Optional Conversion. (i) Each holder of shares of Series 1996A
Stock will have the right, at the holder's option, to convert all or any of the
shares of Series 1996A Stock held of record by the holder into (A) a number of
fully paid and non-assessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) equal to Stated Value plus the
amount, if any, of Accrued Dividends as of the effective date of the conversion,
divided by the Conversion Price then in effect, or (B) such other securities or
assets as the holder is entitled to receive in accordance with Section 5(e).
(ii) Notwithstanding the provisions of Section 5(a)(i), the
shares of Series 1996A Stock shall not be convertible into Common Stock until
June 20, 1997, and beginning on such date a number of shares of Series 1996A
Stock equal to 25% of the authorized shares of Series 1996A Stock, and then at
the beginning of each of the next three three-month periods thereafter, an
additional number of shares equal to 25% of such authorized shares shall become
convertible into Common Stock as provided herein; provided, further, however,
that, in the case of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, shares of Series 1996A Stock
shall, at the option of the holder thereof, immediately become convertible into
Common Stock as provided herein.
(iii) The holder of each share of Series 1996A Stock to be
converted must surrender the certificate representing that share to the
conversion agent for the Series
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1996A Stock appointed by the Corporation (which may be the Corporation itself),
with the Notice of Election to Convert on the back of that certificate duly
completed and signed, at the principal office of the conversion agent. If the
shares issuable on conversion are to be issued in a name other than the name in
which the Series 1996A Stock is registered, each share surrendered for
conversion must be accompanied by an instrument of transfer, in form reasonably
satisfactory to the Corporation, duly executed by the holder or the holder's
duly authorized attorney and by funds in an amount sufficient to pay any
transfer or similar tax which is required to be paid in connection with the
transfer or evidence that such tax has been paid.
(b) Mandatory Conversion. If after June 20, 2001, the closing price of
the Common Stock on each of at least 20 Trading Days (as herein defined)
(including the trading day immediately before the Notice of Mandatory
Conversion) out of the preceding period of 30 consecutive Trading Days
immediately prior to the Notice of Mandatory Conversion shall be greater than
the Conversion Price in effect on each of such 20 Trading Days, the Corporation
shall have the right, subject to the right of the holders under Section 7, to
convert all, but not less than all, of the outstanding shares of Series 1996A
Stock into a number of fully paid and non-assessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) equal to
Stated Value plus the amount, if any, of Accrued Dividends as of the effective
date of the conversion, divided by the Conversion Price then in effect. In order
to effect the mandatory conversion of the Series 1996A Stock, the Corporation
shall mail a notice (the "Notice of Mandatory Conversion") to all holders of
outstanding shares of Series 1996A Stock on a date (the "Mandatory Conversion
Notice Date") at least 90 but not more than 120 days prior to the conversion
date specified in the Notice of Mandatory Conversion (the "Mandatory Conversion
Date"). If the Corporation gives a Notice of Mandatory Conversion, the
outstanding shares of Series 1996A Stock will be automatically converted into
shares of Common Stock at the close of business on the Mandatory Conversion Date
regardless of whether the holders of shares of Series 1996A Stock actually
surrender the certificates representing their shares of Series 1996A Stock for
conversion. At the close of business on the Mandatory Conversion Date,
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<PAGE>
(i) the certificates representing the shares of Series 1996A Stock will cease to
represent anything other than the right to receive the shares of Common Stock
into which the shares of the Series 1996A Stock were automatically converted and
(ii) the Corporation may, at its option (the exercise of which will be described
in the Notice of Mandatory Conversion), either (A) deliver certificates
representing the shares of Common Stock to which the holders of the Series 1996A
Stock are entitled without requiring the surrender of the certificates which
formerly represented shares of Series 1996A Stock, or (B) deliver certificates
representing the shares of Common Stock when the holder surrenders the
certificates which formerly represented the Series 1996A Stock and complies with
the other requirements of subparagraph 5(a)(iii).
(c) Conversion Procedures. (i) The effective time of the conversion
under Section 5(a) shall be immediately prior to the close of business on the
day when all the conditions in Section 5(a)(iii) have been satisfied. The
effective time of the conversion under Section 5(b) shall, subject to the rights
of holders under Section 5(a) and Section 7, be immediately prior to the close
of business on the Mandatory Conversion Date.
(ii) If shares are surrendered between the close of business on a
dividend payment Record Date and the opening of business on the corresponding
Dividend Payment Date ("Ex Record Date Shares"), the dividend with respect to
those shares will be payable on the Dividend Payment Date to the holder of
record of the Ex Record Date Shares on the dividend payment Record Date
notwithstanding the surrender of the Ex Record Date Shares for conversion after
the dividend payment Record Date and prior to the Dividend Payment Date. The
Corporation will make no payment or adjustment for Accrued Dividends on Ex
Record Date Shares, whether or not in arrears, or for dividends on the shares of
Common Stock issued upon conversion of the Ex Record Date Shares, other than to
make payment to the holder of record thereof on the Record Date. The provisions
of this Section 5(c)(ii) shall not limit the obligation of the Corporation to
issue shares of Common Stock in conversion of shares of Series 1996A Stock,
including Ex Record Date Shares, at Stated Value plus Accrued Dividends, as
elsewhere provided in these Articles.
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<PAGE>
(iii) Except as otherwise permitted in clause (ii)(B) of the last
sentence of Section 5(b), as promptly as practicable after the effective time
for conversion of shares of Series 1996A Stock, the Corporation will issue and
will deliver to the holder at the office of the conversion agent, or on the
holder's written order, a certificate or certificates representing the number of
full shares of Common Stock issuable upon the conversion of the shares of Series
1996A Stock. Any fractional interest in respect of a share of Common Stock
arising upon a conversion will be settled as provided in Section 5(d).
(iv) Each conversion will be deemed to have been effected at the
effective time provided in Section 5(c)(i), and the person in whose name a
certificate for shares of Common Stock is to be issued upon a conversion will be
deemed to have become the holder of record of the shares of Common Stock
represented by that certificate at such effective time. All shares of Common
Stock delivered upon conversion of Series 1996A Stock will upon delivery be duly
and validly issued and fully paid and nonassessable, free of all liens and
charges and not subject to any preemptive rights. The shares of Series 1996A
Stock so converted will no longer be deemed to be outstanding and all rights of
the holder with respect to those shares will immediately terminate, except the
right to receive the shares of Common Stock or, if applicable, other securities,
cash or other assets to be issued or distributed as a result of the conversion.
(d) Fractional Shares. No fractional shares of Common Stock will be
issued upon conversion of shares of Series 1996A Stock. Any fractional interest
in a share of Common Stock resulting from conversion of shares of Series 1996A
Stock will be paid in cash (computed to the nearest cent) based on the Current
Market Price (as herein defined) of the Common Stock on the Trading Day next
preceding the day of conversion. If more than one share of Series 1996A Stock is
surrendered for conversion at substantially the same time by the same holder,
the number of full shares of Common Stock issuable upon the conversion will be
computed on the basis of all the shares of Series 1996A Stock surrendered at
that time by that holder.
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<PAGE>
(e) Conversion Price. The "Conversion Price" per share of Series 1996A
Stock will initially be $21.875, and will be adjusted as follows from time to
time if any of the events described below occurs:
(i) If the Corporation (A) pays a dividend or makes a
distribution on its Common Stock in shares of its Common Stock, (B) subdivides
its outstanding Common Stock into a greater number of shares, or (C) combines
its outstanding Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to that event will be reduced so that the
holder of a share of Series 1996A Stock surrendered for conversion after that
event will receive the number of shares of Common Stock which the holder would
have received if the share of Series 1996A Stock had been converted immediately
before the happening of the event (or, if there is more than one such event, if
the share of Series 1996A Stock had been converted immediately before the first
of those events and the holder had retained all the Common Stock or other
securities or assets received after the conversion). An adjustment made pursuant
to this Section 5(e)(i) will become effective immediately after the record date
in the case of a dividend or distribution, and will become effective immediately
after the effective date in the case of a subdivision or combination. If such
dividend or distribution is declared but is not paid or made, the Conversion
Price then in effect will be appropriately readjusted. However, a readjustment
of the Conversion Price will not affect any conversion which takes place before
the readjustment.
(ii) If the Corporation issues rights or warrants to the holders
of its Common Stock as a class entitling them to subscribe for or purchase
Common Stock at a price per share less than the Conversion Price at the record
date for the determination of stockholders entitled to receive the rights
or warrants, the Conversion Price in effect immediately before the issuance of
the rights or warrants will be reduced in accordance with the equation set forth
on Exhibit A hereto, which is hereby incorporated by reference herein. The
adjustment provided for in this Section 5(e)(ii) will be made successively
whenever any rights or warrants are issued, and will become effective
immediately after each record date. In determining whether any rights or
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<PAGE>
warrants entitle the holders of the Common Stock to subscribe for or purchase
shares of Common Stock at less than the Conversion Price, and in determining the
aggregate sale price of the shares of Common Stock issuable on the exercise of
rights or warrants, there will be taken into account any consideration received
by the Corporation for the rights or warrants, with the value of that
consideration, if other than cash, to be determined by the Board of Directors of
the Corporation (whose determination, if made in good faith, will be
conclusive). If any rights or warrants which lead to an adjustment of the
Conversion Price expire or terminate without having been exercised, the
Conversion Price then in effect will be appropriately readjusted. However, a
readjustment of the Conversion Price will not affect any conversions which take
place before the readjustment.
(iii) If the Corporation distributes to the holders of its
Common Stock as a class any shares of stock of the Corporation (other than
Common Stock) or evidences of indebtedness or assets (other than cash dividends
or distributions) or rights or warrants (other than those referred to in
Section 5(e)(ii)) to subscribe for or purchase any of its securities, then, in
each such case, the Conversion Price will be reduced so that it will equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the record date for the distribution by a fraction of which the numerator is
the Current Market Price of the Common Stock on the record date for the
distribution less the then fair market value (as determined by the Board of
Directors, whose determination, if made in good faith, will be conclusive) of
the stock, evidences of indebtedness, assets, rights or warrants which are
distributed with respect to one share of Common Stock, and of which the
denominator is the Current Market Price of the Common Stock on that record date.
Each adjustment will become effective immediately after the record date for the
determination of the stockholders entitled to receive the distribution. If any
distribution is declared but not made, or if any rights or warrants expire or
terminate without having been exercised, effective immediately after the
decision is made not to make the distribution or the rights or warrants expire
or terminate, the Conversion Price then in effect will
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<PAGE>
be appropriately readjusted. However, a readjustment will not affect any
conversions which take place before the readjustment.
(iv) If the Corporation issues or sells (or the Operating
Partnership issues or sells) any equity or debt securities which are
convertible, directly or indirectly, into or exchangeable for shares of Common
Stock ("Convertible Securities") or any rights, options (other than the issuance
or exercise after the date hereof of stock options covering no more than 715,400
shares of Common Stock, subject to appropriate adjustment to the extent that the
Corporation (A) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock, (B) subdivides its outstanding Common Stock into a
greater number of shares, or (C) combines its outstanding Common Stock into a
smaller number of shares, issued to employees or directors of the Corporation or
its subsidiaries under the Corporation's existing employee stock incentive
plans) or warrants to purchase Common Stock at a conversion, exchange or
exercise price per share which is less than the Conversion Price, unless the
provisions of Section 5(e)(ii) or (iii) are applicable, the Corporation will be
deemed to have issued or sold, on the later of the date on which the Convertible
Securities, rights, options or warrants are issued or the date on which they
first may be converted, exchanged or exercised, the maximum number of shares of
Common Stock into or for which the Convertible Securities may then be converted
or exchanged or which are then issuable upon the exercise of the rights, options
or warrants immediately prior to the close of business on the later of the date
on which the Convertible Securities, rights, options or warrants are issued or
the date on which they may first be converted, exchanged or exercised, and the
Conversion Price shall be adjusted downward as if it were an event covered by
Section 5(e)(v). However, no further adjustment of the Conversion Price will be
made as a result of the actual issuance of shares of Common Stock upon
conversion, exchange or exercise of the Convertible Securities, rights, options
or warrants. If any Convertible Securities, rights, options or warrants to which
this Section applies are redeemed, retired or otherwise extinguished or expire
without any shares of Common Stock having been issued upon conversion, exchange
or exercise thereof, effective immediately after
16
<PAGE>
the Convertible Securities, rights, options or warrants expire, the Conversion
Price then in effect will be readjusted to what it would have been if those
Convertible Securities, rights, options or warrants had not been issued.
However, a readjustment will not affect any conversion which takes place before
the readjustment. For the purposes of this Section 5(e)(iv), (x) the price of
shares of Common Stock issued or sold upon conversion or exchange of Convertible
Securities or upon exercise of rights, options or warrants will be (A) the
consideration paid to the Corporation for the Convertible Securities, rights,
options or warrants, plus (B) the consideration paid to the Corporation upon
conversion, exchange or exercise of the Convertible Securities, rights, options
or warrants, with the value of the consideration, if other than cash, to be
determined by the Board of Directors of the Corporation (whose determination, if
made in good faith, will be conclusive) and (y) any change in the conversion or
exchange price of Convertible Securities or the exercise price of rights,
options or warrants will be treated as an extinguishment, when the change
becomes effective, of the Convertible Securities, rights, options or warrants
which had the old conversion, exchange or exercise price and an immediate
issuance of new Convertible Securities, rights, options or warrants with the new
conversion, exchange or exercise price.
(v) If the Corporation issues or sells any Common Stock (other
than on conversion or exchange of Convertible Securities or exercise of rights,
options or warrants to which Section 5(e)(ii), (iii) or (iv) applies) for a
consideration per share less than the Conversion Price on the date of the
issuance or sale (or on exercise of options or warrants, for less than the
Conversion Price on the day the options or warrants are issued), upon
consummation of the issuance or sale, the Conversion Price in effect immediately
prior to the issuance or sale will be reduced in accordance with the equation
set forth on Exhibit A hereto, which is hereby incorporated by reference herein.
(vi) If there is a reclassification or change of outstanding
shares of Common Stock (other than a change in par value, or as a result of a
subdivision or combination), or a merger or consolidation of the Corporation
with any other entity that results in a
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<PAGE>
reclassification, change, conversion, exchange or cancellation of outstanding
shares of Common Stock, or a sale or transfer of all or substantially all of the
assets of the Corporation, upon any subsequent conversion of Series 1996A Stock,
each holder of the Series 1996A Stock will be entitled to receive the kind and
amount of securities, cash and other property which the holder would have
received if the holder had converted the shares of Series 1996A Stock into
Common Stock immediately before the first of those events and had retained all
the securities, cash and other assets received as a result of all those events.
In the event that a transaction may be viewed as causing this Section 5(e)(vi)
to be applicable and 5(e)(iii) is also applicable, then Section 5(e)(iii) will
be applied and this Section 5(e)(vi) will not be applied.
(vii) For the purpose of any computation under this Section 5(e),
the "Current Market Price" of the Common Stock on any date will be the average
of the last reported sale prices per share of the Common Stock on each of the
twenty consecutive Trading Days (as defined below) preceding the date of the
computation. The last reported sale price of the Common Stock on each day will
be (A) the last reported sale price of the Common Stock on the principal stock
exchange on which the Common Stock is listed, or (B) if the Common Stock is not
listed on a stock exchange, the last reported sale price of the Common Stock on
the principal automated securities price quotation system on which sale prices
of the Common Stock are reported, or (C) if the Common Stock is not listed on a
stock exchange and sale prices of the Common Stock are not reported on an
automated quotation system, the mean of the high bid and low asked price
quotations for the Common Stock as reported by National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and asked
quotations for the Common Stock on at least five of the ten preceding Trading
Days. If the Common Stock is not traded or quoted as described in any of clause
(A), (B) or (C), the Current Market Price of the Common Stock on a day will be
the fair market value of the Common Stock on that day as determined by a member
firm of the New York Stock Exchange, Inc. selected by the Board of Directors. As
used with regard to the Series 1996A Stock, the term "Trading Day" means (x) if
the Common Stock is listed on at least one stock exchange, a day on which there
is trading on the
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<PAGE>
principal stock exchange on which the Common Stock is listed, (y) if the Common
Stock is not listed on a stock exchange, but sale prices of the Common Stock are
reported on an automated quotation system, a day on which trading is reported on
the principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the Common Stock is not listed on a stock exchange and sale
prices of the Common Stock are not reported on an automated quotation system, a
day on which quotations are reported by National Quotation Bureau Incorporated.
(viii) No adjustment in the Conversion Price will be required
unless the adjustment would require a change of at least 1% in the Conversion
Price; provided, however, that any adjustments which are not made because of
this Section 5(e)(viii) will be carried forward and taken into account in any
subsequent adjustment; and provided, further, that any adjustment must be made
in accordance with this Section 5 (without regard to this Section 5(e)(viii))
not later than the time the adjustment may be required in order to preserve the
tax-free nature of a distribution to the holders of shares of Common Stock. All
calculations under this Section 5 will be made to the nearest cent or to the
nearest one hundredth of a share, as the case may be.
(ix) Whenever the Conversion Price is adjusted, the Corporation
will promptly send each holder of record of Series 1996A Stock a notice of the
adjustment of the Conversion Price setting forth the adjusted Conversion Price
and the date on which the adjustment becomes effective and containing a brief
description of the events which caused the adjustment.
(f) If any one of the events in Sections 5(e)(i) through 5(e)(vi)
occurs, then the Corporation will mail to the holders of record of the Series
1996A Stock, at least 15 days before the applicable date specified below, a
notice stating the applicable one of (i) the date on which a record is to be
taken for the purpose of the dividend, distribution or grant of rights or
warrants, or, if no record is to be taken, the date as of which the holders of
Common Stock of record who will be entitled to the dividend, distribution or
rights or warrants will be determined, (ii) the date on which it is expected the
Convertible Securities will be issued or the date on which the change in the
conversion, exchange or exercise price of the Convertible Securities, rights,
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<PAGE>
options or warrants will be effective, (iii) the date on which the Corporation
anticipates selling Common Stock for less than the Conversion Price on the date
of the sale (except that no notice need be given of the anticipated date of sale
of Common Stock upon exercise of options or warrants which have been described
in a notice to the holders of record of the Series 1996A Stock given at least 15
days before the options or warrants are exercised), or (iv) the date on which
the reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon the reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up. Failure to
give any such notice or any defect in the notice will not affect the legality or
validity of the reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up.
(g) (i) The Corporation will at all times reserve and keep available,
free from preemptive rights, out of the authorized but unissued shares of Common
Stock, for the purpose of effecting conversion of the Series 1996A Stock, the
maximum number of shares of Common Stock which the Corporation would be required
to deliver upon the conversion of all the outstanding shares of Series 1996A
Stock. For the purposes of this Section 5(g)(i), the number of shares of Common
Stock which the Corporation would be required to deliver upon the conversion of
all the outstanding shares of Series 1996A Stock will be computed as if at the
time of the computation all the outstanding shares of Series 1996A Stock were
held by a single holder.
(i) Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any) of the shares of
Common Stock deliverable upon conversion of the Series 1996A Stock, the
Corporation will take all corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of Common Stock at the adjusted
Conversion Price.
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(ii) The Corporation will seek to list the shares of Common
Stock required to be delivered upon conversion of the Series 1996A Stock, prior
to the delivery, upon each national securities exchange, if any, upon which
the outstanding shares of Common Stock are listed at the time of delivery.
(h) The Corporation will pay any documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of Series 1996A Stock; provided, however, that the
Corporation will not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of shares of Common Stock in a
name other than that of the holder of record of the Series 1996A Stock to be
converted and no such issue or delivery will be made unless and until the person
requesting the issue or delivery has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that the
tax has been paid.
Section 12. Status.
Upon any conversion, exchange or redemption of shares of
Series 1996A Stock, the shares of Series 1996A Stock which are converted,
exchanged or redeemed will be reclassified as authorized and unissued shares of
Common Stock, and the number of shares of Series 1996A Stock which the
Corporation will have authority to issue will be decreased by the conversion,
exchange or redemption of shares of Series 1996A Stock, so that the shares of
Series 1996A Stock which were converted, exchanged or redeemed may not be
re-issued.
Section 13. Redemption after Notice of Mandatory Conversion.
(a) Notwithstanding anything to the contrary contained in
Section 5(b), each holder of Series 1996A Stock will have the right, exercisable
at any time after the Mandatory Conversion Notice Date but prior to the
Mandatory Conversion Date, to require the Corporation to redeem any or all the
shares of Series 1996A Stock owned of record by the holder, at a redemption
price per share (the "Redemption Price") equal to the Redemption Percentage as
defined below, multiplied by the sum of (i) Stated Value plus (ii) the sum of
all Accrued Dividends with regard to the Series 1996A Stock through the
Redemption Date, as herein
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defined. As used herein, the "Redemption Percentage" shall mean the percentage
specified in the following table:
<TABLE>
<CAPTION>
Redemption
Redemption Date Percentage
--------------- ----------
<S> <C> <C>
Section 7. June 20, 2001 to June 19, 2002 105
Section 8. June 20, 2002 to June 19, 2003 104
Section 9. June 20, 2003 to June 19, 2004 103
Section 10. June 20, 2004 to June 19, 2005 102
Section 11. June 20, 2005 to June 19, 2006 101
Section 12. June 20, 2006 and thereafter 100
</TABLE>
(a) In order to exercise a right to require the Corporation to
redeem a holder's Series 1996A Stock, the holder must deliver a request for
redemption, accompanied by the certificates representing the shares to be
redeemed, to the Corporation at any time prior to the Mandatory Conversion Date.
If a request for redemption is given with regard to shares of Series 1996A
Stock, promptly (but in no event more than five Business Days) after the request
for redemption is given to the Corporation, the Corporation will pay the holder
cash equal to the Redemption Price of the shares. The date of such payment is
referred to herein as the "Redemption Date."
(b) (i) If a request for redemption accompanied by the certificates
representing the shares to be redeemed is delivered to the Corporation, on the
Redemption Date dividends will cease to accrue with regard to the shares of
Series 1996A Stock to be redeemed, and at the close of business on that date
the holders of those shares will cease to be stockholders with respect to
those shares, will have no interest in or claims against the Corporation by
virtue of the shares and will have no voting or other rights with respect to
the shares.
(i) The dividend with respect to a share of Series 1996A Stock
which is the subject of a request for redemption delivered on a day which falls
between the close of business on a dividend payment Record Date and the opening
of business on the corresponding Dividend Payment Date will be payable on the
Dividend Payment Date to the holder of record of
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the share of Series 1996A Stock on the dividend payment Record Date
notwithstanding the redemption of the share of Series 1996A Stock after the
dividend payment Record Date and prior to the Dividend Payment Date.
(c) At such time as there ceases to be in excess of 40,000 shares of
Series 1996A Stock outstanding, the Corporation may at its option purchase all
of the outstanding shares of the Series 1996A Stock from the holders thereof at
a price equal to the greater of (a) 110% of the sum of the Stated Value of such
shares together with all Accrued Dividends thereon and (b) the fair market value
of such shares, which shall be equal to the fair market value of the Common
Stock, as of such date, issuable upon conversion of such shares, together with
all Accrued Dividends thereon.
Section 8. Ranking. Subject to Section 3(b), the shares of Series 1996A
Preferred Stock will, with respect to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding-up of the
Corporation, rank prior to any other class or series of preferred stock or
Common Stock issued by the Corporation.
Section 9. Miscellaneous.
(a) Except as otherwise expressly provided in these Articles
Supplementary, whenever a notice or other communication is required or permitted
to be given to holders of shares of Series 1996A Stock, the notice or other
communication will be deemed properly given if deposited in the United States
mail, postage prepaid, addressed to the persons shown on the books of the
Corporation as the holders of the shares at the addresses as they appear in the
books of the Corporation, as of the record date or dates determined in
accordance with applicable law and with the Charter and Bylaws, as in effect
from time to time.
(b) Shares of Series 1996A Stock will not have any designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications or terms
and conditions of redemption, other than those specifically set forth herein,
in the Charter, and as may be provided under applicable law insofar as any
such provision does not conflict with the terms hereof.
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<PAGE>
(c) The headings of the various subdivisions herein are for
convenience only and will not affect the meaning or interpretation of any of the
provisions herein.
(d) Provided that the Corporation's Board of Directors determines
that it is appropriate to submit to a vote of the holders of Series 1996A Stock,
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption of the Series 1996A Stock may be waived, and any of
such provisions of the Series 1996A Stock may be amended, by the approval of
holders of at least 66-2/3% of the outstanding shares of Series 1996A Stock,
voting separately as a class.
(e) Notwithstanding anything to the contrary contained in Section 3,
Section 5 or Section 7 hereof, each holder of Series 1996A Stock hereby agrees
that, in determining whether any holder of Series 1996A Stock has (i) voted to
elect any director of the Corporation under Section 3(a), (ii) approved any
action of the Corporation under Sections 3(b) or 3(c), (iii) elected to cause
the conversion of holder's Series 1996A Stock into Common Stock or other
securities or assets under Section 5, (iv) received any notice of the
Corporation required by these Articles Supplementary, including without
limitation notices required by Section (5)(e)(ix) and Section 5(f), or (v)
elected to cause the redemption by the Corporation of such holder's Series 1996A
Stock in the circumstances provided in Section 7, Tiger/Westbrook Real Estate
Fund, L.P., and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P.,
each a Delaware limited partnership (together with their respective successors,
collectively the "Fund"), shall jointly but not severally have the right to
grant or deny any such approvals, make or decline any such elections or receive
any such notices with regard to all of the Series 1996A Stock held of record by
each such holder and a notice received by the Fund and a document executed by
the Fund causing the election of any director under Section 3(a), granting or
denying approval to any action by the Corporation under Section 3(c), or
electing or declining to the Corporation to effect the redemption of Series
1996A Stock in the circumstances provided in Section 7 shall determine the
matter for all holders. Upon written notice by the Fund to the Company, the Fund
may, or
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<PAGE>
upon the effectiveness of a registration statement filed with the Securities and
Exchange Commission registering the sale of Series 1996A Stock pursuant to which
all Series 1996A Stock has been disposed of, the Fund shall relinquish such
powers over any or all of the shares of Series 1996A Stock. The foregoing
provisions shall be implemented by execution by each holder of Series 1996A
Stock of a proxy in favor of WBP I Holding Corp. and WBP II Holding Corp. acting
as nominees for the Fund.
Section 10. Permissible Distributions.
In determining whether a distribution (other than upon voluntary or
involuntary liquidation), by dividend, redemption or other acquisition of shares
or otherwise, is permitted under the Maryland General Corporation Law, amounts
that would be needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
Series 1996A Stock whose preferential rights upon dissolution are superior to
those receiving the distribution shall not be added to the Corporation's total
liabilities.
Section 11. Severability of Provisions.
Whenever possible, each provision hereof shall be interpreted in a
manner as to be effective and valid under applicable law, but if any provision
hereof is held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or otherwise adversely affecting the remaining
provisions hereof. If a court of competent jurisdiction should determine that a
provision hereof would be valid or enforceable if a period of time were extended
or shortened or a particular percentage were increased or decreased, then such
court may make such change as shall be necessary to render the provision in
question effective and valid under applicable law.
SECOND: The Series 1996A Stock has been reclassified by the Board of
Directors under a power contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
25
<PAGE>
FOURTH: The undersigned acknowledges these Articles Supplementary to be
the act of the Corporation and states as to all matters and facts required to be
verified under the oath that, to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and such
statement is made under penalties for perjury.
26
<PAGE>
IN WITNESS WHEREOF, these Articles Supplementary are executed on behalf
of the Corporation by its President and attested by its Secretary this 1st day
of July, 1996.
ESSEX PROPERTY TRUST, INC.
By: /s/ Keith Guericke
--------------------------------
Name: Keith Guericke
------------------------------
Title: President
-----------------------------
[SEAL]
Attest:
/s/ Michael Schall
- ----------------------------
Name: Michael Schall
-----------------------
Title: Secretary
27
<PAGE>
EXHIBIT 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-13106
ESSEX PROPERTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 77-0369576
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
777 California Avenue, Palo Alto, California 94304
(Address of principal executive offices) (Zip code)
(415) 494-3700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
common stock, $.0001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [_] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment the
Form 10-K. [X]
As of February 29, 1996, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $121,435,000. The aggregate market value was
computed with reference to the closing price on the New York Stock Exchange on
such date. This calculation does not reflect a determination that persons are
affiliates for any other purpose.
As of February 29, 1996, 6,275,000 shares of Common Stock ($.0001 par value)
were outstanding.
LOCATION OF EXHIBIT INDEX: The index exhibit is contained in Part IV, Item 14,
on page number 18.
DOCUMENTS INCORPORATED BY REFERENCE:
The following document is incorporated by reference in Part III of the Annual
Report on Form 10K/A: Proxy statement for the annual meeting of stockholders of
Essex Property Trust, Inc. to be held on May 21, 1996.
<PAGE>
EXPLANATORY NOTE
The undersigned Registrant hereby amends, as and to the extent set forth below,
the following items, financial statements, exhibits or other portions of its
Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended
December 31, 1995 filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934:
PART I
+ Item 1 - Business
+ Item 2 - Properties
+ Item 3 - Legal Proceedings
+ Item 4 - Submission of Matters to a Vote of Security Holders
PART II
+ Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters
* Item 6 - Selected Financial Data
* Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
+ Item 8 - Financial Statements and Supplementary Data
+ Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
+ Item 10 - Directors and Executive Officers of the Registrant
+ Item 11 - Executive Compensation
+ Item 12 - Security Ownership of Certain Beneficial Owners and
Management
+ Item 13 - Certain Relationships and Related Transactions
PART IV
* Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
*The items amend information previously filed by the Company as part of the
Company's Annual Report on Form 10-K/A (Amendment No. 1) filed with the
Securities and Exchange Commission on May 2, 1996.
+These items have not been amended hereby and are included herein for
convenience of reference only.
2
<PAGE>
TABLE OF CONTENTS
FORM 10-K/A
(AMENDMENT NO. 2)
<TABLE>
<CAPTION>
PART I Page No.
<S> <C> <C> <C>
Item 1 Business......................................................................... 4
Item 2 Properties....................................................................... 10
Item 3 Legal Proceedings................................................................ 12
Item 4 Submission of Matters to a Vote of Security Holders.............................. 12
PART II
Item 5 Market for Registrant's Common Stock
and Related Stockholder Matters................................................... 13
Item 6 Selected Financial Data........................................................... 13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 16
Item 8 Financial Statements and Supplementary Data....................................... 21
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................................ 21
PART III
Item 10 Directors and Executive Officers of the Registrant................................ 22
Item 11 Executive Compensation............................................................ 22
Item 12 Security Ownership of Certain Beneficial
Owners and Management............................................................. 22
Item 13 Certain Relationships and Related Transactions.................................... 22
PART IV
Item 14 Exhibits, Financial Statements Schedules and
Reports on Form 8-K............................................................... 22
</TABLE>
3
<PAGE>
PART I
ITEM 1. BUSINESS
General Development and Description of Business
Essex Property Trust, Inc. ("Essex", or the "Company") is a self-administered
and self-managed real estate investment trust ("REIT") in the business of
acquiring, refurbishing, marketing, leasing, managing and developing multifamily
residential and retail properties. As of December 31, 1995 Essex's property
portfolio consisted of ownership interests in the following 30 properties
("Properties"): (i) 23 multifamily residential properties containing 4,868
apartment units, (ii) six neighborhood shopping centers containing approximately
351,000 rentable square feet of space and (iii) an office building housing
Essex's headquarters (the "Headquarters Building"), with approximately 45,000
rentable square feet of space (each individually a "Property" and, collectively,
the "Properties"). Essex's properties are concentrated in Northern California
and the Seattle, Washington greater metropolitan area, from which 78% of its
rental revenue was derived in 1995. Other markets in which the Company owns
property include areas surrounding Portland, Oregon and Southern California.
Essex was incorporated in the state of Maryland in March 1994. On June 13, 1994,
Essex commenced operations with the completion of an initial public offering
("the Offering") in which it issued 6,275,000 shares of common stock at $19.50
per share. The net proceeds of the Offering of $112.1 million were used to
acquire an approximate 77.2% general partnership interest in Essex Portfolio,
L.P. (the "Operating Partnership").
All references to Essex in this report refer to Essex Property Trust, Inc. and
those entities owned or controlled by Essex Property Trust, Inc. Unless
otherwise specified, information about Essex and the properties refers to the
operations of Essex after the completion of the Offering and the operations of
Essex Property Corporation ("EPC") prior to the completion of the Offering.
Essex was formed to continue and expand the real estate investment and
management operations conducted by EPC since 1971. Since its inception, Essex
has successfully acquired, developed, managed and/or disposed of a combination
of approximately 145 property and portfolio assets in seven major metropolitan
markets in the western United States at an aggregate investment in excess of
$700 million. Such properties have included various types of commercial
property, with a focus on multifamily residential property. Essex's multifamily
residential property investments have involved an aggregate of more than 13,600
apartment units.
Business Objectives
Essex's four core business objectives are:
- - Active Property Marketing and Management. Maximize, on a per share basis,
cash flow available for distribution and the capital appreciation of its
property portfolio through active property marketing and management.
- - Selected Expansion of Property Portfolio. Increase, on a per share basis,
cash flow available for distribution through the acquisition and
development of multifamily residential properties in selected major
metropolitan areas located in the western United States.
- - Optimal Portfolio Asset Allocations. Produce predictable financial
performance through a portfolio asset allocation program that seeks to
increase or decrease the equity invested in each market based on changes in
regional economic and local market conditions.
- - Management of Capital and Financial Risk. Optimize Essex's capital and
financial risk positions by maintaining a conservative leverage ratio,
evaluating financing alternatives on an on-going basis and minimizing
Essex's cost of capital.
4
<PAGE>
Business Principles
Essex was founded on, has followed, and will continue to follow the business
principles set forth below:
Property Management. Through its long-standing philosophy of active property
management and a customer satisfaction approach, coupled with a discipline of
internal cost control, Essex seeks to retain tenants, maximize cash flow,
enhance property values and compete effectively for new tenants in the
marketplace. Essex's regional property managers are accountable for overall
property operations and performance. They supervise on-site managers, monitor
fiscal performance against budgeted expectations, monitor Property performance
against the performance of competing properties in the area, prepare operating
and capital budgets for executive approval, and implement new strategies focused
on enhancing tenant satisfaction, increasing revenue, controlling expenses, and
creating a more efficient operating environment. Essex has established in-house
training programs for its on-site staff.
Business Planning and Control. Real estate investment decisions are accompanied
by a multiple year plan, to which an executive and other managers responsible
for obtaining future financial performance must agree in writing. Performance
versus plan serves as a significant factor in determining compensation.
Property Type Focus. Essex focuses on acquisition of multifamily residential
communities, containing between 75 and 400 units. Essex believes that these
types of properties offer attractive opportunities because such properties (i)
are often mispriced by real estate sellers and buyers who lack Essex's ability
to obtain and use real-time market information, (ii) provide opportunities for
value enhancement since many of these properties have been owned by parties that
either are inadequately capitalized or lack the professional property management
expertise of Essex, and (iii) can be readily exchanged or sold during periods of
changing market conditions due to the relatively large pool of prospective and
qualified buyers for such properties.
Geographic Focus. Essex focuses its property investments in markets that meet
the following criteria:
- - Major Metropolitan Areas. Essex focuses on metropolitan areas having a
regional population in excess of 1 million people. Real estate markets in
these areas are typically characterized by a relatively greater number of
buyers and sellers and are, therefore, more liquid. Liquidity is an
important element for implementing Essex's strategy of varying its
portfolio in response to changing market conditions.
- - Supply Constraints. Essex believes that properties located in real estate
markets with limited development or redevelopment opportunities are
well-suited to produce increased rental income. In evaluating supply
constraints, Essex reviews: (i) availability of developable land sites on
which competing properties could be readily constructed; (ii) political
barriers to growth resulting from a restrictive local political environment
regarding development and redevelopment (such an environment, in addition
to the restrictions on development itself, is often associated with a
lengthy development process and expensive development fees); and (iii)
physical barriers to growth, resulting from natural limitations to
development, such as mountains or waterways.
- - Rental Demand Created by High Cost of Housing. Essex concentrates on
markets in which the cost of renting is significantly lower than the cost
of owning a home. In such markets, rent levels are higher and operating
expenses, as a percentage of rent, are lower in comparison with markets
that have a lower cost of housing.
- - Job Proximity. Essex believes that most renters select housing based on its
proximity to their jobs and on related commuting factors and desire to
remain within a specified travel distance from their jobs. Essex obtains
commuting information relating to its residential properties and uses this
information when making multifamily residential property acquisition
decisions. Essex also reviews the location of major employers relative to
its portfolio and potential acquisition properties.
Following the above criteria, Essex is currently pursuing investment
opportunities in selected markets of Northern and Southern California, the
Seattle Metropolitan Area and Portland Metropolitan Area.
Active Portfolio Management Through Regional Economic Research and Local Market
Knowledge. Essex was founded on the belief that the key elements of successful
real estate investment and portfolio growth include extensive regional economic
research and local market knowledge. Essex utilizes its economic research and
local market knowledge to make appropriate portfolio allocation decisions that
it believes result in better overall operating performance and lower portfolio
risk. Essex maintains and evaluates:
5
<PAGE>
- Regional Economic Data. Essex evaluates and reviews regional
economic factors for the markets in which it owns properties and where
it considers expanding its operations. Essex's research focuses on
regional and sub-market supply and demand, economic diversity, job
growth, market depth and, for residential properties, the comparison
of rental price to single-family housing prices.
- Local Market Conditions. Local market knowledge includes (i)
local factors that influence whether a sub-market is desirable to
tenants, (ii) the extent to which the area surrounding a property is
improving or deteriorating, and (iii) local investment market
dynamics, including the relationship between the value of a property
and its yield, the prospects for capital appreciation and market
depth.
Recognizing that all real estate markets are cyclical, Essex regularly evaluates
the results of regional economic and local market research and adjusts asset
acquisitions and portfolio allocations accordingly. Essex actively manages the
allocation of assets within its portfolio. Essex seeks to increase its portfolio
allocation in markets projected to have economic growth and to decrease such
allocations in markets projected to have declining economic conditions.
Likewise, Essex also seeks to increase its portfolio allocation in markets that
have attractive property valuations and to decrease such allocations in markets
that have inflated valuations and low relative yields. Although Essex is
generally a long-term investor, it does not establish defined or preferred
holding periods for its Properties.
Current Business Activities
Essex conducts substantially all of its activities through the Operating
Partnership, of which Essex owns an approximate 77.2% general partnership
interest. An approximate 22.8% Operating Partnership interest is owned by the
Directors, officers and employees of Essex and certain third-party investors. As
the sole general partner of the Operating Partnership, Essex has operating
control over the management of the Operating Partnership and each of the
Properties. Three of the multifamily residential Properties located in the State
of Washington are owned by partnerships in which the Operating Partnership owns
a 99% general partnership interest and Essex Washington Interests Partners
("EWIP") owns the remaining 1% Partnership interest. The Operating Partnership
owns a 99% general partnership interest in EWIP and Essex owns the remaining 1%
general partnership interest. EWIP was organized in March 1994 as a California
general partnership.
Essex qualifies as a real estate investment trust ("REIT") for federal income
tax purposes, commencing with the year ending December 31, 1994. In order to
maintain compliance with REIT tax rules, Essex provides fee-based asset
management and disposition services as well as third-party property management
and leasing services through Essex Management Corporation ("EMC"). Essex owns
100% of EMC's 19,000 shares of nonvoting preferred stock. Executives of Essex
own 100% of EMC's 1,000 shares of common stock. Essex has been actively engaged
in the business of acquiring and managing portfolios of non-performing assets
along with institutional investors. Asset management services resulting from
these portfolios are provided by EMC, typically for the term that is required to
acquire, reposition and dispose of the portfolio. Asset management agreements
usually provide for a base management fee calculated as a percentage of the
gross asset value of the portfolio under management, and an incentive fee based
upon the over all financial performance of the portfolio. Accordingly, the fees
earned as a result of these contracts fluctuate as assets are acquired and
disposed. However, Essex believes, that few opportunities to acquire portfolios
of non-performing assets will be available in the near future.
During 1995, Essex acquired ownership interests in three multifamily properties
consisting of 692 units for an aggregate contracted purchase price of
approximately $48 million. The acquisitions were financed by new mortgage loans
and borrowings under lines of credit. One of the acquisitions (156 units) was
located in the greater Seattle metropolitan area and two were located in
Northern California (536 units).
For the two acquisitions in Northern California, Essex acquired limited
partnership interests in Essex Bristol Partners, L.P. ("Bristol") and Essex San
Ramon Partners, L.P. ("San Ramon"). In the Bristol transaction, Essex obtained
for $2,145,000 a 99% interest in Bristol and Bristol simultaneously acquired
Bristol Commons Apartments, a 188 unit apartment community in Sunnyvale,
California for $16,850,000. Essex's partner is Acacia Capital Corporation, which
provided subordinated debt and equity financing to the partnership in the amount
of $2,648,000. Permanent debt financing consisted of a 7 year mortgage in the
amount of $12,298,000, with a fixed interest rate of 7.54%. Essex will receive
approximately 60% of the cash flow generated by the venture. Built in 1989,
Bristol Commons is a luxury apartment property with a full amenity package,
including pool, spa, exercise room, business center, marble woodburning
fireplaces, and landscaped grounds. In the San Ramon transaction, Essex obtained
for $3,647,000, a 99% partnership interest in San Ramon and San Ramon
simultaneously acquired The Shores Apartments, a 348 unit apartment community in
San Ramon, California for $25,450,000. Essex's partner is Acacia Capital
Corporation, which provided subordinated debt and equity to the partnership in
the amount of $3,816,000. Permanent debt financing consisted of a 5 year
mortgage in the amount of $18,520,000, with a fixed interest rate of 7.5%. Essex
will receive approximately 60% of the cash flow generated by the venture. Built
in 1988,
6
<PAGE>
The Shores Apartments is a luxury apartment property with a full amenity
package, including two pools, lighted tennis courts, a volleyball court, four
spas, two saunas and a fitness center. Essex will manage the two properties on
behalf of the partnerships.
In 1995, Essex purchased undeveloped land in Hillsboro, Oregon for $950,000.
This land and cash of approximately $550,000 was contributed in exchange for a
49.9% partnership interest, to Jackson School Village limited partnership. The
partnership will develop on the site a 200 unit garden-style apartment
community. Essex's partner in this partnership, Great Northwest Management
Company, is to provide development and property management services to the
partnership and has secured and guaranteed construction financing. The
partnership was formed in July 1995 and construction began shortly thereafter.
During 1995, Essex disposed of two multifamily properties consisting of 234
units for an aggregate gross sales price of approximately $13 million. These
funds were used repay indebtedness under existing mortgages and lines of credit
and acquire additional properties. Both these properties were located in
Northern California.
Offices and Employees
Essex is headquartered in Palo Alto, California, and has regional offices in
Seattle, Washington, and Portland, Oregon. As of December 31, 1995, Essex had
approximately 210 employees.
Competition
Essex's Properties compete for tenants with similar properties primarily on the
basis of location, rent charged, services provided, and the design and condition
of the improvements. Competition for tenants from competing properties affects
the amount of rent charged as well as rental growth rates, vacancy rates,
deposit amounts, and the services and features provided at each property. While
economic conditions are generally improving in Essex's target markets, a
prolonged economic downturn could have a material adverse effect on Essex's
operations and financial condition.
Essex also experiences competition when attempting to acquire properties that
meet its investment criteria. Such competing buyers include domestic and foreign
financial institutions, other REIT's, life insurance companies, pension funds,
trust funds, partnerships and individual investors.
Working Capital
Essex's practice is to maintain cash reserves for normal repairs, replacements,
improvements, working capital and other contingencies. Essex believes it
currently maintains sufficient cash balances to fund working capital needs.
Essex currently has access to two lines of credit in the committed amount of
approximately $23 million with unused portions as of December 31, 1995
sufficient to cover any known cash requirements in excess of cash balances.
Other Matters
Essex's operating results may be affected by the following factors:
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, Essex'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 which the Properties are located
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.
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.
7
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Geographic Concentration; Dependence on California, Washington and Oregon
Economics. Approximately 51%, 31%, 11% and 7% of Essex's rental revenues for the
year ended December 31, 1995 were derived from Properties located in the
Northern California Area, the Seattle Metropolitan Area, southern California and
the Portland Metropolitan Area (and Eugene, Oregon), respectively. 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.
Risks of Acquisition and Development Activities. Essex intends to actively
continue to acquire multifamily residential 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.
Essex has one multifamily residential property development project in progress
as of December 31, 1995 and may pursue other projects. Any future 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
adversely affecting Essex's results of operations.
Environmental Matters. 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, in or from
such property. Certain of such laws 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 or wastes also may be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility
to which such substances or wastes were sent, whether or not such facility is
owned or operated by such person and regardless of whether such person selected
the disposal or treatment facility. In connection with the ownership (direct or
indirect), operation, management and development of real properties, the Company
could be considered an owner or operator of such properties or as having
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, potentially liable for removal or remediation costs, as well as
certain other costs, including governmental fines and damages for injuries to
persons and property. In addition, certain environmental laws impose liability
for release of asbestos-containing materials ("ACMs"), and third parties may
seek recovery from owners or operators of real properties for personal injury
associated with ACMs.
All of the Properties have been subjected to preliminary environmental
assessments, including a review of historical and public data ("Phase I
assessments"), by independent environmental consultants. Phase I assessments
generally consist of an investigation of environmental conditions at the
Property, including a preliminary investigation of the site, an identification
of publicly known conditions concurring properties in the vicinity of the site,
an investigation as to the presence of polychlorinated biphenyls ("PCBs"), ACMs
and above-ground and underground storage tanks presently or formerly at the
sites, and preparation and issuance of written reports. As a result of
information collected in the Phase I assessments, certain of the Properties were
subjected to additional environmental investigations, including, in a few cases,
soil sampling or ground water analysis to further evaluate the environmental
conditions of those Properties.
The environmental studies revealed the presence of groundwater contamination on
three of the Properties. Two of such properties had contamination which was
reported to have migrated on-site from adjacent industrial manufacturing
operations, and the third property was occupied previously by an industrial user
that was identified as the source of contamination. The environmental studies
noted that five of the Properties are located adjacent to and possibly down
gradient from sites with known groundwater contamination, the lateral limits of
which may extend onto such Properties. The environmental studies also noted that
at two Properties contamination existed because of the presence of underground
fuel storage tanks which have been removed. Based on the information contained
in the environmental studies, the Company believes that the costs, if any, it
might bear as a result of environmental contamination or other conditions at
these ten Properties would not have a material adverse effect on the Company's
financial condition or result of operations.
With one exception, the Company has no indemnification agreements from third
parties for potential environmental clean-up costs at one of their properties.
No assurance can be given that existing environmental studies with respect to
any of the
8
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Properties reveal all environmental liabilities, that any prior owner or
operator of a Property did not create any material environmental condition not
known to the Company, or that a material environmental condition does not
otherwise exist as to any one or more of the Properties.
Uninsured Losses. All of the Properties are located in areas that are subject to
earthquake activity, including 15 Properties in California, 10 Properties in
Washington and 5 Properties in Oregon. Essex has obtained earthquake insurance
for all the Properties. The existing earthquake insurance covers losses, subject
to an aggregate limitation of $4.0 million, losses of up to $2.5 million for
each multifamily residential Property subject to a 10% deductible. Properties
may selectively be excluded from being covered by earthquake insurance based on
management's evaluation of the following factors: (i) the availability of
coverage on terms acceptable to Essex, (ii) the location of the property and the
amount of seismic activity affecting that region, and, (iii) the age of the
property and building codes in effect at the time of construction. Accordingly,
despite earthquake coverage on all of its Properties, should a property sustain
damage as a result of an earthquake, Essex may incur losses due to deductibles,
co-payments or losses in excess of applicable insurance, if any.
Although the Company carries certain insurance for non-earthquake damages to its
properties and liability insurance, Essex may still incur losses due to
deductibles, co-payments or losses in excess of applicable insurance.
Financing Policy. Essex 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 stock and (ii) the total property indebtedness. Based on this
calculation, Essex's Debt-to-Total-Market-Capitalization ratio was 49.4% as of
December 31, 1995.
The organizational documents of Essex and the Operating Partnership do not limit
the amount or percentage of indebtedness that they may incur. Essex 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, Essex 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, Essex or the Operating
Partnership may raise such funds through additional equity offerings, debt
financing or retention of cash flow (subject to provisions in the Code
concerning taxability of undistributed real estate investment trust income), or
a combination of these methods.
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 flow 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.
Debt Financing; 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. 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 Funds from Operations.
9
<PAGE>
ITEM 2. PROPERTIES
Portfolio Overview
Essex's property portfolio (including partial ownership interests) consists of
the following 30 Properties: (i) 23 multifamily residential Properties
containing 4,868 apartment units, (ii) six neighborhood shopping centers
containing approximately 351,000 rentable square feet of space and (iii) an
office building housing Essex's headquarters, with approximately 45,000 rentable
square feet of space. The Properties are located in California, Washington, and
Oregon. Essex's multifamily residential Properties accounted for approximately
89% of Essex's rental revenues for the year ended December 31, 1995. The 23
multifamily residential Properties had an average occupancy rate (based on
financial occupancy) during the year ended December 31, 1995 of approximately
97%. As of December 31, 1995, the six retail Properties had an occupancy rate
(based on leased and occupied square footage) of approximately 93%, and the
Headquarters Building had an occupancy rate (based on leased and occupied square
footage) of 100%.
For the year ended December 31, 1995, none of the Company's properties had book
values equal to 10% or more of total assets or gross revenues equal to 10% or
more of aggregate gross revenues.
The Location and Type of the Company's Properties
<TABLE>
<CAPTION>
NUMBER OF OCCUPANCY RENTAL PERCENTAGE OF
PROPERTY TYPE PROPERTIES LOCATION SIZE RATE REVENUE PORTFOLIO(1)
- -------------- ---------- -------- ---- ---- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Multifamily Residential Properties
11 San Francisco South Bay 2,311 units 98% $18,922 45%
9 Seattle, Washington 1,883 units 96% 12,980 31%
1 Sacramento Metropolitan Area 92 units 95% 592 1%
2 Southern California 582 units 95% 4,597 11%
--- ----------- ---
Subtotal 23 4,868 units 89%
Commercial Properties
Neighborhood Shopping Center 5 Portland Metropolitan Area 302,706 sq. ft. 93% 2,527 6%
1 Eugene, Oregon 49,420 sq. ft. 98% 454 1%
---
Subtotal 6
Headquarters Building 1 San Francisco South Bay 44,827 sq. Ft. 100% 1,649 4%
--- ------- ---
TOTAL 30 $41,640 100%
== ======= ===
</TABLE>
(1) Based upon rental revenues for the year ended December 31, 1995.
Multifamily Residential Properties
Essex has ownership interests in 23 multifamily residential apartment
communities containing 4,868 units. The majority of these Properties are
suburban garden apartments and townhomes comprising multiple clusters of two-
and three-story buildings situated on three to 15 acres of land. The multifamily
Properties have on average 211 units, with a mix of studio, one-, two- and some
three-bedroom units. A wide variety of amenities is available at each apartment
community, including swimming pools, clubhouses, covered parking, and cable
television. Many Properties offer additional amenities, such as fitness centers,
volleyball and playground areas, tennis courts and wood-burning fireplaces.
Most of Essex's apartment communities are designed for and marketed to working
people in white-collar or technical professions. Essex selects, trains and
supervises a full team of on-site service and maintenance personnel. Essex
believes that its customer-service approach enhances its ability to retain
tenants and that its multifamily residential Properties were well-built and have
been well-maintained.
At December 31, 1995 one of Essex's rental properties in Northern California
with a carrying amount of $7,321,000 was held for sale.
Neighborhood Shopping Centers and Headquarters Building
Five of Essex's six neighborhood shopping centers are in the Portland
Metropolitan Area and the remaining property is located in Eugene, Oregon. These
neighborhood shopping centers contain an aggregate of approximately 351,000
rentable square feet of space and, as of December 31, 1995, had an occupancy
rate (based on leased and occupied square footage) of approximately 93%. These
Properties are located in several sub-markets in Portland and Eugene. The
tenants include a mix of national, regional and local retailers. Essex acquired
the neighborhood shopping centers as a portfolio in 1990 and since
10
<PAGE>
that time has implemented an expansion, renovation and re-leasing program. Essex
is evaluating the potential disposition of one or more of these retail
properties.
Essex also owns a prepaid ground leasehold interest in the office building that
houses its corporate headquarters. Essex acquired this Property in 1986 and
redeveloped it in 1988. The Headquarters Building has approximately 45,000
rentable square feet of space and is a multi-tenant, one-story office building,
located in the Stanford Research Park in Palo Alto, California. Essex occupies
approximately 6,000 square feet of the Headquarters Building, The Marcus &
Millichap Company occupies approximately 16,000 square feet and the remaining
two tenants occupy approximately 23,000 square feet. The land on which the
Headquarters Building is located is owned by Stanford University, and Essex owns
a ground leasehold interest in the building and underlying land. The ground
lease for the Headquarters Building is prepaid until its expiration in 2054,
and, unless the lease is extended, the land, together with all improvements
thereon, will revert to Stanford University in 2054.
The following table describes Essex's Properties.
<TABLE>
<CAPTION>
PROPERTY NUMBER OF TOTAL RENTABLE YEAR YEAR OWNERSHIP
NAME/LOCATION UNITS/TENANTS SQUARE FOOTAGE COMPLETED ACQUIRED INTEREST(1)
- ------------- ------------- --------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
MULTIFAMILY RESIDENTIAL
PROPERTIES
The Apple 200 Units 146,296 1971 1982 100%
Fremont, CA
Countrywood 137 93,495 1970 1988 100%
Fremont, CA
Marina Cove 292 250,294 1974 1994 100%
Santa Clara, CA
Oak Pointe 390 294,180 1973 1988 100%
Sunnyvale, CA
Pathways 296 197,720 1975 1991 69.3%
Long Beach, CA
Plumtree 140 113,260 1975 1994 100%
Santa Clara, CA
Summerhill Commons 184 139,012 1987 1987 100%
Newark, CA
Summerhill Park 100 78,584 1988 1988 100%
Sunnyvale, CA
Viareggio 116 89,615 1988 1988 100%
San Jose, CA
Villa Rio Vista 286 242,410 1968 1985 100%
Anaheim, CA
Windsor Ridge 216 161,892 1989 1989 100%
Sunnyvale, CA
Foothill Commons 360 288,317 1978 1990 100%
Bellevue, WA
Westbridge 92 104,560 1983 1994 100%
Yuba City, CA
Palisades 192 159,792 1969 1990 100%
Bellevue, WA
Wharfside Pointe 142 119,290 1990 1994 100%
Seattle, WA
Woodland Commons 236 172,316 1978 1990 100%
Bellevue, WA
Santa Fe Ridge 240 262,340 1993 1994 100%
Silverdale, WA
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NUMBER OF TOTAL RENTABLE YEAR YEAR OWNERSHIP
NAME/LOCATION UNITS/TENANTS SQUARE FOOTAGE COMPLETED ACQUIRED INTEREST(1)
- ------------- ------------- --------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Inglenook Court 224 183,624 1985 1994 100%
Bothell. WA
Emerald Ridge 180 144,036 1987 1994 100%
Bellevue, WA
Sammamish View 153 133,590 1986 1994 100%
Bellevue, WA
Wandering Creek 156 124,516 1986 1995 100%
Kent, WA
PARTIALLY OWNED PROPERTIES
The Shores 348 275,888 1988 1995 45%(3)
San Ramon, CA
Bristol Commons 188 142,668 1989 1995 45%(3)
Sunnyvale, CA
------------ ---------
Subtotal 4868 Units 3,917,695
------------ ---------
NEIGHBORHOOD SHOPPING CENTERS
Canby Square 10 Tenants 102,565 1976 1990 100%
Canby, OR
Cedar Mill Place 12 28,392 1975 1990 100%
Portland, OR
Powell Villa Center 10 63,645 1959 1990 100%
Portland, OR
Riviera Plaza 13 48,420 1961 1990 100%
Eugene, OR
Wichita Towne Center 5 38,324 1978 1990 100%
Milwaukie, OR
Garrison Square 14 69,780 1962 1990 100%
Vancouver, WA
------------ ---------
Subtotal 64 tenants 351,126
------------ ---------
OFFICE PROPERTY
Headquarters Building 3 tenants 44,827 1988(2) 1986 100%
Palo Alto, CA
30 TOTAL PROPERTIES: 4,313,648
=========
</TABLE>
(1) For information relating to the encumbrances of the individual Properties,
see pages F-25 and F-26 of the Notes to Consolidated Financial Statements.
(2) Represents the completion date for a major renovation.
(3) Actual cash flow received may be more or less than these percentages.
ITEM 3. LEGAL PROCEEDINGS
Neither Essex nor any of the Properties is presently subject to any material
litigation nor, to Essex's knowledge, is there any material litigation
threatened against Essex or the Properties. The Properties are subject to
certain routine litigation and administrative proceedings arising in the
ordinary course of business, which, taken together, are not expected to have a
material adverse impact on Essex.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
quarter ended December 31, 1995.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of the Company's common stock are traded on the New York Stock
Exchange ("NYSE") under the symbol ESS.
Market Information
The Company's common stock has been traded on the NYSE since June 13, 1994. The
high, low and closing price per share of common stock for the quarters from the
Company's inception are as follows:
<TABLE>
<CAPTION>
Quarter Ended High Low Close
------------- ---- --- -----
<S> <C> <C> <C>
December 31, 1995 $19.500 $17.250 $19.250
September 30, 1995 $18.250 $16.750 $17.500
June 30, 1995 $18.125 $15.750 $18.125
March 31, 1995 $16.875 $15.3875 $15.875
December 31, 1994 $18.000 $14.625 $15.125
September 30, 1994 $19.000 $17.125 $18.000
June 30, 1994 $19.625 $17.250 $17.675
</TABLE>
The closing price as of March 28, 1996 was $20.000.
Holders
The approximate number of holders of record of the shares of the Company's
common stock was 83 as of February 29, 1996. This number does not include
stockholders whose shares are held in trust by other entities. The actual number
of stockholders is greater than this number of holders of record.
Return of Capital
Under provisions of the Internal Revenue Code of 1986, as amended, the portion
of cash dividend that exceeds earnings and profits is a return of capital. The
return of capital is generated due to the deduction of noncash expenses,
primarily depreciation, in the determination of earnings and profits. The status
of the cash dividends distributed for the years ended December 31, 1995 and 1994
for tax purposes is as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Taxable portion 69.00% 68.00%
Return of capital 31.00% 32.00%
------ ------
100.00% 100.00%
====== ======
</TABLE>
Dividends and Distributions
Since its initial public offering, the Company has paid regular quarterly
dividends to its stockholders. From inception, the Company paid the following
dividends: July 15, 1994, $.08; October 17, 1994, $.4175; January 15, 1995,
$.4175; April 17, 1995, $.4175; July 17, 1995, $.4175; October 16, 1995, $.425;
and January 16, 1996, $.425. Future distributions by the Company will be at the
discretion of the Board of Directors and will depend on the actual funds from
operations of the company, its financial condition, capital requirements, the
annual distribution requirements under the REIT provisions of the Internal
Revenue Code, applicable legal restrictions and such other factors as the Board
of Directors deems relevant. There are currently no restrictions on the
Company's present or future ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected summary financial and operating
information (i) for Essex from June 13, 1994 (completion of Essex's initial
public offering (the "Offering")) through December 31, 1995, (ii) on a pro forma
basis for Essex for the year ended December 31, 1994 and (iii) on a historical
combined basis for the 20 Properties in which the original limited partners in
the Operating Partnership previously held ownership interests, combined with the
financial and operating information of EPC. For the years ended December 31,
1993 and for earlier periods, the historical combined
13
<PAGE>
financial information does not include financial information relating to the
properties acquired subsequent to June 13, 1994. The unaudited pro forma
financial and operating information for the year ended December 31, 1994 is
based on the ownership and operation of the 23 Properties owned of the time of
the Offering (including the properties acquired as of the Offering) combined
with the financial and operating information of EPC and is presented as if the
following had occurred on January 1, 1994: (i) the Offering was completed, (ii)
Essex qualified as a REIT, (iii) Essex used the net proceeds from the Offering
and concurrent debt placement to fund a series of asset acquisitions and
mortgage repayments as outlined in the prospectus for the Offering, and (iv)
Essex Management Corporation was formed and certain property and asset
management contracts were assigned to it.
The pro forma financial and operating information should not be considered
indicative of actual results that would have been achieved had the transactions
occurred on the dates or for the periods indicated and do not purport to
indicate results of operations as of any future date or for any future period.
The following table should be read in conjunction with Management's Discussion
and Analysis of Financial Conditions and Results of Operations and with all of
he financial statements and notes thereto included in this report.
14
<PAGE>
ESSEX PROPERTY TRUST, INC. CONSOLIDATED ("ESSEX") AND
ESSEX PARTNERS PROPERTIES COMBINED ("EPP")
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Essex Essex For the years ended December 31,
---------------------------------------------------------------------
Historical
---------------------------------------------------------------------
Year Ended June 13, 1994- Pro Forma Jan. 1, 1994-
Dec. 31, 1995 Dec. 31, 1994 1994(5) June 12, 1994 (EPP) 1993 (EPP) 1992 (EPP) 1991 (EPP
------------- -------------- --------- ------------------- ---------- ---------- ---------
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $43,940 $20,413 $35,993 $14,811 $30,429 $28,088 $27,829
Net Income (loss) before
minority interest and
provision for income
taxes $14,090 $ 4,397 $ 8,235 $ 332 $ 387 ($2,344) ($3,582)
Net Income (loss) after
minority interest $10,604 $ 3,266 $ 6,380 $ 152 ($33) ($2,313) ($3,533)
Net Income per share after
minority interest (1) $ 1.69 $ 0.52 $ 1.02
Common Stock
outstanding
(in thousands) 6,275 6,275 6,275
<CAPTION>
Historical, as of December 31
---------------------------------------------------------------
Essex Essex
1995 1994 1993 (EPP) 1992 (EPP) 1991 (EPP)
---- ---- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate
(before accumulated
depreciation) $284,358 $282,344 $186,447 $183,898 $182,037
Net investment in real
estate 244,077 248,232 158,873 161,808 165,197
Total Assets 273,660 269,065 171,287 172,450 172,644
Total property indebtedness (net or
depreciation) 154,524 150,019 151,301 153,287 154,360
Stockholders' equity 84,729 84,699 7,772 8,844 10,889
<CAPTION>
Essex Essex For the years ended December 31,
---------------------------------------------------------------------
Historical
---------------------------------------------------------------------
Year Ended June 13, 1994- Pro Forma Jan. 1, 1994-
Dec. 31, 1995 Dec. 31, 1994 1994(5) June 12, 1994 (EPP) 1993 (EPP) 1992 (EPP) 1991 (EPP
------------- -------------- --------- ------------------- ---------- ---------- ---------
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Funds from Operations (2) $ 17,475 $ 8,947 $16,232
Funds from Operations
applicable to Essex's
stockholders (77.2%) $ 13,491 $ 6,906 $12,528
Net cash provided by
operating activities $ 16,595 $ 12,100 $ 4,989 $ 5,046 $ 1,226 $ 126
Net cash used in investing
activities $ (4,962) $(94,751) $(1,796) $(2,549) $(1,861) $(5,889)
Net cash (used in)
provided by financing
activities $(10,061) $ 82,213 $(5,375) $ (441) $ 1,295 $ 2,726
Net increase (decrease) in
cash and cash
equivalents $1,572 $(438) $(2,182) $ 2,056 $ 660 $(3,037)
Total multifamily
residential units (at
end of period) 4,868 4,410 4,410 2,957 2,817 2,817 2,817
Total rentable square feet
of retail properties
and Headquarters
Building (3) 395,953 395,953 395,953 395,953 395,953 377,702 377,702
Total properties (at end
of period) 30 29 29 21 20 20 20
Multifamily residential
property occupancy
rate (4) 97% 96% 96% 95% 95% 95% 95%
Retail properties and
Headquarters Building
occupancy rate (4) 94% 86% 86% 88% 92% 88% 87%
</TABLE>
15
<PAGE>
- --------------
(1) Per share amounts are presented only for the year ended December 31, 1995,
the period from June 13, 1994 to December 31, 1994 and the pro forma 1994
period and are based upon respective amounts divided by 6,275,000 shares.
(2) Industry analysts generally consider Funds from Operations to be an
appropriate measure of the performance of an equity REIT. Funds from
Operations represents net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures, if any. Adjustments for unconsolidated partnerships and
joint ventures, if any, will be calculated to reflect Funds from Operations
on the same basis. Management generally considers Funds from Operations to
be a useful financial performance measurement of an equity REIT because it
provides investors with an additional basis to evaluate the performance of
a REIT. Funds from Operations does not represent net income or cash flows
from operations as defined by generally accepted accounting principles
("GAAP") and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Funds from
Operations does not measure whether cash flow is sufficient to fund all
cash needs including principal amortization, capital improvements and
distributions to shareholders. Funds from Operations also does not
represent cash flows generated from operating, investing or financing
activities as defined under GAAP. Further, Funds from Operations as
disclosed by other REITs may not be comparable to the Operating
Partnership's calculation of Funds from Operations. The Company intends to
adopt the revised NAREIT definition of Funds from Operations in 1996 and
will report future earnings in accordance with the revised definition . The
revised definition does not include, among other items, the amortization of
deferred financing costs as an adjustment to net income. Based on the
revised NAREIT definition of Funds from Operations, the Company's Funds
from Operations for 1995 would have been $16,120,000. For information
regarding Funds from Operations for other periods based on the revised
NAREIT definition, see "Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Funds from Operations."
(3) Square footage amounts are approximate.
(4) For multifamily residential Properties, occupancy rates for each year are
based on average annual financial occupancy. For retail Properties and the
Headquarters Building, occupancy rates are based on leased and occupied
square footage as of December 31 of each year.
(5) The unaudited pro forma financial and operating information for the year
ended December 31, 1994 is based on the ownership and operation of the 23
Properties owned at the time of the Offering (including the properties
acquired as of the Offering) combined with the financial and operating
information of EPC and is presented as if the following had occurred on
January 1, 1994: (i) the Offering was completed, (ii) Essex qualified as a
REIT, (iii) Essex used the net proceeds from the Offering and concurrent
debt placement to fund a series of asset acquisitions and mortgage
repayments as outlined in the prospectus for the Offering and (iv) Essex
Management Corporation was formed and certain property and asset management
contracts were assigned to it. Pro Forma net cash flows for operating,
investing and financing activities have been omitted because of the
subjectivity involved in the assumptions required for related balance sheet
structure and because of the presence of disclosure of actual cash flow
information for 1994 and 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based primarily on the consolidated financial
statements of Essex Property Trust, Inc. ("Essex" or the "Company") for the year
ended December 31, 1995 and for the period from June 13, 1994 (commencement of
operations) through December 31, 1994, and the combined financial statements of
Essex Partners Properties ("EPP") for the period from January 1, 1994 through
June 12, 1994 and for the year ended December 31, 1993. The combined financial
statements of EPP combine the balance sheet data and results of operations of
Essex Property Corporation ("EPC") and of various limited partnerships. EPP is
considered the predecessor entity to Essex and the combined financial statements
are presented for comparative purposes. The following discussion also compares
Essex's activities for the year ended December 31, 1995, with the activities for
the year ended December 31, 1994 which include a summation of Essex's and EPP's
results of operations. The discussion also compares the activities for the year
ended December 31, 1994 with EPP's results of operations for the year ended
December 31, 1993.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results and all such adjustments are of a normal
recurring nature.
Substantially all the assets of Essex are held by, and substantially all
operations are conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). Essex is the sole general partner and as of December 31, 1995 and
1994, owned a 77.2% general partnership interest in the Operating Partnership.
The Company qualifies as a REIT for Federal income tax purposes.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," section constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Essex to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
16
<PAGE>
GENERAL BACKGROUND
Essex's revenues are generated primarily from multifamily residential and
commercial property operations, which accounted for 95%, 91% and 87% of its
revenues for the years ended December 31, 1995, December 31, 1994 and December
31, 1993, respectively. Essex's properties are located in California, Oregon and
Washington. Occupancy levels for Essex's multifamily residential properties in
these markets have generally remained high (averaging approximately 95% over the
last five years).
Essex qualifies as a real estate investment trust ("REIT") for federal income
tax purposes, commencing with the year ending December 31, 1994. In order to
maintain compliance with REIT tax rules, Essex provides fee-based asset
management and disposition services as well as third-party property management
and leasing services through Essex Management Corporation ("EMC"). Essex owns
100% of EMC's 19,000 shares of nonvoting preferred stock. Executives of Essex
own 100% of EMC's 1,000 shares of common stock. Essex has been actively engaged
in the business of acquiring and managing portfolios of non-performing assets
along with institutional investors. Asset management services resulting from
these portfolios are provided by EMC, typically for the term that is required to
acquire, reposition and dispose of the portfolio. Asset management agreements
usually provide for a base management fee calculated as a percentage of the
gross asset value of the portfolio under management, and an incentive fee based
upon the over all financial performance of the portfolio. Accordingly, the fees
earned as a result of these contracts fluctuate as assets are acquired and
disposed. In general, Essex believes, however, that few opportunities to acquire
portfolios of non-performing assets will be available in the near future.
Essex utilized the net proceeds of its initial public offering (the "IPO") to
acquire two multifamily properties for an aggregate of $31,180,000 and to reduce
its outstanding mortgage debt by $60,205,000. A third property, Plumtree
Apartments, had been acquired by EPC in February 1994 and was transferred to the
Operating Partnership upon the completion of the IPO. Subsequent to the
Offering, seven multifamily properties were acquired for an aggregate of
approximately $58,325,000. One of these seven properties has been subsequently
sold. As a result, revenues and operating expenses have generally increased.
Average financial occupancy rates for the year ended December 31, 1995 for
multifamily properties were as follows:
Northern California 98%
Seattle, Washington 96%
Southern California 95%
The commercial properties were 94% occupied (based on square footage) as of
December 31, 1995.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Total Revenues increased by $8,716,000 or 24.8% to $43,940,000 in 1995 from
$35,224,000 in 1994. Rental revenue increased by $9,399,000 or 29.2% to
$41,640,000 in 1995 from $32,241,000 in 1994. Rental revenue from the Northern
California and Seattle multifamily residential Properties increased by
$8,918,000 or 37.8% to $32,494,000 in 1995 from $23,576,000 in 1994.
Approximately $8,269,000 of the increase in rental revenue was attributable to
the properties which were acquired by Essex concurrent with and after the IPO in
1994 and 1995. Rental revenue increased by $206,000 or 4.7% during 1995 for the
two Properties located in Southern California. Commercial property rental
revenue increased by $149,000 or 3.3% during 1995.
On May 31, 1995 and November 8, 1995 the Company sold Loma Verde and Pacifica
Park, respectively. The net all cash sales price of the two properties was
$12,147,000. The net book value of these assets were $6,134,000 resulting in a
gain on sales of real estate of $6,013,000.
Total Expenses increased by $5,214,000 or approximately 17.1% to $35,709,000 in
1995 from $30,495,000 in 1994. Interest expense increased by $700,000 or 6.8% to
$10,928,000 in 1995 from $10,228,000 in 1994. Such interest expense increase was
primarily due to the acquisition of additional multifamily Properties.
Property operating expenses, which include maintenance and repairs, real estate
taxes, advertising, utilities, and on-site administrative expenses, increased by
$2,885,000 or 26.9% to $13,604,000 in 1995 from $10,719,000 in 1994. Of such
increase, $2,793,000 is attributable to properties acquired concurrent with and
after the IPO in 1994 and 1995.
17
<PAGE>
Property and asset management expenses relate to (i) the cost of managing
properties in which certain directors and officers of the Company and their
affiliates hold a minimal economic interest and (ii) the cost of managing
portfolios of real estate and non-performing mortgages. No such expenses were
incurred in the periods following the completion of the IPO. Property and asset
management expenses of $974,000 were incurred prior to the completion of the
IPO. Such expenses are no longer incurred due to the establishment of EMC in
connection with the IPO (the financial results of which are not consolidated
with Essex's financial statements), which has borne all property and asset
management costs since June 13, 1994.
General and administrative expenses represents the cost of Essex's various
acquisition and administrative departments, as well as, partnership,
administration and non-operating expenses. Such expenses increased by $764,000
due primarily to reduced allocations of Essex's expenses to EMC of approximately
$500,000 and the accrual of incentive compensation related to achieving certain
performance benchmarks. Other expenses represent an allocation to Essex of costs
incurred prior to the completion of the IPO by The Marcus & Millichap Company
for executive management, incentive compensation, audit and tax services and
other matters; such expenses have not been borne by Essex since the completion
of the IPO.
Net income after minority interest increased by $7,186,000 to $10,604,000 in
1995 from $3,418,000 in 1994. The increase in net income after minority interest
was primarily due to $6,013,000 gains from the sale of two Properties and
operations from Properties acquired concurrent with and after the IPO in 1994
and 1995.
Comparison of Year Ended December 31, 1994 to Year Ended December 31, 1993
Total Revenues increased by $4,795,000 or 15.8% to $35,224,000 in 1994 from
$30,429,000 in 1993. Rental revenue increased by $5,732,000 or 21.6% to
$32,241,000 in 1994 from $26,509,000 in 1993. Approximately $5,003,000 of the
increase in rental revenue was attributable to the properties acquired in 1994.
Rental revenue from the San Francisco South Bay and Seattle multifamily
residential Properties increased by $398,000 to $18,681,000 in 1994 from
$18,283,000 in 1993. Rental revenue decreased by $130,000 during 1994 for the
two Properties located in southern California. Commercial property rental
revenue increased $461,000 generally as a result of increased leasing activity.
Property and asset management revenues decreased by $1,483,000 or 45.2% to
$1,794,000 in 1994 from $3,277,000 in 1993 due to the transfer of such
activities to EMC upon completion of the IPO. Since the completion of the IPO,
property and asset management services are being provided by EMC, whose results
are not consolidated with the results of Essex. EMC receives an allocation of
Essex's expenses, based on the time and overhead related to those activities.
Total Expenses increased by $453,000 or approximately 1.5% to $30,495,000 in
1994 from $30,042,000 in 1993. Interest expense decreased by $1,647,000 or 14.1%
to $10,228,000 in 1994 from $11,902,000 in 1993. Such interest expense decrease
was primarily due to the net reduction of outstanding mortgage debt that was
paid with the proceeds of the IPO and the two mortgage loans closed in
connection with the IPO. In addition, Essex obtained six mortgage loans after
the IPO related to acquisitions activity.
Property operating expenses, which include maintenance and repairs, real estate
taxes, advertising, utilities and on-site administrative expenses, increased by
$1,371,000 or 14.7% to $10,719,000 in 1994 from $9,348,000 in 1993. The
component of the increase related to properties acquired at or following the
completion of the IPO was $1,700,000 which are partially offset by a reduction
in management costs of $545,000.
Property and asset management expenses relate to (i) the cost of managing
properties in which certain directors and officers of the company and their
affiliates hold a minimal economic interest and (ii) the cost of managing
portfolios of real estate and non-performing mortgages. Such expenses decreased
by $422,000 in 1994 or 30.2% to $974,000 in 1994 from $1,396,000 in 1993. Such
decreases were primarily a result of the establishment of EMC in connection with
the IPO (the financial results of which are not consolidated with Essex's
financial statements), which has borne all property and asset management costs
since June 13, 1994.
General and administrative expenses represent the costs of Essex's various
acquisition and administrative departments as well as partnership administration
and non-operating expenses. Such expenses increased by $75,000 in 1994 compared
to 1993. Other expenses represent an allocation to Essex costs incurred prior to
the completion of the IPO by The Marcus & Millichap Company for executive
management, incentive compensation, audit and tax services and other matters;
since expenses have not been borne by Essex since the completion of the IPO.
18
<PAGE>
Net income after minority increased by $3,451,000 to $3,418,000 in 1994 from
$(33,000) in 1993. The increase in net income was largely the result of
increases in rental revenue and decreased interest costs.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, Essex had $3,983,000 in cash and cash equivalents, which
management believes should be sufficient to meet its immediate operating cash
requirements. Essex has credit facilities in the committed amount of
approximately $23,000,000. At December 31, 1995 Essex had $18,463,000
outstanding on its lines of credit, with interest rates generally ranging from
7.6% to 8.2%.
Essex's cash balance increased $1,572,000 from $2,411,000 as of December 31,
1994 to $3,983,000 as of December 31, 1995. This increase in cash was the result
of $16,595,000 of cash provided by operating activities, reduced by $4,962,000
of cash used in investing activities and $10,061,000 of cash used in financing
activities. The $4,962,000 of net cash used by investing activities was the
result of $9,516,000 used to purchase a rental property and $7,426,000 used to
invest in corporations and joint ventures, which were offset by $12,147,000 of
proceeds of the sales of two rental properties. The $10,061,000 of net cash used
by financing activities was the result of $13,636,000 of dividends/distribution
paid, partially offset by $4,505,000 of net proceeds in excess of repayments of
mortgage and other notes payable and lines of credit.
As of December 31, 1995, the combined outstanding indebtedness under mortgages
and lines of credit consisted of $94,850,000 in fixed rate debt, (such component
includes variable rate indebtedness subject to interest rate swap agreements),
$27,611,000 in debt based on the Federal Home Loan Bank's 11th District Cost of
Funds index ("the 11th District Debt"), $17,432,000 of variable rate debt based
on The London Interbank Offered Rates ("LIBOR"), $13,600,000 of debt represented
by tax exempt variable rate demand bonds and $1,031,000 in debt based on the
prime lending rate. Essex's 11th District Debt is subject to maximum annual
payment adjustments of 7.5% and a maximum interest rate during the term of the
loans of 13%.
In June 1994, Essex entered into a five-year interest rate protection agreement
covering mortgage notes payable with aggregate balances of $24,133,000 as of
December 31, 1994. The agreements protected Essex from increases in the
thirty-day LIBOR rate in excess of a 6.3125% cap rate on these mortgage notes.
In May 1995, Essex sold this agreement and used the net proceeds to enter into
an interest rate swap agreement extending through June 1999. The interest rate
swap agreement fixes the thirty-day LIBOR rate at 5.79% for mortgage notes
payable with aggregate balances of $18,580,000 as of December 31, 1995.
In connection with the IPO, Essex obtained a commitment from Northwestern Mutual
Life ("NML") to provide up to $50 million in additional mortgage financing,
subject to several requirements of NML including providing additional collateral
satisfactory to NML. During 1995, in connection with the refinance of three
properties, Essex committed to utilize $20.2 million of this financing in a 7
year fixed rate loan with an interest rate of 7.5%. The refinance transaction
closed subsequent to December 31, 1995. Essex believes it will incur
approximately $175,000 in non-cash costs associated with the early retirement of
this debt.
For the year ended December 31, 1995, non-revenue generating capital
expenditures totaled approximately $1,424,000 or an annualized $329 per weighted
average occupancy unit. These expenditure rates are higher than such capital
expenditures per weighted average occupancy unit of $203 for the year ended
December 31, 1994 due to the implementation of upgrade programs that may result
in increased rental revenues. These expenditures do not include the improvements
required in connection with Northwestern Mutual mortgage loans and renovation
expenditures required pursuant to the requirements related to the tax-exempt
variable rate demand bonds. Essex expects to incur in the range of approximately
$1,450,000 or $300 per weighted average occupancy unit in non-revenue generating
capital expenditures for the year ended December 31, 1996. Essex expects that
cash from operations and/or the lines of credit will fund such expenditures.
However, there can be no assurance that the actual expenditures incurred during
1996 and/or the funding thereof will not be materially different that of the
Company's current expectations.
Essex pays quarterly dividends from cash available for distribution. Until it is
distributed, cash available for distribution is invested by the Company
primarily in short-term investment grade securities or is used by the Company to
reduce balances outstanding under its lines of credit.
Essex expects to meet its short-term liquidity requirements by using its initial
working capital and any portion of net cash flow from operations not currently
distributed. Essex believes that its future net cash flows will be adequate to
meet operating requirements and to provide for payment of dividends by the
Company in accordance with REIT requirements.
19
<PAGE>
Essex expects to meet certain long-term liquidity requirements such as scheduled
debt maturities (including balloon debt payments due in 1996 of approximately
$20.9 million) and repayment of short-term financing of acquisition and
development activities through the issuance of long-term secured and unsecured
debt and offerings by Essex of additional equity securities (or limited
partnership interests in the Operating Partnership).
Subsequent to December 31, 1995, Essex filed a shelf registration statement for
up to $100 million of common stock, preferred stock, depository shares and
warrants to purchase common and preferred stock. The shelf registration
statement was filed on March 7, 1996 and, as of March 29, 1996, had not been
declared effective by the Securities and Exchange Commission.
FUNDS FROM OPERATIONS
Industry analysts generally consider Funds from Operations an appropriate
measure of performance of an equity REIT. Generally, Funds from Operations
adjusts the net income of equity REITs for non-cash charges such as depreciation
and amortization and non-recurring gains or losses. Management generally
considers Funds from Operations to be a useful financial performance measurement
of an equity REIT because Funds from Operations provides investors with an
additional basis to evaluate the performance of a REIT. Funds from Operations
does not represent net income or cash flows from operations as defined by
generally GAAP and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an alternative to
net income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. Funds from Operations does not measure whether
cash flow is sufficient to fund all cash needs including principal amortization,
capital improvements and distributions to stockholders. Funds from Operations
also does not represent cash flows generated from operating, investing or
financing activities as defined under GAAP. Further, Funds from Operations as
disclosed by other REITs may not be comparable to the Operating Partnership's
calculation of Funds from Operations.
The National Association of Real Estate Investment Trusts ("NAREIT"), a leading
industry trade group, has approved a revised definition of Funds from
Operations, which provides that the amortization of deferred financing costs is
no longer to be added back to net income to calculate Funds for Operations.
NAREIT has suggested that REITs adopt this new definition beginning in 1996. The
following table sets forth Essex's calculation of actual Funds from Operations
for 1995 and 1994 and pro forma Funds for Operations for 1994.
<TABLE>
<CAPTION>
For the Proforma
year For the quarter ended For the 6/13/94
ended ----------------------------------------------------- year ended through
12/31/95 12/31/95 9/30/95 6/30/95 3/31/95 12/31/94 12/31/94
----------- ----------- ------------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before minority interest $14,090,000 $7,254,000 $2,142,000 $2,682,000 $2,012,000 $8,235,000 $4,397,000
Adjustments:
Depreciation and amortization 8,007,000 1,999,000 2,037,000 2,000,000 1,973,000 7,059,000 4,030,000
Adjustments for
unconsolidated joint ventures 121,000 68,000 51,000 0 0 0 0
Non-recurring items(1)
Gains of the sales of real
estate (6,013,000) (5,224,000) 0 (789,000) 0 0 0
Other non-recurring items 442,000 249,000 26,000 167,000 0 0 0
Minority interest - Pathways (527,000) (155,000) (123,000) (129,000) (120,000) (457,000) (260,000)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Funds from operations -
NAREIT "revised definition" 16,120,000 4,191,000 4,133,000 3,931,000 3,865,000 14,837,000 8,167,000
Amortization of deferred
financing cost 1,355,000 332,000 311,000 349,000 363,000 1,395,000 773,000
----------- ---------- ---------- ---------- ---------- ----------- ----------
Funds from operations -
NAREIT "prior definition" $17,475,000 $4,523,000 $4,444,000 $4,280,000 $4,228,000 $16,232,000 $8,940,000
=========== ========== ========== ========== ========== =========== ==========
Number of Shares (2) 8,130,000 8,130,000 8,130,000 8,130,000 8,130,000 8,130,000 8,130,000
<CAPTION>
For the quarter ended 6/13/94
------------------------- through
12/31/94 9/30/94 6/30/94
----------- ----------- ---------
<S> <C> <C> <C>
Income before minority interest $1,810,000 $2,180,000 $407,000
Adjustments:
Depreciation and amortization 2,056,000 1,649,000 325,000
Adjustments for
unconsolidated joint ventures 0 0 0
Non-recurring items(1)
Gains of the sales of real
estate 0 0 0
Other non-recurring items 0 0 0
Minority interest - Pathways (121,000) (117,000) (22,000)
---------- ---------- --------
Funds from operations -
NAREIT "revised definition" 3,745,000 3,712,000 710,000
Amortization of deferred
financing cost 357,000 346,000 70,000
---------- ---------- --------
Funds from operations -
NAREIT "prior definition" $4,102,000 $4,058,000 $780,000
========== ========== ========
Number of Shares (2) 8,130,000 8,130,000 8,130,000
</TABLE>
(1) Other non-recurring items consist of $288,000 of loss from hedge
termination and $154,000 of loss on the early extinguishment of debt. These
non-recurring items are excluded from the Funds from Operations calculation
since they are non-operational in nature, infrequent in occurrence and
inclusion would distort the comparative measurement of the Company's
performance over time.
(2) Assumes conversion of all outstanding operating partnership interests in
the Operating Partnership into shares of Essex's common stock.
20
<PAGE>
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board has issued Financial Accounting
Standards (FAS) 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and FAS 123, "Accounting for Stock-Based
Compensation."
Essex has adopted FAS 121 effective January 1, 1996, and believes that adoption
will not have a material impact on Essex's 1996 financial statements. Essex will
adopt the disclosure requirements of FAS 123 in 1996, but continue to account
for its stock option plan under Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees," as permitted under FAS 123.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 21, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 21, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 21, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 21, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Consolidated Financial Statements and Report of KPMG Peat Marwick LLP, independent auditors Page
----
<S> <C>
Independent Auditor's Report F-1
Financial Statements:
Balance Sheets:
Essex Property Trust, Inc. Consolidated as of December 31, 1995 and December 31, 1994 F-2
Statements of Operations:
Essex Property Trust Inc., Consolidated the year ended
December 31, 1995, and for the period from June 13, 1994 to
December 31, 1994; Essex Partners
Properties Combined for periods prior to June 13, 1994 F-3
Statements of Stockholder's Equity:
Essex Property Trust Inc. Consolidated Statements of Stockholder's Equity for the
year ended December 31, 1995, and for the period from June 13, 1994 to December 31, 1994;
Essex Partners Properties combined for periods prior to June 13, 1994 F-4
Statements of Cash Flows:
Essex Property Trust, Inc. Consolidated Statement of Cash Flow for the year ended
December 31, 1995 and for the period June 13, 1994 to December 31, 1994;
Essex Partners Properties Combined for period prior to June 13, 1994 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
(b) Reports on Form 8-K - None
(c) Exhibits
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit # Document Page
- --------- -------- ----
<S> <C> <C>
3.1 Articles of Incorporation of Essex Property Trust, Inc. (1)
3.2 Bylaws of Essex Property Trust, Inc. (1)
3.3 Articles of Amendment of Essex, dated April 19, 1994. (1)
3.4 Articles of Amendment and Restatement of Essex, dated June 1, 1994. (1)
3.5 Articles of Amendment and Restatement of Essex dated June 22, 1995, attached
as Exhibit 3.1 to Essex's 10Q as of June 30, 1995. (5)
10.1 Agreement of Limited Partnership for the Operating Partnership. (1)
10.2 Form of Essex Property Trust, Inc. 1994 Employee Stock Incentive Plan (1)
10.3 Form of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock
Incentive Plan. (1)
10.4 Form of the Essex Property Trust, Inc. 1994 Employee Stock Purchase Plan (1)
10.5 Form of Non-Competition Agreement between Essex and each of Keith R. Guericke
and George M. Marcus. (1)
10.6 Contribution Agreement by and among Essex, the Operating Partnership and
the Limited Partners in the Operating Partnership. (1)
10.7 Form of Indemnification Agreement between Essex and its directors and officers. (1)
10.8 Commitment Letter between Northwestern Mutual Life Insurance Company and
the Operating Partnership. (1)
10.9 Summary of terms letter dated April 27, 1994 for three credit facilities from Bank
of America to the Operating Partnership and Essex. (1)
10.10 Real Estate Purchase and Sale Agreement dated as of November 5, 1993 by and
between Seattle-First National Bank and EPC, as amended. (1)
10.11 Counter offer to Real Estate Purchase Agreement dated as of October 15, 1993 by and
between Plumtree Apartments, Ltd. and EPC, as amended. (1)
10.12 Form of Purchase Agreement between EPC and the Former Partners. (1)
10.13 Leasehold agreement between Houghton Mifflin Company and Stanford University
dated as of February 1, 1955, as amended. (1)
10.14 Agreement by and among M&M, M&M REIBC and the Operating Partnership
and Essex regarding Stock Options. (1)
10.15 Co-Brokerage Agreement by and among Essex, the Operating Partnership, M&M
REIBC and Essex Management Corporation. (1)
10.16 General Partnership Agreement of Essex Washington Interest Partners. (1)
10.17 Form of Office Lease between the Operating Partnership and the Marcus and
Millichap Company. (1)
10.18 Form of Management Agreement between the Operating Partnership and Essex
Management Corporation regarding the retail Properties. (1)
10.19 Form of Amended and Restated Agreement among Tenants-in-Common regarding
Pathways Property. (1)
10.20 Form of Promissory Note made by Gilroy Associates and San Pablo Medical
Investors in favor of the Operating Partnership. (1)
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
10.21 Loan Agreement between Chaparral-Anaheim Investors--1985 and Security Pacific
National Bank, as amended. (1)
10.22 Promissory Note made by Summerhill Wolfe Associates in favor of Citibank. (1)
10.23 Real Estate Purchase Agreement and Counter offer dated as of February 18, 1994
by and between Marina Cove Apartments and EPC. (1)
10.24 Commitment letter dated May 12, 1994 between First Interstate Bank and the
Operating Partnership. (1)
10.25 Revised Exhibit A to Forms of Holdback Funding Agreements between
Northwestern Mutual Life Insurance Company and the Operating Partnership
and partnerships (in which the Operating Partnership is the general partner) that
own certain of the Washington Properties. (1)
10.26 Form of Investor Rights Agreement between Essex and the Limited Partners of
the Operating Partnership. (1)
10.27 Assumption and Modification Agreement dated May 12, 1994 by and among Citibank,
Summerhill Wolfe Associates and the Operating Partnership (1)
10.28 Revolving credit agreement between Essex and First Interstate Bank,
attached as Exhibit 10.1 to Essex's 10Q as of June 30, 1994. (2)
10.29 Standing loan agreement between Essex and Bank of America for
$15,250,000, attached as Exhibit 10.2 to Essex's 10Q as of June 30, 1994. (2)
10.30 Standing loan agreement between Essex and Bank of America for
$8,925,000, attached as Exhibit 10.3 to Essex's 10Q as of June 30, 1994. (2)
10.31 Form of Promissory Note to be made by San Pablo Medical Investors, Ltd.
and Gilroy Associates in favor of the Operating Partnership and forms of
documents relating thereto. (1)
10.32 Promissory notes for $3,400,000, $10,000,000 and $42,000,000 evidencing
amounts payable to Northwestern mutual Life Insurance Company, attached
as Exhibit 10.5 to Essex's 10Q as of June 30, 1994. (2)
10.35 Real Estate purchase agreement for Santa Fe Ridge Apartments. (4)
10.36 $12.58 million Promissory Note to World Savings and Loan Association. (4)
10.37 $6.3 million Promissory Note to World Savings and Loan Association. (4)
10.38 $6.7 million Promissory Note to World Savings and Loan Association. (4)
10.39 $13.61 million Promissory Note secured by deeds of trust to Bank of America. (4)
10.40 Revolving credit agreement between Essex and Bank of America, attached as
Exhibit 10.4 to Essex's 10Q as of June 30, 1994. (2)
10.41 Interest rate protection agreement dated June 10, 1994, attached as Exhibit 10.6
to Essex's 10Q as of June 30, 1994. (2)
10.42 Purchase agreement for Inglenook Court Apartments, Emerald Ridge Apartments
and Sammanish View Apartments, attached as an Exhibit to Form 8K dated
November 21, 1994. (3)
12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges (6)
21.1 List of Subsidiaries of Essex Property Trust, Inc. (1)
</TABLE>
24
<PAGE>
(1) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-11 (Registration No.
33-76578), which became effective on June 6, 1994.
(2) Incorporated by reference to the Company's report on Form 10Q for
the quarter ended June 30, 1994.
(3) Incorporated by reference to the Company's report on Form 8K filed
as of November 21, 1994.
(4) Incorporated by reference to the identically number exhibit to the
Company's report on Form 10K for the year ended December 31, 1994.
(5) Incorporated by reference to the Company's report on Form 10Q for
the quarter ended June 30, 1995.
(6) Incorporated by reference to Exhibit 12.1 to the Company's
Registration Statement on Form S-3 (File No. 333-2054).
25
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to its
Annual Report or Form 10-K filed on Form 10-K/A to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: June 3, 1996 ESSEX PROPERTY TRUST, INC.
By: /s/ Michael J. Schall
----------------------------------
Michael J. Schall
Executive Vice President and Chief
Financial Officer
26
<PAGE>
Independent Auditors' Report
The Board of Directors
Essex Property Trust, Inc.:
We have audited the accompanying 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 the period June 13, 1994
through December 31, 1994 and of Essex Partners Properties (the Predecessor) for
the period January 1, 1994 through June 12, 1994 and the year ended December 31,
1993. In connection with our audits of the consolidated financial statements, we
have also audited the financial statement schedule of Real Estate and
Accumulated Depreciation of Essex Property Trust, Inc. as of December 31, 1995.
These consolidated financial statements and financial statement schedule are the
responsibility of the management of Essex Property Trust, Inc. and the
Predecessor. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Essex Property
Trust, Inc. as of December 31, 1995 and 1994, and the results of their
operations and cash flows of Essex Property Trust, Inc. and the Predecessor for
the years ending December 31, 1995 and 1993 and for the periods June 13, 1994
through December 31, 1994 and January 1, 1994 through June 12, 1994 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule when considered in relation to the
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
San Francisco, California KPMG PEAT MARWICK LLP
February 7, 1996
F-1
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Balance Sheets
December 31, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Real estate:
Rental properties:
Land and land improvements $ 61,738 $ 62,092
Buildings and improvements 222,620 220,252
-------- --------
284,358 282,344
Less accumulated depreciation (40,281) (34,112)
-------- --------
244,077 248,232
Investments 8,656 1,138
-------- --------
252,733 249,370
Cash and cash equivalents 3,983 2,411
Notes and other related party receivables 4,780 4,441
Notes and other receivables 5,130 5,254
Prepaid expenses and other assets 1,944 1,157
Deferred charges, net 5,090 6,432
-------- --------
$273,660 $269,065
======== ========
Liabilities and Stockholders' Equity
Mortgage notes payable 136,061 135,019
Lines of credit 18,463 15,000
Accounts payable and accrued liabilities 2,964 3,037
Dividends payable 3,455 3,394
Other liabilities 1,565 1,368
-------- --------
Total liabilities 162,508 157,818
Minority interest 26,423 26,548
Stockholders' equity:
Common stock, $.0001 par value, 670,000,000 shares
authorized, 6,275,000 shares issued and outstanding 1 1
Additional paid-in capital 112,070 112,070
Accumulated deficit (27,342) (27,372)
-------- --------
Total stockholders' equity 84,729 84,699
-------- --------
$273,660 $269,065
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Essex Property Trust, Inc. Essex Partners Properties
-------------------------- -------------------------
June 13, January 1,
Year ended to to Year ended
December 31, December 31, June 12, December 31,
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental $41,640 $19,499 $12,742 $26,509
Property and asset management -- -- 1,794 3,277
Interest and other income 2,300 914 275 643
------- ------- ------- -------
43,940 20,413 14,811 30,429
------- ------- ------- -------
Expenses:
Property operating expenses:
Maintenance and repairs 3,811 1,725 1,108 2,364
Real estate taxes 3,371 1,601 1,120 2,330
Utilities 2,974 1,396 834 1,853
Administrative 2,592 1,297 922 2,158
Advertising 299 149 142 327
Insurance 557 284 141 316
Depreciation and amortization 8,007 4,030 2,598 5,537
------- ------- ------- -------
21,611 10,482 6,865 14,885
------- ------- ------- -------
Interest 10,928 4,304 5,924 11,902
Amortization of deferred financing costs 1,355 773 96 219
General and administrative 1,527 457 306 688
Loss from hedge termination 288 -- -- --
Property and asset management -- -- 974 1,396
Other -- -- 314 952
------- ------- ------- -------
Total expenses 35,709 16,016 14,479 30,042
------- ------- ------- -------
Income before gain on sale of real estate, provision for income
taxes, minority interests and extraordinary item 8,231 4,397 332 387
Gain on sales of real estate 6,013 -- -- --
Provision for income taxes -- -- (267) (581)
Minority interest (3,486) (1,131) 87 161
------- ------- ------- -------
Income before extraordinary item 10,758 3,266 152 (33)
Extraordinary item:
Loss on early extinguishment of debt (154) -- -- --
------- ------- ------- -------
Net income (loss) $10,604 $ 3,266 $ 152 $ (33)
======= ======= ======= =======
Per share data:
Net income per share from operations before extraordinary item $ 1.71 .52
Extraordinary item - debt extinguishment .02 --
------- -------
Net income per share $ 1.69 $ .52
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Retained
Common stock Additional earnings/
----------------- paid-in (Accumulated
Shares Amount capital deficit) Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 -- $ -- $ -- $ 8,844 $ 8,844
Contributions -- -- -- 100 100
Distributions -- -- -- (1,139) (1,139)
Net loss -- -- -- (33) (33)
----- ---- -------- -------- --------
Balance at December 31, 1993 -- -- -- 7,772 7,772
Distributions -- -- -- (1,273) (1,273)
Net income through June 12, 1994 -- -- -- 152 152
----- ---- -------- -------- --------
Balance at June 12, 1994 -- -- -- 6,651 6,651
Net proceeds from the initial public offering 6,275 1 112,070 -- 112,071
Effect of the initial public offering -- -- -- (5,658) (5,658)
Recognition of minority interest -- -- -- (25,889) (25,889)
----- ---- -------- -------- --------
Balances after the reorganization and offering 6,275 1 112,070 (24,896) 87,175
Net income -- -- -- 3,266 3,266
Dividends declared -- -- -- (5,742) (5,742)
----- ---- -------- -------- --------
Balances at December 31, 1994 6,275 1 112,070 (27,372) 84,699
Net income -- -- -- 10,604 10,604
Dividends declared -- -- -- (10,574) (10,574)
----- ---- -------- -------- --------
Balances at December 31, 1995 6,275 $ 1 $112,070 $(27,342) $ 84,729
===== ==== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Essex Property Trust, Inc Essex Partners Properties
--------------------------- -------------------------
Year ended June 13, to January 1, Year ended
December 31, December 31, to June 12, December 31,
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,604 $ 3,266 $ 152 $ (33)
Minority interest 3,003 892 (87) (161)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sales of real estate (6,013) -- -- --
Equity income of limited partnerships (92) -- -- --
Loss on early extinguishment of debt 154 -- -- --
Loss from hedge termination 62 -- -- --
Depreciation and amortization 8,007 4,030 2,598 5,537
Amortization of deferred financing costs 1,355 773 96 219
Changes in operating assets and liabilities:
Other receivables (48) (71) 1,848 (490)
Prepaid expenses and other assets (561) 3,626 (1,396) 549
Accounts payable and accrued liabilities (73) 685 691 345
Other liabilities 197 (1,101) 1,087 (920)
-------- --------- ------- -------
Net cash provided by operating activities 16,595 12,100 4,989 5,046
-------- --------- ------- -------
Cash flows from investing activities:
Additions to rental properties (9,516) (84,940) (1,796) (2,549)
Issuance of notes receivable (500) (8,673) -- --
Repayments of notes receivable 333 -- -- --
Investments in corporations and joint ventures (7,426) (1,138) -- --
Dispositions of real estate 12,147 -- -- --
-------- --------- ------- -------
Net cash used in investing activities (4,962) (94,751) (1,796) (2,549)
-------- --------- ------- -------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit 21,700 128,904 -- 2,700
Repayment of mortgage and other notes payable
and lines of credit (17,195) (138,434) (2,113) (3,486)
Additions to deferred charges (930) (7,085) -- (47)
Additions to payable to related parties -- 190 919 1,431
Repayment of payable to related parties -- (4,668) 2,908 --
Net proceeds from stock offering -- 112,071 -- --
Net payments made in connection with the reorganization -- (4,721) -- --
Contributions from partners -- -- -- 100
Distributions to minority interest/partners (3,123) -- (1,273) (1,139)
Dividends paid (10,513) (4,044) -- --
-------- --------- ------- -------
Net cash (used in) provided by financing activities (10,061) 82,213 (5,375) (441)
-------- --------- ------- -------
Net increase (decrease) in cash and cash equivalents $ 1,572 $ (438) $(2,182) $ 2,056
Cash and cash equivalents at beginning of period 2,411 2,849 5,031 2,975
-------- --------- ------- -------
Cash and cash equivalents at end of period $ 3,983 $ 2,411 $ 2,849 $ 5,031
======== ========= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 10,927 $ 3,562 $ 6,584 $11,806
======== ========= ======= =======
Supplemental disclosure of non-cash investing and
financing activities:
Mortgage note payable assumed in connection
with purchase of real estate $ -- $ -- $ 9,161 $ --
======== ========= ======= =======
Dividends payable $ 3,455 $ 3,394 $ -- $ --
======== ========= ======= =======
</TABLE>
See note 1 for additional supplemental disclosure of non-cash activities.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(Dollars in thousands, except for per share amounts)
(1) Organization and Basis of Presentation
The accompanying consolidated financial statements present the accounts of
Essex Property Trust, Inc. (the Company) which include the accounts of the
Company and Essex Portfolio, L.P. (the Operating Partnership, which holds
the operating assets of the Company). The Company was incorporated in the
state of Maryland in March 1994. On June 13, 1994, the Company commenced
operations with the completion of an initial public offering (the Offering)
in which it issued 6,275,000 shares of common stock at $19.50 per share.
The net proceeds of the Offering of $112.1 million were used to acquire an
approximate 77.2% general partnership interest in the Operating
Partnership.
The limited partners own an aggregate 22.8% interest in the Operating
Partnership. The limited partners may convert their interests into shares
of common stock or cash based upon the trading price of the common stock at
the conversion date. The Company has reserved 1,855,000 shares of common
stock for such conversions. These conversion rights may be exercised by the
limited partners at any time through 2024.
Concurrent with the Offering, two mortgage loans were closed, generating
net proceeds of $66.2 million. The Operating Partnership used the net
proceeds from the Offering and the two mortgage loans as follows: (i)
$146,600 to repay indebtedness, (ii) $31,200 to acquire two multi-family
properties, and (iii) $500 to pay expenses related to the Offering.
The net effect of certain transactions resulting from the reorganization
and Offering was charged directly to stockholders' equity. Such
transactions, which include payments for limited partnership interests in
predecessor partnerships contributed to the Operating Partnership,
repayment of an affiliate line of credit securing two contributed
properties, issuance of a note receivable to the minority interest partners
in Pathways and the adjustments for EPC assets and liabilities which were
not transferred to the Operating Partnership, are reflected in the
accompanying consolidated statements of stockholders' equity for the year
ended December 31, 1994. The charge of $5,658 to stockholders' equity is
comprised of the following:
(Continued)
F-6
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
<TABLE>
<S> <C>
Net effect of Offering
Distributions to partners
Repayment of an affiliate line of credit securing two
contributed properties $ 6,750
Limited partner buyouts and related costs 2,321
-------
9,071
Issuance of note receivable to the minority interest
partners in Pathways (4,800)
EPC net assets which were not transferred to the
Operating Partnership
Assets (primarily accounts receivable unrelated to
property operations and non-controlling interest
in partnerships) 5,687
Liabilities of EPC not repaid or assumed by the
Operating Partnership (4,300)
-------
1,387
-------
$ 5,658
=======
</TABLE>
Of these amounts, $937 represents the net effect of non-cash transactions in
1994.
The consolidated financial statements include the combined financial statements
of Essex Partners Properties (the Predecessor), the predecessor to the Company,
for the period January 1 to June 12, 1994 and the year ended December 31, 1993.
The combined financial statements of the Predecessor include Essex Property
Corporation and the combined accounts of 17 limited partnerships in which a
majority economic ownership was controlled by EPC or its affiliates.
All significant intercompany balances and transactions have been eliminated in
the consolidated financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(Continued)
F-7
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(2) Summary of Significant Accounting Policies
Real Estate
Rental Properties:
Rental properties are recorded at cost less accumulated depreciation.
Depreciation on rental properties has been provided over the estimated
useful lives of 3 to 40 years using the straight-line method. The carrying
costs of rental properties are adjusted, if necessary based on changes and
circumstances, to reflect a permanent impairment in the value of the assets
or in the case of properties to be disposed of, the excess of the carrying
value over net realizable value. No reductions for impairment in value of
rental properties are recorded as of December 31, 1995 and 1994.
The Company will adopt Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, effective January 1, 1996. In the normal course
of business, when it determines that a property should be disposed of, the
Company will discontinue the periodic depreciation of that property in
accordance with this Statement. In addition, whenever events or changes in
circumstances indicate that the carrying amount of a property may not be
fully recoverable, the carrying amount will be evaluated. If the sum of the
property's expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the property, then the Company
will recognize an impairment loss equal to the excess of the carrying
amount over the fair value of the property.
Management of the Company believes that the implementation of this
Statement will not have a material effect on the consolidated financial
statements of the Company.
Maintenance and repair expenses are charged to operations as incurred.
Asset replacements and improvements are capitalized and depreciated over
their estimated useful lives.
Rental properties are pledged as collateral for the related mortgage notes
payable.
Investments:
The Company accounts for its investments in joint ventures and corporations
using either the equity method or the cost method of accounting.
(Continued)
F-8
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(2) Summary of Significant Accounting Policies, Continued
Cash Equivalents
Highly liquid investments with a maturity of three months or less when
purchased are classified as cash equivalents.
Revenues
For residential properties, rental revenue is reported on the accrual basis
of accounting. For the retail and corporate properties, rental income is
accrued on the straight-line basis over the terms of the leases. Deferred
rent receivable relating to such leases has been included in prepaid
expenses and other assets in the accompanying consolidated balance sheets.
Property management fees of the Predecessor were based on a percentage of
rental receipts of properties managed and recognized as the related rental
receipts were collected. Asset management fees were based on a percentage
of assets managed and recognized monthly as earned.
Deferred Charges
Deferred charges are principally comprised of mortgage loan fees and costs
which are amortized over the terms of the related mortgage notes in a
manner which approximates the effective interest method; an interest rate
protection agreement which is amortized over the five-year term of the
agreement; and prepaid interest on one mortgage note payable which is
amortized over the four-year prepayment term in a manner which approximates
the effective interest method.
Interest Rate Protection and Swap Arrangements
The Company will from time to time use interest rate protection and swap
agreements to reduce its interest rate exposure on specific variable rate
loans. The cost of such arrangements is capitalized and amortized over the
term of the agreement. If the agreement is terminated the gain or loss on
termination is deferred and amortized over the remaining term of the
agreement or reflected in income on repayment of the related debt.
Income Taxes
The Company is taxed as a real estate investment trust (REIT) under
Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the
Code). A REIT is generally not subject to federal income tax on that
portion of its income that qualifies as REIT taxable income provided
(Continued)
F-9
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
that it distributes at least 95 percent of its taxable income to its
shareholders and complies with certain other requirements. Accordingly, no
provision for federal income taxes has been made in the accompanying
consolidated financial statements for the year ended December 31, 1995 and
the period June 13 to December 31, 1994, as the Company believes it is in
compliance with the Code.
(Continued)
F-10
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(2) Summary of Significant Accounting Policies, Continued
Prior to June 13, 1994, income taxes were not provided for on the taxable
income of the combined partnerships because the taxable income or loss was
included in the income tax returns of the individual partners. Income taxes
were provided for EPC, which was included in the consolidated tax return
filed by its parent company, The Marcus & Millichap Company (M&M). Income
tax expense of $267 and $581 for 1994 and 1993, respectively, was allocated
to EPC by M&M based upon the effective rates applicable to M&M.
Per Share Data
Net income per share is computed based upon 6,275,000 weighted average
shares outstanding.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with the current year presentation.
(3) Real Estate
Rental Properties:
Rental properties consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Land and Buildings
land - and - Accumulated
improvements improvements Total depreciation
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
December 31, 1995:
Apartment properties $ 57,672 $193,871 $251,543 $ 34,943
Retail and corporate 4,066 28,749 32,815 5,338
-------- -------- -------- --------
$ 61,738 $222,620 $284,358 $ 40,281
======== ======== ======== =======
December 31, 1994:
Apartment properties $ 58,028 $192,291 $250,319 $ 29,704
Retail and corporate 4,064 27,961 32,025 4,408
-------- -------- -------- --------
$ 62,092 $220,252 $282,344 $ 34,112
======== ======== ======== ========
</TABLE>
(Continued)
F-11
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(3) Real Estate, Continued
The properties are located in California, Oregon and Washington. As a
result of this geographic concentration, the operations of the Properties
could be adversely affected by a recession, general economic downturn or a
natural disaster in the areas where the properties are located.
At December 31, 1995, one of the Company's rental properties in Northern
California with a carrying amount of $7,326 is held for sale.
During the year ended December 31, 1995, the Company sold to third parties
two properties for cash of $12,147. The net book value of these assets were
$6,134 resulting in a gain on sales of real estate of $6,013.
For the years ended December 31, 1995, 1994 and 1993, depreciation expense
on real estate was $7,978, $6,562 and $5,484, respectively, and
amortization of capitalized leasing commissions was $29, $66 and $53,
respectively.
Investments:
In connection with the reorganization, the Operating Partnership obtained
all of the 19,000 shares of the non-voting preferred stock of Essex
Management Corporation (EMC). Management of the Company owns 100 percent of
the common stock of EMC. EMC was formed to provide property and asset
management services to various partnerships not controlled by the Company,
along with the neighborhood shopping centers owned by the Company. The
Company accounts for its investment in EMC on the equity method of
accounting.
In August 1994, the Operating Partnership obtained all of the 31,800 and
62,500 shares of non-voting preferred stock of Essex Fidelity I Corporation
(Fidelity I) and Essex Sacramento, Inc. (Sacramento), respectively.
Management of the Company owns 100 percent of the common stock of Fidelity
I and Sacramento. Fidelity I holds a 20 percent equity interest in Blythe,
Limited Partnership, which was formed to acquire, manage and dispose of a
portfolio of mortgages and real estate purchased from a federal savings
bank. Sacramento holds a 20 percent equity interest in Golden Bear Homes
I - IV, Limited Partnerships, which were formed to acquire, manage and
dispose of residential real properties purchased from a third party asset
management company.
During 1995, Fidelity I and Sacramento contributed their respective
interests in Blythe, Limited Partnership and Golden Bear Homes I - IV,
Limited Partnerships to a new general partnership, Essex Fidelity
Sacramento Partners (EFSP). Profits and losses of EFSP are allocated 32
percent to Fidelity I and 68 percent to Sacramento, subject to certain
limitations defined in the partnership agreement. This revised structure
facilitates the sharing of common resources between these
(Continued)
F-12
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
investments. The Company accounts for its investments in Fidelity and
Sacramento on the cost method of accounting.
During 1995, the Operating Partnership acquired limited partnership
interests in Essex Bristol Partners (Bristol), Essex San Ramon Partners
(San Ramon) and Jackson School Village, L.P. (JSV). Bristol and San Ramon
were formed to acquire, own and operate residential rental properties
located in Sunnyvale, California and San Ramon, California, respectively.
The Company provides management services to Bristol and San Ramon. JSV was
formed to develop and operate a 200-unit garden style apartment community
in Hillsboro, Oregon. The general partner in JSV provides development
services to the partnership. The Company accounts for its investments in
Bristol, San Ramon and JSV on the equity method of accounting.
(Continued)
F-13
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(3) Real Estate, Continued
The shares of non-voting preferred stock in EMC, Fidelity I and Sacramento
are entitled to a preferential dividend of $0.80 per share per annum.
Through these preferred stock investments, the Operating Partnership will
be eligible to receive a preferential liquidation value of $10.00 per share
plus all cumulative and unpaid dividends.
Equity basis income and loss and distributions received from investments
accounted for on the cost method of accounting are included in interest and
other income.
Investments consists of the following as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Investments in joint ventures:
Limited partnership interest of 45% in Essex Bristol
Partners $2,101 $ --
Limited partnership interest of 48% in Essex
San Ramon Partners 3,703 --
Limited partnership interest of 49.9% in Jackson
School Village, L.P. 1,670 --
------ ------
7,474 --
Investments in corporations:
Essex Management Corporation - 19,000 shares of
preferred stock 190 190
Essex Fidelity I Corporation - 31,800 shares of
preferred stock 331 321
Essex Sacramento Corporation - 62,500 shares of
preferred stock 627 627
------ ------
1,148 1,138
Other investments 34 --
------ ------
$8,656 $1,138
====== ======
</TABLE>
(Continued)
F-14
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(4) Receivables
Receivables consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Notes and other related party receivables:
Notes receivable from Fidelity I and Sacramento, bearing
interest at 9%, due on demand $3,540 $3,873
Notes receivable from Fidelity I and JSV, bearing interest
at 9.5-10%, due 2015 500 --
Other related party receivables 740 568
------ ------
$4,780 $4,441
====== ======
</TABLE>
Other related party receivables at December 31, 1995 of $740 consist
primarily of unreimbursed expenses due from EMC and acquisition cost-
related reimbursements due from Essex San Ramon Partners. Related party
receivables at December 31, 1994 of $568 are comprised of unreimbursed
expenses due from EMC and accrued interest income due from Fidelity I and
Sacramento.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Notes and other receivables:
Note receivable from the co-tenants in the Pathways
property, interest payable monthly at 9%, principal due
June 2001 $4,800 4,800
Other receivables 330 454
------ ------
$5,130 $5,254
====== ======
</TABLE>
(5) Related Party Transactions
Effective June 13, 1994, all general and administrative expenses of the
Company and EMC are initially borne by the Company, with a portion
subsequently allocated to EMC based on a business unit allocation
methodology, formalized and approved by management and the board of
directors. Management believes the business unit allocation methodology so
applied is reasonable. Expenses allocated to EMC for the years ended
December 31, 1995 and 1994 totaled $2,116 and $1,139, respectively, and are
reflected as a reduction in general and administrative expenses in the
accompanying consolidated statements of operations.
(Continued)
F-15
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(5) Related Party Transactions, Continued
Effective June 13, 1994, EMC provides property management services to the
Company's neighborhood shopping centers. The fees paid by the Company for
the year ended December 31, 1995 and 1994 were $108 and $72, respectively,
and are included in administrative expense in the accompanying consolidated
statements of operations.
Prior to June 13, 1994, EPC provided property management, asset management
and gardening services to related partnerships which are not included in
the accompanying consolidated financial statements. Fees received for these
services totaled $1,794 and $2,415 for the period ended June 12, 1994 and
the year ended December 31, 1993, respectively, and are included in
property and asset management fees in the accompanying consolidated
statements of operations.
Other expenses in the accompanying consolidated statements of operations of
$314 and $952 for the period ended June 12, 1994 and the year ended
December 31, 1993, respectively, represents the Predecessor's share of
overhead costs incurred by M&M and allocated among its subsidiaries.
Included in rental income in the accompanying consolidated statements of
operations is related party rents earned from space leased to M&M,
including operating expense reimbursements, of $675, $660 and $594 for the
years ended December 31, 1995, 1994 and 1993, respectively.
During the year ended December 31, 1995, the Company paid brokerage
commissions totaling $405 to M&M on the sale of real estate. The
commissions are reflected as a reduction of the gain on sales of real
estate in the accompanying consolidated statements of operations.
Included in other income for the year ended December 31, 1995 is $183,
representing dividends from Essex Sacramento, equity income from EMC and
management fees and equity income from Essex Bristol Partners and Essex San
Ramon Partners. Interest income includes $358 and $118 earned principally
under the notes receivable from Essex Fidelity I and Essex Sacramento for
the years ended December 31, 1995 and 1994, respectively.
Included in accounts payable and accrued liabilities as of December 31,
1995 and 1994 are payables to related parties totaling $217 and $377,
respectively, representing temporary borrowings and unreimbursed expenses.
These payables are non-interest bearing and are due on demand.
(Continued)
F-16
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(6) Mortgage Notes Payable
Mortgage notes payable consist of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mortgage notes payable to commercial bank, secured by deeds of trust,
bearing interest at the lower of .9% over the LIBOR rate or the bank's
prime rate, principal and interest payments due monthly, remaining
principal due June 1999 $ 18,580 $ 24,133
Mortgage notes payable to savings institutions, secured by deeds of
trust, bearing interest at 2.25% to 2.75% over the Federal Reserve
11th District cost of funds rate, payable in monthly principal and
interest installments through 2024 27,611 30,367
Mortgage notes payable to mutual life insurance company, secured by
deeds of trust, bearing interest at 7.45%, interest only payments due
through June 1996, monthly principal and interest installments due
thereafter, final principal payment of $46,064 due June 2001 56,000 54,684
Mortgage note payable to commercial bank, secured by deed of trust,
bearing interest at 6.25% until April 1998, 9.31% thereafter, payable
in monthly principal and interest installments, remaining principal
due February 2002 12,170 12,225
Mortgage notes payable to a life insurance company, secured by deeds of
trust, bearing interest at 8.93%, interest only payments due through
March 1997, monthly principal and interest installments due
thereafter, final principal payment of $6,853 due April 2005 8,100 --
Multifamily housing demand mortgage revenue bonds secured by deeds of
trust on rental properties and guaranteed by letters of credit,
payable monthly at a variable rate as defined in the Loan Agreement
(approximately 3.25% for December 1995), plus credit enhancement and
underwriting fees of approximately 1.9%. The bonds are convertible to
a fixed rate. Among the terms imposed on the properties which are
secured by these bonds is that twenty percent of the units are subject
to tenant income qualification criteria. Principal balances are due in
full at the maturity dates of May and November 2025 13,600 --
Mortgage note payable to commercial bank, secured by deeds of trust,
bearing interest at 2% over the LIBOR rate or 1% over the bank's prime
rate, payable in monthly principal and interest installments through
October 1999 -- 13,610
-------- --------
$136,061 $135,019
======== ========
</TABLE>
(Continued)
F-17
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(6) Mortgage Notes Payable, Continued
The aggregate scheduled maturities of mortgage notes payable are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1996 $ 2,421
1997 3,215
1998 3,157
1999 18,608
2000 3,237
Thereafter 105,423
--------
$136,061
========
</TABLE>
As of December 31, 1995, the thirty-day LIBOR rate was 5.75%, the prime
rate was 8.5% and the Federal Reserve 11th District cost of funds rate was
5.12%.
In June 1994, the Company entered into a five-year interest rate protection
agreement covering mortgage notes payable with aggregate balances of
$24,133 as of December 31, 1994. The agreement protected the Company from
increases in the thirty-day LIBOR rate in excess of the 6.3125% cap rate.
In May 1995, the Company sold this agreement and used the net proceeds to
enter into an interest rate swap agreement extending through June 1999. The
interest rate swap agreement fixes the thirty-day LIBOR rate at 5.79% for
mortgage notes payable with aggregate balances of $18,580 as of December
31, 1995.
In June 1994, the Company paid $1,180 to enter into a five-year interest
rate protection agreement covering mortgage notes payable with aggregate
balances of $24,133 as of December 31, 1994. The agreement protected the
Company from increases in the thirty-day LIBOR rate in excess of the
6.3125% cap rate. In May 1995, the Company sold this agreement for $542 and
incurred a loss on termination of the agreement of $419 which was deferred
and is being amortized over the remaining term of the agreement. During the
time the agreement was in effect, LIBOR did not exceed 6.3125%.
The Company used the proceeds of $542 from the sale of the five-year
interest rate protection agreement to enter into an interest rate swap
agreement extending through June 1999. The interest rate swap agreement
fixes the thirty-day LIBOR rate at 5.79% for mortgage notes payable with
aggregate balances of $18,580 as of December 31, 1995. As of December 31,
1995, the Company incurred net interest expense of $1,621 relating to the
mortgage notes payable covered
(Continued)
F-18
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
by the interest rate swap agreement. The interest expense is net of $19
received by the Company as a result of the agreement.
In December 1995, the Company paid $531 to enter into a seven-year interest
rate protection agreement in anticipation of acquisition of related debt.
Because the related debt was not acquired as had been anticipated, the
interest rate protection agreement was terminated, and the Company
recognized a loss of $226 as of December 31, 1995.
During 1995, the Company charged $288 to income representing $62 of
amortization of deferred costs relating to the termination of the five-year
interest rate protection agreement and $266 of termination costs relating
to the unmatched position taken on the seven-year interest rate protection
agreement.
During the year ended December 31, 1995, the Company refinanced two
mortgages and incurred a loss on the early extinguishment of debt of $154
related to the write off of the unamortized loan fees.
(7) Lines of Credit
As of December 31, 1995 and 1994, the Company has the following lines of
credit with commercial banks:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Secured $11,600 line of credit, interest payable monthly at the lower of
1% over the banks' prime rate or 2% over the LIBOR rate, expiring June
30, 1996. The outstanding principal as of June 30, 1996 will be due in
equal monthly installments of principal with interest through June
1999 $ 7,883 $ 5,100
Secured $12,000 line of credit, interest payable monthly at the lower of
1.85% over the LIBOR rate or .50% over the bank's prime rate, expiring
December 13, 1996 10,580 9,900
------- -------
$18,463 15,000
======= =======
</TABLE>
(Continued)
F-19
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(8) Leasing Activity
The rental operations of the Company include apartment properties, which
are rented under short term leases (generally, lease terms of three to
twelve months), and retail properties and the headquarters building, which
are rented under cancelable and noncancelable operating leases, certain of
which contain renewal options. Future minimum rental activity for the
apartment properties is not included in the following schedule due to the
short-term nature of the leases.
Future minimum rentals due under noncancelable operating leases with
tenants of the retail properties and the headquarters building are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1996 $3,441
1997 3,146
1998 2,665
1999 2,119
2000 1,691
Thereafter 6,209
-------
$19,271
=======
</TABLE>
Included in this schedule is $526 due annually from M&M through May 1999.
In addition to minimum rental payments, retail and headquarters building
tenants pay reimbursements for their pro rata share of specified operating
expenses. Such amounts totaled $1,018, $1,074 and $804 for the years ended
December 31, 1995, 1994 and 1993, respectively, and are included as rental
income and operating expenses in the accompanying consolidated statements
of operations. Certain of these leases also provide for the payment of
additional rent based on a percentage of the tenants' revenues.
(9) Fair Value of Financial Instruments
There is no quoted market value available for any of the Company's
financial instruments. Management believes that the carrying amounts of its
financial instruments, which include investments in preferred stock, notes
receivable and mortgage and other notes payable approximate fair value as
of December 31, 1995 because interest rates and yields from these
instruments are consistent with yield or such instruments currently
available to the Company for similar instruments.
(Continued)
F-20
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(10) Stock Option Plans
The Company has adopted the Essex Property Trust, Inc. 1994 Employee Stock
Incentive Plan and 1994 Non-Employee and Director Stock Incentive Plan
(together, the Stock Incentive Plans) to provide incentives to attract and
retain officers, directors and key employees. The Stock Incentive Plans
provide for the grants of options to purchase a specified number of shares
of Common Stock or grants of restricted shares of common stock. Under the
Stock Incentive Plans, the total number of shares available for grant is
approximately 495,400. The Board of Directors (the Board) may adjust the
aggregate number and kind of shares reserved for issuance. Participants in
the Stock Incentive Plans are selected by the Compensation Committee of the
Board, which is comprised of independent directors. The Compensation
Committee is authorized to establish the exercise price; however, the
exercise price cannot be less than 100 percent of the fair market value of
the common stock on the grant date.
A summary of employee and non-employee and director stock options
outstanding as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Number of
options
Number vested as of Number of options
of Date Exercise December 31, scheduled to vest in
options granted price 1995 1996 1997-2000
------- ------- ----- ------------ ---- ---------
<S> <C> <C> <C> <C> <C>
198,350 June 6, 1994 $19.50 53,150 36,300 108,900
20,000 June 24, 1994 $18.38 6,667 6,667 6,666
65,500 March 14, 1995 $15.50 -- 13,100 52,400
35,150 December 13, 1995 $19.00 -- 16,750 18,400
</TABLE>
No options were exercised in 1995 and 1994.
In connection with the Offering, the Company provided a one-time grant of
options to M&M to purchase 220,000 shares of common stock through June 1999
at the initial public offering price of $19.50 per share pursuant to an
agreement whereby Marcus & Millichap Real Estate Investment Brokerage
Company, a subsidiary of M&M, will provide real estate transaction, trend
and other information to the Company for a period of ten years.
The Company has also reserved 406,500 shares of common stock in connection
with the Essex Property Trust, Inc. 1994 Employee Stock Purchase Plan.
There was no activity in this plan during 1995 and 1994.
(Continued)
F-21
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
The Financial Accounting Standards Board has issued Financial Accounting
Standard 123 (FAS 123). The Company will adopt the disclosure requirements
of FAS 123 in 1996, but continue to account for its stock option plan under
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees," as permitted under FAS 123.
(Continued)
F-22
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(11) Quarterly Results of Operations (Unaudited)
The following is a summary of quarterly results of operations for 1995 and
1994:
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter
ended ended ended ended
1995 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues before gain on
sale of real estate $10,923 $10,913 $10,983 $11,121
Gain on sale of real estate -- 789 -- 5,224
------- ------- ------- -------
Total revenues $10,923 $11,702 $10,983 $16,345
======= ======= ======= =======
Extraordinary item $ -- $ (154) $ -- $ --
======= ======= ======= =======
Net income $ 1,487 $ 2,006 $ 1,589 $ 5,522
======= ======= ======= =======
Per share data:
Net income $ .24 $ .32 $ .25 $ .88
======= ======= ======= =======
Market price:
High $16.875 $18.125 $ 18.25 $ 19.50
======= ======= ======= =======
Low $15.375 $ 15.75 $ 16.75 $ 17.25
======= ======= ======= =======
Close $15.875 $18.125 $ 17.50 $ 19.25
======= ======= ======= =======
Dividends declared $ .4175 $ .4175 $ .425 $ .425
======= ======= ======= =======
1994
----
Total revenues $ 8,442 $ 8,027 $ 8,753 $10,002
======= ======= ======= =======
Net income $ 313 $ 162 $ 1,639 $ 1,304
======= ======= ======= =======
Per share data:
Net income $ -- $ .05 $ .26 $ .21
======= ======= ======= =======
Market price:
High $ -- $19.625 $ 19.00 $ 18.00
======= ======= ======= =======
Low $ -- $ 17.25 $17.125 $14.625
======= ======= ======= =======
Close $ -- $17.675 $ 18.00 $15.125
======= ======= ======= =======
Dividends declared $ -- $ .08 $ .4175 $ .4175
======= ======= ======= =======
</TABLE>
(Continued)
F-23
<PAGE>
ESSEX PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
(12) Commitments and Contingencies
A commercial bank has issued on behalf of the Company letters of credit
relating to Company financing transactions of $606 and $564, expiring in
February 1996 and June 2002, respectively.
The Company has provided a guarantee of the mortgage note payable of Essex
Bristol Partners to a commercial bank. This note has a balance of $12,298
as of December 31, 1995 and is due in May 2002.
The Company identifies and evaluates prospective investments on a
continuous basis. In connection therewith, the Company initiates letters of
interest and extends offers on a regular basis. At December 31, 1995, the
Company was committed to fund the acquisition of an apartment property in
Fremont, California. This acquisition was completed on January 31, 1996
through the payment of cash of approximately $3,225 and assumption of a
mortgage loan in the amount of $7,266.
Investments in real property create a potential for environmental
liabilities on the part of the owner of such real property. The Company
carries no express insurance coverage for this type of environmental risk.
The Company has conducted environmental studies which revealed the presence
of groundwater contamination at three properties; such contamination at two
of the properties was reported to have migrated on-site from adjacent
industrial manufacturing operations. The former industrial users of the
properties were identified as the source of contamination. The
environmental studies noted that five properties are located adjacent to
and possibly down gradient from sites with known groundwater contamination,
the lateral limits of which may extend onto such properties. The
environmental studies also noted that at two properties, contamination
existed because of the presence of underground fuel storage tanks, which
have been removed. Based on the information contained in the environmental
studies, the Company believes that the costs, if any, it might bear as a
result of environmental contamination or other conditions at these eight
properties would not have a material adverse effect on the Company's
financial condition or results of operations.
F-24
<PAGE>
SCHEDULE III
Page 1 of 2
ESSEX PROPERTY TRUST, INC.
Real Estate and Accumulated Depreciation
December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Initial cost Costs
------------------------- capitalized
Buildings and subsequent
Property Location Encumbrance Land improvements to acquisition
-------- -------- ----------- ---- ------------ --------------
<S> <C> <C> <C> <C> <C>
Apartments:
The Apple Fremont, CA $ $ 996 $ 5,582 $ 992
Countrywood Fremont, CA 1,374 5,638 473
Wharfside Pointe Seattle, WA 2,245 7,020 78
Plumtree Santa Clara, CA 3,090 7,421 71
------- ------- ------- -------
26,463(5) 7,705 25,661 1,614
------- ------- ------- -------
Summerhill Park Sunnyvale, CA 2,654 4,918 229
Oak Pointe Sunnyvale, CA 4,842 19,776 3,208
Viareggio San Jose, CA 1,917 6,505 202
Summerhill Commons Newark, CA 1,608 7,582 229
Pathways Long Beach, CA 4,083 16,757 233
Villa Rio Vista Anaheim, CA 3,013 12,661 931
Foothill Commons Bellevue, WA 2,435 9,821 1,058
Woodland Commons Bellevue, WA 2,040 8,727 445
Palisades Bellevue, WA 1,560 6,242 671
------- ------- ------- -------
56,000 24,152 92,989 7,206
------- ------- ------- -------
Marina Cove(3) Santa Clara, CA 12,541 5,320 16,431 236
------- ------- ------- -------
Santa Fe Ridge Silverdale, WA 8,100 4,137 7,925 35
------- ------- ------- -------
Inglenook Court Bothell, WA 8,300 3,467 7,881 450
------- ------- ------- -------
Emerald Ridge Bellevue, WA 3,449 7,801 60
Sammamish View Bellevue, WA 3,324 7,501 34
------- ------- ------- -------
12,975 6,773 15,302 94
------- ------- ------- -------
Westbridge Yuba City, CA 2,095 917 2,455 33
------- ------- ------- -------
Windsor Ridge Sunnyvale, CA 12,170 4,017 10,315 160
------- ------ ------- -------
Wandering Creek Kent, WA 5,300 1,285 4,980 6
------- ------ ------- -------
Headquarters Building:
777 California(4) Palo Alto, CA -- -- 6,700 8,508
------- ------ ------- -------
</TABLE>
<TABLE>
<CAPTION>
Gross amount
carried at close of period
----------------------------------- Depreciable
Land and Building and Accumulated Date of Date lives
Property Location improvements improvements Total(1) depreciation construction acquired (years)
-------- -------- ------------ ------------ ----- ------------ ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments:
The Apple Fremont, CA $ 996 $ 6,574 $ 7,570 $ 3,534 1971 4/82 5-30
Countrywood Fremont, CA 1,374 6,111 7,485 1,795 1970 2/88 5-30
Wharfside Pointe Seattle, WA 2,252 7,091 9,343 368 1990 6/94 5-30
Plumtree Santa Clara, CA 3,090 7,492 10,582 433 1975 2/94 5-30
------- -------- -------- -------
7,712 27,268 34,980 6,130
------- -------- -------- -------
Summerhill Park Sunnyvale, CA 2,654 5,147 7,801 1,056 1988 9/88 5-40
Oak Pointe Sunnyvale, CA 4,842 22,984 27,826 6,036 1973 12/88 5-30
Viareggio San Jose, CA 1,917 6,707 8,624 1,298 1988 9/88 5-40
Summerhill Commons Newark, CA 1,517 7,902 9,419 1,734 1987 7/87 5-40
Pathways Long Beach, CA 4,083 16,990 21,073 2,905 1975 2/91 5-30
Villa Rio Vista Anaheim, CA 2,984 13,621 16,605 5,229 1968 7/85 5-30
Foothill Commons Bellevue, WA 2,435 10,879 13,314 2,640 1978 3/90 5-30
Woodland Commons Bellevue, WA 2,040 9,172 11,212 2,196 1978 3/90 5-30
Palisades Bellevue, WA 1,560 6,913 8,473 1,683 1969/1977(2) 5/90 5-30
------- -------- -------- -------
24,032 100,315 124,347 24,777
------- -------- -------- -------
Marina Cove(3) Santa Clara, CA 5,320 16,667 21,987 872 1974 6/94 5-30
------- -------- -------- -------
Santa Fe Ridge Silverdale, WA 4,141 7,956 12,097 320 1993 10/94 5-30
------- -------- -------- -------
Inglenook Court Bothell, WA 3,472 8,326 11,798 345 1985 10/94 5-30
------- -------- -------- -------
Emerald Ridge Bellevue, WA 3,445 7,865 11,310 297 1987 11/94 5-30
Sammamish View Bellevue, WA 3,328 7,531 10,859 281 1986 11/94 5-30
------- -------- -------- -------
6,773 15,396 22,169 578
------- -------- -------- -------
Westbridge Yuba City, CA 922 2,483 3,405 113 1983 8/94 5-30
------- -------- -------- -------
Windsor Ridge Sunnyvale, CA 4,017 10,475 14,492 1,787 1989 3/89 5-40
------- -------- -------- -------
Wandering Creek Kent, WA 1,285 4,986 6,271 21 1986 11/95 5-30
------- -------- -------- -------
Headquarters Building:
777 California(4) Palo Alto, CA -- 15,208 15,208 2,779 1987 7/86 5-30
------- -------- -------- -------
</TABLE>
F-25
<PAGE>
SCHEDULE III
Page 2 of 2
ESSEX PROPERTY TRUST, INC.
Real Estate and Accumulated Depreciation, Continued
December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Initial cost Costs
---------------------- capitalized
Buildings and subsequent
Property Location Encumbrance Land improvements to acquisition
-------- -------- ----------- ---- ------------- --------------
<S> <C> <C> <C> <C> <C>
Retail:
Canby Square Canby, OR $ $ 801 $ 1,729 $ 546
Cedar Mill Place Portland, OR 535 1,100 288
Powell Villa Center Portland, OR 740 1,693 1,523
Riviera Plaza Eugene, OR 766 1,880 477
Wichita Towne Center Milwaukee, OR 218 854 184
Garrison Square Vancouver, WA 1,004 2,170 1,096
-------- ------- -------- --------
10,580(6) 4,064 9,426 4,114
-------- ------- -------- --------
$154,524 $61,837 $200,065 $22,456
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Gross amount
carried at close of period
------------------------------------- Depreciable
Land and Building and Accumulated Date of Date lives
Property Location improvements improvements Total(1) depreciation construction acquired (years)
-------- -------- ------------ ------------ ----- ------------ ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail:
Canby Square Canby, OR $ 801 $ 2,275 $ 3,076 $ 430 1976 1/90 7-30
Cedar Mill Place Portland, OR 535 1,388 1,923 416 1975 1/90 7-30
Powell Villa Center Portland, OR 740 3,216 3,956 428 1959 1/90 7-30
Riviera Plaza Eugene, OR 766 2,357 3,123 429 1961 1/90 7-30
Wichita Towne Center Milwaukee, OR 218 1,038 1,256 428 1978 1/90 7-30
Garrison Square Vancouver, WA 1,004 3,266 4,270 428 1962 1/90 7-30
-------- ------- -------- -------
4,064 13,540 17,604 2,559
------- ------- -------- -------
$61,738 $222,620 $284,358 $40,281
======= ======== ======== =======
</TABLE>
(1) The aggregate cost for federal income tax purposes is $259,260.
(2) Phase I was built in 1969 and Phase II was built in 1977.
(3) A portion of land is leased pursuant to a ground lease expiring in 2028.
(4) Land is leased pursuant to a ground lease expiring in 2054.
(5) This encumbrance represents the outstanding balance of $7,883 as of December
31, 1995 on a $11,600 line of credit. (6)This encumbrance represents the
outstanding balance of $10,580 as of December 31, 1995 on a $12,000 line of
credit.
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Real estate:
Balance at beginning of year $282,344 $186,447
Improvements 3,193 2,614
Acquisition of real estate 6,265 93,283
Disposition of real estate (7,444) --
-------- --------
Balance at end of year $284,358 $282,344
======== ========
Accumulated depreciation:
Balance at beginning of year 34,112 27,574
Dispositions (1,809) 6,538
Depreciation expense 7,978 --
-------- --------
Balance at end of year $ 40,281 $ 34,112
======== ========
</TABLE>
F-26
<PAGE>
EXHIBIT 2
---------
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-13106
ESSEX PROPERTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 77-0369576
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
777 CALIFORNIA AVENUE, PALO ALTO, CALIFORNIA 94304
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 494-3700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORT, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
6,275,000 SHARES OF COMMON STOCK,
$.0001 PAR VALUE AS OF MARCH 31, 1996
Exhibit Index on Page 15
Page 1 of 28
<PAGE>
INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Page Number
- -------------- ----------- -----------
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheet of Essex Property Trust, Inc. as of
March 31, 1996 and December 31, 1995 4
Condensed Consolidated Statement of Operations of Essex Property Trust, Inc.
for the three months ended March 31, 1996 and 1995 5
Condensed Consolidated Statement of Cash Flows of Essex Property Trust, Inc.
for the three months ended March 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
Page 2 of 28
<PAGE>
PART I
ITEM 1 FINANCIAL INFORMATION
"Essex" means Essex Property Trust, Inc., a real estate investment trust
incorporated in the State of Maryland, or where the context otherwise requires,
Essex Portfolio, L.P., a partnership in which Essex Property Trust, Inc.
is the sole general partner.
The information furnished in the accompanying condensed consolidated balance
sheet, condensed consolidated statement of operations and condensed consolidated
statement of cash flows of Essex reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the aforementioned
financial statements for the interim periods.
The accompanying unaudited financial statements should be read in conjunction
with the notes to such financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Page 3 of 28
<PAGE>
ESSEX PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1996 1995
------ --------- ------------
<S> <C> <C>
Real estate:
Rental properties:
Land and land improvements $ 65,374 $ 61,738
Buildings and improvements 231,732 222,620
-------- --------
297,106 284,358
Less accumulated depreciation (42,456) (40,281)
-------- --------
254,650 244,077
Investments 8,581 8,656
-------- --------
263,231 252,733
Cash and cash equivalents 2,651 3,983
Notes and other related party receivables 6,289 4,780
Notes and other receivables 5,092 5,130
Prepaid expenses and other assets 1,567 1,944
Deferred charges, net 3,790 5,090
-------- --------
$282,620 $273,660
======== ========
Liabilities and Stockholders' Equity
Mortgage notes payable 152,358 136,061
Lines of credit 12,869 18,463
Accounts payable and accrued liabilities 4,727 2,964
Dividends payable 3,455 3,455
Other liabilities 1,662 1,565
-------- --------
Total liabilities 175,071 162,508
Minority interest 25,544 26,423
Stockholders' equity:
Common stock, $.0001 par value, 670,000,000 shares authorized,
6,275,000 shares issued and outstanding 1 1
Additional paid-in capital 112,070 112,070
Accumulated deficit (30,066) (27,342)
-------- --------
Total stockholders' equity 82,005 84,729
-------- --------
$282,620 $273,660
======== ========
</TABLE>
See accompanying notes to the unaudited financial statements.
Page 4 of 28
<PAGE>
ESSEX PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except shares per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Rental $ 10,951 $ 10,307
Interest and other income 603 616
---------- ----------
11,554 10,923
---------- ----------
Expenses:
Property operating expenses:
Maintenance and repairs 1,007 985
Real estate taxes 886 849
Utilities 756 768
Administrative 656 675
Advertising 151 70
Insurance 146 136
Depreciation and amortization 2,190 1,980
---------- ----------
5,792 5,463
---------- ----------
Interest 2,901 2,720
Amortization of deferred financing costs 245 363
General and administrative 397 365
Loss from hedge termination 21 --
---------- ----------
Total expenses 9,356 8,911
---------- ----------
Income before minority interests and extraordinary
item 2,198 2,012
Minority interest (75) (525)
---------- ----------
Income before extraordinary item 2,123 1,487
Extraordinary item:
Loss on early extinguishment of debt (2,180) --
---------- ----------
Net income (loss) $ (57) $ 1,487
========== ==========
Per share data:
Net income per share from operations before
extraordinary item $.34 .24
Extraordinary item - debt extinguishment (.35) --
---------- ----------
Net income (loss) per share $(.01) $.24
========== ==========
Weighted average number of shares outstanding
during the period 6,275,000 6,275,000
========== ==========
</TABLE>
See accompanying notes to the unaudited financial statements.
Page 5 of 28
<PAGE>
ESSEX PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unadited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1996 March 31, 1995
------------------ ------------------
<S> <C> <C>
Net cash flows from operating activities $ 5,695 $ 4,429
Cash flows from investing activities:
Additions to real estate investments (12,748) (541)
Investments in corporations and joint ventures 154 0
-------- -------
Net cash used in investing activities (12,594) (541)
Cash flows from financing activities:
Proceeds from mortgages, other notes payable
and lines of credit 45,271 880
Repayment of mortgages, other notes
payables and lines of credit (34,568) (1,559)
Additions to deferred charges (225) 0
Additions to notes and other related party
receivables/payables 2,166 574
Repayment of notes, other related party
receivables/payables (3,622) (785)
Distribution to partners/dividends to shareholders (3,455) (3,394)
-------- -------
Net cash provided by (used in) financing activities 5,567 (4,284)
-------- -------
Net decrease in cash and cash equivalents (1,332) (396)
Cash and cash equivalents at beginning of period 3,983 2,411
-------- -------
Cash and cash equivalents at end of period $ 2,651 $ 2,015
======== =======
Supplemental disclosure of cash flow
information
Cash paid for interest $ 2,910 $ 2,705
======== =======
Supplemental disclosure of non-cash investing
and financing activity
Mortgage note payable assumed in
connection with purchase of real estate
investment $ 0 $ 0
======== =======
Dividends declared and payable $ 3,455 $ 3,394
======== =======
</TABLE>
See accompanying notes to the unaudited financial statements.
Page 6 of 28
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Essex Property
Trust, Inc. (the "Company") are prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q. In the opinion of management, all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented have been included and
are normal and recurring in nature. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
The accompanying consolidated financial statements present the accounts of
Essex Property Trust, Inc., following certain reorganization transactions in
connection with the sale of 6,275,000 shares of common stock in an initial
public offering which closed on June 13, 1994 (the "Offering").
The consolidated financial statements for the three months ended March 31,
1996 and 1995 include the accounts of the Company and Essex Portfolio, L.P.
(the "Operating Partnership", which holds the operating assets of the
Company). The Company is the sole general partner in and owns 77.2% of the
Operating Partnership. The limited partners own an aggregate 22.8% interest
in the Operating Partnership.
All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
(2) SIGNIFICANT TRANSACTIONS
The following significant transactions occurred during the quarter ended
March 31, 1996:
(A) Acquisitions
(I) On January 31, 1996, Essex acquired Treetops Apartments, a 172 unit
apartment community in Fremont, California for a contract price of
$10,725. Essex assumed the existing mortgage owed on the property of
approximately $7,266, which carries an 8.5% fixed interest rate and
is due in September, 1999. Built in 1978, Treetops has a heated pool
and spa, fitness center, and patios or balconies in individual
units.
(B) Debt related transactions
(I) On February 16, 1996, Essex refinanced a mortgage loan in the
approximate amount of $12,160 loan with a 7.1% 10 year fixed rate
loan in the amount of $14,475. In connection with the refinance
transaction, Essex has paid the lender a prepayment fee of $500 and,
subject to final negotiations, could pay up to $400 additionally.
Essex wrote off approximately $1,105 in deferred financing costs.
(II) On February 21, 1996, Essex refinanced three variable rate loans in
the approximate balance of $18,960, with a $20,200, 7.5%, 7 year
fixed rate mortgage. Essex wrote off approximately $175 in deferred
financing costs in connection with this transaction.
(3) RELATED PARTY TRANSACTIONS
Effective June 13, 1994, all general and administrative expenses of the
Company and Essex Management Corporation ("EMC") are initially borne by the
Company, with a portion subsequently allocated to EMC. Expenses allocated
to EMC for the three months ended March 31, 1996 and 1995, totaled $425 and
$488,
Page 7 of 28
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
respectively, and are reflected as a reduction in general and administrative
expenses in the accompanying consolidated statements of operations.
Included in rental income in the accompanying consolidated statements of
operations is related party rents earned from space leased to The Marcus &
Millichap Company ("M&M"), including operating expense reimbursements, of
$170 and $165 for the three months ended March 31, 1996 and 1995,
respectively.
Included in other income for the three months ended March 31, 1996 and 1995
is interest income of $91 and $86, earned principally under notes receivable
from Essex Fidelity I Corporation and Essex Sacramento Corporation,
respectively, and management fees and equity income of $137 and 0, earned
from Essex Bristol Partners and Essex San Ramon Partners, respectively.
Effective June 13, 1994, EMC provides property management services to the
Company's neighborhood shopping centers. The fee paid by the Company for the
three months ended March 31, 1996 and 1995 was $28, and $25, respectively,
and is included in administrative expense in the accompanying consolidated
statements of operations.
Notes and other related party receivables as of March 31, 1996 and December
31, 1995 consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- -----------
<S> <C> <C>
Notes receivable from Essex Fidelity I Corporation
and Essex Sacramento Corporation, bearing
interest at 9% due on demand $3,380 $3,540
Notes receivable from Essex Marina Cove, L.P.
bearing interest at 12% due on demand 1,466 --
Notes receivable from Essex Fidelity I Corporation
and Jackson School Village, L.P. bearing
interest at 9.5% - 10%, due 2015 500 500
Other related party receivables 943 740
------ ------
$6,289 $4,780
====== ======
</TABLE>
Other related party receivables consist primarily of unreimbursed expenses
due from EMC, accrued interest income on related party notes receivable and
acquisition cost-related reimbursements due from Essex San Ramon Partners.
As of March 31, 1996 and December 31, 1995, the Company has payables to
related parties totaling $166 and $217, representing temporary borrowings
and unreimbursed expenses, respectively.
During the three months ended March 31, 1996, the Company paid brokerage
commissions totalling $250 to M&M in connection with the purchase of real
estate. The commissions are reflected as an increased cost on the purchase
of real estate in the accompanying condensed consolidated balance sheet.
Page 8 of 28
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is based primarily on the consolidated financial
statements of Essex Property Trust, Inc. ("Essex" or the "Company") as of March
31, 1996 and 1995 and for the three months ended March 31, 1996 and 1995.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results and all such adjustments are of a normal
recurring nature.
Substantially all the assets of Essex are held by, and substantially all
operations conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). Essex is the sole general partner of the Operating Partnership
and, as of March 31, 1996 and 1995, owned a 77.2% general partnership interest
in the Operating Partnership. The Company qualifies as a Real Estate Investment
Trust (a "REIT") for Federal income tax purposes.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," section constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Essex to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
GENERAL BACKGROUND
Essex's revenues are generated primarily from multifamily residential, retail
and commercial property operations, which accounted for 95% and 94% of its
revenues for the three months ended March 31, 1996 and 1995, respectively.
Essex's properties (the "Properties") are located in California, Oregon and
Washington. Occupancy levels of Essex's multifamily residential Properties in
these markets have generally remained high (averaging approximately 95% over the
last five years).
Essex has qualified as a real estate investment trust ("REIT") for federal
income tax purposes, commencing with the year ending December 31, 1994. In order
to maintain compliance with REIT tax rules, Essex provides fee-based asset
management and disposition services as well as third-party property management
and leasing services through Essex Management Corporation ("EMC"). Essex owns
100% of EMC's 19,000 shares of nonvoting preferred stock. Executives of Essex
own 100% of EMC's 1,000 shares of common stock. Essex has been actively engaged
in the business of acquiring and managing portfolios of non-performing assets
along with institutional investors. Asset management services resulting from
these portfolios are provided by EMC, typically for the term that is required to
acquire, reposition and dispose of the portfolio. Asset management agreements
usually provide for a base management fee calculated as a percentage of the
gross asset value of the portfolio under management, and an incentive fee based
upon the overall financial performance of the portfolio. Accordingly, the fees
earned as a result of these contracts fluctuate as assets are acquired and
disposed. In general, Essex believes, however, that there will be fewer
opportunities to acquire portfolios of non-performing assets in the future.
Average financial occupancy rates of the Company's multifamily properties for
the three months ended March 31, 1996 on multifamily properties were as follows:
<TABLE>
<CAPTION>
All On a Same
Properties Property Basis
---------- --------------
<S> <C> <C>
Northern California 99% 99%
Seattle 94% 95%
Southern California 97% 97%
</TABLE>
Page 9 of 28
<PAGE>
The Company's retail and commercial properties were 93% occupied (based on
square footage) as of March 31, 1996.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1996 to the Three Months Ended
March 31, 1995
Total Revenues increased by $631,000 or 5.8% to $11,554,000 in the first quarter
of 1996 from $10,923,000 in the first quarter of 1995. Rental revenues increased
by $644,000 or 6.3% to $10,951,000 in the first quarter of 1996 from $10,307,000
in the first quarter of 1995. Approximately $45,000 of the increase in rental
revenues was attributable to the Properties acquired and disposed of in 1995 and
1996 with the balance of the increase relating to rental rate and occupancy
level increases. Rental revenues from the San Francisco South Bay and Seattle
multifamily residential Properties increased by $471,000 to $8,564,000 in the
first quarter of 1996 from $8,093,000 in the first quarter of 1995. Rental
revenue increased by $38,000 during the first quarter of 1996 from the amount in
the first quarter of 1995 for the two Properties located in Southern California.
Commercial property rental revenue increased $135,000 for the first quarter of
1996 as a result of increased occupancy.
Total Expenses increased by $445,000 or approximately 5.0% to $9,356,000 in the
first quarter of 1996 from $8,911,000 in the first quarter of 1995. Interest
expense increased by $181,000 or 6.6% to $2,901,000 in the first quarter of 1996
from $2,720,000 in the first quarter of 1995. Such interest expense increase was
primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions.
Property operating expenses, which include maintenance and repairs, real estate
taxes, advertising, utilities, and on-site administrative expenses, increased by
$119,000 or 3.4% to $3,602,000 in the first quarter of 1996 from $3,483,000 in
the first quarter of 1995. Of such increase, $41,000 was attributable to
Properties acquired and disposed of in 1995 and 1996.
General and administrative expenses represent the costs of Essex's various
acquisition and administrative departments as well as partnership administration
and non-operating expenses. Such expenses increased by $32,000 in the first
quarter of 1996 from the first quarter of 1995.
Net income after minority interest decreased by $1,544,000 to $(57,000) in the
first quarter of 1996 from $1,487,000 in the first quarter of 1995. The decrease
in net income was largely the result of an extraordinary charge of $2,180,000
related to the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, Essex had $2,651,000 in cash and cash equivalents, which
management believes should be sufficient to meet its immediate operating cash
requirements. Essex has credit facilities in the committed amount of
approximately $17,000,000. At March 31, 1996 Essex had $12,869,000 outstanding
on its lines of credit, with interest rates generally ranging from 7.2% to 7.4%.
Essex's cash balance decreased $1,332,000 from $3,983,000 as of December 31,
1995 to $2,651,000 as of March 31, 1996. This decrease in cash was the result of
$5,695,000 net cash provided by operating activities, reduced by $12,594,000 net
cash used by investing activities and $5,567,000 in net cash provided by
financing activities. The significant components which contributed to the
$12,594,000 net cash used by investing activities was $12,748,000 used to
purchase and upgrade rental properties. The significant components which
contributed to the $5,567,000 net cash provided by financing activities were
$45,271,000 of proceeds from mortgages, other notes payable and lines of credit
as offset by $34,568,000 of repayments of mortgages, other notes payable and
lines of credit and $3,455,000 of dividends/distribution paid.
As of March 31, 1996, the combined outstanding indebtedness under mortgages and
lines of credit consisted of $124,141,000 in fixed rate debt, (such component
includes variable rate indebtedness subject to interest rate swap agreements),
$14,617,000 in debt based on the Federal Home Loan Bank's 11th District Cost of
Funds index ("the 11th District Debt"), $10,580,000 of variable rate debt based
on The London Interbank Offered Rates ("LIBOR"), $2,289,000 of variable rate
debt based on The Internal Banking Offshore Rate ("IBOR"), and
Page 10 of 28
<PAGE>
$13,600,000 of debt represented by tax exempt variable rate demand bonds.
Essex's 11th District Debt is subject to maximum annual payment adjustments of
7.5% and a maximum interest rate during the term of the loans of 13%.
In June 1994, Essex entered into a five-year interest rate protection agreement
covering mortgage notes payable with aggregate balances of $24,133,000 as of
December 31, 1994. The agreements protected the Company from increase in the
thirty-day LIBOR rate in excess of a 6.3125% cap rate. In May 1995, Essex sold
this agreement and used the net proceeds to enter into an interest rate swap
agreement extending through June 1999. The interest rate swap agreement fixes
the thirty-day LIBOR rate at 5.79% for mortgage notes payable with aggregate
balances of $18,246,000 as of March 31, 1996.
Essex expects to incur in the range of approximately $1,450,000 or $300 per
weighted average occupancy unit in non-revenue generating capital expenditures
for the year ended December 31, 1996. These expenditures do not include the
improvements required in connection with Northwestern Mutual mortgage loans and
renovation expenditures required pursuant to the requirements related to the
tax-exempt variable rate demand bonds. Essex expects that cash from operations
and/or the lines of credit will fund such expenditures.
Essex pays quarterly dividends from cash available for distribution. Until it is
distributed, cash available for distribution is invested by the Company
primarily in short-term investment grade securities or is used by the Company to
reduce balances outstanding under its lines of credit.
Essex expects to meet its short-term liquidity requirements by using its initial
working capital and any portion of net cash flow from operations not currently
distributed. Essex believes that its future net cash flows will be adequate to
meet operating requirements and to provide for payment of dividends by the
Company in accordance with REIT requirements.
Essex expects to meet certain long-term liquidity requirements such as scheduled
debt maturities and repayment of short-term financing of acquisition and
development activities through the issuance of long-term secured and unsecured
debt and offerings by Essex of additional equity securities (or limited
partnership interests in the Operating Partnership).
On March 7, 1996, Essex filed a shelf registration statement for up to $100
million of common stock, preferred stock, depository shares and warrants to
purchase common and preferred stock. As of May 9, 1996, the shelf registration
statement had not been declared effective by the Securities and Exchange
Commission.
FUNDS FROM OPERATIONS
Industry analysts generally consider Funds from Operations an appropriate
measure of performance of an equity REIT. Generally, Funds from Operations
adjusts the net income of equity REITs for non-cash charges such as depreciation
and amortization and non-recurring gains or losses. Management generally
considers Funds from Operations to be a useful financial performance measurement
of an equity REIT because, together with net income and cash flows, Funds from
Operations provides investors with an additional basis to evaluate the ability
of a REIT to incur and service debt and to fund acquisitions and other capital
expenditures. Funds from Operations does not represent net income or cash flows
from operations as defined by GAAP and does not that cash flows will be
sufficient to fund cash needs. It should not be considered as an alternative to
net income as an indicator of the Operating Partnership's operating performance
or to cash flows as a measure of liquidity. Funds from Operations does not
measure whether cash flow is sufficient to fund all cash needs including
principal amortization, capital improvements and distributions to shareholders.
Funds from Operations also does not represent cash flows generated from
operating, investing or financing activities as defined under GAAP. Further,
Funds from Operations as disclosed by other REITs may not be comparable to the
Company's calculation of Funds from Operations. The following table sets forth
Essex's calculation of actual Funds from Operations for the quarter ended March
31, 1996 and 1995.
Page 11 of 28
<PAGE>
<TABLE>
<CAPTION>
For the Quarter
ended March 31,
---------------
1996 1995
---------- ----------
<S> <C> <C>
Income before, extraordinary
item and minority interest $2,198,000 $2,012,000
Adjustments:
Depreciation & Amortization 2,190,000 1,973,000
Adjustment for Unconsolidated
Joint Venture 119,000 0
Non-recurring Items 21,000 0
Minority Interest - Pathways (140,000) (120,000)
---------- ----------
Funds from Operations $4,388,000 $3,865,000
========== ==========
Number of Shares (1) 8,130,000 8,130,000
</TABLE>
(1) Assumes conversion of all outstanding operating partnership interests in
the Operating Partnership into shares of Essex's common stock.
The National Association of Real Estate Investment Trusts ("NAREIT"), a leading
industry trade group, has approved a revised definition of Funds from
Operations, which provides that the amortization of deferred financing costs in
no longer to be added back to net income to calculate Funds from Operations.
Essex has adopted the revised NAREIT definition of Funds from Operations
beginning on January 1, 1996 and 1995 results have been restated based on this
revised definition.
Page 12 of 28
<PAGE>
PART II OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.43 $20.2 million Promissory Note to Northwestern Mutual
Life Insurance Company
10.44 $14.475 million Promissory Note to Union Bank
12.1 Schedule of Computation of Ratio of Earnings to Fixed
Changes
27.1 Article 5 Financial Data Schedule (EDGAR filing only)
REPORTS ON FORM 8-K
None
</TABLE>
Page 13 of 28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESSEX PROPERTY TRUST, INC.
/s/ Michael J. Schall
---------------------------------
Michael J. Schall, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
--------------------------------
Date
Page 14 of 28
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INDEX PAGE
- -------------- ----
<C> <S> <C>
10.43 $20.2 million Promissory Note to Northwestern
Life Insurance Company 16
10.44 $14.475 million Promissory Note to Union Bank 22
12.1 Schedule of Computation of Ratio of Earnings to
Fixed Changes 28
27.1 Article 5 Financial Data Schedule (EDGAR filing only)
</TABLE>
Page 15 of 28
<PAGE>
LOAN NO. A-331882 WASHINGTON
EXHIBIT 10.43
PROMISSORY NOTE
---------------
$20,200,000.00 As of February 13, 1996
------------------
(Place of Execution)
For value received, the undersigned, herein called "Borrower," promises
to pay to the order of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a
Wisconsin corporation, who, together with any subsequent holder of this note,
is hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue, Milwaukee,
WI 53202 or at such other place as Lender shall designate in writing, in coin
or currency which, at the time or times of payment, in legal tender for public
and private debts in the United States, the principal sum of TWENTY MILLION TWO
HUNDRED THOUSAND DOLLARS or so much thereof as shall have been advanced from
time to time plus interest on the outstanding principal balance at the rate and
payable as follows:
Interest shall accrue from the date of advance until maturity at
the rate of seven and fifty hundredths percent (7.50%) per annum (the
"Interest Rate").
Accrued interest shall be paid on the fifteenth day of the month
following the first advance and on the fifteenth day of each of the next
six months. On the fifteenth day of the seventh month (the "Initial
Amortization Date") and on the fifteenth day of each and every month
thereafter, installments of principal and interest shall be paid in the
amount of $149,277.00 until maturity. The amortization period shall be
twenty-five years. All installments shall be applied first in payment of
interest, and the remainder of each installment shall be applied on
principal. The entire unpaid principal balance plus accrued interest
thereon shall be due and payable on March 15, 2003 (the "Maturity Date").
In the event the Sunpointe Note (as hereinafter defined) and the
Facilitator Note (as hereinafter defined) are paid or otherwise satisfied
in full prior to the Maturity Date, the Interest Rate on this note shall be
increased by ten hundredths percent (0.10%) per annum, effective as of the
date of any such payment or satisfaction. Said increased Interest Rate
shall be effective through the remaining term of this note.
Borrower shall have the one time privilege, upon thirty (30) days advance
written notice, beginning June 15, 1999 of paying this note in full with a
prepayment privilege fee. This fee represents consideration to Lender for loss
of yield and reinvestment costs. The fee shall be the greater of Yield
Maintenance of 1% of the outstanding principal balance of this note.
As used herein, "Yield Maintenance" means the amount, if any, by which
(i) the present value of the Then Remaining Payments (as hereinafter defined)
calculated using a
Page 16 of 28
<PAGE>
periodic discount rate (corresponding to the payment frequency under this note)
which, when compounded for such number of payment periods in a year, equals the
per annum effective yield of the Most Recently Auctioned United States Treasury
Obligation having a maturity date equal to the Maturity Date (or, if there is
no such equal maturity date, then the linearly interpolated per annum effective
yield of the two Most Recently Auctioned United States Treasury Obligations
having maturity dates most nearly equivalent to the Maturity Date) as reported
by the Wall Street Journal five business days prior to the date of prepayment
exceeds (ii) the outstanding principal balance of this note (exclusive of all
accrued interest).
If such United States Treasury obligation yields shall not be reported as of
such time or the yields reported as of such time shall not be ascertainable,
then the periodic discount rate shall be equal to the Treasury Constant
Maturity Series yields reported, for the latest day for which such yields shall
have been so reported, as of five business days preceding the prepayment date,
in Federal Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded United States Treasury obligations having a
constant maturity most nearly equivalent to the Maturity Date.
As used herein, "Then Remaining Payments" means payments in such amounts and at
such times as would have been payable subsequent to the date of such prepayment
in accordance with the terms of this note.
As used herein, "Most Recently Auctioned United States Treasury Obligations"
shall mean the bonds and notes with maturities of 30 years, 10 years, 5 years,
3 years and 1 year which, as of the date the prepayment privilege fee is
calculated, were most recently auctioned by the United States Treasury.
Upon the occurrence of an Event of Default (as defined in the Lien Instrument)
followed by acceleration of the whole indebtedness, or a condemnation or sale
under threat of condemnation of all or substantially all of the Property,
payment of the amount necessary to satisfy the entire indebtedness evidenced by
this note will constitute an evasion of the prepayment terms hereunder and be
deemed to be a voluntary prepayment hereof and such payment will, therefore (to
the extent not prohibited by law) include the prepayment privilege fee required
under the prepayment in full privilege recited above. If such prepayment occurs
prior to June 15, 1999 and results from an Event of Default followed by an
acceleration of the whole indebtedness, then such payment will, to the extent
not prohibited by law, include a prepayment fee equal to the greater of Yield
Maintenance or 6% of the outstanding principal balance of this note. If such
prepayment occurs prior to June 15, 1999 and results in a condemnation or sale
under threat of condemnation of all or substantially all of the Property, the
prepayment fee shall be Yield Maintenance.
Notwithstanding the above and provided there is no default under this note,
this note may be prepaid in full without a prepayment fee at any time during
the last sixty (60) days of the term of this note.
Borrower acknowledges and agrees that the Interest Rate hereunder shall
be increased if certain financial statements and other reports are not
furnished to Lender,
Page 17 of 28
<PAGE>
all as described in more detail in the provision of the Lien Instrument
entitled "FINANCIAL STATEMENTS".
This note is secured by:
(a) that certain Deed of Trust, Security Agreement and Fixture Filing dated
June 13, 1994 executed by Essex Sunpointe Ltd. ("Sunpointe"), a California
limited partnership, for the benefit of The Northwestern Mutual Life Insurance
Company and recorded on June 13, 1994, as Document No. 94061300678, in the
records of King County, Washington, as amended by that certain First Amendment
of Lien Instrument of even date herewith executed by Sunpointe and The
Northwestern Mutual Life Insurance Company (as so amended, the "Sunpointe Lien
Instrument") covering certain property in Bellevue, King County Washington (the
"Sunpointe Property");
(b) that certain Deed of Trust, Security Agreement and Fixture Filing
dated June 13, 1994 executed by Essex-Palisades Facilitator ("Facilitator"), a
California limited partnership, for the benefit of The Northwestern Mutual Life
Insurance Company and recorded on June 13, 1994 as Document No. 9406130080 in
the records of King County, Washington, as amended by that certain First
Amendment of Lien Instrument of even date herewith executed by Facilitator and
The Northwestern Mutual Life Insurance Company (as so amended, the "Facilitator
Lien Instrument") covering certain property in Bellevue, King County Washington
(the "Facilitator Property");
(c) Deed of Trust and Security Agreement (the "Portfolio Lien
Instrument") of even date herewith executed by ESSEX PORTFOLIO L.P., a
California limited partnership to FIRST AMERICAN TITLE INSURANCE COMPANY, as
Trustee, for THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, covering certain
property in Bellevue, King County, Washington consisting of approximately 13.98
acres (the "Sammamish View Property"), in Bellevue, King County, Washington
consisting of approximately 9.09 acres (the "Emerald Ridge Property") and in
Seattle, King County, Washington consisting of approximately 1.74 acres (the
"Wharfside Pointe Property") (The Sammamish View Property, the Emerald Ridge
Property and the Wharfside Pointe Property are collectively herein referred to
as the "Portfolio Property"; the Portfolio Property, the Sunpointe Property and
the Facilitator Property are collectively herein referred to as the
"Property"), and the Sunpointe Lien Instrument, the Facilitator Lien Instrument
and the Portfolio Lien Instrument are collectively herein referred to as the
"Lien Instrument").
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument), the whole unpaid principal and accrued interest shall, at the
option of Lender, to be exercised at any time thereafter, become due and
payable at once without notice, notice of the exercise of, and the intent to
exercise, such option being hereby expressly waived.
All persons or corporations now or at any time liable, whether
primarily or secondarily, for payment of indebtedness hereby evidenced, for
themselves, their heirs, legal representatives, successors and assigns,
respectively, expressly waive presentment for payment, notice of dishonor,
protest, notice of protest, and diligence in collection, and
Page 18 of 28
<PAGE>
consent that the time of said payments or any part thereof may be extended by
Lender and further consent that the real or collateral security or any part
thereof may be released by Lender, without in any wise modifying, altering,
releasing, affecting, or limiting their respective liability or the lien of said
Lien Instrument, and agree to pay reasonable attorney's fees and expenses of
collection including any bankruptcy or insolvency proceeding, in case this note
is placed in the hands of an attorney for collection or suit is brought thereon.
Any principal, interest or other amounts payable under this note, the Lien
Instrument or other instruments securing payment hereof, not paid when due
(without regard to any notice and/or cure provisions contained herein or in any
of the other loan documents executed in connection with this note), including
principal becoming due by reason of acceleration by Lender of the entire unpaid
balance of this note, shall bear interest from the due date thereof until paid
at the Default Rate, as hereinafter defined. The term "Default Rate" is defined
as the lower of a rate equal to the interest rate in effect at the time of the
default as herein provided plus 5% per annum or the maximum rate permitted by
law.
No provision of this note shall require the payment or permit the
collection of interest, including any fees paid which are construed under
applicable law to be interest, in excess of the maximum permitted by law. If any
such excess interest is collected or herein provided for, or shall be
adjudicated to have been collected or be so provided for herein, the provisions
of this paragraph shall govern, and Borrower shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law and any such excess collected shall, at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.
Notwithstanding any provision contained herein or in the Lien Instrument to
the contrary, if Lender shall take action to enforce the collection of the
indebtedness evidenced hereby or secured by the Lien Instrument (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the Property or the proceeds from the sale of the Property and the proceeds
realized by Lender in exercising its rights and remedies (i) under the Absolute
Assignment (as defined in the Lien Instrument), (ii) under the Additional
Guarantee of even date herewith executed by Essex Property Trust, Inc., a
Maryland corporation ("EPTI"), and under the Guarantee of Recourse Obligations
of even date herewith executed by EPTI, both for the benefit of Lender, and
under other separate guarantees, if any, (iii) under any of the other Loan
Documents (as defined in the Lien Instrument) and (iv) in any other collateral
securing the Indebtedness. If such proceeds are insufficient to pay the
Indebtedness, Lender will never institute any action, suit, claim or demand in
law or in equity against Borrower for or on account of such deficiency;
provided, however, that the provisions contained in this paragraph
(i) shall not in any way affect or impair the validity or enforceability
of the Indebtedness or the Lien Instrument; and
Page 19 of 28
<PAGE>
(ii) shall not prevent Lender from seeking and obtaining a judgment against
Borrower, and Borrower shall be personally liable, for the Recourse
Obligations; and
(iii) shall not be applicable in the event of a violation of any of the
provisions of the Lien Instrument following the caption entitled "Due
on Sale" (i.e. Borrower shall be personally liable for all of the
Indebtedness in the event of such violation).
As used herein, the term "Recourse Obligations" means
(a) rents and other income from the Property from and after the date of any
default under the Loan Documents remaining uncured on the date of the
foreclosure sale of the Property pursuant to the Lien Instrument or the
conveyance of the Property to Lender in lieu of foreclosure, which rents
and other income have not been applied to the payment of principal and
interest on the Note or to reasonable operating expenses of the Property,
(b) amounts necessary to repair any damage to the Property caused by
the intentional acts or intentional omissions of Borrower or its agents,
(c) insurance loss and condemnation award proceeds released to Borrower
but not applied in accordance with any agreement between Borrower and
Lender as to their application,
(d) amounts necessary to pay costs of investigation and clean-up of
hazardous materials and toxic substances on or affecting the Property,
(e) damages suffered by Lender as a result of fraud or misrepresentation in
connection with the Indebtedness by Borrower or any other person or entity
acting on behalf of Borrower, and
(f) amounts necessary to pay real estate taxes, special assessments and
insurance premiums with respect to the Property (to the extent not
previously deposited with Lender by Borrower pursuant to the provisions of
the Lien Instrument following the caption entitled "DEPOSITS BY GRANTOR")
either paid by Lender and not reimbursed prior to, or remaining due or
delinquent on, either (i) the later of (A) the date on which title vests in
the purchaser at the foreclosure sale of the Property pursuant to the Lien
Instrument or (B) the date on which Borrower's statutory right of
redemption shall expire or be waived, or (ii) the date of the conveyance of
the Property to lender in lieu of foreclosure.
This Note shall be governed by and construed in accordance with the
laws of the State of Washington.
Page 20 of 28
<PAGE>
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT,
MODIFY LOAN TERMS, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
ESSEX PORTFOLIO L.P., a California
limited partnership
By: Essex Property Trust, Inc., a
Maryland corporation, general
partner
By: /s/ Jordan E. Ritter
-----------------------------
Its: Vice President
(corporate seal)
PAGE 21 of 28
<PAGE>
EXHIBIT 10.44
[UNION BANK LOGO]
COMMERCIAL PROMISSORY NOTE
SECURED BY DEED OF TRUST
- ----------------------------------------------------------------------------
Borrower Name ESSEX PORTFOLIO, L.P., a California limited partnership
- ----------------------------------------------------------------------------
Borrower Address Office Number 795 Loan Number 2696022339-
777 California Street -------------------------------------------
Palo Alto, California 94304 Maturity Date Amount
March 1, 2006 $14,475,000.00
- ----------------------------------------------------------------------------
Walnut Creek, California Date January 29, 1996 $14,475,000.00
FOR VALUE RECEIVED, the undersigned ("Debtor") promises to pay to the order of
Union Bank ("Bank"), as indicated below, the principal sum of FOURTEEN MILLION
FOUR HUNDRED SEVENTY-FIVE THOUSANDS AND NO/100* Dollars ($14,475,000.00), or so
much thereof as is disbursed, together with interest on the balance of such
principal sum from time to time outstanding, at a per annum rate equal to
/X/ Seven and Nine One Hundredths percent (7.09%) (Fixed Rate);
/ / the Reference Rate plus ____--__________ percent (___-0-________%),
such per annum rate to change as and when the Reference Rate shall
change; or
/ / ________________________________________________________________________
________________________________________________________________________
provided, however, Debtor shall pay total interest over the term of
this note of not less than $500.
As used herein, the term "Reference Rate" shall mean the rate announced by Bank
from time to time at its corporate headquarters as its "Reference Rate." The
Reference Rate is an index rate determined by Bank from time to time as a means
of pricing certain extensions of credit and is neither directly tied to any
external rate of interest or index nor necessarily the lowest rate of interest
charged by Bank at any given time. All computations of interest under this note
shall be made on the basis of a year of 360 days, for actual days elapsed.
1. PAYMENTS.
PRINCIPAL PAYMENTS. Debtor shall pay principal
/ / in full on _____--________, 19__; however, at any time prior to the
maturity of this note, the Debtor may borrow, repay and reborrow hereon so
long as the total outstanding at any one time does not exceed the principal
amount of this note.
/ / in full on _____--________, 19__.
/X/ in 119 installments in amounts as set forth below each on the 1st day of
each month (commencing April 1, 1996) and a final installment on March 1,
2006, on which date all principal and interest then unpaid shall be due and
payable.
<TABLE>
<CAPTION>
EACH YEAR AMOUNT
--------- ------
<S> <C>
Year 1 $17,079.00
Year 2 $18,405.00
Year 3 $19,834.00
Year 4 $21,374.00
Year 5 $23,033.00
Year 6 $24,821.00
Year 7 $26,748.00
Year 8 $28,825.00
Year 9 $31,063.00
Year 10 $33,474.00
</TABLE>
INTEREST PAYMENTS. Debtor shall pay interest
/X/ on the 1st day of each month (commencing March 1, 1996).
/ / _________________________________________________________
INTEREST-INCLUDED OPTION. If a fixed rate of interest is applicable to this
note and other principal and interest payment terms are not stated in the
preceding paragraphs, Debtor shall pay principal and interest together in
_____--______ installments of $__-0-_____ each on the ___--______ day of each
_____--______ (commencing)____--___________, 19__) and in a final installment of
$__-0-____ on ______________, 19__, on which date all principal and interest
then unpaid shall be due and payable.
- --------------------------------------------
PAGE 22 of 28
<PAGE>
Debtor shall pay all amounts due under this note in lawful money of the United
States of Bank's Monterey Park Office, or such other office as may be
designated by Bank, from time to time.
2. LATE PAYMENTS. If any installment payment required by the terms of
this note is unpaid ten days after due, Debtor shall, at the option of Bank,
pay a fee of $100 to Bank; provided that if this note is secured by a deed of
trust on real property containing only a single-family owner-occupied dwelling,
such fee shall not exceed six-percent of the installment due that is applicable
to the payment of principal and interest, or five dollars, whichever is greater.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default (as described
in paragraph 4 below), at the option of the Bank, and, to the extent permitted
by law, interest shall be payable on the outstanding principal under this note
at a per annum rate equal to five percent (5%) in excess of the interest rate
specified in the initial paragraph of this note, calculated from the date of
default until such default is cured, or if such default is not cured or is
incapable of being cured, until all amounts payable under this note are paid in
full.
4. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include,
but not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note within three (3) Business Days after the
date due; (b) any breach, misrepresentation or other default (not otherwise
specified herein or in the deed of trust securing this note), by Debtor or its
General Partner (hereinafter individually and collectively referred to as the
"Obligor") under any deed of trust, security agreement, guaranty or other
agreement between Bank and any Obligor, which is not cured within thirty (30)
days after written notice thereof from Bank, provided, however, that if such
failure by its nature cannot be cured within such thirty (30) day period (but
is reasonably capable of being cured within ninety (90) days after such
notice), then the cure period shall remain in effect so long as Obligor
commences the cure within such thirty (30) day period and diligently prosecutes
such cure to completion within such ninety (90) day period; (c) the insolvency
of any Obligor or the failure of any Obligor generally to pay such Obligor's
debts as such debts become due; (d) the commencement as to any Obligor of any
voluntary or involuntary proceeding under any laws relating to bankruptcy,
insolvency, reorganization, arrangement, debt adjustment or debtor relief,
provided, however, with respect to any such involuntary proceeding no event of
default shall arise unless said involuntary proceeding is not dismissed within
forty-five (45) days following the date of commencement thereof; (e) the
assignment by any Obligor for the benefit of such Obligor's creditors; (f) the
appointment, or commencement of any proceedings for the appointment, of a
receiver, trustee, custodian or similar official for all or substantially all
of any Obligor's property, which is not dismissed or otherwise discharged
within forty-five (45) days after commencement; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor, which is not
dismissed or otherwise discharged within forty-five (45) days after
commencement; (h) the termination of existence of any Obligor; (i) the failure
of any Obligor to comply with any order, judgment, injunction, decree, writ or
demand of any court or other public authority, which materially or adversely
affects the property securing this note, as determined in Bank's reasonable
discretion, or such Obligor's ability to conduct or operate its business; (j)
the filing or recording against any Obligor, or the property of any Obligor, of
any notice of levy, notice to withhold, or other legal process for taxes other
than property taxes which is not dismissed or rescinded within thirty (30) days
after such occurrence; (k) the default by any Obligor personally liable for
amounts owed hereunder on any obligation in the aggregate of Three Million
Dollars ($3,000,000.00) concerning the borrowing of money; (l) a default occurs
under any instrument encumbering or affecting all or any portion of the
property subject to the deed of trust securing this note not cured within the
applicable cure periods; (m) the issuance against any Obligor, or the property
of any Obligor, of any writ of attachment, execution, or other judicial lien,
which is not dismissed within thirty (30) days following such issuance; or (n)
the material deterioration of the financial condition of any Obligor which
results in Bank deeming itself, in good faith, insecure. Upon the occurrence of
any such default, Bank, in its discretion, may cease to advance funds hereunder
and, following the expiration of any cure period, may declare all obligations
under this note immediately due and payable; however, upon the occurrence of an
event of default under (d) (with respect to a voluntary proceeding only) or (e)
all principal and interest shall automatically become immediately due and
payable.
5. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note
are not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement
of this note. Debtor and any endorser of this note, for the maximum period of
time and the full extend permitted by law, (a) waive diligence, presentment,
demand, notice of nonpayment, protest, notice of protest, and notice of every
kind; (b) waive the right to assert the defense of any statute of limitations to
any debt or obligation hereunder; and (c) consent to renewals and extensions of
time for the payment of any amounts due under this note. If this note is signed
by more than one party, the term "Debtor" includes each of the undersigned and
any successors in interest thereof, all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment if
honored when presented for payment at the drawee bank. Bank may delay the
credit of such payment based upon Bank's schedule of funds availability, and
interest under
PAGE 23 of 28
<PAGE>
this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any endorser of this note,
including their successors and assigns, hereby consent to the jurisdiction of
any competent court within the State of California, except as provided in any
addendum attached hereto, and consent to service of process by any means
authorized by California Law. The term "Bank" includes, without limitation, any
holder of this note. This note shall be construed in accordance with and
governed by the laws of the State of California.
The deed of trust securing this note permits the Bank to declare all obligations
hereunder immediately due and payable upon breach of the following provision:
"Trustor shall not, directly or indirectly, sell, convey, assign, further
encumber, transfer, alienate or otherwise dispose of the real property
encumbered by said deed of trust or any part thereof or any interest therein,
whether voluntarily, involuntarily, by operation of law or otherwise, without
the prior written consent or Beneficiary."
6. NON-RECOURSE. By accepting this Note, and providing that Debtor in no way
hinders, delays, interferes with, or prejudices Bank's exercise of any rights
and remedies available to it hereunder under the Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing ("Deed of Trust"), or under any
applicable laws, the holder hereof agrees that except as otherwise expressly set
forth in the last sentence of this Section 6, the sole recourse of such holder
for the collection of this Note shall be against the property encumbered by the
Deed of Trust securing this Note and that neither Debtor nor the general or
limited partners of Debtor shall be personally liable for the payment of this
Note nor for the payment of any deficiency established upon foreclosure and sale
of the property encumbered by said Deed of Trust. This provision relating to
limitation on liability shall not extend to (i) any waste, material
misrepresentation or fraud of the Debtor if Debtor has acted maliciously,
recklessly or intentionally, or (ii) any liability of Debtor relating to
environmental matters as more fully set forth in the Environmental Compliance
Agreement executed by Debtor, or (iii) any misapplication of casualty or
condemnation proceeds received by Debtor, or (iv) any rent or other payments
collected after recordation of a notice of default under this Note, or under the
Deed of Trust, (except to the extent applied to the reasonable and necessary
expenses of operating and maintaining the property), and any security deposits,
advances or prepaid rent, or any similar sums paid to Debtor or held for the
account of Debtor by any other person or entity in connection with the property
after a default under this Note or the Deed of Trust, securing this Note.
Notwithstanding anything to the contrary in the foregoing provisions or
elsewhere in this Note, Debtor shall in all events be personally liable for the
payment of principal, interest and other amounts unpaid and owing under the
Note, in the maximum aggregate amount of $2,171,250.00.
The attached Judicial Reference Agreement and Prepayment Addendum are hereby
made a part of this note.
- -------------------------------------------------------------------------------
Individual's Name (Type) Corporation or Partnership (Typed Name)
ESSEX PORTFOLIO, L.P.,
a California limited partnership
BY: ESSEX PROPERTY TRUST, INC.,
a Maryland corporation
its general partner
BY: /s/ Michael Schall
-------------------
- -------------------------------------------------------------------------------
Individual's Signature By
X
- -------------------------------------------------------------------------------
Date Signed Title
- -------------------------------------------------------------------------------
Individual's Name (Type) By
- -------------------------------------------------------------------------------
Individual's Signature Title
X
- -------------------------------------------------------------------------------
Date Signed Date Signed
- -------------------------------------------------------------------------------
Page 24 of 28
<PAGE>
[UNION BANK LOGO] PREPAYMENT ADDENDUM
I. PREPAYMENT
A. Except as provided in subsection I. B., below, this Note may only be
prepaid in whole or in part provided Union Bank has received not less
than five (5) business days prior written notice of an intention to make
such prepayment and the undersigned pays a prepayment fee, to Union Bank
in an amount equal to:
1. the difference between
(a) the Interest rate on this Note on the principal amount which the
undersigned intends to prepay, and
(b) the return which Union Bank could obtain if it used the amount of
such prepayment of principal to purchase at bid price regularly
quoted U.S. Securities having a maturity date most closely
coinciding with the maturity date of this Note and such U.S.
Securities were held by Union Bank until the maturity date of this
Note ("Yield Rate");
2. the above difference, if greater than zero, is multiplied by a
fraction, the numerator of which is the days in the period between the
date of prepayment and the maturity date of this Note and the
denominator of which is 360 days;
3. the above product is multiplied by the amount of the principal so
prepaid (except in the event that principal payments are required and
have been made as scheduled under the terms of the Note, then the
amount multiplied in this section shall be the lesser of the amount
prepaid or 50% of the total of the amount prepaid and the amount of
principal scheduled under the terms of this Note to be outstanding at
the maturity date of this Note);
4. the above product is then discounted to present value using the Yield
Rate as the annual discount factor.
B. In no event shall Union Bank be obligated to make any payment or refund to
the undersigned, nor shall the undersigned be entitled to any setoff or
other claim against Union Bank, should the return which Union Bank could
obtain under the prepayment formula exceed the interest that Union Bank
would have received if no prepayment had occurred. All prepayments shall
include payment of accrued interest on the principal amount so prepaid and
shall be applied to payment of interest before application to principal.
C. Such prepayment fee, if any, shall also be payable if prepayment occurs as
the result of the acceleration of the principal hereof by Union Bank
because of any default hereunder by the undersigned. If, following such
acceleration, all or any portion of the unpaid principal is satisfied,
whether through sale of the property encumbered by any security agreement
or other agreement securing this Note, if any, as a foreclosure held
thereunder or through the tender of payment at any time following such
acceleration, but prior to such a foreclosure sale, then such satisfaction
of such portion of the principal shall be deemed an evasion of the
prepayment prohibition set forth above, and Union Bank shall, automatically
and without notice or demand, be entitled to receive, concurrently with
such satisfaction the prepayment fee set forth above, and the obligation to
pay such prepayment fee shall be added to the principal hereof. THE
UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES THAT UNION BANK WOULD NOT LEND
TO THE UNDERSIGNED THE LOAN EVIDENCED BY THIS NOTE WITHOUT THE
UNDERSIGNED'S AGREEMENT, AS SET FORTH ABOVE IN THIS PARAGRAPH TO PAY UNION
BANK A PREPAYMENT FEE UPON THE SATISFACTION OF ALL OR ANY PORTION OF THE
PRINCIPAL BEARING INTEREST AT A FIXED INTEREST RATE FOLLOWING THE
ACCELERATION OF THE MATURITY DATE HEREOF BY REASON OF A DEFAULT HEREUNDER.
THE UNDERSIGNED HAS CAUSED THOSE PERSONS SIGNING THIS NOTE ON THE
UNDERSIGNED'S BEHALF TO SEPARATELY INITIAL THE AGREEMENT CONTAINED IN THIS
PARAGRAPH BY PLACING THEIR INITIALS BELOW:
INITIALS: MJS
---------
A determination by Union Bank as to the amount, if any, payable pursuant to
this section, shall be conclusive on the undersigned, absent manifest error.
II. AMENDMENT
Except as provided above, this Addendum and the provisions contained herein
cannot be changed, modified or amended except by a written instrument executed
by both the undersigned and the holder hereof.
ESSEX PORTFOLIO, L.P.,
a California limited partnership
BY: ESSEX PROPERTY TRUST, INC.,
a Maryland corporation
its general partner
BY: /s/ Michael Schall
-------------------------
Page 25 of 28
<PAGE>
[UNION BANK LOGO]
JUDICIAL REFERENCE AGREEMENT
(Commercial Transaction Secured By Real Property)
1. CLAIMS OR CONTROVERSIES SUBJECT TO JUDICIAL REFERENCE. Any claim or
controversy alleged in or subject to a lawsuit between or among the parties to
this agreement (collectively, the "Parties" and individually, a "Party") which
arises out of or relates to (i) that certain Commercial Promissory Note Secured
----------------------------------
by Deed of Trust dated January 29, 1996, executed by ESSEX PORTFOLIO, L.P.,
- ---------------- ---------------- ---------------------
a California limited partnership in favor of Union Bank ("Bank"), any
extensions, renewals, amendments, substitutions or replacements thereof, and any
related guaranty, subordination agreement, security agreement or any other
related agreement or instrument (collectively, the "Subject Documents"), (ii)
any negotiations, correspondence or communications relating to any of the
Subject Documents, whether or not incorporated into the Subject Documents or any
indebtedness evidenced thereby, (iii) the administration or management of the
Subject Documents or any indebtedness evidenced thereby or (iv) any alleged
agreements, promises, representations or transactions in connection therewith,
including but not limited to any claim or controversy which arises out of or is
based upon an alleged tort, shall, at the written request of any Party, be
determined by a reference in accordance with California Code of Civil Procedure
Sections 638 et seq. In connection with such reference, the Parties hereby
expressly, intentionally and deliberately waive any right they may otherwise
have to trial by jury of such claim or controversy.
2. SELECTION OF REFEREE. Within thirty (30) days after commencement by any
Party of any lawsuit subject to this agreement, the Parties shall select,
pursuant to the Commercial Rules of the American Arbitration Association
("AAA"), a single neutral referee and submit by stipulation such referee to the
court for an order of reference of such claim or controversy. However, the
referee selected must be a retired state or federal court judge with at least
five years of judicial experience in civil matters. In the event that the
Parties do not submit such stipulation to the court within such thirty (30) day
period, any Party may move the court pursuant to this agreement for an order of
reference of such claim or controversy to a single neutral referee having such
qualifications. The Parties shall equally bear the fees and expenses of the
referee unless the referee otherwise provides in the award.
3. POWERS OF AND LIMITATIONS ON THE REFEREE. The referee shall have the powers
provided by Title 9 of the California Code of Civil Procedure Sections 1280 et
seq. (the "California Arbitration Act") and the Commercial Rules of the AAA
except as provided in this agreement, including without limitation the
following:
(a) The referee shall determine all challenges to the legality
and/or enforceability of this agreement.
(b) The referee shall apply the rules of evidence to the same
extent as they would be applied in a court of law.
(c) Subject to the provisions of this agreement, the referee
may order any remedy or relief, including without limitation
judicial foreclosure, a deficiency judgment or equitable
relief, and give effect to all legal and equitable defenses,
including without limitation statutes of limitation,
the statute of frauds, waiver and estoppel.
(d) A Party may not conduct discovery unless the referee grants
such Party leave to do so upon a showing of good cause. All
discovery shall be completed within ninety (90) days after the
appointment of the referee. The referee shall limit discovery to
non-privileged material that is relevant to the issues to be
determined by the referee.
(e) The referee shall determine the time of the hearing and shall
designate its location from among the cities of San Francisco,
Los Angeles and San Diego based upon the convenience of the
referee, the Parties and any witnesses. However, such hearing
must be commenced within (30) days after completion of
discovery, unless the referee grants a continuance upon a
showing of good cause by any Party. At least seven (7) days
before the date set for hearing, the Parties shall exchange
copies of exhibits to be offered as evidence, and lists of
witnesses who will testify, at such hearing. Once commenced,
the hearing shall proceed day to day until completed, unless
the referee grants a continuance upon a showing of good cause
by any Party. Any Party may cause to be prepared, at its
expense, a written transcription or electronic recordation of
such hearing.
(f) Any award by the referee shall be set forth in a statement of
decision supported by written findings of fact and conclusions
of law which the referee shall concurrently deliver to the
Parties.
(g) The referee may not award punitive damages unless the referee
first makes written findings of fact that would satisfy the
requirements for recovery of punitive damages under California
law. Any such award of punitive damages shall not exceed a sum
equal to twice the amount of actual damages as determined by the
referee.
(h) The referee shall award reasonable attorneys' fees (including a
reasonable allocation for the costs of in-house counsel) and
costs the prevailing party.
(i) The provisions of California Civil Code Sections 47 et seq.
shall apply to the judicial reference to the same extent as they
would apply to a judicial proceeding subject to such provisions.
(j) The laws of the State of California shall govern the judicial
reference pursuant to this agreement.
PAGE 26 of 28
<PAGE>
4. PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision of this
agreement shall limit the right of any Party (i) to exercise any self-help
remedies, (ii) to foreclose upon or sell any collateral, by power of sale or
otherwise, or (iii) to obtain or oppose provisional or ancillary remedies from
a court of competent jurisdiction, including without limitation appointment of
a receiver, before, after or during the pendency of the judicial reference. The
exercise of, or opposition to, any such remedy does not waive the right of any
Party to judicial reference pursuant to this agreement.
5. MISCELLANEOUS. Judgment upon the award of the referee may be entered in any
court of competent jurisdiction in accordance with California Code of Civil
Procedure Sections 644 and 645. In the event that multiple claims are asserted,
some of which are found not subject to this agreement, the Parties agree to stay
the proceedings of the claims not subject to this agreement until all other
claims are resolved in accordance with this agreement.
In the event that claims are asserted against multiple parties, some of whom
are not subject to this agreement, the Parties agree to sever the claims
subject to this agreement and resolve them in accordance with this agreement. In
the event that any provision of this agreement is found to be illegal or
unenforceable, the remainder of this agreement shall remain in full force and
effect. The laws of the State of California shall govern the interpretation of
this agreement. This agreement fully states all of the terms and conditions of
the Parties' agreement regarding the matters mentioned in, or incidental to,
this agreement. This agreement supersedes all oral negotiations and prior
writings concerning the subject matter hereof.
This agreement is duly executed by the Parties as of the day 29th of January,
1996.
UNION BANK ESSEX PORTFOLIO, L.P.,
a California limited partnership
By: By: ESSEX PROPERTY TRUST, INC.,
------------------------ a Maryland corporation
J. Michael Stedman its general partner
Title: Asst. Vice President
By: By: Michael J. Schall, CFO
------------------------ ---------------------------
James B. Wohlleb
Title: Vice President
page 27 of 28
<PAGE>
EXHIBIT 12.1
ESSEX PROPERTY TRUST, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
ESSEX PROPERTY TRUST, INC. ESSEX PARTNERS PROPERTIES
------------------------------------------- ---------------------------------------------------------
PERIOD OF PERIOD OF
3 MONTHS ENDED YEAR ENDED JUNE 13, 1994 JANUARY 1, 1994 YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, TO DECEMBER 31, TO JUNE 12, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1994 1993 1992 1991
-------------- ------------ --------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income before
extraordinary item
and minority interest.. $2,198 $ 8,231 $4,397 $ 332 $ 387 $(2,344) $(3,582)
Interest expense......... 2,901 10,928 4,304 5,924 11,902 13,224 14,762
Amortization of deferred
financing costs........ 245 1,355 773 96 219 218 216
Capitalized interest..... 28 92 -- -- -- -- --
------ ------- ------ ------ ------- ------- -------
TOTAL EARNINGS........... $5,372 $20,606 $9,474 $6,352 $12,508 $11,098 $11,396
FIXED CHARGES:
Interest expense......... $2,901 $10,928 $4,304 $5,924 $11,902 $13,224 $14,762
Amortization of deferred
financing costs........ 245 1,355 773 96 219 218 216
Capitalized interest..... 28 92 -- -- -- -- --
------ ------- ------ ------ ------- ------- -------
TOTAL FIXED CHARGES...... $3,174 $12,375 $5,077 $6,020 $12,121 $13,442 $14,978
------ ------- ------ ------ ------- ------- -------
RATIO OF EARNINGS
TO FIXED CHARGES........ 1.69 1.67 1.87 1.06 1.03 0.83 0.76
====== ======= ====== ====== ======= ======= =======
FIXED CHARGES IN EXCESS
ON EARNINGS............. -- -- -- -- -- 2,344 3,582
====== ======= ====== ====== ======= ======= =======
</TABLE>
Page 28 of 28
<PAGE>
EXHIBIT 3
- --------------------------------------------------------------------------------
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------------- -----------------
COMMISSION FILE NO. 1-13106
ESSEX PROPERTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 77-0369576
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
777 CALIFORNIA AVENUE, PALO ALTO, CALIFORNIA 94304
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(415) 494-3700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORT, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
6,275,000 SHARES OF COMMON STOCK,
$.0001 PAR VALUE AS OF JUNE 30, 1996
- --------------------------------------------------------------------------------
Page 1 of 18
<PAGE>
INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------- ----------- -----------
<C> <S> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheet of Essex Property
Trust, Inc. as of June 30, 1996 and December 31, 1995 4
Condensed Consolidated Statement of Operations of Essex
Property Trust, Inc. for the three months ended
June 30, 1996 and 1995 5
Condensed Consolidated Statement of Operations of Essex
Property Trust, Inc. for the six months ended June 30, 1996
and 1995 6
Condensed Consolidated Statement of Cash Flows of Essex
Property Trust, Inc. for the six months ended June 30, 1996
and 1995 7
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II: OTHER INFORMATION
Item 2: Changes in Securities 15
Item 6: Exhibits and Reports on Form 8-K 16
Signatures 19
</TABLE>
Page 2 of 18
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
"Essex" means Essex Property Trust, Inc., a real estate investment
trust incorporated in the State of Maryland, or where the context
otherwise requires, Essex Portfolio, L.P., a partnership in which
Essex Property Trust, Inc. is the sole general partner.
The information furnished in the accompanying condensed consolidated
balance sheet, condensed consolidated statement of operations and
condensed consolidated statement of cash flows of Essex reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the aforementioned financial statements for the
interim periods.
The accompanying unaudited financial statements should be read in
conjunction with the notes to such financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Page 3 of 18
<PAGE>
ESSEX PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Real estate:
Rental properties:
Land and land improvements $ 62,525 $ 61,738
Buildings and improvements 223,188 222,620
---------- ----------
285,713 284,358
Less accumulated depreciation (43,041) (40,281)
---------- ----------
242,672 244,077
Investments 8,589 8,656
---------- ----------
251,261 252,733
Cash and cash equivalents 5,710 3,983
Notes and other related party receivables 4,351 4,780
Notes and other receivables 5,068 5,130
Prepaid expenses and other assets 4,224 1,944
Deferred charges, net 2,875 5,090
---------- ----------
$ 273,489 $ 273,660
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable 141,792 136,061
Lines of credit 12,843 18,463
Accounts payable and accrued liabilities 5,574 2,964
Dividends payable 3,455 3,455
Other liabilities 1,668 1,565
---------- ----------
Total liabilities 165,332 162,508
Minority interest 25,660 26,423
Stockholders' equity:
Common stock, $.0001 par value, 670,000,000
shares authorized, 6,275,000 shares issued
and outstanding 1 1
Additional paid-in capital 112,070 112,070
Accumulated deficit (29,574) (27,342)
---------- ----------
Total stockholders' equity 82,497 84,729
---------- ----------
$ 273,489 $ 273,660
========== ==========
</TABLE>
See accompanying notes to the unaudited financial statements.
Page 4 of 18
<PAGE>
ESSEX PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except shares per share amounts)
<TABLE>
<CAPTION>
Three months ended
------------------
June 30, June 30,
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Rental $ 11,053 $ 10,418
Interest and other income 701 493
---------- ----------
11,754 10,911
---------- ---------
Expenses:
Property operating expenses:
Maintenance and repairs 1,070 933
Real estate taxes 883 853
Utilities 728 746
Administrative 628 654
Advertising 139 79
Insurance 145 135
Depreciation and amortization 2,047 1,991
---------- ----------
5,640 5,391
---------- ----------
Interest 3,009 2,753
Amortization of deferred financing costs 181 349
General and administrative 466 358
Loss from hedge termination 18 13
---------- ----------
Total expenses 9,314 8,864
---------- ----------
Net income before gain on sales of real estate,
minority interests and extraordinary item 2,440 2,047
Gain on sales of real estate 2,409 789
---------- ----------
Net income before minority interest and
extraordinary item 4,849 2,836
Minority interest (1,025) (676)
---------- ----------
Income before extraordinary item 3,824 2,160
Extraordinary item:
Loss on early extinguishment of debt (665) (154)
---------- ----------
Net income $ 3,159 $ 2,006
========== ==========
Per share data:
Net income per share from operations before
extraordinary item $ .61 .34
Extraordinary item -- debt extinguishment (.10) ( .02)
---------- ----------
Net income per share $ .51 $ .32
========== ==========
Weighted average number of shares outstanding
during the period 6,275,000 6,275,000
========== ==========
</TABLE>
See accompanying notes to the unaudited financial statements.
Page 5 of 18
<PAGE>
ESSEX PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except shares per share amounts)
<TABLE>
<CAPTION>
Six months ended
----------------
June 30, June 30,
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Rental $ 22,004 $ 20,725
Interest and other income 1,304 1,109
---------- ----------
23,308 21,834
---------- ----------
Expenses:
Property operating expenses:
Maintenance and repairs 2,105 1,918
Real estate taxes 1,769 1,702
Utilities 1,485 1,514
Administrative 1,254 1,329
Advertising 290 149
Insurance 292 271
Depreciation and amortization 4,237 3,971
---------- ----------
11,432 10,854
---------- ----------
Interest 5,910 5,473
Amortization of deferred financing costs 426 712
General and administrative 863 723
Loss from hedge termination 39 13
---------- ----------
Total expenses 18,670 17,775
---------- ----------
Net income before gain on sales of real estate,
minority interests and extraordinary item 4,638 4,059
Gain on sales of real estate 2,409 789
---------- ----------
Net income before minority interest and
extraordinary item 7,047 4,848
Minority interest (1,100) (1,201)
---------- ----------
Income before extraordinary item 5,947 3,647
Extraordinary item:
Loss on early extinguishment of debt (2,845) (154)
---------- ----------
Net income $ 3,102 $ 3,493
========== ==========
Per share data:
Net income per share from operations before
extraordinary item $ .95 .58
Extraordinary item - debt extinguishment (.45) ( .02)
---------- ----------
Net income per share $ .50 $ .56
========== ==========
Weighted average number of shares outstanding
during the period 6,275,000 6,275,000
========= =========
</TABLE>
See accompanying notes to the unaudited financial statements.
Page 6 of 18
<PAGE>
ESSEX PROPERTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 8,073 $ 8,663
Cash flows from investing activities:
Additions to real estate investments (13,417) (1,381)
Dispositions of real estate investments 13,506 4,569
Investments in corporations and joint ventures 390 (3,099)
---------- ----------
Net cash provided by investing activities 479 89
Cash flows from financing activities:
Proceeds from mortgages, other notes payable
and lines of credit 47,083 16,400
Repayment of mortgages, other notes
payables and lines of credit (46,972) (19,381)
Additions to deferred charges (590) (542)
Additions to notes and other related party
receivables/payables 2,679 -
Repayment of notes and other related party
receivables/payables (2,117) (309)
Distribution to partners/dividends to shareholders (6,908) (6,788)
---------- ----------
Net cash used in financing activities (6,825) (10,620)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,727 (1,868)
Cash and cash equivalents at beginning of period 3,983 2,411
---------- ----------
Cash and cash equivalents at end of period $ 5,710 $ 543
========== ==========
Supplemental disclosure of cash flow
information
Cash paid for interest $ 5,951 $ 5,550
========== ==========
Supplemental disclosure of non-cash investing
and financing activity
Dividends declared and payable $ 3,455 $ 3,394
========== ==========
</TABLE>
See accompanying notes to the unaudited financial statements.
Page 7 of 18
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Essex Property
Trust, Inc. (the "Company") are prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q. In the opinion of management, all
adjustments necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented have been
included and are normal and recurring in nature. These unaudited condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
The consolidated financial statements for the three months and six months
ended June 30, 1996 and 1995 include the accounts of the Company and Essex
Portfolio, L.P. (the "Operating Partnership", which holds the operating
assets of the Company). The Company is the sole general partner in and
owns 77.2% of the Operating Partnership. The limited partners own an
aggregate 22.8% interest in the Operating Partnership.
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
(2) SIGNIFICANT TRANSACTIONS
The following significant transactions occurred during the quarter ended
June 30, 1996:
(A) Dispositions
(i) On April 30, 1996, Essex sold Viareggio Apartments, a 116 unit
apartment community located in San Jose, California. The gross
sales price was $10,610, resulting in a net gain of
approximately $2,195. Essex used the proceeds to reduce
indebtedness and to facilitate the acquisition of Camarillo
Oaks Apartments in the third quarter of 1996.
(ii) On June 21, 1996, Essex sold Westbridge Apartments, a 92 unit
apartment community located in Yuba City, California. The
gross sales price was $3,700, resulting in a net gain of
approximately $214. Essex used the proceeds to reduce
indebtedness.
(iii) Essex entered into contract to sell its six neighborhood
shopping centers for a contract price of $22,500. The sale is
subject to a number of contingencies and there is no assurance
that such sale will be completed.
(B) Debt related transactions
(i) On June 30, 1996, Essex repaid a $7,917 LIBOR based variable
rate loan. Essex wrote off approximately $665 in deferred
financing costs and costs associated with a related interest
rate swap agreement.
(C) Recent Developments
(i) On June 20, 1996, the Company entered into a definitive
agreement to sell up to $40,000 of the Company's 8.75%
Convertible Preferred Stock, Series 1996A (the "Convertible
Preferred Stock") at $25.00 per share to Tiger/Westbrook Real
Estate Fund, L.P. and Tiger/Westbrook Real Estate Co-Investment
Partnership, L.P. (collectively, "Tiger/Westbrook"). In the
first phase
Page 8 of 18
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
of this transaction, Tiger/Westbrook on July 1, 1996 purchased
340,000 shares of Convertible Preferred Stock for an aggregate
purchase price of $8,500 and loaned the Company an additional
$11,500, which loan will be exchanged for shares of Convertible
Preferred Stock upon stockholder approval of the transaction.
Upon such stockholder approval and as a part of the second
phase of this transaction, Tiger/Westbrook is obligated to
purchase up to an additional $20,000 of Convertible Preferred
Stock as requested by Essex on or prior to June 20, 1997.
Holders of shares of Convertible Preferred Stock are entitled
to receive annual cumulative cash dividends, payable quarterly,
in an amount equal to the greater of (i) $2.1875 per share
(8.75% of the $25.00 per share price) or (ii) the dividends
(subject to adjustment) paid with respect to Essex's common
stock (the "Common Stock") plus, in both cases, any accumulated
but unpaid dividends on the Convertible Preferred Stock. After
June 20, 1997, 25% of the 1.6 million authorized shares of
Convertible Preferred Stock is convertible into Common Stock at
the option of the holder, and thereafter, at the beginning of
each next three-month period, an additional 25% of the
Convertible Preferred Stock is convertible. The conversion
price per share of Convertible Preferred Stock is $21.875,
subject to adjustment under certain circumstances.
(ii) In late July 1996, the Company commenced an underwritten
follow-on public offering of shares of its common stock. All of
the shares in the offering are being sold by the Company and
will be issued pursuant to a shelf registration statement that
was previously filed by the Company with the Securities and
Exchange Commission. On August 8, 1996, the follow-on offering
was priced at $22.75 per share of Common Stock with the number
of shares in the offering set at 2,200,000 shares (not
including 330,000 shares that may be sold pursuant to the
exercise of the underwriters over allotment option), and is
anticipated to close on August 14, 1996.
(3) RELATED PARTY TRANSACTIONS
Since June 13, 1994, all general and administrative expenses of the Company
and Essex Management Corporation ("EMC") have been initially borne by the
Company, with a portion subsequently allocated to EMC. Expenses allocated
to EMC for the three and six months ended June 30, 1996 totaled $431 and
$856, respectively, and are reflected as a reduction in general and
administrative expenses in the accompanying consolidated statements of
operations.
Included in rental income in the accompanying consolidated statements of
operations is related party rents earned from space leased to The Marcus &
Millichap Company ("M&M"), including operating expense reimbursements, of
$170 and $340 for the three and six months ended June 30, 1996,
respectively and $170 and $335 for the three and six months ended June 30,
1995, respectively.
Included in other income for the three and six months ended June 30, 1996
is interest income of $273 and $517, respectively, which were earned
principally under notes receivable from Essex Fidelity I Corporation, Essex
Sacramento Corporation, Essex Marina Cove, L.P., and Pathways. In
addition, management fees and equity income of $233 and $370 were earned
for the three and six month periods ended June 30, 1996, respectively, from
Essex Bristol Partners, L.P., Essex San Ramon Partners, L.P. and Essex
Marina Cove, L.P.
Since June 13, 1994, EMC has provided property management services to the
Company's neighborhood shopping centers. The fee paid by the Company for
the three and six months ended June 30, 1996 was $29, and $57,
respectively, and is included in administrative expense in the accompanying
consolidated statements of operations.
Page 9 of 18
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Notes and other related party receivables as of June 30, 1996 and December
31, 1995 consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Notes receivable from Essex Sacramento Corporation,
bearing interest at 9% due on demand $ 1,866 $ 3,540
Note receivable from Essex Fidelity I Corporation
interest at 9% due on demand 226 --
Notes receivable from Essex Marina Cove, L.P.
bearing interest at 12% due on demand 850 --
Notes receivable from Essex Fidelity I Corporation and
Jackson School Village, L.P. bearing
interest at 9.5% - 10%, due 2015 500 500
Other related party receivables 909 740
-------- --------
$ 4,351 $ 4,780
======== ========
</TABLE>
Other related party receivables consist primarily of unreimbursed expenses
due from EMC, accrued interest income on related party notes receivables
and acquisition cost-related reimbursements due from Essex San Ramon
Partners, L.P.
As of June 30, 1996 and December 31, 1995, the Company has payables to
related parties totaling $33 and $217, respectively, representing temporary
borrowings and unreimbursed expenses.
During the three and six months ended June 30, 1996, the Company paid
brokerage commissions totaling $312 and $562, respectively to M&M in
connection with the purchase and disposition of real estate. The
commissions are reflected as an increased cost on the purchase of real
estate or a reduction in the gain on sale in the accompanying condensed
consolidated balance sheet.
Page 10 of 18
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is based primarily on the consolidated financial
statements of Essex Property Trust, Inc. ("Essex" or the "Company") as of June
30, 1996 and 1995 and for the three months and six months ended June 30, 1996
and 1995.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results and all such adjustments are of a normal
recurring nature.
Substantially all the assets of Essex are held by, and substantially all
operations conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). Essex is the sole general partner of the Operating Partnership
and, as of June 30, 1996 and 1995, owned a 77.2% general partnership interest in
the Operating Partnership. The Company qualifies as a real estate investment
trust (a "REIT") for Federal income tax purposes.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," section constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Essex to be materially different from any further results,
performance or achievements expressed or implied by such forward-looking
statements.
GENERAL BACKGROUND
Essex's revenues are generated primarily from multifamily residential, retail
and commercial property operations, which accounted for 94% and 95% of its
revenues for the six months ended June 30, 1996 and 1995, respectively. Essex's
properties (the "Properties") are located in California, Oregon and Washington.
Occupancy levels of Essex's multifamily residential Properties in these markets
have generally remained high (averaging over 95% for the last five years).
Essex has qualified as a real estate investment trust ("REIT") for federal
income tax purposes, commencing with the year ending December 31, 1994. In
order to maintain compliance with REIT tax rules, Essex provides fee-based asset
management and disposition services as well as third-party property management
and leasing services through Essex Management Corporation ("EMC"). Essex owns
100% of EMC's 19,000 shares of nonvoting preferred stock. Executives of Essex
own 100% of EMC's 1,000 shares of common stock. Essex has been actively engaged
in the business of acquiring and managing portfolios of non-performing assets
along with institutional investors. Asset management services resulting from
these portfolios are provided by EMC, typically for the term that is required to
acquire, reposition and dispose of the portfolio. Asset management agreements
usually provide for a base management fee calculated as a percentage of the
gross asset value of the portfolio under management, and an incentive fee based
upon the overall financial performance of the portfolio. Accordingly, the fees
earned as a result of these contracts fluctuate as assets are acquired and
disposed. In general, Essex believes, however, that there will be fewer
opportunities to acquire portfolios of non-performing assets in the future.
Average financial occupancy rates of the Company's multifamily properties on a
same-property basis for the three months ended June 30, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Northern California 98.6% 98.2%
Seattle Metropolitan 95.9% 94.2%
Southern California 96.6% 95.4%
</TABLE>
Page 11 of 18
<PAGE>
The Company's retail and commercial properties were 93% occupied (based on
square footage) as of June 30, 1996.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 TO THE THREE MONTHS ENDED
JUNE 30, 1995
TOTAL REVENUES increased by $843,000 or 7.7% to $11,754,000 in the second
quarter of 1996 from $10,911,000 in the second quarter of 1995. Rental revenues
increased by $635,000 or 6.1% to $11,053,000 in the second quarter of 1996 from
$10,418,000 in the second quarter of 1995. Approximately $62,000 of the
increase in rental revenues was attributable to the Properties acquired or
disposed of in 1995 and with the remainder of the increase relating to rental
rate and occupancy level increases at properties owned by the Company during the
periods being compared. Rental revenues from the San Francisco Bay Area and
Seattle multifamily residential Properties increased by $532,000 to $8,647,000
in the second quarter of 1996 from $8,115,000 in the second quarter of 1995.
Rental revenue increased by $47,000 during the second quarter of 1996 from the
amount in the second quarter of 1995 for the two Properties located in Southern
California. Commercial property rental revenue increased $56,000 for the second
quarter of 1996 from the amount for the second quarter of 1995 as a result of
increased occupancy.
TOTAL EXPENSES increased by $450,000 or approximately 5.1% to $9,314,000 in the
second quarter of 1996 from $8,864,000 in the second quarter of 1995. Interest
expense increased by $256,000 or 9.3% to $3,009,000 in the second quarter of
1996 from $2,753,000 in the second quarter of 1995. Such interest expense
increase was primarily due to the net addition of outstanding mortgage debt in
connection with property and investment acquisitions. Property operating
expenses, which include maintenance and repairs, real estate taxes, advertising,
utilities, and on-site administrative expenses, increased by $193,000 or 5.7% to
$3,593,000 in the second quarter of 1996 from $3,400,000 in the second quarter
of 1995. Of such increase, $18,000 was attributable to Properties acquired or
disposed of in 1995 and 1996. General and administrative expenses represent the
costs of Essex's various acquisition and administrative departments as well as
partnership administration and non-operating expenses. Such expenses increased
by $108,000 in the second quarter of 1996 from the second quarter of 1995.
NET INCOME AFTER MINORITY INTEREST increased by $1,153,000 to $3,159,000 in the
second quarter of 1996 from $2,006,000 in the second quarter of 1995. The
increase in net income was largely the result of an increased revenue on gain on
the sales of real estate of $2,409,000, partially offset by an extraordinary
charge of $665,000 related to the early extinguishment of debt.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 TO THE SIX MONTHS ENDED
JUNE 30, 1995
TOTAL REVENUES increased by $1,474,000 or 6.8% to $23,308,000 in the first six
months of 1996 from $21,834,000 in the first six months of 1995. Rental
revenues increased by $1,279,000 or 6.2% to $22,004,000 in the first six months
of 1996 from $20,725,000 in the first six months of 1995. Approximately
$128,000 of the increase in rental revenues was attributable to the Properties
acquired or disposed of in 1995 and 1996 with the remainder of the increase
primarily relating to rental rate and occupancy level increases at properties
owned by the Company during the periods being compared. Rental revenues from
the San Francisco Bay Area and Seattle multifamily residential Properties
increased by $1,004,000 to $17,211,000 in the first six months of 1996 from
$16,207,000 in the first six months of 1995. Rental revenue increased by
$84,000 during the first six months of 1996 from the amount in the first six
months of 1995 for the two Properties located in Southern California. Commercial
property rental revenue increased $191,000 for the first six months of 1996 from
the amount for the second quarter of 1995 as a result of increased occupancy.
TOTAL EXPENSES increased by $895,000 or approximately 5.0% to $18,670,000 in the
first six months of 1996 from $17,775,000 in the first six months of 1995.
Interest expense increased by $437,000 or 8.0% to $5,910,000 in the first six
months of 1996 from $5,473,000 in the first six months of 1995. Such interest
expense increase was primarily due to the net addition of outstanding mortgage
debt in connection with property and investment acquisitions. Property
operating expenses, which include maintenance and repairs, real estate taxes,
advertising, utilities, and on-site administrative expenses, increased by
$312,000 or 4.5%
Page 12 of 18
<PAGE>
to $7,195,000 in the first six months of 1996 from $6,883,000 in the first six
months of 1995. Of such increase, $29,000 was attributable to Properties
acquired or disposed in 1995 and 1996. General and administrative expenses
represent the costs of Essex's various acquisition and administrative
departments as well as partnership administration and non-operating expenses.
Such expenses increased by $140,000 in the first six months of 1996 from the
first six months of 1995.
NET INCOME AFTER MINORITY INTEREST decreased by $391,000 to $3,102,000 in the
first six months of 1996 from $3,493,000 in the first six months of 1995. The
decrease in net income was largely the result of an extraordinary charge of
$2,845,000 related to the early extinguishment of debt, partially offset by gain
on the sales of real estate of $2,409,000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, Essex had $5,710,000 in cash and cash equivalents. The
Company expects to meet its short-term liquidity requirements by using this
working capital, the proceeds from its sale of Convertible Preferred Stock (as
defined below) and any portion of net cash flow from operations not currently
distributed. The Company believes that its future net cash flows will be
adequate to meet operating requirements and to provide for payment of dividends
by the Company in accordance with REIT requirements. Essex has credit
facilities in the committed amount of approximately $17,600,000. The Company is
currently negotiating to increase the committed amount of one of its lines of
credit, which, upon such increase would result in the Company having an
aggregate committed amount under all lines of credit of $39,000,000. At June
30, 1996 Essex had $12,843,000 outstanding on its lines of credit, with interest
rates generally ranging from 7.4% to 7.5%.
Essex's cash balance increased $1,727,000 from $3,983,000 as of December 31,
1995 to $5,710,000 as of June 30, 1996. This increase in cash was the result of
$8,073,000 net cash provided by operating activities, increased by $479,000 net
cash provided by investing activities and reduced by $6,825,000 in net cash used
by financing activities. The significant components which contributed to the
$479,000 net cash provided by investing activities was $13,506,000 provided by
the disposition of real estate as offset by $13,417,000 used to purchase and
upgrade rental properties. The significant components which contributed to the
$6,825,000 net cash used by financing activities were $47,083,000 of proceeds
from mortgages, other notes payable and lines of credit as offset by $46,972,000
of repayments of mortgages, other notes payable and lines of credit and
$6,908,000 of dividends/distribution paid.
As of June 30, 1996, the combined outstanding indebtedness under mortgages and
lines of credit consisted of $128,531,000 in fixed rate debt, (such component
includes variable rate indebtedness subject to interest rate swap agreements),
$12,505,000 in debt based on the Federal Home Loan Bank's 11th District Cost of
Funds index ("the 11th District Debt"), $13,600,000 of debt represented by tax
exempt variable rate demand bonds. Essex's 11th District Debt is subject to
maximum annual payment adjustments of 7.5% and a maximum interest rate during
the term of the loans of 13%.
In May 1995, Essex entered into an interest rate swap agreement extending
through June 1999. The interest rate swap agreement fixes the thirty-day LIBOR
rate at 5.79% for mortgage notes payable with aggregate balances of $22,838,000
as of June 30, 1996.
Essex expects to incur approximately $1,450,000 or $300 per weighted average
occupancy unit in non-revenue generating capital expenditures for the year ended
December 31, 1996. These expenditures do not include the improvements required
in connection with Northwestern Mutual mortgage loans and renovation
expenditures required pursuant to the requirements related to the tax-exempt
variable rate demand bonds. Essex expects that cash from operations and/or the
lines of credit will fund such expenditures.
Essex pays quarterly dividends from cash available for distribution. Until it
is distributed, cash available for distribution is invested by the Company
primarily in short-term investment grade securities or is used by the Company to
reduce balances outstanding under its lines of credit.
On July 1, 1996, the Company sold 340,000 shares of its 8.75% Convertible
Preferred Stock, Series 1996A (the "Convertible Preferred Stock") for $8,500,000
and borrowed $11,500,000 from Tiger/Westbrook. Upon
Page 13 of 18
<PAGE>
stockholder approval of the transaction, the $11,500,000 loan will be
automatically exchanged for an additional 460,000 shares of Convertible
Preferred Stock. In the event that stockholder approval of the transaction is
not obtained and the Internal Revenue Service does not approve the transaction
on or before December 16, 1996, the $11,500,000 loan will be payable no later
than April 30, 1997. Upon stockholder approval of the transaction, the Company
may require Tiger/Westbrook to purchase up to an additional $20,000,000 of
Convertible Preferred Stock any time prior to June 20, 1997.
The Company expects to utilize the proceeds of the follow-on public offering of
shares of common stock funds available from the sale of Convertible Preferred
Stock to Tiger/Westbrook, availability under its lines of credit, and cash
balances to fund its current and future property acquisition and development
activities. Essex expects to meet certain long-term liquidity requirements such
as scheduled debt maturities and repayment of short-term financing of
acquisition and development activities through the issuance of long-term secured
and unsecured debt and offerings by Essex of additional equity securities (or
limited partnership interests in the Operating Partnership).
On March 7, 1996, the Company filed a shelf registration statement for up to
$100,000,000 of Common Stock, preferred stock, depository shares and warrants to
purchase common and preferred stock. The shelf registration statement was
declared effective by the Securities and Exchange Commission on June 6, 1996. In
late July 1996, the Company commenced an underwritten follow-on public offering
of shares of its common stock. On August 8, 1996, the follow-on offering was
priced at $22.75 per share of Common Stock with the number of shares in the
offering set at 2,200,000 shares (not including 330,000 shares that may be sold
pursuant to the exercise of the underwriters over allotment option), and is
anticipated to close on August 14, 1996.
FUNDS FROM OPERATIONS
Industry analysts generally consider Funds from Operations an appropriate
measure of performance of an equity REIT. Generally, Funds from Operations
adjusts the net income of equity REITs for non-cash charges such as depreciation
and amortization and non-recurring gains or losses. Management generally
considers Funds from Operations to be a useful financial performance measurement
of an equity REIT because, together with net income and cash flows, Funds from
Operations provides investors with an additional basis to evaluate the ability
of a REIT to incur and service debt and to fund acquisitions and other capital
expenditures. Funds from Operations does not represent net income or cash flows
from operations as defined by GAAP and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Operating Partnership's
operating performance or to cash flows as a measure of liquidity. Funds from
Operations does not measure whether cash flow is sufficient to fund all cash
needs including principal amortization, capital improvements and distributions
to shareholders. Funds from Operations also does not represent cash flows
generated from operating, investing or financing activities as defined under
GAAP. Further, Funds from Operations as disclosed by other REITs may not be
comparable to the Company's calculation of Funds from Operations. The following
table sets forth Essex's calculation of actual Funds from Operations for the
quarter ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three months ended
---------------------------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Income before minority interest
and extraordinary item $ 4,849,000 $ 2,836,000
Adjustments:
Depreciation & Amortization 2,047,000 2,000,000
Adjustment for Unconsolidated
Joint Venture 130,000 0
Non-recurring Items, including
gain on sales of real estate
and loss from hedge termination (2,391,000) (776,000)
Minority Interest - Pathways (132,000) (129,000)
----------- -----------
Funds from Operations $ 4,503,000 $ 3,931,000
=========== ===========
Number of Shares (1) 8,130,000 8,130,000
</TABLE>
Page 14 of 18
<PAGE>
(1) Assumes conversion of all outstanding operating partnership interests in
the Operating Partnership into shares of Essex's common stock.
The National Association of Real Estate Investment Trusts ("NAREIT"), a leading
industry trade group, has approved a revised definition of Funds from
Operations, which provides that the amortization of deferred financing costs is
no longer added back to net income to calculate Funds from Operations. Essex
has adopted the revised NAREIT definition of Funds from Operations as of
January 1, 1996 and has restated prior year amounts for consistency.
PART II OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
On June 20, 1996, the Company entered into a definitive agreement to
sell up to $40.0 million of the Company's 8.75% Convertible Preferred
Stock, Series 1996A (the "Convertible Preferred Stock") at $25.00 per
share to Tiger/Westbrook Real Estate Fund, L.P. and Tiger/Westbrook
Real Estate Co-Investment Partnership, L.P. (collectively,
"Tiger/Westbrook"). In the first phase of this transaction,
Tiger/Westbrook on July 1, 1996 purchased 340,000 shares of
Convertible Preferred Stock for an aggregate purchase price of $8.5
million and loaned the Company an additional $11.5 million, which loan
will be exchanged for shares of Convertible Preferred Stock upon
stockholder approval of the transaction. Upon such stockholder
approval and as part of the second phase of this transaction,
Tiger/Westbrook is obligated to purchase up to an additional $20.0
million of Convertible Preferred Stock as requested by Essex on or
prior to June 20, 1997.
Dividends may be authorized, declared and paid on shares of Common
Stock in any fiscal quarter only if full cumulative dividends have
been paid on, or authorized and set apart on all shares of Convertible
Preferred Stock for all prior dividends through and including the end
of such quarter. Holders of shares of Convertible Preferred stock are
entitled to receive annual cumulative cash dividends, payable
quarterly, in an amount equal to the greater or (i) $2.1875 per share
8.75% of the $25.00 per share price) or (ii) the dividends (subject to
adjustment) paid with respect to the Common Stock plus, in both cases,
any accumulated but unpaid dividends on the Convertible Preferred
Stock. After June 20, 1997, 25% of the 1.6 million authorized shares
of Convertible Preferred Stock is convertible into Common Stock at the
option of the holder, and thereafter, at the beginning of each next
three-month period, an additional 25% of the authorized shares of
Convertible Preferred Stock is convertible. The conversion price per
share of Convertible Preferred Stock is $21.875, subject to adjustment
under certain circumstances.
The Convertible Preferred Stock ranks senior to the Common Stock with
respect to the payments of dividends and amounts upon liquidation,
dissolution or winding up of the Company. Except as indicated below
with respect to the election of directors of the Company, certain
amendments to the Company's articles of incorporation, as amended and
supplemented (the "Charter") and certain other specified matters, the
holders of shares of Convertible Preferred Stock have no voting
rights. The holders of the Convertible Preferred Stock as a class
ordinarily have the right to elect one director. In the event of a
breach of certain protective provisions (a "Charter Breach") set forth
in the Articles Supplementary pertaining to the Convertible Preferred
Stock (the "Articles Supplementary"), the holders of the Convertible
Preferred Stock will be entitled to elect an aggregate of four
directors and in the event of Dividend Default as defined in the
Articles Supplementary, the holders of Convertible Preferred Stock
will be entitled to elect an aggregate of five directors.
The approval of holders of two-thirds of the outstanding shares of
Convertible Preferred Stock is required to (i) increase the number of
authorized shares of Convertible Preferred Stock, (ii) create or issue
any class of stock ranking prior to or on a parity with the
Convertible Preferred Stock, (iii) amend or alter the Company's
Charter or Bylaws in a manner that would adversely
Page 15 of 18
<PAGE>
affect the holders of Convertible Preferred Stock, (iv) effect a
voluntary liquidation, dissolution or winding up of the Company, the
sale of substantially all of the assets of the Company, the merger or
consolidation of the Company and (v) for certain other specified
matters. In addition, the approval of holders of a majority of the
outstanding shares of Convertible Preferred Stock is required for the
Company (i) to sell certain specified amounts of its assets, (ii) to
make certain specified major changes in its business and (iii) to
effect any change in control of the Company of the Operating
Partnership. Pursuant to the terms of the stock purchase agreement
pertaining to the Convertible Preferred Stock, Tiger/Westbrook has the
preemptive right to purchase a pro rata share, based on its holding of
Convertible Preferred Stock on a converted basis, of any future
issuance by the Company of any stock. In addition, the holders of
Convertible Preferred Stock have certain registration rights pursuant
to which they may cause the Company to register Convertible Preferred
Stock and/or Common Stock issuable upon the conversion of Convertible
Preferred Stock. The Company intends to seek stockholder approval for
the sale of up to $40.0 million of Convertible Preferred Stock to
Tiger/Westbrook in September, 1996.
The foregoing summary of the sale and terms of the Convertible
Preferred Stock does not purport to be complete and is subject to and
qualified in its entirety by the Articles Supplementary and the other
exhibits that were filed with the Company's Current Report on Form 8-
K, filed on July 16, 1996, which are incorporated herein by reference.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
--------
1.1 Purchase Agreement dated as of August 8, 1996,
among Essex Property Trust, Inc., Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Raymond James & Associates,
Inc., and Sutro & Co. Incorporated, as representatives
of several underwriters. (1)
1.2 Pricing Agreement dated as of August 8, 1996, among
Essex Property Trust, Inc., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation,
Raymond James & Associates, Inc., and Sutro & Co.
Incorporated, as representatives of several
underwriters. (1)
3.1 Articles Supplementary of Essex Property Trust, Inc.
for the 8.75% Convertible Preferred Stock,
Series 1996A (2)
3.2 Amended and Restated Bylaws of Essex Property
Trust, Inc. (2)
10.1 Stock Purchase Agreement dated as of June 20, 1996
by and between Essex Property Trust, Inc. and
Tiger/Westbrook Real Estate Fund L.P. and Tiger/
Westbrook Real Estate Co-Investment Partnership, L.P. (2)
10.2 Amendment No. 1 to Stock Purchase Agreement dated
as of July 1, 1996 by and between Essex Property
Trust, Inc. and Tiger/Westbrook Real Estate Fund, L.P.
and Tiger/Westbrook Real Estate Co-Investment
Partnership, L.P. (2)
10.3 First Amendment to Investor Rights Agreement dated
July 1, 1996 by and between George M Marcus and The
Marcus & Millichap Company (2)
10.4 Loan Facility Agreement dated as of June 20, 1996
among Essex Property Trust, Inc. and T/W Essex
Funding, L.L.C. (2)
10.5 Amendment No. 1 to Loan Facility Agreement dated
as of July 1, 1996 by and between Essex Property
Trust, Inc. and T/W Essex Funding, L.L.C. (2)
Page 16 of 18
<PAGE>
10.6 Guarantee dated as of June 20, 1996 of Essex
Portfolio, L.P. to T/W Essex Funding, L.L.C. (2)
10.7 Reaffirmation of Guarantee dated as of
July 1, 1996 by Essex Portfolio, L.P. (2)
10.8 Registration Rights Agreement, dated as of
June 20, 1996 (2)
10.9 Letter Agreement, dated July 1, 1996, among Essex
Property Trust, Inc., Essex Portfolio, L.P.,
Tiger/Westbrook Real Estate Fund, L.P. and Tiger/
Westbrook Real Estate Co-Investment Partnership, L.P. (2)
12.1 Schedule of Confirmation Ratio of Earnings to
Fixed Charges Page 18
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only) ---
99.1 Press Release, dated July 1, 1996 (2)
99.2 Press Release, dated June 27, 1996 (2)
_______________
(1) Incorporated by reference to the identically numbered
exhibit is the Company's Current Report on Form 8-K, filed
August 13, 1996.
(2) Incorporated by reference to the identically numbered
exhibit is the Company's Current Report on Form 8-K, filed
July 16, 1996.
B. REPORTS ON FORM 8-K
On July 16, 1996, Essex filed a current report on Form 8-K, which
described its sale of 8.75% Convertible Preferred Stock, Series 1996A
and which included as exhibits certain agreements and other documents
relating to such sale.
On August 13, 1996, Essex filed a current report on Form 8-K, which
included as exhibits the Purchase Agreement and Pricing Agreement
pertaining to Essex's pending follow-on offering of Common Stock.
Page 17 of 18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESSEX PROPERTY TRUST, INC.
/s/ Mark J. Mikl
------------------------------
Mark J. Mikl, Controller
(Principal Accounting Officer)
8/13/96
------------------------------
Date
Page 18 of 18
<PAGE>
Exhibit 12.1
ESSEX PROPERTY TRUST, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
ESSEX PROPERTY TRUST, INC.
---------------------------------------------
PERIOD OF
6 MONTHS ENDED YEAR ENDED JUNE 13, 1994
JUNE 30, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994
-------------- ------------ ---------------
<S> <C> <C> <C>
EARNINGS:
Income before extraordinary item
and minority interest $ 4,638 $ 8,231 $ 4,397
Interest expense 5,910 10,928 4,304
Amortization of deferred financing costs 426 1,355 773
Capitalized interest 56 92 -
--------- --------- ---------
TOTAL EARNINGS $ 11,030 $ 20,606 $ 9,474
FIXED CHARGES:
Interest expense $ 5,910 $ 10,928 $ 4,304
Amortization of deferred financing costs 426 1,355 773
Capitalized interest 56 92 -
--------- --------- ---------
TOTAL FIXED CHARGES $ 6,392 $ 12,375 $ 5,077
--------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES 1.73 1.67 1.87
========= ========= =========
FIXED CHARGES IN EXCESS ON EARNINGS - - -
========= ========= =========
<CAPTION>
ESSEX PARTNERS PROPERTIES
------------------------------------------------------------
PERIOD OF
JANUARY 1, 1994 YEAR ENDED YEAR ENDED YEAR ENDED
TO JUNE 12, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992 1991
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
EARNINGS:
Income before extraordinary item
and minority interest $ 332 $ 387 (2,344) (3,582)
Interest expense 5,924 11,902 13,224 14,762
Amortization of deferred financing costs 96 219 218 216
Capitalized interest - - - -
-------- --------- --------- ---------
TOTAL EARNINGS $ 6,352 $ 12,508 $ 11,098 $ 11,396
FIXED CHARGES:
Interest expense $ 5,924 $ 11,902 $ 13,224 $ 14,762
Amortization of deferred financing costs 96 219 218 216
Capitalized interest - - - -
-------- --------- --------- ---------
TOTAL FIXED CHARGES $ 6,020 $ 12,121 $ 13,442 $ 14,978
-------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES 1.06 1.03 0.83 0.76
======== ========= ========= =========
FIXED CHARGES IN EXCESS ON EARNINGS - - 2,344 3,582
========= ========= ========= =========
</TABLE>
<PAGE>
[FORM ON FRONT OF PROXY CARD]
PROXY
ESSEX PROPERTY TRUST, INC.
777 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94304
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING ON ________, 1996
Keith R. Guericke, Michael J. Schall and Jordan E. Ritter (the
"Proxyholders"), or any of them, each with the power of substitution, are hereby
authorized to represent and vote the shares of the undersigned, with all the
powers which the undersigned would possess if personally present, at the Special
Meeting of Stockholders of Essex Property Trust, Inc. (the "Company"), to be
held on_____, ______, 1996, at 10:00 a.m., local time, and any adjournments or
postponements thereof.
SEE REVERSE SIDE: If you wish to vote in accordance with the Board of Directors'
recommendations, just sign and date on the reverse side. You need not mark any
boxes.
---------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE | SEE REVERSE |
| SIDE |
---------------
<PAGE>
[FORM OF BACK OF PROXY CARD]
PROXY
[_] Please mark vote as in this example.
The Board of Directors recommends a vote FOR each of Proposal 1, Proposal 2
and Proposal 3.
Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the Proxyholders will have
authority to vote FOR each of Proposal 1, Proposal 2 and Proposal 3. In their
discretion, the Proxyholders are authorized to vote upon such other business as
may properly come before the Annual Meeting.
1. To approve the terms of a Stock Purchase Agreement among the Company,
Tiger/Westbrook Real Estate Fund, L.P. and Tiger/Westbrook Real Estate
Co-Investment Partnership, L.P. (collectively, "TREP Investor") and the
transactions comtemplated thereby, including the investment by TREP Investor of
up to $40 million in the Company through the purchase by TREP Investor up to
1,600,000 shares of the Company's 8.75% Convertible Preferred Stock, Series
1996A (the "Preferred Stock") for a purchase price of $25.00 per share (Proposal
1):
FOR AGAINST ABSTAIN
* * *
2. To approve the proposed amendments to the charter of the Company (the
"Charter") to amend the limitations on ownership of the Company's stock to
facilitate the acquisition of the Company's stock by TREP Investor and to
provide the Board of Directors with increased flexibility to waive the Charter
ownership limitations in certain circumstances (Proposal 2):
FOR AGAINST ABSTAIN
* * *
MARK HERE FOR Address:
ADDRESS __________________________________
CHANGE AND * __________________________________
NOTE AT RIGHT __________________________________
Please sign exactly as your name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Signature:______________________ Date_______________
Signature:______________________ Date_______________
3. To approve the proposed amendments to the Charter to provide for certain
changes in the membership of the Board of Directors in the event of the breach
of certain protective provisions of the Charter relating to the Preferred Stock
(Proposal 3):
FOR AGAINST ABSTAIN
* * *
PLEASE COMPLETE, SIGN DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED REPLY ENVELOPE.
