FORM 10-Q
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, 1997
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)
(650) 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:
13,609,866 shares of Common Stock
as of July 31, 1997
<PAGE>
INDEX
Exhibit
Number Description Page Number
- ------ ----------- -----------
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of Operations
for the six months ended June 30, 1997 and 1996 6
Condensed Consolidated Statements of Stockholders'
Equity for the six months ended June 30, 1997
and the year ended December 31, 1996 7
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996 8
Notes to Condensed Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II: OTHER INFORMATION
Item 2: Changes in Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 20
Item 6: Exhibits and Reports on Form 8-K 21
Signatures 22
<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 sheets, condensed consolidated statements of
operations, stockholders' equity and 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>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
June 30, December 31,
ASSETS 1997 1996
---------------- ----------------
Real estate:
Rental properties:
Land and land improvements $ 130,657 $ 90,557
Buildings and improvements 401,452 303,252
---------------- ----------------
532,109 393,809
Less accumulated depreciation (52,942) (47,631)
---------------- ----------------
479,167 346,178
Investments 3,022 8,537
---------------- ----------------
482,189 354,715
Cash and cash equivalents-unrestricted 15,015 42,705
Cash and cash equivalents-restricted 4,812 4,194
Notes and other related party receivables 11,529 2,362
Notes and other receivables 7,205 5,293
Prepaid expenses and other assets 6,439 3,745
Deferred charges, net 4,166 4,160
---------------- ----------------
$ 531,355 $ 417,174
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 179,932 $ 153,205
Lines of credit 0 0
Accounts payable and accrued liabilities 14,216 7,346
Dividends payable 7,220 6,286
Other liabilities 3,328 2,249
---------------- ----------------
TOTAL LIABILITIES 204,696 169,086
Minority interest 26,255 25,281
Stockholders' equity:
8.75% Convetible Preferred Stock, Series 1996A: $.0001
par value, 1,600,000 authorized and 1,600,000 and
800,000 issued and outstanding 1 1
Common stock, $.0001 par value, per share, 668,400,000
and 668,400,000 authorized, 13,609,866 and 11,591,650
issued and outstanding 1 1
Excess stock, $.0001 par value per share, 330,000,000
shares authorized, no shares issued or outstanding
Additional paid-in capital 334,483 256,106
Accumulated deficit (34,081) (33,301)
---------------- ----------------
Total stockholders' equity 300,404 222,807
---------------- ----------------
$ 531,355 $ 417,174
================ ================
See accompanying notes to the unaudited financial statements.
<PAGE>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Three months ended
----------------------------------
June 30, June 30,
1997 1996
----------------- ---------------
Revenues:
Rental $ 18,353 $ 11,053
Interest and other income 1,227 701
----------------- ---------------
19,580 11,754
----------------- ---------------
Expenses:
Property operating expenses
Maintenance and repairs 1,593 1,070
Real estate taxes 1,480 883
Utilities 1,142 728
Administrative 1,200 628
Advertising 282 139
Insurance 226 145
Depreciation and amortization 3,220 2,047
----------------- ---------------
9,143 5,640
----------------- ---------------
Interest 2,867 3,009
Amortization of deferred financing
costs 128 181
General and administrative 535 466
Loss from hedge termination 0 18
----------------- ----------------
Total expenses 12,673 9,314
----------------- ---------------
Net income before gain on sales
of real estate,minority interest
and extraordinary item 6,907 2,440
Gain on sales of real estate 414 2,409
----------------- ---------------
Net income before minority interest
and extraordinary item 7,321 4,849
Minority interest (963) (1,025)
----------------- ---------------
Income before extraordinary item 6,358 3,824
Extraordinary item:
Loss on early extinguishment
of debt (104) (665)
----------------- ---------------
Net income $ 6,254 $ 3,159
================= ===============
Per share data:
Net income per share from operations
before extraordinary item $ 0.43 $ 0.61
Extraordinary item - debt
extinguishment (0.01) (0.10)
----------------- ---------------
Net income per share $ 0.42 $ 0.51
================= ===============
Weighted average number of shares
used in net income per share
calculation 13,728,794 6,275,000
================= ===============
Dividend per share $ 0.435 $ 0.425
================= ===============
See accompanying notes to the unaudited financial statements.
<PAGE>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Six months ended
---------------------------------
June 30, June 30,
1997 1996
--------------- ---------------
Revenues:
Rental $ 35,709 $ 22,004
Interest and other income 2,422 1,304
--------------- ---------------
38,131 23,308
--------------- ---------------
Expenses:
Property operating expenses
Maintenance and repairs 3,087 2,105
Real estate taxes 2,902 1,769
Utilities 2,280 1,485
Administrative 2,352 1,254
Advertising 552 290
Insurance 464 292
Depreciation and amortization 6,308 4,237
--------------- ---------------
17,945 11,432
--------------- ---------------
Interest 6,230 5,910
Amortization of deferred financing
costs 255 426
General and administrative 1,051 863
Loss from hedge termination 0 39
--------------- ---------------
Total expenses 25,481 18,670
--------------- ---------------
Net income before gain on sales of
real estate,minority interest and
extraordinary item 12,650 4,638
Gain on sales of real estate 414 2,409
--------------- ---------------
Net income before minority interest
and extraordinary item 13,064 7,047
Minority interest (1,838) (1,100)
--------------- ---------------
Income before extraordinary item 11,226 5,947
Extraordinary item:
Loss on early extinguishment of debt (104) (2,845)
--------------- ---------------
Net income $ 11,122 $ 3,102
=============== ===============
Per share data:
Net income per share form operations
before extraordinary item $ 0.81 $ 0.95
Extraordinary item - debt
extinguishment (0.01) (0.45)
--------------- ---------------
Net income per share $ 0.80 $ 0.50
=============== ===============
Weighted average number of shares
outstanding during the period 12,764,917 6,275,000
=============== ===============
Dividend per share $ 0.870 $ 0.850
=============== ===============
See accompanying notes to the unaudited financial statements.
<PAGE>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Stockholders' Equity
For the six months ended June 30, 1997 and the
year ended December 31, 1996
(Unaudited)
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Additional
Preferred stock Common stock paid - in Accumulated
---------------------- ----------------------
Shares Amount Shares Amount capital deficit Total
--------- ------------ ------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 ..... -- -- 6,275 $ 1 $ 112,070 $ (27,342) $ 84,729
Net proceeds from preferred
stock offering .................... 800 $ 1 -- -- 17,504 -- 17,505
Net proceeds from follow-on
public offerings .................. -- -- 5,313 -- 126,464 -- 126,464
Net proceeds from options exercised -- -- 4 -- 68 -- 68
Net income ........................ -- -- -- -- -- 8,881 8,881
Dividends declared ................ -- -- -- -- -- (14,840) (14,840)
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1996 ..... 800 1 11,592 1 256,106 (33,301) 222,807
Net proceeds from options exercised -- -- 18 -- 338 -- 338
Net proceeds from preferred
stock offering .................... 800 -- -- -- 20,000 -- 20,000
Net proceeds from common
stock offering .................... -- -- 2,000 -- 58,039 -- 58,039
Net income ........................ -- -- -- -- -- 11,122 11,122
Dividends declared ................ -- -- -- -- -- (11,902) (11,902)
========= ========= ========= ========= ========= ========= =========
Balances at June 30, 1997 ......... 1,600 $ 1 13,610 $ 1 $ 334,483 $ (34,081) $ 300,404
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the unaudited financial statements
<PAGE>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Six months ended
--------------------
June 30, June 30,
1997 1996
--------- ---------
Net cash provided by operating activities $ 22,853 $ 8,073
-------- --------
Cash flows from investing activities:
Additions to rental properties (93,267) (13,417)
Dispositions of rental properties 3,339 13,506
Additions to notes receivable (785) 0
Investments in corporations and joint ventures (30) 390
-------- --------
Net cash provided by (used in) investing activities (90,743) 479
-------- --------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit 34,420 47,083
Repayment of mortgage and other notes payable
and lines of credit (48,050) (46,972)
Additions to deferred charges (368) (590)
Additions to notes and other related party
receivables/payables (23,527) (2,117)
Repayment of notes and other related party
receivables/payables 14,360 2,679
Decrease in offering related accounts payable (887) 0
Net proceeds from convertible preferred stock sale 20,000
Net proceeds from follow-on offerings 58,039 0
Net proceeds from stock options exercised 338 0
Distributions to minority interest/partners (1,614) (1,556)
Dividends paid (11,893) (5,352)
-------- --------
Net cash provided by (used in) financing activities 40,818 (6,825)
-------- --------
Net increase (decrease) in cash and cash equivalents (27,072) 1,727
Cash and cash equivalents at beginning of period 46,899 3,983
-------- --------
Cash and cash equivalents at end of period $ 19,827 $ 5,710
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 6,148 $ 5,951
======== ========
Supplemental disclosure of non-cash investing and
Financing activities:
Mortgage notes payable assumed in connection
with purchase of real estate $ 40,222 $ 0
======== ========
Dividends payable $ 7,220 $ 3,455
======== ========
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(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. ("Essex" or 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, 1996.
The consolidated financial statements for the three and six months ended
June 30, 1997 and 1996 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 the
Operating Partnership, owning an 87.9% and 77.2% general partnership
interest in it as of June 30, 1997 and 1996, respectively.
All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
(2) SIGNIFICANT TRANSACTIONS
(A) EQUITY TRANSACTIONS
(i) On March 31, 1997 the Company completed the sale of 2,000,000 shares
of Common Stock to Cohen & Steers Capital Management. The 2,000,000
shares are newly issued and registered under a shelf registration
statement previously filed by Essex. This privately negotiated
transaction generated gross proceeds of approximately $58,250, and such
proceeds were used to reduce debt and acquire additional multifamily
properties in the Company's targeted West Coast markets. Proceeds from
this offering were received April 3, 1997.
(ii) 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
September 1996, Tiger/Westbrook completed the purchase of 800,000 shares
of Convertible Preferred Stock for an aggregate purchase price of
$20,000. Tiger/Westbrook purchased the additional 800,000 shares of
Convertible Preferred Stock on June 20, 1997. The $20,000 of proceeds
from the June 1997 stock sale will be used to acquire multifamily
properties.
(B) DEBT RELATED TRANSACTIONS
(i) On April 2, 1997, the Company repaid a $12,298 LIBOR based variable
rate loan which had an interest rate swap agreement which, effectively,
provided a fixed interest rate of 7.54% . This loan repayment was funded
from proceeds from the Cohen & Steers Common Stock sale. In anticipation
of possible additional LIBOR-based indebtedness, the Company did not sell
the interest rate swap agreement related to the repaid loan. Payments
required under the swap agreement are being charged to interest expense
as incurred. In connection with the repaid loan, the Company expensed
approximately $104 in deferred financing costs.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(C) ACQUISITIONS
(i) On May 8, 1997, the Company acquired interest in two multifamily
properties: Anchor Village Apartments, ("Anchor Village"), a 301 unit
apartment community located in Mukilteo, Washington and Highridge
Apartments, ("Highridge"), a 255 unit apartment community located in
Ranchos Palos Verdes, California. These acquisitions add ownership
interest in 556 units to the Company's portfolio. Anchor Village
Apartments and Highridge Apartments were acquired for effective purchase
prices of approximately $13,100 and $25,300, respectively. Both these
communities feature a swimming pool, sauna, exercise room and community
center. The Company acquired these properties through the issuance of
partnership interests which can later be exchanged for shares of the
Company's Common Stock, or, at the Company's option, redeemed for cash.
The Company's interests in these properties are accounted for under the
equity method of accounting.
(ii) On June 3, 1997 the Company purchased Kings Road Apartments, a 194
unit apartment community located in Los Angeles, California, for a
contract price of $12,895. This community features a swimming pool, spa,
sauna and a fitness center.
(iii) On June 23, 1997 the Company purchased Evergreen Heights
Apartments, a 200 unit apartment community located in Kirkland,
Washington, for a contract price of $15,800. The community features a
pool, exercise room and spa. In connection with this transaction the
Company assumed a $9,404, 8.78% fixed interest rate loan. The Company
paid $94 to assume this loan. The loan matures in December 2002.
(iv) On June 25, 1997 the Company acquired Villa Scandia Apartments, a
118 unit apartment community located in Ventura, California, for a
contract price of $5,160. This community features a pool, tennis courts
and a clubhouse.
(v) On June 26, 1997 the Company acquired Casa Del Mar Apartments, a 96
unit apartment community located in Pasadena, California, for a contract
price of $6,075. This community features a pool and spa.
(vi) On June 30, 1997 the Company, through an 85% interest in a newly
formed limited partnership, acquired The Bluffs II Apartments, a 224 unit
apartment community located in San Diego, California, for a contract
price of $10,660. This community features two swimming pools, a spa,
fitness center, tennis courts and sauna. The property secures a loan from
the Company of $7,672, which may be replaced by third party financing.
The balance of the purchase price was paid by the issuance of (i) 18,473
limited partnership units of Essex Portfolio L.P. (valued at $544) (ii)
payment of $493 in cash by the 15% partners in the newly formed
partnership and (iii) Essex's cash investment. The 15% partners are San
Diego owners/operators of multifamily properties.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
These second quarter 1997 acquisitions were funded with proceeds from
the Company's March 1997 Common Stock offering, the second phase of the
Tiger/Westbrook Convertible Preferred Stock offering and the dispositions of two
of the Company's retail centers.
(D) DISPOSITIONS:
(i) On April 23, 1997 the Company sold Cedar Mill Place, a retail
shopping center located in Portland, Oregon for a gross sales price of $1,950
resulting in a gain of approximately $454.
(ii) On May 15, 1997 the Company sold Wichita Towne Center, a retail
shopping center located in Milwaukie, Oregon for a gross sales price of $1,617
resulting in a loss of $40.
Both these sales are a result of the Company's strategy of focusing its
investments primarily in multifamily properties. The Company intends to market
its four remaining retail shopping centers.
(E) OTHER - EARTHQUAKE INSURANCE
On June 13, 1997, the Company increased the per location and aggregate
limits, the deductible, and the self-insured retention in connection with its
earthquake insurance policy. The insurance coverage now in effect provides for
an aggregate limit of $25,000, payable upon a covered loss in excess of a $5,000
self-insured retention amount. The insurance also provides for a per location
deductible of 15%.
(3) RELATED PARTY TRANSACTIONS
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 and six months ended June 30, 1997 totaled $266 and $559,
respectively, and are reflected as a reduction in general and
administrative expenses in the accompanying consolidated statements of
operations.
Rental income in the accompanying consolidated statements of operations
includes related party rents earned from space leased to The Marcus &
Millichap Company ("M&M"), including operating expense reimbursement, of
$172 and $343 for the three and six months ended June 30, 1997,
respectively, and $170 and $340 for the three and six months ended June
30, 1996, respectively.
Other income for the three and six months ended June 30, 1997 includes
interest income of $819 and $1,512, respectively, which was earned
principally under notes receivable from Essex Fidelity I Corporation, the
partnerships which collectively own Anchor Village, the partnerships
which collectively own Highridge and the partnerships which collectively
own an approximate 30.7% minority interest in Pathways Apartments, a 296
unit multifamily property located in Long Beach, California ("Pathways").
For the three and six months ended June 30, 1997 the Company earned $0
and $29, respectively, of dividend income from EMC. In addition, Essex
earned management fee income of $95 and $183 for the three and six months
ended June 30, 1997, respectively, from Anchor Village, Highridge and
Pathways.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
EMC provides property management services to the Company's neighborhood
shopping centers. The fees paid by the Company for such services for the
three and six months ended June 30, 1997 were $27 and $57, respectively,
and are included in the general and administrative expense item in the
accompanying consolidated statements of operations.
Notes and other related party receivables as of June 30, 1997 and December 31,
1996 consist of the following:
June 30, December 31,
1997 1996
Notes receivable from Fidelity I and
Sacramento,secured, bearing interest
at 9%, due on demand $ - $ 718
Notes receivable from Fidelity I and JSV,
secured, bearing interest at 9.5%-10%,
due 2015 726 726
Note receivable from Anchor Village,
secured, bearing interest at 8%, due
January 14, 1998 9,650 -
Other related party receivables,
substantially due on demand 1,153 918
-------- --------
$ 11,529 $ 2,362
======== ========
Other related party receivables consist primarily of accrued interest
income on related party notes receivables and loans to officers.
During the three and six months ended June 30, 1997, the Company paid
brokerage commissions totaling $214 and $214, respectively, to M&M in connection
with the disposition of real estate. These commissions are reflected as a
reduction in the gain on sale in the accompanying condensed consolidated
statement of operations.
(4) EARNINGS PER SHARE
The Company will adopt the provisions of The Statement of Financial
Accounting Standards No. 128 (SFAS128), Earnings Per Share, for financial
statements with periods ending after December 15, 1997. Earlier application is
not permitted. After the effective date, all prior period earnings per share
data presented will be restated to conform with the provisions of SFAS128. Had
the Company applied the provisions of SFAS128 to the unaudited financial
statements for the period ending June 30, 1997, the effect on earnings per share
data would have been immaterial.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion is based primarily on the consolidated financial
statements of Essex Property Trust, Inc. ("Essex" or the "Company") as of June
30, 1997 and 1996 and for the three and six months ended June 30, 1997 and 1996.
<PAGE>
This information should be read in conjunction with the accompanying condensed
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 of 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, 1997 and 1996, owned 87.9% and 77.2% general partnership
interest in the Operating Partnership, respectively. 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," and elsewhere in the quarterly report on
Form 10-Q which are not historical facts may be considered "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 including, but not limited to, those risks and
special consideration set forth in Essex's other filings with the Securities and
Exchange Commission (the "SEC") 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 96% of its revenues for
the six months ended June 30, 1997 and 1996. Essex's Properties (the
"Properties") are located in California, Washington and Oregon. Occupancy levels
of Essex's multifamily residential properties in these markets have generally
remained high (averaging over 95% for the last five years).
Essex elects to be treated as a real estate investment trust ("REIT") for
Federal income tax purposes. In order to maintain compliance with REIT tax
rules, Essex provides the majority of 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
non-voting 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 of. Essex
benefits from such fees indirectly through receipt of preferred stock dividend
and by allocation of related expenses to EMC. In general, Essex believes,
however, that there will be limited opportunities to acquire portfolios of
non-performing assets in the near future.
Since the Company's initial public offering (the "IPO") in June 1994, the
Company has acquired ownership interest in twenty-seven multifamily residential
properties, of which seventeen are located in California, nine are located in
Washington and one is located in Oregon. In aggregate, these acquisitions
consist of a total of 5,335 units and a total capitalized cost of approximately
$353.2 million. As part of its active portfolio management strategy, the Company
has sold, since its IPO, four multifamily residential properties in Northern
California consisting of a total of 442 units and two of its retail centers in
Oregon at an aggregate gross sales price of approximately $30.5 million
resulting in a net aggregate gain of approximately $9.1 million.
<PAGE>
Average financial occupancy rates of the Company's multifamily properties on a
same-property basis decreased to 96.7% for the three months ended June 30, 1997,
from 97.6%, for the three months ended June 30, 1996. The regional breakdown of
such financial occupancy is as follows:
June 30, June 30,
1997 1996
Northern California 97.5% 98.6%
Seattle Metropolitan 96.5% 96.4%
Southern California 92.5% 95.9%
The Company's retail and commercial properties were 97% occupied (based on
square footage) as of June 30, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996.
Total Revenues increased by $7,826,000 or 66.6% to $19,580,000 in the second
quarter of 1997 from $11,754,000 in the second quarter of 1996. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that Essex owned for both of the quarters ended June
30, 1997 and 1996 ("Quarterly Same Store Properties").
Three Months Ended
June 30, Dollar Percentage
1997 1996 Change Change
---- ---- ------ ------
(dollars in thousands)
Number of
Properties
Rental Income
Same Store Properties
Northern California .. 9 $ 5,485 $ 4,799 $ 686 14.3%
Seattle Metropolitan . 9 3,838 3,610 228 6.3
Southern California .. 2 1,182 1,180 2 0.1
Retail and commercial 5 1,087 1,102 (15) (1.4)
------- ------- ------- ------- --------
Total Quarterly Same
Store Properties ........ 25 11,592 10,691 901 8.4
Properties acquired/
disposed of subsequent
to January 1, 1996 ... 6,761 362 6,399 1,767.7
------- ------- ------- --------
Total rental income .... 18,353 11,053 7,300 66.0
Other income ........... 1,227 701 526 75.0
------- ------- ------- --------
Total revenues ......... $19,580 $11,754 $ 7,826 66.6%
======= ======= ======= ========
As set forth in the above table, $6,399,000 of the $7,826,000 increase in total
revenues is attributable to properties acquired or disposed of subsequent to
January 1, 1996. During this period, Essex acquired interests in twenty
multifamily properties (the "Acquisition Properties"), and disposed of two
multifamily properties and two retail shopping centers (the "Disposition
Properties").
Of the increase in total revenues, $901,000 is attributable to increases in
rental income from the Same Store Properties. Rental income from the Quarterly
Same Store Properties increased by approximately 8.4% to $11,592,000 in the
second quarter of 1997 from $10,691,000 in the second quarter of 1996. The
majority of this increase was attributable to the nine multifamily Quarterly
Same Store Properties located in Northern California, the rental income of which
increased by $686,000 or 14.3% to $5,485,000 in the second quarter of 1997 from
<PAGE>
$4,799,000 in the second quarter of 1996. This $686,000 increase is primarily
attributable to rental rate increases as offset by a decrease in financial
occupancy to 97.5% in the second quarter of 1997 from 98.6% in the second
quarter of 1996. The nine multifamily residential properties located in the
Seattle metropolitan area, also contributed to this Quarterly Same Store
Properties rental income increase. The rental income of these properties
increased by $228,000 or 6.3% to $3,838,000 in the second quarter of 1997 from
$3,610,000 in the second quarter of 1996. The $228,000 increase is primarily
attributable to rental rate increases.
The increases in total revenue also reflected an increase of $526,000
attributable to other income, the significant component of which was an increase
in interest income of $545,000.
Total Expenses increased by $3,359,000 or approximately 36.1% to $12,673,000 in
the second quarter of 1997 from $9,314,000 in the second quarter of 1996.
Interest expense decreased by $142,000 or 4.7% to $2,867,000 in the second
quarter of 1997 from $3,009,000 in the second quarter of 1996. Property
operating expenses, exclusive of depreciation and amortizations increased by
$2,330,000 or 64.8% to $5,923,000 in the second quarter of 1997 from $3,593,000
in the second quarter of 1996. Of such increase, $2,204,000 was attributable to
the Acquisition Properties and the Disposition Properties. General and
administrative expenses represents the costs of Essex's various acquisition and
administrative departments as well as partnership administration and
non-operating expenses. Such expenses increased by $69,000 in the second quarter
of 1997 from the amount for the second quarter of 1996. This increase is largely
due to additional staffing requirements resulting from the growth of Essex.
Net income increased by $3,095,000 to $6,254,000 in the second quarter of 1997
from $3,159,000 in the second quarter of 1996. The increase in net income was
primarily a result of the net contribution of the Acquisition Properties and the
increase in net operating income from the Quarterly Same Store Properties, as
offset by a decrease in the gain on the sales of real estate of $1,995,000 to
$414,000 in the second quarter of 1997 from $2,409,000 in the second quarter of
1996 and a decrease in operating income attributable to the Disposition
Properties.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 TO THE SIX MONTHS ENDED JUNE
30, 1996.
Total Revenues increased by $14,823,000 or 63.6% to $38,131,000 in the first six
months of 1997 from $23,308,000 in the first six months of 1996. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that Essex owned for both of the six months ended
June 30, 1997 and 1996 ("Same Store Properties").
<TABLE>
<CAPTION>
Six Months Ended
June 30, Dollar Percentage
1997 1996 Change Change
(dollars in thousands)
Number of
Properties
<S> <C> <C> <C> <C> <C>
Rental income
Same Store Properties
Northern California ......... 8 $ 9,880 $ 8,695 $ 1,185 13.6%
Seattle Metropolitan ........ 9 7,645 7,140 505 7.1
Southern California ......... 2 2,381 2,368 13 0.6
Retail and commercial ....... 5 2,184 2,194 (10) (0.5)
------- ------- ------- ------- -------
Total Same Store Properties .... 24 22,090 20,397 1,693 8.3
Properties acquired/disposed of
subsequent to January 1, 1996 13,619 1,607 12,012 747.4
------- ------- ------- -------
Total rental income ........... 35,709 22,004 13,705 62.3
Other income .................. 2,422 1,304 1,118 85.8
------- ------- ------- -------
Total revenues ................ $38,131 $23,308 $14,823 63.6%
======= ======= ======= =======
</TABLE>
<PAGE>
As set forth in the above table, $12,012,000 of the $14,823,000 increase in
total revenues is attributable to properties acquired or disposed of subsequent
to January 1, 1996. During this period, Essex acquired interest in twenty
Acquisition Properties, and disposed of two multifamily properties and two
retail shopping centers (the "Disposition Properties").
Of the increase in total revenues, $1,693,000 is attributable to increases in
rental income from the Same Store Properties. Rental income from the Same Store
Properties increased by approximately 8.3% to $22,090,000 in the first six
months of 1997 from $20,397,000 in the first six months of 1996. The majority of
this increase was attributable to the eight multifamily Same Store Properties
located in Northern California, the rental income of which increased by
$1,185,000 or 13.6% to $9,880,000 in the first six months of 1997 from
$8,695,000 in the first six months of 1996. This $1,185,000 increase is
primarily attributable to rental rate increases as offset by a decrease in
financial occupancy to 97.2% for the six months ended June 30, 1997, from 98.4%
for the six months ended June 30, 1996. The nine multifamily residential
properties located in Seattle also contributed to this Same Store Properties
rental income increase. The rental income of these properties increased by
$505,000 or 7.1% to $7,645,000 in the first six months of 1997 from $7,140,000
in the first six months of 1996. This $505,000 increase is attributable to
rental rate increases and an increase in financial occupancy to 97.1% for the
six months ended June 30 1997, from 95.4% for the six months ended June 30,
1996.
The increases in total revenue also reflected an increase of $1,118,000
attributable to other income, which includes an increase in interest income of
$995,000.
Total Expenses increased by $6,811,000 or approximately 36.5% to $25,481,000 in
the first six months of 1997 from $18,670,000 in the first six months of 1996.
Interest expense increased by $320,000 or 5.4% to $6,230,000 in the first six
months of 1997 from $5,910,000 in the first six months of 1996. 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, exclusive of depreciation and amortization, increased by $4,442,000 or
61.7% to $11,637,000 in the first six months of 1997 from $7,195,000 in the
first six months of 1996. Of such increase, $4,195,000 was attributable to the
Acquisition Properties and the Disposition Properties. General and
administrative expenses represents the costs of Essex's various acquisition and
administrative departments as well as partnership administration and
non-operating expenses. Such expenses increased by $188,000 in the first six
months of 1997 from the amount for the first six months of 1996. This increase
is largely due to additional staffing requirements resulting from the growth of
Essex.
Net income increased by $8,020,000 to $11,122,000 in the first six months of
1997 from $3,102,000 in the first six months of 1996. The increase in net income
was primarily a result of the net contribution of the Acquisition Properties and
an increase in net operating income from the Same Store Properties, as offset by
a decrease in operating income attributable to the Disposition Properties.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, Essex had $15,015,000 of unrestricted cash and cash
equivalents. The Company expects to meet its short-term liquidity requirements
by using working capital, amounts available on lines of credit, 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 $30,450,000. At June 30, 1997 Essex had no outstanding balances on
its line of credit. On April 3, 1997, the Company repaid its outstanding lines
of credit balance with a portion of the proceeds from the sale of 2,000,000
shares of its Common Stock to Cohen & Steers (the "Cohen & Steers Offering").
Essex's total cash balances decreased $27,072,000 from $46,899,000 as of
December 31, 1996 to $19,827,000 as of June 30, 1997. This decrease was a result
of $90,743,000 of cash used in investing activities, which was offset by
$22,853,000 of cash provided by operating activities, and $40,818,000 of cash
provided by financing activities. Of the $90,743,000 net cash used in investing
<PAGE>
activities, $93,267,000 was used to purchase and upgrade rental properties as
offset by $3,339,000 of proceeds received from the disposition of two commercial
properties. The $40,818,000 net cash provided by financing activities was
primarily a result of $34,420,000 of proceeds from lines of credit and other
notes payable, $78,039,000 net proceeds from the Cohen and Steers Offering and
the June 1997 Tiger/Westbrook Preferred Stock Sale (as defined below)and
$14,360,000 repayment of notes receivable as offset by $48,050,000 of repayments
of mortgages, other notes payable and lines of credit, $23,527,000 issued in
notes receivable and $11,893,000 of dividends/distributions paid.
As of June 30, 1997, Essex's combined outstanding indebtedness under mortgages
and line of credit consisted of $137,112,000 in fixed rate debt, $42,820,000 of
debt represented by tax exempt variable rate demand bonds, of which $29,220,000
is capped at a maximum interest rate of 7.2%.
Essex expects to incur approximately $300 per weighted average occupancy unit in
non-revenue generating capital expenditures for the year ended December 31,
1997. These expenditures do not include the improvements required in connection
with Northwestern Mutual and John Hancock mortgage loans and renovation
expenditures required pursuant to tax-exempt bond financings. 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 August 20, 1996, Essex completed the sale of 2,530,000 shares of its Common
Stock through an underwritten public offering at a price of $22.75 per share.
The net proceeds were used primarily to fund property acquisitions.
In September 1996, Essex completed the sale of $20 million of its 8.75%
Convertible Preferred Stock, Series 1996A (the "Convertible Preferred Stock") to
Tiger/Westbrook Real Estate Fund, L.P., and Tiger/Westbrook Real Estate
Co-Investment Partnership, L.P.
(collectively "Tiger/Westbrook").
On December 24, 1996, Essex completed the sale of 2,783,000 shares of its Common
Stock through an underwritten public offering at a price of $27.75 per share.
The net proceeds were used primarily to fund property acquisitions.
On March 31, 1997, Essex completed the sale of 2,000,000 shares of its Common
Stock to Cohen & Steers at a price of $29.125 per share. The net proceeds were
used primarily to reduce debt and acquire additional multifamily properties.
After the completion of this sale, Essex has the capacity pursuant to its shelf
registration statement to issue up to approximately $144 million of equity
securities.
On June 20, 1997, the Company completed the second phase of the Tiger/Westbrook
transaction with the sale of an additional $20 million of its Convertible
Preferred Stock, to Tiger/Westbrook (the "June 1997 Tiger/Westbrook Preferred
Stock Sale").
The Company will utilize the proceeds from public offerings of shares of Common
Stock, proceeds from the sale of Convertible Preferred Stock, availability under
its lines of credit, dispositions of selected properties, increased indebtedness
and cash balances to fund its 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).
FUNDS FROM OPERATIONS
Industry analysts generally consider Funds from Operations an appropriate
measure of performance of an equity REIT. Generally, Funds from Operations
<PAGE>
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 Funds from Operations for
the quarters ended June 30, 1997 and 1996.
Three months ended
------------------
June 30, 1997 June 30, 1996
------------- -------------
Net Income before minority interest
and extraordinary item ...................... $ 7,321,000 $ 4,849,000
Adjustments:
Depreciation & amortization ........ 3,220,000 2,047,000
Adjustment for unconsolidated
joint ventures ................... 448,000 130,000
Non-recurring items, including
gain on sales of real estate and
loss from hedge termination ...... (414,000) (2,391,000)
Minority interest - Pathways ....... (142,000) (132,000)
------------ ------------
Funds from Operations .............. $ 10,433,000 $ 4,503,000
============ ============
Weighted average number of
shares outstanding-fully diluted (1) 16,624,396 8,130,000
============ ============
(1) Assumes conversion of all outstanding shares of Convertible Preferred Stock
and operating partnership interests in the Operating Partnership into shares of
Essex's common stock.
The National Association of Real Estate Investment Trust ("NAREIT"), a leading
industry trade group, has approved a revised interpretation 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
adopted the revised NAREIT definition of Funds from Operations as of January 1,
1996.
<PAGE>
PART II OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
Effective May 13, 1997, Essex Management Corporation, a California
corporation ("EMC") and an affiliate of the Company, as general partner, and the
Operating Partnership, as special limited partner, entered into (a) a Second
Amended and Restated Agreement of Limited Partnership of Western-Blossom Hill
Investors, and (b) a Second Amended and Restated Agreement of Limited
Partnership of Western-Los Gatos Investors (collectively, the "Anchor Village
Partnerships"), pursuant to which the existing Anchor Village Partnerships were
reorganized for the purposes of acquiring the Anchor Village Apartments
property. Also, effective May 13, 1997, EMC, as general partner, and the
Operating Partnership, as special limited partner, entered into (a) a First
Amended and Restated Agreement of Limited Partnership of Western-Highridge I
Investors, (b) a First Amended and Restated Agreement of Limited Partnership of
Irvington Square Associates, (c) a Fourth Amended and Restated Agreement of
Limited Partnership of Western Palo Alto II Investors, (d) a Fourth Amended and
Restated Agreement of Limited Partnership of Western-Riviera Investors, and (e)
a Fourth Amended and Restated Agreement of Limited Partnership of Western San
Jose III Investors collectively, the "Highridge Partnerships"; the Anchor
Village Partnerships and the Highridge Partnerships, collectively, the
"Partnerships"), pursuant to which the existing Highridge Partnerships were
reorganized for the purposes of acquiring the Highridge Apartments property. In
connection with the reorganization, 545,825.43 units of limited partnership
interests ("Units") in (i) the Anchor Village Partnerships, and (ii) the
Highridge Partnerships, were issued to the existing partners of the Anchor
Village Partnerships and the Highridge Partnerships pursuant to an exemption
from registration provided in Rule 506 of Regulation D under the Securities Act
of 1933, as amended (the "Securities Act"). Under the terms of the agreements of
limited partnership of these Partnerships, holders of Units have the right to
require the applicable Partnership to redeem their Units for cash, subject to
certain conditions. Subject to certain conditions, the Company may, however,
elect to deliver an equivalent number of unregistered shares of the Company's
Common Stock to the holders of the Units in satisfaction of the applicable
Partnership's obligation to redeem the Units for cash, upon which delivery, the
holders will have certain rights to require the Company to register the shares
of Common Stock pursuant to the Securities Act. As of June 30, 1997, the Company
has not redeemed any Units in exchange for shares of Common Stock.
In connection with the acquisitions of The Bluffs II Apartments
property in June 1997, the Operating Partnership issued an aggregate of 18,473
limited partnership units in the Operating Partnership to the sellers with an
aggregate value of approximately $0.54 million ($29.46 per limited partnership
unit ) based on the average stock price of the Company's Common Stock during a
specified time period prior to the closing. These Units are exchangeable by the
holders into the Company's Common Stock on a one-for-one basis. The units were
issued by the Operating Partnership in a privately negotiated transaction to
four individuals and one trust, all of which are accredited investors, pursuant
to the exemption from registration provided in Rule 506 of Regulation D under
the Securities Act.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting, held on May 29, 1997 in Menlo Park, California,
the following votes of security holders occurred:
(a) The following persons were duly elected by the holders of the
Company's Common Stock (the "Common Stockholders") as Class III, Common Stock
directors of the Company, each for a three (3) year term (until 2000) and until
their successors are elected and qualified:
(i) George M. Marcus, 11,508,402 votes for and 38,021 votes abstaining;
(ii) William A. Millichap, 11,508,402 votes for and 38,021 votes abstaining;
(iii) Gary P. Martin, 11,508,122 votes for and 38,301 votes abstaining; and
(iv) Anthony Downs, 11,507,007 votes for and 39,416 votes abstaining.
(b) Gregory J. Hartman was duly elected as a preferred stock director
of the Company by the holders of the Company's 8.75% Convertible Preferred
Stock, Series 1996A for a one (1) year term as a Class I Director and until his
successor is elected and qualified.
(c) The Common Stockholders ratified and approved the amendment and
restatement of the Essex Property Trust, Inc. 1994 Employee Stock Incentive Plan
by a vote of 7,260,567 votes for, 4,205,746 votes against and 80,110 votes
abstaining.
(d) The Common Stockholders ratified the appointment of KPMG Peat
Marwick, LLP as the Company's independent public auditors for the fiscal year
ending December 31, 1997 by a vote of 11,315,964 votes for 24,870 votes against
and 33,964 votes abstaining.
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS PAGE
- ----------- ----
10.1 First Amended and Restated Agreement of Limited Partnership
of Western-Highridge I Investors, effective as of May 13, 1997 23
10.2 First Amended and Restated Agreement of Limited Partnership
of Irvington Square Associates, effective as of May 13, 1997 84
10.3 Fourth Amended and Restated Agreement of Limited Partnership
of Western -Palo Alto II Investors, effective as of May 13, 1997 144
10.4 Fourth Amended and Restated Agreement of Limited Partnership
of Western Riviera Investors, effective as of May 13, 1997 204
10.5 Fourth Amended and Restated Agreement of Limited Partnership
of Western-San Jose III Investors, effective as of May 13, 1997 265
10.6 Registration Rights Agreement, effective as of May 13, 1997,
by and between the Company and the limited partners of Western-
Highridge I Investors, Irvington Square Associates, Western-
Palo Alto II Investors, Western Riviera Investors, and Western-
San Jose III Investors 325
10.7 Essex Property Trust, Inc. 1994 Stock Incentive Plan (amended
and restated as of April 3, 1997 and previously known as the 1994
Employee Stock Incentive Plan) 341
11.1 Statements regarding Computation of Earnings per Share 355
12.1 Schedule of Computation of Ratio of Earnings to Fixed
Charges 356
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only). ---
99.1 Press Release of the Company (incorporated by reference
to Exhibit 99.1 to the Company's Form 8-K, dated June 25, 1997) ---
B. Reports on Form 8-K
On April 3, 1997, Essex filed a Current Report on Form 8-K,
regarding its sale of 2,000,000 shares of Common Stock pursuant to
its shelf registration statement.
On June 25, 1997, Essex filed a current report on Form 8-K,
regarding its sale of 800,000 shares of preferred stock to
Tiger/Westbrook.
<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 (Authorized Officer
and Principal Accounting Officer)
August 13, 1997
- ---------------
Date
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN-HIGHRIDGE INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is
made and entered into as of the 1st day of January, 1997, by and among the
undersigned parties.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement of Limited Partnership
entered into as of March 1, 1985, as amended (the "Original Agreement"), the
parties to the Original Agreement formed Western-Highridge Investors, a
California limited partnership (the "Partnership"), pursuant to the California
Revised Limited Partnership Act as set forth in Title 2, Chapter 3 of the
California Corporations Code, subject to the terms and conditions of the
Original Agreement; and
WHEREAS, the parties, hereto, constituting all of the partners in the
Partnership, hereby desire to amend, restate and supersede the Original
Agreement in its entirety, pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby amend, restate and supersede the Original
Agreement, in its entirety, to provide as follows:
ARTICLE I
Definitions; Etc.
1.1 DEFINITIONS. Except as otherwise herein expressly
provided, the following terms and phrases shall have the meanings
set forth below: "Accountants" shall mean the firm or firms of
independent certified public accountants selected by the General
Partner on behalf of the Partnership.
"ACQUISITION COST" shall have the meaning set forth in
Section 4.1 hereof.
"ACT" shall mean the California Revised Limited Partnership
Act, California Corporations Code Sections 15611, et seq., as the
same may hereafter be amended from time to time. "Additional
Interests" shall have the meaning set forth in Section 9.3
hereof.
"ADDITIONAL PARTNER" shall have the meaning set forth in
Section 9.3 hereof.
<PAGE>
"ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with respect
to any Limited Partner, the deficit balance, if any, in such
Partner's Capital Account as of the end of any relevant fiscal
year and after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such Partner is obligated
or treated as obligated to restore with respect to any deficit balance in such
Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or
is deemed to be obligated to restore with respect to any deficit balance
pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations; and
(b)debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"ADJUSTMENT DATE" shall have the meaning set forth in
Section 4.3(a)(ii) hereof.
"ADJUSTMENT FACTOR" means 1.0; provided, however, that in
the event that:
(a)Essex (as hereinafter defined) (i) declares or pays a dividend on the
outstanding REIT Shares (as hereinafter defined) in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii)
splits or subdivides its outstanding REIT Shares or (iii) effects a reverse
stock split or otherwise combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying
the Adjustment Factor previously in effect by a fraction, (1) the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has occurred as of such time) and (2)
the denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or combination;
(b)Essex distributes any rights, options or warrants to all holders of its REIT
Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or
other securities or rights convertible into, exchangeable for or exercisable for
REIT Shares) at a price per share less than the Value of a REIT Share on the
record date for such distribution (each a "Distributed Right"), then the
Adjustment Factor shall be adjusted by multiplying the Adjustment Factor
previously in effect by a fraction, (i) the numerator of which shall be the
number of REIT Shares issued and outstanding on the record date plus the maximum
number of REIT Shares purchasable under such Distributed Rights, and (ii) the
denominator of which shall be the number of REIT Shares issued and outstanding
on the record date plus a fraction, (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights, and (2) the
denominator of which is the Value of a REIT Share as of the record date;
<PAGE>
provided, however, that, if any such Distributed Rights expire or become no
longer exercisable, then the Adjustment Factor shall be adjusted, effective
retroactive to the date of distribution of the Distributed Rights, to reflect a
reduced maximum number of REIT Shares or any change in the minimum purchase
price for the purposes of the above fractions; or
(c) Essex shall, by dividend or otherwise, distribute to all holders of
outstanding REIT Shares evidences of its indebtedness or assets (including
securities, but excluding any dividend or distribution referred to in subsection
(a) above), which evidences of indebtedness or assets relate to assets not
received by Essex pursuant to a pro rata distribution by the Partnership, then
the Adjustment Factor shall be adjusted to equal the amount determined by
multiplying the Adjustment Factor in effect immediately prior to the close of
business on the date fixed for determination of shareholders entitled to receive
such distribution by a fraction, (i) the numerator shall be the Value on the
date fixed for such determination and (ii) the denominator shall be the Value on
the dated fixed for such determination less the then fair market value (as
determined by Essex, whose determination shall be conclusive) of the portion of
the evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event; provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment which
results in an increase (but not a decrease) to the Adjustment Factor applicable
to the Partnership Units held by such Limited Partner, and, thereafter, such
adjustment will not be effective as to such Partnership Units. For illustrative
purposes only, examples of adjustments to the Adjustment Factor are set forth on
Exhibit B attached hereto.
"ADMINISTRATIVE EXPENSES" shall mean (i) all administrative
and operating costs and expenses incurred by the Partnership, and
(ii) those administrative costs and expenses of the General
Partner and the Special Limited Partner, including salaries paid
to officers of the General Partner and the Special Limited
Partner, and accounting and legal expenses undertaken by the
General Partner and the Special Limited Partner on behalf or for
the benefit of the Partnership.
"AFFILIATE" shall mean, with respect to any Partner (or as
to any other person the affiliates of whom are relevant for
purposes of any of the provisions of this Agreement), (i) any
member of the Immediate Family of such Partner; (ii) any trustee
or beneficiary of a Partner; (iii) any legal representative,
successor, or assignee of any Person referred to in the preceding
clauses (i) and (ii); (iv) any trustee for the benefit of any
Person referred to in the preceding clauses (i) through (iii); or
(v) any Entity which directly or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common
Control with, any Person referred to in the preceding clauses (i)
through (iv).
"AGREEMENT" shall mean this First Amended and Restated
Agreement of Limited Partnership, as originally executed and as
amended, modified, supplemented or restated from time to time, as
the context requires.
"APPLICABLE PERCENTAGE" has the meaning set forth in Section
11.1(b) hereof.
<PAGE>
"ARBITRATION RULES" shall have the meaning set forth in
Section 12.1 hereof.
"ASSIGNEE" shall mean a Person to whom one or more
Partnership Units have been Transferred in a manner permitted
under this Agreement, but who has not become a Substituted
Limited Partner.
"AVAILABLE CASH" shall mean, with respect to any fiscal
period of the Partnership, the excess, if any, of "Receipts" over
"Expenditures." For purposes hereof, the term "Receipts" means
the sum of all cash receipts of the Partnership from all sources
for such period, (x) including (i) Net Sale Proceeds and Net
Financing Proceeds and (ii) any amounts held as reserves as of
the last day of such period which the General Partner reasonably
deems to be in excess of necessary reserves as determined below,
and (y) excluding Capital Contributions. The term "Expenditures"
means the sum of (a) all cash expenses of the Partnership for
such period, (b) the amount of all payments of principal and
interest on account of any indebtedness of the Partnership
including payments of principal and interest on account of
Partner Loans, or amounts due on such indebtedness during such
period, (c) any amount distributed or paid in redemption of
Partnership Units pursuant to Article XI hereof, including,
without limitation, any Cash Amount paid, and (d) such additional
cash reserves as of the last day of such period as the General
Partner deems necessary for any capital or operating expenditure
permitted hereunder, but excluding all amounts payable under the
clauses (a), (b), (c) and (d) above with the proceeds of Capital
Contributions, as determined by the General Partner.
"BANKRUPTCY" shall mean, with respect to any Partner, (i)
the commencement by such Partner of any proceeding seeking relief
under any provision or chapter of the federal Bankruptcy Code or
any other federal or state law relating to insolvency, bankruptcy
or reorganization, (ii) an adjudication that such Partner is
insolvent or bankrupt; (iii) the entry of an order for relief
under the federal Bankruptcy Code with respect to such Partner,
(iv) the filing of any such petition or the commencement of any
such case or proceeding against such Partner, unless such
petition and the case or proceeding initiated thereby are
dismissed within ninety (90) days from the date of such filing,
(v) the filing of an answer by such Partner admitting the
allegations of any such petition, (vi) the appointment of a
trustee, receiver or custodian for all or substantially all of
the assets of such Partner unless such appointment is vacated or
dismissed within ninety (90) days from the date of such
appointment but not less than five (5) days before the proposed
sale of any assets of such Partner, (vii) the insolvency of such
Partner or the execution by such Partner of a general assignment
for the benefit of creditors, (viii) the failure of such Partner
to pay its debts as they mature, (ix) the levy, attachment,
execution or other seizure of all or substantially all of the
assets of such Partner where such seizure is not discharged
within thirty (30) days thereafter, or (x) the admission by such
Partner in writing of its inability to pay its debts as they
mature or that it is generally not paying its debts as they
become due.
"CAPITAL ACCOUNT" shall mean, with respect to any Partner,
the separate "book" account which the Partnership shall establish
and maintain for such Partner in accordance with Section 704(b)
of the Code and Section 1.704-1(b)(2)(iv) of the Regulations and
such other provisions of Section 1.704-1(b) of the Regulations
that must be complied with in order for the Capital Accounts to
<PAGE>
be determined in accordance with the provisions of said
Regulations. In furtherance of the foregoing, the Capital
Accounts shall be maintained in compliance with Section
1.704-1(b)(2)(iv) of the Regulations; and the provisions hereof
shall be interpreted and applied in a manner consistent
therewith. In the event that any Partnership Interest is
transferred in accordance with the terms of this Agreement, the
Capital Account, at the time of the transfer, of the transferor
attributable to the transferred interest shall carry over to the
transferee.
"CAPITAL CONTRIBUTION" shall mean, with respect to any
Partner, the amount of money and the initial Gross Asset Value of
any property other than money contributed by such Partner to the
Partnership pursuant to the terms of this Agreement (net of
liabilities secured by such property that the Partnership is
considered to assume or take subject to under Section 752 of the
Code). Gross Asset Value shall be calculated as provided herein.
"CASH AMOUNT" means (1) the lesser of (A) an amount of cash
equal to the product of (i) the product of (a) the Value of a
REIT Share and (b) the REIT Shares Amount determined as of the
applicable Valuation Date, and (ii) 0.98, or (B) in the case of a
Declination followed by a Public Offering Funding, the Public
Offering Funding Amount, plus (2) all accrued but unpaid
distributions, if any, with respect to the Tendered Units,
pursuant to Section 6.2(b).
"CERTIFICATE" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the
office of the California Secretary of State, as the same has been
amended and may be amended from time to time in accordance with
the terms of the Original Agreement, this Agreement and the Act.
"CHARTER" means the Articles of Amendment and Restatement of
Essex filed with the Maryland State Department of Assessments and
Taxation on July 5, 1995, as amended, supplemented or restated
from time to time.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"CONSENT OF THE LIMITED PARTNERS" means the written consent
of a Majority-In-Interest of the Limited Partners, which Consent
shall be obtained prior to the taking of any action for which it
is required by this Agreement and may be given or withheld by a
Majority-In-Interest of the Limited Partners, unless otherwise
expressly provided herein, in their sole and absolute discretion.
"CONTRIBUTED FUNDS" shall have the meaning set forth in
Section 4.3(a)(ii) hereof.
"CONTRIBUTED PROPERTY" shall have the meaning set forth in
Section 4.1 hereof.
"CONTROL" shall mean the ability, whether by the direct or
indirect ownership of shares or other equity interests, by
contract or otherwise, to elect a majority of the directors of a
corporation, to select the managing partner of a partnership, or
otherwise to select, or have the power to remove and then select,
a majority of those persons exercising governing authority over
<PAGE>
an Entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal
management control and authority, or the managing general partner
or managing general partners thereof shall be deemed to have
control of such partnership and, in the case of a trust, any
trustee thereof or any Person having the right to select any such
trustee shall be deemed to have control of such trust.
"CONTROLLED ENTITY" shall mean, with respect to any Limited
Partner or Person, any Entity which directly or indirectly
Controls, is Controlled by, or is under common Control with, such
Limited Partner or Person.
"CURRENT GENERAL PARTNERS" shall have the meaning set forth
in Section 2.7 hereof.
"CUT-OFF DATE" means the tenth (10th) business day after the
General Partner's receipt of a Notice of Redemption.
"DECLINATION" has the meaning set forth in Section 11.1(d)
hereof.
"DEMAND NOTICE" shall have the meaning set forth in Section
12.2 hereof.
"DEPRECIATION" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the
depreciation, depletion or amortization, as the case may be,
allowed or allowable for Federal income tax purposes in respect
of such asset for such fiscal year or other period; provided,
however, that if there is a difference between the Gross Asset
Value and the adjusted tax basis of such asset, Depreciation
shall mean "book depreciation, depletion or amortization" as
determined under Section 1.704-1(b)(2)(iv)(g)(3) of the
Regulations.
"DISTRIBUTED RIGHT" has the meaning set forth in the
definition of "Adjustment Factor."
"ENTITY" shall mean any general partnership, limited
partnership, limited liability partnership, limited liability
company, corporation, joint venture, trust, business trust,
cooperative or association.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time (or any corresponding
provisions of succeeding laws).
"ESSEX" shall mean Essex Property Trust, Inc., a Maryland
corporation, the general partner of the Special Limited Partner.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
"EXPENDITURES" shall have the meaning set forth in the
definition of Available Cash.
<PAGE>
"FISCAL YEAR" shall mean the fiscal year of the Partnership,
which shall be the calendar year.
"FUNDING DATE" shall mean the date on which (i) the General
Partner or the Special Limited Partner makes a Partner Loan, or
(ii) the Partnership receives Contributed Funds pursuant to
Section 4.3(a)(ii) hereof.
"FUNDING LOAN PROCEEDS" shall mean the net cash proceeds
received by the General Partner or the Special Limited Partner,
as applicable, in connection with any Funding Loan, after
deduction of all costs and expenses incurred by the General
Partner or the Special Limited Partner, as applicable, in
connection with such Funding Loan.
"FUNDING LOAN(S)" shall mean any borrowing or refinancing of
borrowings by or on behalf of the General Partner or the Special
Limited Partner, as applicable, from any Person (including,
without limitation, the General Partner and the Special Limited
Partner) for the purpose of advancing the Funding Loan Proceeds
to the Partnership as a loan pursuant to Section 4.3(a)(i)
hereof.
"GENERAL PARTNER" shall mean Essex Management Corporation, a
California corporation, its duly admitted successors and assigns
and any other Person who is a general partner of the Partnership
at the time of reference thereto.
"GROSS ASSET VALUE" shall mean, with respect to any asset of
the Partnership, such asset's adjusted basis for Federal income
tax purposes, except as follows:
(a)the Gross Asset Value of any asset contributed to the Partnership by a
Partner shall be the gross fair market value of such asset as determined by the
General Partner, in its reasonable discretion, provided that the General
Partner's determination of the gross fair market value of any asset pursuant to
this paragraph (a) shall be deemed reasonable unless contested by the
contributing Partner (i) within sixty (60) days after such determination, with
respect to contributions by existing Partners, or (ii) prior to the contributing
Partner's execution of any document admitting such Partner as a Partner in the
Partnership, with respect to new Partners;
(b)if the General Partner reasonably determines that an adjustment is necessary
or appropriate to reflect the relative economic interests of the Partners, the
Gross Asset Values of all Partnership assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the General
Partner, as of the following times:
(i)a Capital Contribution (other than a de minimis Capital Contribution) to the
Partnership by the General Partner or a new or existing Limited Partner as
consideration for a Partnership Interest;
(ii)the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for the redemption of a
Partnership Interest;
<PAGE>
(iii)the liquidation of the Partnership within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations; and
(iv)at such other times as the General Partner shall reasonably determine
necessary or advisable in order to comply with Regulations Sections 1.704-1(b)
and 1.704-2.
(c)the Gross Asset Values of Partnership assets distributed to any Partner shall
be the gross fair market values of such assets (taking Section 7701(g) of the
Code into account) as determined by the General Partner, in its reasonable
discretion, as of the date of distribution, provided that the General Partner's
determination of the gross fair market value of any asset pursuant to this
paragraph (c) shall be deemed reasonable unless contested within sixty (60) days
after such distribution; and
(d)the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Section 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts pursuant
to Section 1.704-1(b)(2)(iv)(m) of the Regulations (see attached Exhibit E);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this paragraph to the extent that the General Partner reasonably determines that
an adjustment pursuant to paragraph (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partners' Capital Accounts; as for
the manner in which such adjustments are allocated to the Capital Accounts, see
paragraph (c) of the definition of Net Income and Net Loss in the case of
adjustment by Depreciation, and paragraph (e) of said definition in all other
cases.
"IMMEDIATE FAMILY MEMBER" shall mean, with respect to any
Person that is an individual, such Person's spouse, parents,
parents-in-law, aunts, uncles, descendants, nephews, nieces,
brothers, sisters, brothers-in-law, sisters-in-law and
children-in-law, provided that the General Partner has been (a)
notified of such individual and (b) provided with any and all
documentation reasonably requested by the General Partner to
verify that such individual is an Immediate Family Member.
"LIEN" shall mean any liens, security interests, mortgages,
deeds of trust, charges, claims, encumbrances, pledges, options,
rights of first offer or first refusal and any other rights or
interests of others of any kind or nature, actual or contingent,
or other similar encumbrances of any nature whatsoever.
"LIMITED PARTNERS" shall mean the Special Limited Partner
and those Persons listed under the heading "Limited Partners" on
the signature page hereto in their respective capacities as
limited partners of the Partnership or any Person who, at the
time of reference thereto, is a limited partner of the
<PAGE>
Partnership (including, without limitation, all Additional
Partners and Substituted Limited Partners); provided, however,
that "Limited Partners" does not include any Assignee or any
unpermitted transferee of a Limited Partner's Partnership Units.
"LIQUIDATING EVENT" shall have the meaning set forth in
Section 8.1 hereof.
"LIQUIDATING TRUSTEE" shall mean such individual or Entity
as is selected as the Liquidating Trustee hereunder by the
General Partner (or, in the event that there is no remaining
General Partner, an individual or Entity elected by a
Majority-in-Interest of the Limited Partners), which individual
or Entity may include an Affiliate of the General Partner,
provided such Liquidating Trustee agrees in writing to be bound
by the terms of this Agreement. The Liquidating Trustee shall be
empowered to give and receive notices, reports and payments in
connection with the dissolution, liquidation and/or winding-up of
the Partnership and shall hold and exercise such other rights and
powers as are necessary or required to permit all parties to deal
with the Liquidating Trustee in connection with the dissolution,
liquidation and/or winding-up of the Partnership.
"MAJOR DECISIONS" shall have the meaning set forth in
Section 7.3 hereof.
"MAJORITY-IN-INTEREST OF THE LIMITED PARTNERS" shall mean
Limited Partner(s) (other than the Special Limited Partner) who
hold in the aggregate more than fifty percent (50%) of the
aggregate Partnership Units of all Limited Partners (other than
the Special Limited Partner).
"MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT"
shall mean "partner nonrecourse debt minimum gain" as determined
in accordance with Regulation Section 1.704-2(i)(2).
"NET FINANCING PROCEEDS" shall mean the cash proceeds
received by the Partnership in connection with any borrowing or
refinancing of borrowing by or on behalf of the Partnership
(whether or not secured), after deduction of all costs and
expenses incurred by the Partnership in connection with such
borrowing, and after deduction of that portion of such proceeds
used to repay any other indebtedness of the Partnership, or any
interest or premium thereon.
"NET INCOME OR NET LOSS" shall mean, for each fiscal year or
other applicable period, an amount equal to the Partnership's net
income or loss for such year or period as determined for federal
income tax purposes by the Accountants, determined in accordance
with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a) of the Code shall be included in
taxable income or loss), with the following adjustments: (a) by
including as an item of gross income any tax-exempt income
received by the Partnership; (b) by treating as a deductible
expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code (including amounts paid or incurred to
organize the Partnership (unless an election is made pursuant to
Code Section 709(b)) or to promote the sale of interests in the
Partnership and by treating deductions for any losses incurred in
connection with the sale or exchange of Partnership property
disallowed pursuant to Section 267(a)(1) or Section 707(b) of the
<PAGE>
Code as expenditures described in Section 705(a)(2)(B) of the
Code); (c) in lieu of depreciation, depletion, amortization, and
other recovery deductions taken into account in computing total
income or loss, there shall be taken into account Depreciation;
(d) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the
Gross Asset Value of such property rather than its adjusted tax
basis; and (e) in the event of an adjustment of the Gross Asset
Value of any Partnership asset which requires that the Capital
Accounts of the Partnership be adjusted pursuant to Regulation
Section 1.704-1(b)(2)(v)(e), (f) and (m), the amount of such
adjustment is to be taken into account as additional Net Income
or Net Loss pursuant to attached Exhibit E.
"NET SALE PROCEEDS" means the cash proceeds received by the
Partnership in connection with a sale of any asset by or on
behalf of the Partnership after deduction of any costs or
expenses incurred by the Partnership, or payable specifically out
of the proceeds of such sale (including, without limitation, any
repayment of any indebtedness required to be repaid as a result
of such sale or which the General Partner elects to repay out of
the proceeds of such sale, together with accrued interest and
premium, if any, thereon and any sales commissions or other costs
and expenses due and payable to any Person in connection with a
sale, including to a Partner or its Affiliates).
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in
Sections 1.704-2(b)(1) and (c) of the Regulations.
"NONRECOURSE LIABILITIES" shall have the meaning set forth
in Section 1.704-2(b)(3) of the Regulations.
"NOTICE OF REDEMPTION" means the Notice of Redemption
substantially in the form of Exhibit C attached to this
Agreement.
"ORIGINAL AGREEMENT" means that certain Agreement of Limited
Partnership of the Partnership entered into as of March 1, 1985,
as amended.
"PARTNER LOAN" shall have the meaning set forth in Section
4.3(a)(i) hereof.
"PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning set
forth in Section 1.704-2(i)(2) of the Regulations.
"PARTNERS" shall mean the General Partner, the Special
Limited Partner and the other Limited Partners.
"PARTNERSHIP" means the limited partnership formed pursuant
to the Original Agreement, as the same is amended, restated and
superseded hereby and as hereby constituted, as such limited
partnership may from time to time in the future be constituted.
"PARTNERSHIP INTEREST" shall mean the ownership interest of
a Partner in the Partnership from time to time, including each
Partner's Percentage Interest and such Partner's Capital Account.
<PAGE>
Wherever in this Agreement reference is made to a particular
Partner's Partnership Interest, it shall be deemed to refer to
such Partner's Percentage Interest and shall include the
proportionate amount of such Partner's other interests in the
Partnership which are attributable to or based upon the Partner's
Partnership Interest.
"PARTNERSHIP MINIMUM GAIN" shall have the meaning set forth
in Section 1.704-2(b)(2) of the Regulations.
"PARTNERSHIP RECORD DATE" shall mean the record date
established by the General Partner for the distribution of
Available Cash pursuant to Section 6.2 hereof, which record date
shall generally be the same as the record date established by the
General Partner for a distribution to its shareholders of some or
all of its portion of such distribution.
"PARTNERSHIP UNIT" shall mean a fractional, undivided share
of the Partnership Interests of all Partners issued pursuant to
the terms of this Agreement. The number of Partnership Units held
by the Partners shall be as indicated on attached Exhibit A, as
the same may be modified from time to time.
"PERCENTAGE INTEREST" shall mean, with respect to any
Partner, the undivided percentage ownership interest of such
Partner in the Partnership, which interest shall be determined by
dividing the number of Partnership Units owned by such Partner by
the total number of Partnership Units outstanding.
"PERSON" shall mean any individual or Entity.
"PREFERRED RETURN PER UNIT" means
(a)as to a Limited Partner (other than the Special Limited Partner, except with
respect to any Partnership Units contributed to the Special Limited Partner by
Essex) or its Assignee (including, without limitation, Essex following the
acquisition of Tendered Units pursuant to Section 11.1(b) hereof), the amount
provided on Exhibit A with respect to each Partnership Unit held by such Limited
Partner; or
(b)in the case of each additional Partnership Unit issued in exchange for
additional Capital Contributions as provided in Section 4.3, the amount provided
on Exhibit A with respect to the Partner to whom such Partnership Unit is
issued.
The Preferred Return Per Unit, being determined with regard to the Partnership's
income, shall not constitute a "guaranteed payment" under Code Section 707(c).
"PRIMARY OFFERING NOTICE" has the meaning set forth in
Section 11.1(e)(iii) hereof.
"PROPERTY" OR "PROPERTIES" shall mean any real property in
which the Partnership, directly or indirectly, acquires any
ownership leasehold or other interest.
"PUBLIC OFFERING FUNDING" has the meaning set forth in
Section 11.1(d)(ii) hereof.
<PAGE>
"PUBLIC OFFERING FUNDING AMOUNT" means the dollar amount
equal to (i) the product of (x) the number of Registrable Shares
sold in a Public Offering Funding and (y) the public offering
price per share of such Registrable Shares in such Public
Offering Funding, less (ii) the aggregate underwriting discounts,
and commissions and other expenses incurred by Essex in such
Public Offering Funding.
"QUALIFIED INDIVIDUAL" shall have the meaning set forth in
Section 12.2(b) hereof.
"QUALIFYING PARTY" means (a) a Limited Partner (other than
the Special Limited Partner, an Additional Partner or a
Substituted Limited Partner), (b) an Additional Partner or a
Substituted Limited Partner (unless the terms of such Additional
Partner's or such Substituted Limited Partner's admission to the
Partnership otherwise provide), or (c) an Immediate Family Member
of a Qualifying Party, or a lending institution as the pledgee of
a pledge of Partnership Interests, who is the transferee in a
Transfer permitted by this Agreement.
"REDEMPTION" has the meaning set forth in Section 11.1(a)
hereof.
"REGISTRABLE SHARES" has the meaning set forth in Section
11.1(d)(ii) hereof.
"REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement dated as of even date herewith by
and among Essex and, among others, the Limited Partners (other
than the Special Limited Partner).
"REGULATIONS" shall mean the final, temporary or proposed
Income Tax Regulations promulgated under the Code, as such
regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set forth in
attached Exhibit E.
"REIT" shall mean a real estate investment trust as defined
in Section 856 of the Code.
"REIT REQUIREMENTS" shall have the meaning set forth in
Section 6.2 hereof.
"REIT SHARE" shall mean one share of the common stock, par
value $.0001 per share, of Essex Property Trust, Inc.
"REIT SHARES AMOUNT" means a number of REIT Shares equal to
the product of (a) the number of Tendered Units, (b) the
Adjustment Factor and (c) the applicable Specific Adjustment
Factor, if any, taking into account any applicable Specific
Adjustment Limitations, if any; provided, however, that, in the
event that Essex issues to all holders of REIT Shares as of a
certain record date rights, options, warrants or convertible or
exchangeable securities entitling Essex's shareholders to
subscribe for or purchase REIT Shares, or any other securities or
property (collectively, the "Rights"), with the record date for
such Rights issuance falling within the period starting on the
date of the Notice of Redemption and ending on the day
<PAGE>
immediately preceding the Specified Redemption Date, which Rights
will not be distributed before the relevant Specified Redemption
Date, then the REIT Shares Amount shall also include such Rights
that a holder of that number of REIT Shares would be entitled to
receive, expressed, where relevant hereunder, in a number of REIT
Shares determined by the General Partner in good faith.
"RELATED PARTY" shall mean, with respect to any Person, any
other Person whose ownership of shares of Essex's capital stock
would be attributed to the first such Person under Code Section
544 (as modified by Code Section 856(h)(1)(B)).
"REQUESTING PARTY" shall have the meaning set forth in
Section 12.2(a) hereof.
"REQUIRED FUNDS" shall have the meaning set forth in Section
4.3 hereof.
"RESPONDING PARTY" shall have the meaning set forth in
Section 12.2(b) hereof.
"RIGHTS" shall have the meaning set forth in the definition
of "REIT Shares Amount."
"SEC" shall mean the United States Securities and Exchange
Commission.
"SECTION 704(C) TAX ITEMS" shall have the meaning set forth
in attached Exhibit E.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SINGLE FUNDING NOTICE" has the meaning set forth in Section
11.1(d)(iii) hereof.
"SIX-MONTH PERIOD" shall mean a 180-day period (or, as to a
particular Qualifying Party, such shorter period as the General
Partner may, in its sole and absolute discretion, agree to in
writing) ending on the 180th day after (i) the date hereof, with
respect to Limited Partners of the Partnership as of the date
hereof (other than the Special Limited Partner), and (ii) with
respect to Persons becoming Qualifying Parties subsequent to the
date hereof, either (x) the admission of such Qualifying Party as
a Limited Partner in the Partnership or (y) the Transfer of
Partnership Units to such Qualifying Party, and on each 180th day
thereafter (or, in the case of a period shorter than 180 days,
such other period as may be agreed to by the General Partner in
writing).
"SPECIAL LIMITED PARTNER" shall mean Essex Portfolio, L.P.,
a California limited partnership, its duly admitted successors
and assigns.
"SPECIFIC ADJUSTMENT FACTOR" means, as to a Limited Partner
or its Assignee, the amount specified as such on Exhibit A with
respect to such Limited Partner; provided, however, that, if no
such amount is specified on Exhibit A, the Specific Adjustment
Factor shall be 1.0. The Specific Adjustment Factor need not be
the same for each Limited Partner and Assignee.
<PAGE>
"SPECIFIC ADJUSTMENT LIMITATIONS" means, as to a Limited
Partner or its Assignee, the limitations and restrictions, if
any, specified as such on Exhibit A with respect to such Limited
Partner. The Specific Adjustment Limitations need not be the same
for each Limited Partner and Assignee.
"SPECIFIED REDEMPTION DATE" means the later of (a) the
eleventh (11th) business day after the receipt by the General
Partner of a Notice of Redemption (or in the case of a purchase
by Essex pursuant to Section 11.1(b) hereof, the thirtieth (30th)
day after such receipt), or (b) in the case of a Declination
followed by a Public Offering Funding, the business day next
following the date of the closing of the Public Offering Funding;
provided, however, that the Specified Redemption Date, as well as
the closing of a Redemption, or an acquisition of Tendered Units
by Essex pursuant to Section 11.1(b) hereof, on any Specified
Redemption Date, may be deferred, in the General Partner's sole
and absolute discretion, for such time (but in any event not more
than one hundred eighty (180) days in the aggregate) as may
reasonably be required to effect, as applicable, (i) any
necessary funding arrangements, (ii) compliance with the
Securities Act or other law (including, but not limited to, (a)
state "blue sky" or other securities laws and (b) the expiration
or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended), (iii) compliance with any and all requirements set
forth in the Charter relating to such transaction, and (iv)
satisfaction or waiver of other commercially reasonable and
customary closing conditions and requirements for a transaction
of such nature.
"SUBSTITUTED LIMITED PARTNER" shall mean a "substituted
limited partner" as such term is defined in Section 15519 of the
Act.
"TAX ITEMS" shall have the meaning set forth in attached
Exhibit E.
"TENDERED UNITS" has the meaning set forth in Section
11.1(a) hereof.
"TENDERING PARTY" has the meaning set forth in Section
11.1(a) hereof.
"THIRD ARBITRATOR" shall have the meaning set forth in
Section 12.2 hereof.
"TRADING DAY" shall mean a day on which the principal
national securities exchange on which the Common Stock is listed
or admitted to trading is open for the transaction of business
or, if the Common Stock is not listed or admitted to trading on
any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive
order to close.
"TRANSFER," when used with respect to a Partnership Unit or
all or any portion of a Partnership Interest, means any sale,
assignment, bequest, conveyance, devise, gift (outright or in
trust), pledge, encumbrance, hypothecation, mortgage, exchange,
transfer or other disposition or act of alienation, whether
voluntary or involuntary or by operation of law; provided,
however, that, when the term is used in Article IX hereof,
Transfer does not include (a) any Redemption of Partnership Units
<PAGE>
by the Partnership, or acquisition of Tendered Units from the
Limited Partners by Essex, pursuant to Section 11.1 hereof or (b)
any redemption of Partnership Units pursuant to Section 11.2 or
Section 11.3 hereof. The terms "Transferred" and "Transferring"
have correlative meanings.
"UNAUDITED FINANCIAL STATEMENTS" shall mean unaudited
financial statements (balance sheet, statement of income,
statement of partners' equity and statement of cash flows)
prepared with respect to the Partnership's operations.
"UNITHOLDER" means the General Partner or any other holder
of Partnership Units.
"VALUATION DATE" means (a) in the case of a tender of
Partnership Units for Redemption, two (2) business days after the
date of receipt by the General Partner of a Notice of Redemption,
(b) for the purposes of the Registration Rights Agreement, the
date of delivery of a request under Section 2(a) thereof, or (c)
in any other case, the date specified in this Agreement.
"VALUE" means, on any Valuation Date with respect to one (1)
REIT Share, the market price of such REIT Share on such Valuation
Date (or if such Valuation Date is not a Trading Day, the
immediately preceding Trading Day). The market price for any such
Valuation Date shall be:
(1)if the REIT Shares are listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system,
(2)if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the last reported
sale price on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, as reported by a reliable
quotation source designated by the General Partner, or
(3)if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System and no such last
reported sale price or closing bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or if there shall
be no bid and asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
that a holder of REIT Shares would be entitled to receive, then the Value of
such Rights shall be determined by the General Partner acting in good faith on
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
<PAGE>
1.2 EXHIBIT, ETC. References to "Exhibit" or to a "Schedule" are, unless
otherwise specified, to one of the Exhibits or Schedules attached to this
Agreement, and references to an "Article" or a "Section" are, unless otherwise
specified, to one of the Articles or Sections of this Agreement. Each Exhibit
and Schedule attached hereto and referred to herein is hereby incorporated
herein by reference.
<PAGE>
ARTICLE II
Organization
2.1 CONTINUATION OF PARTNERSHIP. The parties hereto do hereby continue the
Partnership, provided that, from and after the date hereof, the Partnership
shall be subject to the provisions of the Act, and all other pertinent laws of
the State of California, subject to the terms and conditions hereinafter set
forth. The Partners agree that the rights and liabilities of the Partners shall
be as provided in the Act except as otherwise herein expressly provided.
Promptly upon the execution and delivery hereof, the General Partner shall
execute an amendment to the Certificate and file it with the Office of the
Secretary of State of the State of California. A certified copy of the amendment
to the Certificate shall be filed for record in each county in which the
Partnership shall own real property or an interest therein, and the General
Partner shall cause such other notice, instrument, document or certificate as
may be required by applicable law, and which may be necessary to enable the
Partnership to conduct its business and to own the Properties under the
Partnership name, to be filed or recorded in all appropriate public offices. The
General Partner shall execute and file with the Office of the Secretary of State
of the State of California any further amendments to the Certificate required by
law. A certified copy of each such amendment shall be filed by the General
Partner for record in each county in which a copy of the Certificate has been
filed for record.
2.2 NAME. The business of the Partnership shall be conducted under
the name of "Western-Highridge Investors, a California limited partnership", or
such other name as the General Partner may select, and all transactions of the
Partnership, to the extent permitted by applicable law, shall be carried on and
completed in such name.
2.3 CHARACTER OF THE BUSINESS. The purpose of the
Partnership shall be to acquire, hold, own, develop, construct, improve,
maintain, operate, manage, sell, provide seller financing, lease, transfer,
encumber, convey, exchange, lend money, and otherwise dispose of or deal with
Properties and ownership interests therein; to acquire, hold, own, develop,
construct, improve, maintain, operate, manage, sell, provide seller financing,
lease, transfer, encumber, convey, exchange, lend money, and otherwise dispose
of or deal with real and personal property of all kinds, whether owned by the
Partnership or otherwise; and to undertake such other activities as may be
necessary, advisable, desirable or convenient to the business of the
Partnership, and to engage in such other ancillary activities as shall be
necessary or desirable to effectuate the foregoing purposes. The Partnership
shall have all powers necessary or desirable to accomplish the purposes
enumerated. In connection with the foregoing, but subject to all of the terms,
covenants, conditions and limitations contained in this Agreement and any other
agreement entered into by the Partnership, the Partnership shall have full power
and authority, directly or indirectly, to enter into, perform and carry out
contracts of any kind, to borrow money and to issue evidences of indebtedness,
<PAGE>
whether or not secured by mortgage, trust deed, pledge or other lien, and,
directly or indirectly, to acquire and construct additional Properties necessary
or useful in connection with its business, and to lend money secured by
additional Properties and other real and personal property.
2.4 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED. The Partnership shall be a limited
partnership only for the purposes specified in Section 2.3 hereof, and this
Agreement shall not be deemed to create a company, venture or partnership
between or among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 2.3 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any indebtedness or obligation of another Partner, nor
shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
2.5 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the principal
place of business of the Partnership shall be at 777 California Avenue, Palo
Alto, California 94304, or such other location as shall be selected from time to
time by the General Partner in its sole discretion.
2.6 AGENT FOR SERVICE OF PROCESS. The Partnership hereby appoints Jordan Ritter,
Esq., whose address is 777 California Avenue, Palo Alto, California 94304, as
its agent for service of process. Such agent may be changed from time to time by
the General Partner in its sole discretion by filing an amendment to the
Certificate.
2.7 ADMISSION OF NEW GENERAL PARTNER; REMOVAL OF EXISTING GENERAL PARTNERS.
Effective the date hereof, the General Partner is hereby admitted as a general
partner of the Partnership. Immediately thereafter, the general partners of the
Partnership pursuant to the Original Agreement, Donald V. Baptist and James
Fuqua (collectively, the "Current General Partners"), are hereby converted to
limited partners and their interests in the partnership are hereby converted to
Limited Partner Partnership Interests. Effective immediately thereafter, the
sole general partner of the Partnership shall be the General Partner.
2.8 CERTIFICATES OF OWNERSHIP. In the sole discretion of the General Partner,
each Partner's Partnership Units may be evidenced by one or more registered
certificates of ownership, which certificates, if issued, shall be executed by
the General Partner. Such certificates shall contain a legend evidencing the
restrictions on transfer of the Partnership Interests, which legend shall be
substantially similar to the legend contained on the cover page of this
Agreement.
<PAGE>
ARTICLE III
Term
3.1 COMMENCEMENT. The Partnership commenced on March 1, 1985.
3.2 TERMINATION. The Partnership shall continue until December 31, 2097, unless
it is dissolved and wound up sooner pursuant to the provisions of Article VIII
hereof or otherwise as provided by law.
ARTICLE IV
Contributions to Capital
4.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of
the General Partner and the Special Limited Partner has contributed to the
Partnership, as its initial contribution to the capital of the Partnership, the
sum of Thirteen Thousand Four Hundred Twenty and 76/100 Dollars ($13,420.76).
The gross fair market value of any property in the future contributed by the
General Partner or the Special Limited Partner to the Partnership ("Contributed
Property"), other than money, shall be the Acquisition Cost of such Contributed
Property. For purposes hereof, the "Acquisition Cost" of Contributed Property
shall be the amount of such consideration, as reasonably determined by the
General Partner plus, in either case, any costs and expenses incurred by the
General Partner or the Special Limited Partner, as applicable, in connection
with such acquisition or contribution; provided, however, that if the
Contributed Property secures liabilities that the General Partner, the Special
Limited Partner or the Partnership assumes or takes subject to and the
consideration is not net of such liabilities, the Acquisition Cost shall be
equal to such consideration less the amount of such liabilities, and provided
further that if the General Partner or the Special Limited Partner, as
applicable, has assumed such liabilities, the Partnership shall assume such
liabilities of the General Partner or the Special Limited Partner, as
applicable, concurrently with the contribution of such property to the
Partnership or, if impossible, shall obligate itself to the General Partner or
the Special Limited Partner, as applicable, in an amount and on terms equal to
such liabilities.
4.2 LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of the Limited Partners (other
than the Special Limited Partner) has contributed the cash or other assets in
the amount set forth opposite such Limited Partner's name on Exhibit A.
4.3 ADDITIONAL FUNDS.
(a) If the Partnership requires funds ("Required Funds") for any proper
Partnership purpose in excess of any other funds anticipated by the General
Partner to be available to the Partnership (including through borrowings and
prior Capital Contributions), the General Partner or the Special Limited
Partner, as applicable, shall on the Funding Date, either:
(i) to the extent the General Partner or the Special Limited Partner borrows all
or any portion of the Required Funds by entering into a Funding Loan, lend (the
<PAGE>
"Partner Loan") to the Partnership the Funding Loan Proceeds on the same terms
and conditions, including the effective interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with the Funding Loan; or
(ii) the General Partner on behalf of the Partnership may, in its sole
discretion, raise all or any portion of the Required Funds by making additional
Capital Contributions and/or accepting additional Capital Contributions from any
other Partners and/or other Persons in the amount of the Required Funds not
loaned to the Partnership as General Partner Loans ("Contributed Funds")
(hereinafter, each Funding Date on which the General Partner or such other
Person so contributes Contributed Funds pursuant to this subparagraph (ii) is
referred to as an "Adjustment Date"). In the event the General Partner, the
Special Limited Partner, one or more of the other Limited Partners or other
Persons advances Required Funds to the Partnership as Contributed Funds pursuant
to this subparagraph (ii), the General Partner shall either (a) in the case of
Partners (including the General Partner and the Special Limited Partner),
increase such Partner's Partnership Units or (b) in the case of any other
Person, admit such Person as an Additional Partner (in accordance with Section
9.3 hereof). Subject to the terms of this Section 4.3 and to the definition of
"Gross Asset Value," the General Partner shall determine in good faith the
amount, terms and conditions of such additional Capital Contributions; provided,
however, that, in the case of an additional Capital Contribution by the General
Partner or the Special Limited Partner, the Partnership shall issue to the
General Partner or the Special Limited Partner, as applicable, the number of
Partnership Units derived by dividing (1) the amount of the additional Capital
Contribution (net of any liabilities assumed or taken subject to by the
Partnership), by (2) the Value determined as of the date of such Capital
Contribution. On the Adjustment Date with respect to any Contributed Funds, the
Partnership Interests of the non-contributing Partners shall be equitably
reduced.
(b) No Limited Partner (other than the Special Limited Partner) shall have any
right under this Agreement to lend funds to the Partnership or to make
additional capital contributions to the Partnership without the consent of the
General Partner, in the General Partner's sole discretion.
(c) Notwithstanding anything contained herein to the contrary, the liability of
the Limited Partners shall be limited to the aggregate amount of any Capital
Contributions made by the Limited Partners pursuant to this Agreement. Except to
the extent that additional Capital Contributions are unanimously approved by the
Partners, the Limited Partners shall have no personal liability to contribute or
lend money to, or in respect of, the liabilities or the obligations of the
Partnership.
4.4 CONTRIBUTIONS OF PROPERTY. If at any time or from time to time the General
Partner or the Special Limited Partner, as applicable, contributes to the
Partnership any property other than money pursuant to the terms of this
Agreement, the General Partner or the Special Limited Partner, as applicable,
shall be deemed to have contributed to the Partnership as Contributed Funds
pursuant to Section 4.3(a)(ii) hereof, including, for Capital Account purposes,
an amount equal to the Acquisition Cost of such property as determined pursuant
to Section 4.1 hereof, and the Percentage Interests of the Partners shall be
<PAGE>
redetermined in the manner provided in Section 4.3(a)(ii) hereof as of the date
of such contribution.
4.5 NO THIRD PARTY BENEFICIARY. No creditor or other third party having dealings
with the Partnership shall have the right to enforce the right or obligation of
any Partner to make Capital Contributions or loans or to pursue any other right
or remedy hereunder or at law or in equity, it being understood and agreed that
the provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns. None of the rights or obligations of the Partners herein set forth to
make Capital Contributions or loans to the Partnership shall be deemed an asset
of the Partnership for any purpose by any creditor or other third party, nor may
such rights or obligations be sold, transferred or assigned by the Partnership
or pledged or encumbered by the Partnership to secure any debt or other
obligation of the Partnership or of any of the Partners.
4.6 NO INTEREST; NO RETURN. No Partner shall be entitled to interest on its
Capital Contribution or on such Partner's Capital Account. Except as provided
herein or by law, no Partner shall have any right to demand or receive the
return of its Capital Contribution from the Partnership.
ARTICLE V
Concurrent Transactions
5.1 CONCURRENT TRANSACTIONS. Concurrently with the execution of this Agreement,
the following events shall occur: the Partnership, the Limited Partners and/or
the General Partner shall execute and deliver (and/or cause to be executed and
delivered) such further instruments and undertake such further acts as may be
necessary or desirable to carry out the intent and purposes of this Agreement
and as are not inconsistent with the terms hereof.
ARTICLE VI
Allocations and Other Tax and Accounting Matters
6.1 ALLOCATIONS. The Net Income, Net Loss and/or other Partnership items shall
be allocated pursuant to the provisions of attached Exhibit E.
6.2 DISTRIBUTIONS. The General Partner shall cause the Partnership to distribute
all or a portion of Available Cash, as the General Partner in its sole
discretion may determine, to the Unitholders from time to time as determined by
the General Partner, but in any event not less frequently than quarterly, as
follows:
(a) First, to the General Partner, one percent (1%) of the Available Cash
available for distribution;
(b) Second, to each Unitholder, pari passu, an amount equal to the sum of (i)
the product of (1) the Preferred Return Per Unit for such Unitholder (or its
predecessor) for such quarter (or for such other period) and (2) the number of
<PAGE>
Partnership Units held by such Unitholder as of the Partnership Record Date and
(ii) any unpaid amounts previously distributable to such Unitholder (or its
predecessor) under this Section 6.2(b); provided, however, that the amount
distributable pursuant to clause (i) to any Additional Partner admitted to the
Partnership in the quarter immediately preceding and ending with such
Partnership Record Date shall be prorated based on the number of days that such
Additional Partner was a Unitholder during such quarter; and
(c) Third, the balance, (i) ninety-nine percent (99%) to the Special Limited
Partner and (ii) one percent (1%) to the Unitholders (including, without
limitation, the General Partner, and the Special Limited Partner) in proportion
to their Partnership Units as of the Partnership Record Date.
The General Partner in its sole and absolute discretion may distribute to the
Unitholders Available Cash in accordance with the foregoing priorities on a more
frequent basis and provide for an appropriate record date. The General Partner
shall take such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with Essex's qualification as a REIT, to cause the
Partnership to distribute sufficient amounts to enable Essex, as the general
partner of the Special Limited Partner, to pay shareholder dividends that will
(a) satisfy the requirements for Essex's continuing to qualify as a REIT under
the Code and Regulations (the "REIT Requirements") and (b) avoid any federal
income or excise tax liability of Essex.
6.3 WITHHOLDING. The General Partner may withhold taxes from any allocation or
distribution to any Partner to the extent required by the Code or any other
applicable law. For purposes of this Agreement, any taxes so withheld by the
Partnership shall be deemed to be a distribution or payment to such Partner,
reduce the amount otherwise distributable or allocable to such Partner pursuant
to this Agreement and reduce the Capital Account of such Partner.
6.4 BOOKS OF ACCOUNT. At all times during the continuance of the Partnership,
the General Partner shall maintain or cause to be maintained full, true,
complete and correct books of account in accordance with generally accepted
accounting principles wherein shall be entered particulars of all monies, goods
or effects belonging to or owing to or by the Partnership, or paid, received,
sold or purchased in the course of the Partnership's business, and all of such
other transactions, matters and things relating to the business of the
Partnership as are usually entered in books of account kept by persons engaged
in a business of a like kind and character. In addition, the Partnership shall
keep all records as required to be kept pursuant to the Act. The books and
records of account shall be kept at the principal office of the Partnership, and
each Partner shall at all reasonable times have access to such books and records
and the right to inspect the same.
6.5 REPORTS. The General Partner shall cause to be submitted to the Limited
Partners promptly upon preparation of the same and in no event later than April
1 of each year, copies of Unaudited Financial Statements prepared for the
Partnership, together with the reports thereon, and all supplementary schedules
and information. The Partnership shall also cause to be prepared such reports
and/or information as are necessary for Essex to determine its qualification as
a REIT and its compliance with REIT Requirements.
<PAGE>
6.6 [Intentionally Omitted].
6.7 TAX ELECTIONS AND RETURNS. All elections required or permitted to be made by
the Partnership under any applicable tax law shall be made by the General
Partner in its sole discretion; provided, however, the General Partner shall
file an election on behalf of the Partnership pursuant to Section 754 of the
Code to adjust the basis of the Partnership property in the case of a transfer
of a Partnership Interest, including transfers made in connection with the
exercise of rights under Article XI hereof, made in accordance with the
provisions of the Agreement. The General Partner shall cause the Accountants to
prepare and file all state and federal tax returns on a timely basis. The
General Partner shall cause the Accountants to prepare and submit to the Limited
Partners on or before April 1 of each year for review all federal and state
income tax returns of the Partnership. If a Majority-in-Interest of the Limited
Partners determines that any modifications to the tax returns of the Partnership
should be considered, such Limited Partners shall, within thirty (30) days
following receipt of such tax returns from the Accountants or the General
Partner, indicate to the Accountants the suggested revisions to the tax returns,
which returns shall be resubmitted to the Limited Partners for their review (but
not approval). The Limited Partners shall complete their review of the
resubmitted returns within ten (10) days after receipt thereof from the
Accountants or the General Partner. The General Partner shall consult in good
faith with the Limited Partners regarding any proposed modifications to the tax
returns of the Partnership. A statement of the allocation of Net Income or Loss
of the Partnership shown on the annual income tax returns prepared by the
Accountants shall be transmitted and delivered to the Limited Partners within
ten (10) days of the receipt thereof by the Partnership. The General Partner
shall be responsible for preparing and filing all federal and state tax returns
for the Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law.
6.8 TAX MATTERS PARTNER. The General Partner is hereby designated as the Tax
Matters Partner within the meaning of Section 6231(a)(7) of the Code for the
Partnership; provided, however, (i) in exercising its authority as Tax Matters
Partner it shall be limited by the provisions of this Agreement affecting tax
aspects of the Partnership; (ii) the General Partner shall consult in good faith
with the Limited Partners regarding the filing of a Code Section 6227(b)
administrative adjustment request with respect to the Partnership or a Property
before filing such request, it being understood, however, that the provisions
hereof shall not be construed to limit the ability of any Partner, including the
General Partner, to file an administrative adjustment request on its own behalf
pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult
in good faith with the Limited Partners regarding the filing of a petition for
judicial review of an administrative adjustment request under Section 6228 of
the Code, or a petition for judicial review of a final partnership
administrative judgment under Section 6226 of the Code relating to the
Partnership before filing such petition; (iv) the General Partner shall give
prompt notice to the Limited Partners of the receipt of any written notice that
the Internal Revenue Service or any state or local taxing authority intends to
examine Partnership income tax returns for any year, receipt of written notice
of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, receipt of written
notice of the final Partnership administrative adjustment relating to the
<PAGE>
Partnership pursuant to Section 6223 of the Code, and receipt of any request
from the Internal Revenue Service for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Partnership; and
(v) the General Partner shall promptly notify the Limited Partners if the
General Partner does not intend to file for judicial review with respect to the
Partnership.
ARTICLE VII
Rights, Duties and Restrictions of the General Partner
7.1 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby authorized to pay
compensation for accounting, administrative, legal, technical, management and
other services rendered to the Partnership. All of the aforesaid expenditures
shall be made on behalf of the Partnership, and the General Partner shall be
entitled to reimbursement by the Partnership for any expenditures incurred by it
on behalf of the Partnership which shall be made other than out of the funds of
the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
7.2 POWERS AND DUTIES OF GENERAL PARTNER. The General Partner shall be
responsible for the management of the Partnership's business and affairs.
Subject solely to the limitations contained in Section 7.3 and Section 7.7
hereof, the General Partner shall have, and is hereby granted, full and complete
power, authority and discretion to take such action for and on behalf of the
Partnership and in its name as the General Partner shall, in its sole and
absolute discretion, deem necessary or appropriate to carry out the purposes for
which the Partnership was organized. Without limiting the generality of the
foregoing, the General Partner shall have the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase, lease, exchange
or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise
options to purchase, options to sell or conversion rights, assign, transfer,
convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, develop,
repair, maintain, manage, insure, lease for any term and otherwise deal with any
and all property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the purposes of the Partnership;
(b) To acquire, directly or indirectly, interests in real estate or entities
owning real estate of any kind and of any type, and any and all kinds of
interests therein (whether through direct ownership, partnerships, security
interests or any other type of interests), and to determine the manner in which
title thereto is to be held; to manage, insure against loss, protect and
subdivide any of the real estate, interests therein or parts thereof; to
improve, develop or redevelop any such real estate; to participate in the
ownership and development of any property; to dedicate for public use, to vacate
any subdivisions or parts thereof, to re-subdivide, to contract to sell or
exchange, to grant options to purchase, lease or exchange, to sell or exchange
on any terms; to convey, to mortgage or receive mortgages, pledge or otherwise
encumber said property, or any part thereof; to lease said property or any part
thereof from time to time, upon any terms and for any period of time, and to
renew or extend leases, to amend, change or modify the terms and provisions or
any leases and to grant options to lease and options to renew leases and options
<PAGE>
to purchase; to partition or to exchange said real property, or any part
thereof, for other real or personal property; to grant easements or charges of
any kind; to release, convey or assign any right, title or interest in or about
or easement appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on said
premises; to insure any Person having an interest in or responsibility for the
care, management or repair of such property; to direct the trustee of any land
trust to mortgage, lease, convey or contract to convey the real estate held in
such land trust or to execute and deliver deeds, mortgages, notes, and any and
all documents pertaining to the property subject to such land trust or in any
matter regarding such trust; to execute assignments of all or any part of the
beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from employment or engagement
Persons to the extent deemed necessary by the General Partner for the operation
and management of the Partnership business, including but not limited to,
contractors, subcontractors, engineers, architects, surveyors, mechanics,
consultants, accountants, attorneys, insurance brokers, real estate brokers and
others;
(d)To negotiate and enter into contracts on behalf of the Partnership
(including, without limitation, right of first opportunity arrangements and
other conflict avoidance agreements) that the General Partner considers useful
or necessary to the conduct of the Partnership's operations or implementation of
the General Partner's powers under this Agreement;
(e)To borrow money, procure loans and advances from any Person for Partnership
purposes, and to apply for and secure, from any Person, credit or
accommodations; to contract liabilities and obligations, direct or contingent
and of every kind and nature with or without security; and to repay, discharge,
settle, adjust, compromise, or liquidate any such loan, advance, credit,
obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale
and leaseback arrangements or otherwise give as security or as additional or
substitute security, or for sale or other disposition any and all Partnership
property, tangible or intangible, including, but not limited to, real estate and
beneficial interests in land trusts, and to make substitutions thereof, and to
receive any proceeds thereof upon the release or surrender thereof (such right,
power and authority to include, without limitation, the right, power and
authority to encumber Partnership property to secure the debts and obligations
of the General Partner and/or Affiliates of the General Partner, including,
without limitation, the Special Limited Partner); to sign, execute and deliver
any and all assignments, deeds and other contracts and instruments in writing;
to authorize, give, make, procure, accept and receive moneys, payments,
property, notices, demands, vouchers, receipts, releases, compromises and
adjustments; to waive notices, demands, protests and authorize and execute
waivers of every kind and nature; to enter into, make, execute, deliver and
receive written agreements, undertakings and instruments of every kind and
nature; to give oral instructions and make oral agreements; and generally to do
any and all other acts and things incidental to any of the foregoing or with
reference to any dealings or transactions which any attorney may deem necessary,
proper or advisable;
<PAGE>
(g) To acquire and enter into any contract of insurance which the General
Partner deems necessary or appropriate for the protection of the Partnership,
for the conservation of the Partnership's assets or for any purpose convenient
or beneficial to the Partnership;
(h) To conduct any and all banking transactions on behalf of the Partnership; to
adjust and settle checking, savings, and other accounts with such institutions
as the General Partner shall deem appropriate; to draw, sign, execute, accept,
endorse, guarantee, deliver, receive and pay any checks, drafts, bills of
exchange, acceptances, notes, obligations, undertakings and other instruments
for or relating to the payment of money in, into, or from any account in the
Partnership's name; to execute, procure, consent to and authorize extensions and
renewals of the same; to make deposits and withdraw the same and to negotiate or
discount commercial paper, acceptances, negotiable instruments, bills of
exchange and dollar drafts;
(i) To demand, sue for, receive, and otherwise take steps to collect or recover
all debts, rents, proceeds, interest, dividends, goods, chattels, income from
property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any accounts,
debts, claims, disputes and matters which may arise between the Partnership and
any other Person and to grant an extension of time for the payment or
satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking of all action
deemed necessary or appropriate by the General Partner to cause any approved
loans to be closed;
(k)To take all reasonable measures necessary to insure compliance by the
Partnership with applicable arrangements, and other contractual obligations and
arrangements entered into by the Partnership from time to time in accordance
with the provisions of this Agreement, including periodic reports as required to
lenders and using all due diligence to insure that the Partnership is in
compliance with its contractual obligations;
(l) To maintain the Partnership's books and records;
(m)To prepare and deliver, or cause to be prepared and delivered by the
Partnership's Accountants, all financial and other reports with respect to the
operations of the Partnership, and preparation and filing of all federal and
state tax returns and reports;
(n)To prepare and deliver all financial, regulatory, tax and other filings or
reports to governmental or other agencies having jurisdiction over the
Partnership; and
(o) To do all other actions of a partner in a partnership without limited
partners, recognizing that the Limited Partners shall have only the right and
authority to participate in the affairs of the Partnership to the extent
<PAGE>
specifically set forth in this Agreement. Except as otherwise provided herein,
to the extent the duties of the General Partner require expenditures of funds to
be paid to third parties, the General Partner shall not have any obligations
hereunder except to the extent that Partnership funds are reasonably available
to it for the performance of such duties, and nothing herein contained shall be
deemed to require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership. Each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provisions of this Agreement (except as provided in
Section 7.3), the Act or any applicable law, rule or regulation. The execution,
delivery or performance by the General Partner or the Partnership of any
agreement authorized or permitted under this Agreement shall not in itself
constitute a breach by the General Partner of any duty that the General Partner
may owe the Partnership or the Limited Partners or any other Persons under this
Agreement or of any duty stated or implied by law or equity.
7.3 MAJOR DECISIONS. The General Partner shall not, without the prior Consent of
the Limited Partners, on behalf of the Partnership, undertake any of the
following actions (the "Major Decisions"):
(a) Amend, modify or terminate this Agreement other than in accordance with the
provisions of Article IV, Article VIII, Article IX, Section 13.7 and the
definitions of the terms "Gross Asset Value" and "Partnership Units."
(b) Make a general assignment for the benefit of creditors or appoint or
acquiesce in the appointment of a custodian, receiver or trustee for all or any
part of the assets of the Partnership.
(c) Take title to any personal or real property, other than in the name of the
Partnership or pursuant to Section 7.9 hereof.
(d) Institute any proceeding for Bankruptcy on behalf of the Partnership.
(e) Dissolve the Partnership, except as otherwise set forth in this Partnership
Agreement.
Notwithstanding the foregoing, none of the actions described in Section 7.3
shall be a Major Decision if the Limited Partners (other than the Special
Limited Partner) collectively own less than forty percent (40%) of the
Partnership Units at the time that such action is undertaken.
7.4 ACTIONS WITH RESPECT TO CERTAIN DOCUMENTS. Notwithstanding the provisions of
Section 7.3 hereof to the contrary, whenever the consent, agreement,
authorization or approval of the Partnership is required under any agreement to
which the Limited Partners and/or their Controlled Entities are parties in
interest other than in their capacities as Limited Partners of the Partnership,
the Consent of the Limited Partners shall not be required.
<PAGE>
7.5 OTHER BUSINESS OF GENERAL PARTNER AND SPECIAL LIMITED PARTNER.
Notwithstanding anything to the contrary set forth in this Agreement, the
General Partner and the Special Limited Partner may engage independently or with
others (including, without limitation, Affiliates of the General Partner and the
Special Limited Partner) in other business ventures of every nature and
description, including, without limitation, the ownership of other properties
and the making or management of other investments. In furtherance of any such
venture, the General Partner and the Special Limited Partner may serve as a
general or limited partner in any partnership, a shareholder in any corporation,
a joint venturer in any joint venture, a member and/or manager in any limited
liability company, or an equity or other participant in any other business
venture. Nothing in this Agreement shall be deemed to prohibit the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner from dealing, or otherwise engaging in business
with, Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property and receiving compensation therefor, not
involving any rebate or reciprocal arrangement that would have the effect of
circumventing any restriction set forth herein upon dealings with the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner. Neither the Partnership nor any Partner shall
have any right by virtue of this Agreement or the Partnership relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom, and, to the fullest extent permitted by the Act, the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper.
7.6 CONTRACTS WITH AFFILIATES.
(a) Without limiting the provisions of Section 7.5 above, the Partnership may
lend or contribute funds or other assets to its Affiliates or other Persons in
which it has (or proposes to have) an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Affiliates or any other
Person.
(b) Without limiting the provisions of Section 7.5 above, the Partnership may
transfer assets to other Entities in which it is or thereby becomes a
participant upon such terms and subject to applicable law as the General
Partner, in its sole and absolute discretion, believes to be advisable.
7.7 PROSCRIPTIONS. The General Partner shall not have the authority to:
(a) Do any act in contravention of this Agreement or which would make it
impossible to carry on the ordinary business of the Partnership;
(b)Possess any Partnership property or assign rights in specific Partnership
property for other than Partnership purposes; or
(c)Do any act in contravention of applicable law.
<PAGE>
Nothing herein contained shall impose any obligation on any Person or firm doing
business with the Partnership to inquire as to whether or not the General
Partner has properly exercised its authority in executing any contract, lease,
mortgage, deed or other instrument on behalf of the Partnership, and any such
third Person shall be fully protected in relying upon such authority.
7.8 ADDITIONAL PARTNERS. Additional Partners may be admitted to the Partnership
only as provided in Section 9.3 hereof.
7.9 TITLE HOLDER. To the extent allowable under applicable law, title to all or
any part of the properties of the Partnership may be held in the name of the
Partnership or any other individual, corporation, partnership, trust or
otherwise, the beneficial interest in which shall at all times be vested in the
Partnership. Any such title holder shall perform any and all of its respective
functions to the extent and upon such terms and conditions as may be determined
from time to time by the General Partner.
7.10 COMPENSATION OF THE GENERAL PARTNER. The General Partner shall not be
entitled to any compensation for services rendered to the Partnership solely in
its capacity as General Partner, except with respect to reimbursement for those
costs and expenses constituting Administrative Expenses.
7.11 WAIVER AND INDEMNIFICATION.
(a) Neither the General Partner, the Special Limited Partner nor any Person
acting on their behalf, pursuant hereto, shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for any
acts or omissions performed or omitted to be performed by them within the scope
of the authority conferred upon the General Partner or the Special Limited
Partner by this Agreement and the Act, provided that the General Partner's, the
Special Limited Partner's or such other Person's conduct or omission to act was
taken in good faith and in the belief that such conduct or omission was in the
best interests of the Partnership and, provided further, that the General
Partner, the Special Limited Partner or such other Person shall not be guilty of
fraud, misconduct, bad faith, or gross negligence. The Partnership shall, and
hereby does, agree to indemnify, defend, protect and hold harmless the General
Partner, the Special Limited Partner and their Affiliates and any individual or
Entity acting on their behalf from and against any loss, damage, cost, expense,
claim or liability, including, but not limited to, reasonable attorneys' fees,
court costs and expenses, incurred by them by reason of any acts or omissions
performed or omitted to be performed by them in connection with the business and
affairs of the Partnership as described herein, subject to the standards set
forth above; provided, however, no Partner shall have any personal liability
with respect to the foregoing indemnification, any such indemnification to be
satisfied solely out of the assets of the Partnership.
(b) Any Person entitled to indemnification under this Agreement shall be
entitled to receive, upon application therefor, the costs reasonably incurred
defending any proceeding against such Person; provided, however, that such
advances shall be repaid to the Partnership, without interest, if such Person is
found by a court of competent jurisdiction upon entry of a final judgment not to
be entitled to such indemnification. All rights of the indemnitee hereunder
<PAGE>
shall survive the dissolution of the Partnership. The indemnification rights
contained in this Agreement shall be cumulative of, and in addition to, any and
all rights, remedies and recourse to which the person seeking indemnification
shall be entitled, whether at law or in equity. Indemnification pursuant to this
Agreement shall be made solely and entirely from the assets of the Partnership,
and no Partner shall be liable therefor.
7.12 CONTRACTS WITH CONTROLLED ENTITIES. The General Partner and the Special
Limited Partner may contract with any of their Controlled Entities for the
provision of property management, asset management, brokerage or similar
services or any other services customarily rendered by the Controlled Entities;
provided that all such contracts or agreements shall be for compensation and on
terms and conditions substantially similar to other such contracts or agreements
available from similarly qualified third parties.
7.13 OPERATION IN ACCORDANCE WITH REIT REQUIREMENTS. Essex, the sole general
partner of the Special Limited Partner, is a REIT and is subject to the
provisions of Section 856 through and including 860 of the Code. The Partners
acknowledge and agree that the Partnership shall be operated in a manner that
will enable Essex to (a) satisfy the REIT Requirements and (b) eliminate the
imposition of any federal income or excise tax liability. Notwithstanding
anything to the contrary set forth in this Agreement, the Partnership shall
avoid taking any action that would result in Essex ceasing to satisfy the REIT
Requirements or would result in the imposition of any federal income or excise
tax liability on Essex. Without limiting the foregoing, so long as Essex owns,
directly or indirectly, any interest in the Partnership, then notwithstanding
any other provision of this Agreement:
(i)leases or subleases of any of the Partnership's real estate assets shall
provide for rents which qualify as "rents from real property" within the meaning
of Section 856(d) of the Code with respect to Essex;
(ii)the Partnership shall not furnish or render services to tenants or other
persons that are not usually or customarily rendered in connection with the
rental of real property in order that the rents received by the partnership with
respect to its real estate assets qualify as "rents from real property" within
the meaning of Section 856(d) of the Code with respect to Essex;
(iii) the Partnership shall not own, directly or indirectly or by attribution
(in accordance with the attribution rules referred to in Section 856(d) of the
Code), in the aggregate more than 1% of all classes of stock or more than 1% of
the voting power (or, with respect to any such person which is not a
corporation, an interest of 1% or more in the assets or net profits of such
person) of a lessee or sublessee of all or any part of the real estate assets of
the Partnership, except in each case with the specific written approval of
Essex;
(iv) the Partnership shall not own, directly or indirectly or by attribution,
more than 10% of the outstanding voting securities of any issuer;
(v) the Partnership shall not engage in any prohibited transactions within the
meaning of Section 857(b)(6) of the Code; and
<PAGE>
(vi) the determination as to whether the Partnership has operated in the manner
prescribed in this Section 7.13 shall be made without regard to any action or
inaction of the General Partner with respect to distributions and the timing
thereof.
ARTICLE VIII
Dissolution, Liquidation and Winding-Up
8.1 LIQUIDATING EVENTS. The Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following (each, a "Liquidating
Event"):
(a) The dissolution, termination, retirement or Bankruptcy of the General
Partner unless the Partnership is continued as provided in Section 9.1 hereof;
(b) The election to dissolve the Partnership made in writing by the General
Partner with the Consent of the Limited Partners, provided that the Consent of
the Limited Partners shall not be required if the Limited Partners (other than
the Special Limited Partner) collectively own less than forty percent (40%) of
the Partnership Units at the time of such election;
(c) The sale or other disposition of all or substantially all the assets of the
Partnership, other than in connection with a "like kind" exchange, pursuant to
Section 1031 of the Code (or any similar transaction), unless the General
Partner, with the Consent of the Limited Partners, elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership), provided that the
Consent of the Limited Partners shall not be required if the Limited Partners
(other than the Special Limited Partner) collectively own less than forty
percent (40%) of the Partnership Units at the time of such sale or disposition;
(d) Dissolution required by operation of law; or
(e) The expiration of its term as provided in Section 3.2.
8.2 ACCOUNTING. In the event of a Liquidating Event, a proper accounting (which
shall be certified) shall be made of the Capital Account of each Partner and of
the Net Profits or Net Losses of the Partnership from the date of the last
previous accounting to the date of dissolution. Financial statements presenting
such accounting shall be prepared at the direction of the Liquidating Trustee.
8.3 DISTRIBUTION ON DISSOLUTION. In the event of a Liquidating Event, the assets
of the Partnership shall be liquidated for distribution in the following rank
and order:
(a) First, to the payment and discharge of all of the Partnership's debt and
liabilities to creditors of the Partnership (other than Partners) in the order
of priority as provided by law;
<PAGE>
(b) Second, to the establishment of reserves as provided by the General Partner
to provide for contingent liabilities, if any;
(c) Third, to the payment of debts of the Partnership to Partners, if any, in
the order of priority provided by law; and
(d) The balance, if any, to the Partners in accordance with the positive
balances in their Capital Accounts after giving effect to all contributions,
distributions (pursuant to Section 6.2) and allocations for all periods,
including the period in which such distribution occurs (other than those
adjustments made pursuant to this Section 8.3(d) and Section 8.4 hereof).
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (b) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with Section 6.2.
8.4 TIMING REQUIREMENTS. In the event that the Partnership is "liquidated"
within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and
all distributions to the Partners pursuant to Section 8.3(d) hereof shall be
made no later than the later to occur of (i) the last day of the taxable year of
the Partnership in which such liquidation occurs or (ii) ninety (90) days after
the date of such liquidation.
8.5 SALE OF PARTNERSHIP ASSETS. In the event of the liquidation of the
Partnership in accordance with the terms of this Agreement, the Liquidating
Trustee may, with the Consent of the Limited Partners, sell Partnership property
if the Liquidating Trustee has in good faith solicited bids from unrelated third
parties and obtained independent appraisals before making any such sale;
provided, however, all sales, leases, encumbrances or transfers of Partnership
assets shall be made by the Liquidating Trustee with the prior Consent of the
Limited Partners and solely on an "arm's-length" basis, at the best price and on
the best terms and conditions as the General Partner in good faith believes are
reasonably available at the time and under the circumstances and on a
non-recourse basis to the Limited Partners. Notwithstanding the foregoing, the
Consent of the Limited Partners shall not be required under the preceding
sentence if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time that the Liquidating Trustee undertakes such action. The liquidation of the
Partnership shall not be deemed finally terminated until the Partnership shall
have received cash payments in full with respect to obligations such as notes,
installment sale contracts or other similar receivables received by the
Partnership in connection with the sale of Partnership assets and all
obligations of the Partnership have been satisfied or assumed by the General
Partner. The Liquidating Trustee shall continue to act to enforce all of the
rights of the Partnership pursuant to any such obligations until paid in full.
8.6 DISTRIBUTIONS IN KIND. Notwithstanding the provisions of Section 8.3 hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
<PAGE>
Partnership the Liquidating Trustee determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) and/or distribute to the Partners in lieu of cash as
tenants in common and in accordance with the provisions of Section 8.3 hereof,
undivided interests in such Partnership assets as the Liquidating Trustee deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good-faith judgment of the Liquidating Trustee, such distributions in
kind are in the best interest of the Partners and shall be subject to such
conditions relating to the disposition and management of such properties as the
Liquidating Trustee deems reasonable and equitable and to any agreements
governing the operation of such properties at such time. The Liquidating Trustee
shall determine the fair market value of any property distributed in kind using
such reasonable method of valuation as it may adopt.
8.7 DOCUMENTATION OF LIQUIDATION. Upon the completion of the dissolution and
liquidation of the Partnership, the Partnership shall terminate and the
Liquidating Trustee shall have the authority to execute and record any and all
documents or instruments required to effect the dissolution, liquidation and
termination of the Partnership.
8.8 LIABILITY OF THE LIQUIDATING TRUSTEE. The Partnership hereby indemnifies,
defends, protects and holds harmless the Liquidating Trustee from and against
any and all claims, demands, losses, liabilities, costs (including, without
limitation, reasonable attorneys' fees and costs), damages and causes of action
of any nature whatsoever arising out of or incidental to the Liquidating
Trustee's taking of any action authorized under or within the scope of this
Agreement; provided, however, that the Liquidating Trustee shall not be entitled
to indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arose out of:
(a)A matter entirely unrelated to the Liquidating Trustee's action or conduct
pursuant to the provisions of this Agreement; or
(b) The proven misconduct or gross negligence of the Liquidating Trustee.
ARTICLE IX
Transfer of Partnership Interests
9.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER TRANSFERS. Except as provided in
the next sentence, neither the General Partner nor the Special Limited Partner
shall withdraw from the Partnership or Transfer all or any portion of their
interests in the Partnership without the Consent of the Limited Partners,
provided that the Consent of the Limited Partners shall not be required if the
Limited Partners (other than the Special Limited Partner) collectively own less
than forty percent (40%) of the Partnership Units at the time of such Transfer.
Notwithstanding the foregoing, the General Partner and/or the Special Limited
Partner may (i) engage in any merger, consolidation or other combination with or
into another Person regardless of whether Essex or another REIT continues to be
the general partner of the Special Limited Partner, (ii) sell all or
substantially all of their assets, or (iii) effect any reclassification or
<PAGE>
recapitalization, all without the approval of the Limited Partners. Upon any
Transfer of all of the General Partner's or the Special Limited Partner's
Partnership Interest in accordance with the provisions of this Section 9.1, the
transferee General Partner or Special Limited Partner, as applicable, shall
become vested with the powers and rights of the transferor General Partner or
Special Limited Partner, as applicable, and shall be liable for all obligations
and responsible for all duties of the General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership Interest so
acquired. It is a condition to any Transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor General Partner or Special Limited Partner, as
applicable, under this Agreement with respect to such transferred Partnership
Interest, and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor General
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor General Partner or Special Limited Partner, as
applicable, of its obligations under this Agreement without the Consent of the
Limited Partners, provided that the Consent of the Limited Partners shall not be
required if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time of such Transfer. In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or dissolves,
terminates or upon the Bankruptcy of the General Partner, a Majority-In-Interest
of the Limited Partners may elect to continue the Partnership business by
selecting a substitute general partner.
9.2 TRANSFERS BY LIMITED PARTNERS.
(a) No Limited Partner (other than the Special Limited Partner) shall have the
right to Transfer to any Person all or any portion of its Partnership Interest,
without the General Partner's written consent, in the General Partner's sole
discretion. Any purported Transfer, in violation of this Section 9.2, shall be
void, ab initio.
(b) It is a condition to any Transfer otherwise permitted under this Section 9.2
that the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Upon such Transfer and upon obtaining the General Partner's
written consent, in the General Partner's sole discretion, the transferee shall
be admitted as a Substituted Limited Partner and shall succeed to all of the
rights, including rights with respect to the Rights, of the transferor Limited
Partner under this Agreement in the place and stead of such transferor Limited
Partner; provided, however, that notwithstanding the foregoing, any transferee
of any transferred Partnership Interest shall be subject to any and all
ownership limitations contained in the Charter which may, among other things,
limit or restrict such transferee's ability to exercise all or portions of the
rights set forth in Article XI. Any transferee, whether or not admitted as a
<PAGE>
Substituted Limited Partner, shall acquire such Partnership Interest subject to
the obligations of the transferor hereunder. Unless admitted as a Substituted
Limited Partner, no transferee, whether by a voluntary transfer, by operation of
law or otherwise, shall have rights hereunder (including, without limitation,
pursuant to Article XI, unless such transferee, is a Qualifying Party), other
than to receive such portion of the distributions made by the Partnership as are
allocable to the Percentage Interest transferred.
9.3 ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS AND ADMITTANCE OF ADDITIONAL
PARTNERS. At any time after the date hereof without the consent of any Partner,
but subject to the provisions of Section 9.4 hereof, the General Partner may,
upon its determination that the issuance of additional Partnership Interests
("Additional Interests") is in the best interests of the Partnership, cause the
Partnership (i) to issue Additional Interests to any Limited Partner or any
other Person (such other person being referred to as an "Additional Partner") in
exchange for the contribution by such Limited Partner or Person of cash and/or
property desirable to further the purposes of the Partnership under Section 2.3
hereof and (ii) in the case of such contribution by an Additional Partner, to
admit such person as a limited partner in the Partnership. In the event that an
Additional Interest is issued by the Partnership pursuant to this Section 9.3:
(a) the Percentage Interest of the Additional Partner that is issued the
Additional Interest and the reduction of the Percentage Interests of the other
Partner shall be determined by the General Partner in the same manner as that
provided in subsection 4.3(a)(ii) hereof with respect to Contributed Funds.
The General Partner shall be authorized on behalf of each of the Partners to
amend this Agreement to reflect the admission of any Additional Partner or any
increase in the Percentage Interests of any Partner and the corresponding
reduction of the Percentage Interests of the other Partners in accordance with
the provisions of this Section 9.3, and the General Partner shall promptly
deliver a copy of such amendment to each Limited Partner. Notwithstanding
anything contained herein to the contrary, without the consent of the General
Partner, in its sole and absolute discretion, an Additional Partner that
acquires an Additional Interest pursuant to this Section 9.3 shall not acquire
any interest in, and may not exercise or otherwise participate in, any rights
pursuant to Article XI.
9.4 RESTRICTIONS ON TRANSFER. In addition to any other restrictions on transfer
herein contained, in no event may any Transfer of a Partnership Interest by any
Partner be made (i) to any Person that lacks the legal right, power or capacity
to own a Partnership Interest; (ii) in violation of any provision of any
mortgage or trust deed (or the note or bond secured thereby) constituting a Lien
against a Property or any part thereof, or other instrument, document or
agreement to which the Partnership, the General Partner, the Special Limited
Partner or any Affiliate of either of them is a party or otherwise bound; (iii)
in violation of applicable law, including, without limitation, any applicable
federal securities law or state securities "Blue Sky" law (including investment
suitability standards); (iv) of any component portion of a Partnership Interest,
such as the Capital Account, or rights to Available Cash, separate and apart
from all other components of a Partnership Interest; (v) in the event such
transfer would cause Essex to cease to comply with the REIT Requirements or
result in a violation of Section 7.13 hereof; (vi) if such transfer would cause
<PAGE>
a termination of the Partnership for federal income tax purposes; (vii) if such
transfer would, in the opinion of counsel to the Partnership, cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes; (viii) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title 1 of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (ix) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.3-101; (x) if such
transfer may not be effected without registration of such Partnership Interest
under the Securities Act; or (xi) if such transfer would violate any provision
of the Charter. As a condition to any Transfer, the General Partner may, in its
sole and absolute discretion, require the proposed transferee to deliver to the
General Partner an opinion of counsel and such other certifications, affidavits
and/or undertakings, in form and content reasonably acceptable to the General
Partner, to satisfy the General Partner that the proposed Transfer will not
violate any of the provisions of this Section 9.4. Any purported transfer in
violation of this Section 9.4 shall be void ab initio.
ARTICLE X
Rights and Obligations of the Limited Partners
10.1 NO PARTICIPATION IN MANAGEMENT. Except as expressly permitted hereunder,
the Limited Partners shall not take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership and shall have no rights,
powers or authority, except as specifically provided herein.
10.2 BANKRUPTCY OF A LIMITED PARTNER AND CERTAIN OTHER EVENTS. The Bankruptcy,
death, incompetency, legal incapacity, withdrawal or retirement of any Limited
Partner shall not cause a dissolution of the Partnership, but the rights of such
Limited Partner to share in the Net Profits or Losses of the Partnership and to
receive distributions of Partnership funds shall, on the happening of such
event, devolve on its successors or assigns, subject to the terms and conditions
of this Agreement, and the Partnership shall continue as a limited partnership.
However, in no event shall such assignee(s) become a Substituted Limited
Partner, except in accordance with Article IX hereof.
10.3 NO WITHDRAWAL. Notwithstanding anything to the contrary provided in Section
10.2 above, no Limited Partner may withdraw or retire from the Partnership
without the prior written consent of the General Partner, in its sole and
absolute discretion, other than as expressly provided in this Agreement.
10.4 DUTIES AND CONFLICTS. The General Partner recognizes that the Limited
Partners and their Affiliates have or may have other business interests,
activities and investments, some of which may be in conflict or competition with
the business of the Partnership, and that, subject to the provisions of any
agreements entered into by any Limited Partner or its Affiliate with the General
Partner, the Partnership or any of their Affiliates, such persons are entitled
to carry on such other business interests, activities and investments. Subject
to the immediately preceding sentence, the Limited Partners and their Affiliates
may engage in or possess an interest in any other business or venture of any
<PAGE>
kind, independently or with others, on their own behalf or on behalf of other
entities with which they are affiliated or associated, and such persons may
engage in any activities, whether or not competitive with the Partnership,
without any obligation to offer any interest in such activities to the
Partnership or to any Partner. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such activities, or the
income or profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper.
ARTICLE XI
Grant of Rights to Limited Partners
11.1 GRANT OF RIGHTS.
(a) Subject to Section 11.1(b) below and the other provisions of this Section
11.1, a Qualifying Party, but no other Person, shall have the right (subject to
the terms and conditions set forth herein) to require the Partnership to redeem
all or a portion of the Partnership Units held by such Qualifying Party (such
Partnership Units being hereafter called "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Qualifying Party when exercising the Redemption right
(the "Tendering Party"). The Partnership's obligation to effect a Redemption,
however, shall not arise or be binding against the Partnership until and unless
there has been a Declination. Regardless of the binding or non-binding nature of
a pending Redemption, a Tendering Party shall have no right to receive
distributions with respect to any Tendered Units (other than the Cash Amount)
paid after delivery of the Notice of Redemption, whether or not the Partnership
Record Date for such distribution precedes or coincides with such delivery of
the Notice of Redemption. In the event of a Redemption, the Cash Amount shall be
delivered as a good check payable to the Tendering Party or, in the General
Partner's sole and discretion, in immediately available funds.
(b) (i) Subject to Section 11.1(b)(ii) below, notwithstanding the provisions of
Section 11.1(a) hereof, on or before the close of business on the Cutoff Date,
Essex shall, in its sole and absolute discretion but subject to the Ownership
Limit (as defined in the Charter) and any transfer restrictions or other
limitations of the Charter and subject to the written consent of the General
Partner in its sole discretion, have the option (and Essex is hereby granted
such an option) to acquire some or all (such amount, expressed as a percentage,
being referred to as the "Applicable Percentage") of the Tendered Units from the
Tendering Party in exchange for REIT Shares. If Essex exercises such option, on
the Specified Redemption Date the Tendering Party shall sell such number of the
Tendered Units to Essex in exchange for a number of REIT Shares equal to the
product of the REIT Shares Amount and the Applicable Percentage (expressed as a
decimal), provided, however, that in lieu of any fractional REIT Share resulting
from such calculation, the General Partner or Special Limited Partner may
contribute to the Partnership the Cash Amount attributable to such fractional
REIT Share. The Tendering Party shall submit such information, investment
<PAGE>
letters, representations, undertakings, legal opinions, certifications and/or
affidavits as Essex may reasonably require to comply with the Securities Act,
the Code and the Charter (including, without limitation, the Ownership Limit).
In the event of a purchase of the Tendered Units pursuant to this Section
11.1(b), the Tendering Party shall no longer have the right to cause the
Partnership to effect a Redemption of such Tendered Units, and, upon notice to
the Tendering Party by Essex, given on or before the close of business on the
Cut-Off Date, that Essex has exercised its option to acquire some or all of the
Tendered Units pursuant to this Section 11.1(b), the obligation of the
Partnership to effect a Redemption of the Tendered Units as to which Essex's
notice relates shall immediately and automatically terminate and be of no
further force or effect. The product of the Applicable Percentage and the REIT
Shares Amount shall be delivered by Essex as duly authorized, validly issued,
fully paid and nonassessable REIT Shares and, if applicable, Rights, free of any
pledge, lien, encumbrance or restriction, other than the Ownership Limit and
other restrictions provided in the Charter, the bylaws of Essex, the Securities
Act and relevant state securities or "blue sky" laws. Neither any Tendering
Party whose Tendered Units are acquired by Essex pursuant to this Section
11.1(b), any other Partner, any Assignee nor any other interested Person shall
have any right to require or cause Essex to register, qualify or list any REIT
Shares owned or held by such Person, whether or not such REIT Shares are issued
pursuant to this Section 11.1(b), with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between Essex and any such Person. REIT Shares issued
upon an acquisition of the Tendered Units by Essex pursuant to this Section
11.1(b) may contain such legends regarding restrictions under the Securities Act
and applicable state securities laws as Essex in good faith determines to be
necessary or advisable in order to ensure compliance with such laws.
(ii) Notwithstanding anything to the contrary set forth in Section 11.1(b)(i)
above, Essex may not exercise its option set forth in Section 11.1(b)(i) above
in any calendar year unless and until the Partnership shall have received
Notices of Redemption for Tendered Units (including, without limitation, Notices
of Redemption with respect to all completed Redemptions) during such calendar
year in the aggregate Cash Amount (or, if, as of the date of calculation, any
applicable Cash Amount is not yet determined pursuant to the terms of this
Agreement, the estimated Cash Amount as determined by the General Partner in its
reasonable judgment) in excess of $500,000. At such time as such $500,000
minimum is exceeded pursuant to the previous sentence during such calendar year,
Essex may exercise its option set forth in Section 11.1(b)(i) above with respect
to (x) all pending Redemptions, and (y) all Notices of Redemption received by
the Partnership during the remainder of such calendar year.
(iii) If Essex exercises its option pursuant to Section 11.1(b)(i) above, on the
Specified Redemption Date, the Partnership shall pay to the Tendering Party all
accrued but unpaid distributions, if any, with respect to the Tendered Units
pursuant to Section 6.2(b).
(c) Notwithstanding the provisions of Sections 11.1(a) and 11.1(b) hereof, no
Tendering Party shall have any rights under this Agreement that would otherwise
be prohibited under the Charter. To the extent that any attempted Redemption or
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof
would be in violation of this Section 11.1(c), it shall be null and void ab
<PAGE>
initio, and, in the case of a proposed purchase by Essex pursuant to Section
11.1(b) hereof, the Tendering Party shall not acquire any rights or economic
interests in REIT Shares otherwise issuable by Essex under Section 11.1(b)
hereof.
(d) In the event that, following receipt of a Notice of Redemption, Essex is not
permitted to exercise its option pursuant to Section 11.1(b)(ii), or Essex
declines or fails to exercise its option pursuant to Section 11.1(b)(i) hereof
(a "Declination"):
(i) The General Partner shall give notice of such Declination to the Tendering
Party on or before the close of business on the Cut-Off Date. The failure of the
General Partner to give notice of such Declination by the close of business on
the Cut-Off Date shall itself constitute a Declination.
(ii) The Partnership may elect to raise funds for the payment of the Cash Amount
either (a) by requiring that the Special Limited Partner contribute such funds
to the Partnership from (1) the proceeds of a registered public offering (a
"Public Offering Funding") by Essex of a number of REIT Shares ("Registrable
Shares") equal to the REIT Shares Amount with respect to the Tendered Units,
which proceeds are contributed by Essex to the Special Limited Partner, or (2)
any other source, or (b) from any other sources (including, but not limited to,
the sale of any Property or other assets of the Partnership and the incurrence
of Partnership debt) available to the Partnership.
(iii) Upon the General Partner's receipt of the Notice of Redemption and the
General Partner giving notice of its Declination, the General Partner, at its
election, may give notice (a "Single Funding Notice") to all Qualifying Parties
then holding a Partnership Interest (or an interest therein) and having
Redemption rights pursuant to this Section 11.1 and require that, due to (x) a
pending or anticipated public underwritten offering of Essex's securities or (y)
any other Essex activity, all such Qualifying Parties elect whether or not to
effect a Redemption of their Partnership Units. In the event that any such
Qualifying Party elects to effect such a Redemption, it shall give notice
thereof and of the number of Partnership Units to be made subject thereto in
writing to the General Partner within ten (10) business days after receipt of
the Single Funding Notice, and such Qualifying Party shall be treated as a
Tendering Party for all purposes of this Section 11.1. In the event that a
Qualifying Party does not so elect, it shall be deemed to have waived its right
to effect a Redemption for the current Six-month Period.
(e) Notwithstanding anything herein to the contrary (but subject to Section
11.1(c) hereof), with respect to any Redemption (or any tender of Partnership
Units for Redemption if the Tendered Units are acquired by Essex pursuant to
Section 11.1(b) hereof) pursuant to this Section 11.1:
(i) Subject to the Ownership Limit, no Tendering Party may effect a Redemption,
(a) to the extent that the aggregate Partnership Units of the Limited Partners
(other than the General Partner or the Special Limited Partner) would be
reduced, as a result of the Redemption (or the acquisition of the Tendered Units
by Essex pursuant to Section 11.1(b) hereof), to less than one percent (1%) of
<PAGE>
all Partnership Units outstanding immediately prior to delivery of the Notice of
Redemption, where the Redemption would consist of less than all the Partnership
Units held by Partners, other than the General Partner and the Special Limited
Partner, (b) for less than one thousand (1,000) Partnership Units or, if such
Tendering Party holds (as a Limited Partner or, economically, as an Assignee)
less than one thousand (1,000) Partnership Units, all of the Partnership Units
held by such Tendering Party, or (c) for less than all of such Tendering Party's
Partnership Units if, after giving effect to the requested Redemption, such
Tendering Party would continue to hold less than one thousand (1,000)
Partnership Units.
(ii) Each Tendering Party (a) may effect a Redemption only once in each
Six-month Period (unless the restriction contained in this Section 11.1(e)(ii)
is waived by the General Partner in its sole and absolute discretion) and (b)
may not effect a Redemption during the period after the Partnership Record Date
with respect to a distribution hereunder and before the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such Partnership distribution.
(iii) Notwithstanding anything herein to the contrary, with respect to any
Redemption or acquisition of Tendered Units by Essex pursuant to Section 11.1(b)
hereof, in the event that the General Partner gives notice to all Limited
Partners (but excluding the Special Limited Partner and any Assignees) then
owning Partnership Interests (a "Primary Offering Notice") that Essex desires to
effect an offering (whether or not underwritten and whether or not a public or
private placement) of REIT Shares or other securities of Essex, commencement of
the actions denoted in Section 11.1(d) hereof as to a Public Offering Funding
with respect to any Notice of Redemption thereafter received, whether or not the
Tendering Party is a Limited Partner, may be delayed, at the option of the
General Partner until the earlier of (a) the completion of the offering or (b)
ninety (90) days following the giving of the Primary Offering Notice.
(iv) Without the consent of the General Partner (which may be given or withheld
in its sole and absolute discretion), no Tendering Party may effect a Redemption
within ninety (90) days following the closing of any prior Public Offering
Funding.
(v) The consummation of such Redemption (or an acquisition of Tendered Units by
Essex pursuant to Section 11.1(b) hereof, as the case may be) shall be subject
to the expiration or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(vi) The Tendering Party shall continue to hold all Partnership Units subject to
any Redemption, and be treated as a Limited Partner or an Assignee, as
applicable, with respect such Partnership Units for all purposes of this
Agreement, until such Partnership Units are either paid for by the Partnership
pursuant to Section 11.1(a) hereof or transferred to Essex and paid for by the
issuance of the REIT Shares, pursuant to Section 11.1(b) hereof, on the
Specified Redemption Date. Until a Specified Redemption Date and an acquisition
of the Tendered Units by Essex pursuant to Section 11.1(b) hereof, the Tendering
<PAGE>
Party shall have no rights as a shareholder of Essex with respect to the REIT
Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 11.1(e), all Partnership Units beneficially owned by a Related Party of
a Tendering Party shall be considered to be owned or held by such Tendering
Party.
(f) In connection with an exercise of Redemption rights pursuant to this Section
11.1, the Tendering Party shall submit the following to the General Partner, in
addition to the Notice of Redemption:
(i) A written affidavit, dated the same date as, and accompanying, the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as determined
for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such
Tendering Party and (ii) any Related Party and (b) representing that, after
giving effect to the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof, neither the Tendering Party nor any Related
Party will own REIT Shares in excess of any ownership limitations set forth in
the Charter;
(ii) A written representation that neither the Tendering Party nor any Related
Party has any intention to acquire any additional REIT Shares prior to the
closing of the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof on the Specified Redemption Date; and
(iii) An undertaking to certify, at and as a condition to the closing of (i) the
Redemption or (ii) the acquisition of the Tendered Units by Essex pursuant to
Section 11.1(b) hereof on the Specified Redemption Date, that either (a) the
actual and constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit required by
Section 11.1(f)(i) or (b) after giving effect to the Redemption or an
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof,
neither the Tendering Party nor any Related Party shall own REIT Shares in
violation of the Ownership Limit.
11.2 PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTEREST. Notwithstanding any
other provision of this Agreement, on and after the date on which the aggregate
Partnership Units of the Limited Partners (other than the Special Limited
Partner) constitute less than twenty-five percent (25%) of the aggregate
Partnership Units of all Partners, the Partnership shall have the right, but not
the obligation, from time to time and at any time to redeem any and all
outstanding Partnership Interests of the Limited Partners (other than the
Special Limited Partner) by treating any Limited Partner (other than the Special
Limited Partner) as a Tendering Party who has delivered a Notice of Redemption
pursuant to Section 11.1 hereof for the amount of Partnership Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 11.2. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 11.2 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 11.2, (a) any Limited Partner (whether or not otherwise
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
<PAGE>
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 11.1(c), 11.1(e)(i), 11.1(e)(ii), and 11.1.(e)(iv) hereof
shall not apply, but the remainder of Section 11.1 hereof (including, without
limitation, the rights of the General Partner under Section 11.1(b) hereof)
shall apply with such adjustments as shall be necessary in the circumstances.
Notwithstanding the foregoing, the Partnership shall have no rights pursuant to
this Section 11.2 prior to January 1, 2016.
11.3 OTHER REDEMPTIONS. Notwithstanding the provisions of Section 11.1 hereof,
nothing in this Agreement shall preclude the redemption of any Partnership
Interest of a Limited Partner or Partnership Units by the Partnership upon such
terms and conditions as may be negotiated between the Limited Partner or
Assignee holding such Limited Partner's Partnership Interest or Partnership
Units, on the one hand, and the General Partner, on the other hand, in their
sole and absolute discretion. Such a redemption may include, without limitation,
the payment of cash by the Partnership to the Limited Partner or Assignee, in a
lump sum or in installments, or the distribution in kind of Partnership assets
to such Limited Partner or Assignee (which assets may be encumbered), including
assets to be designated by the Limited Partner or Assignee and acquired (with or
without debt financing) by the Partnership. Upon any such redemption, the
Partnership Units and Partnership Interest redeemed shall be cancelled and
Exhibit A shall be amended as appropriate to reflect such redemption. In
effecting any such redemption by negotiated agreement, none of the Partnership,
the General Partner, the Limited Partner and the Assignee, as the case may be,
shall incur any liability to any other Unitholder or have any duty to offer the
same or similar terms for redemption of any other Partnership Interest or
Partnership Units.
ARTICLE XII
Arbitration of Disputes
12.1 ARBITRATION. Notwithstanding anything to the contrary contained in this
Agreement, all claims, disputes and controversies between the parties hereto
(including, without limitation, any claims, disputes and controversies between
the Partnership and any one or more of the Partners and any claims, disputes and
controversies between any one or more Partners) arising out of or in connection
with this Agreement or the Partnership created hereby, relating to the validity,
construction, performance, breach, enforcement or termination thereof, or
otherwise, shall be resolved by binding arbitration in San Francisco,
California, in accordance with California Civil Procedure Code Sections 1280 et
seq. (other than Section 1283.05), this Article XII and, to the extent not
inconsistent with this Article XII (other than the reference in this Article to
Sections of the California Civil Procedure Code), the Expedited Procedures and
Commercial Arbitration Rules of the American Arbitration Association (the
"Arbitration Rules").
12.2 PROCEDURES. Any arbitration called for by this Article XII shall be
conducted in accordance with the following procedures:
<PAGE>
(a) The Partnership or any Partner (the "Requesting Party") may demand
arbitration pursuant to Section 12.1 hereof at any time by giving written notice
of such demand (the "Demand Notice") to all other Partners and (if the
Requesting Party is not the Partnership) to the Partnership which Demand Notice
shall describe in reasonable detail the nature of the claim, dispute or
controversy.
(b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting
Party, on the one hand, and each of the other Partners and/or the Partnership
against whom the claim has been made or with respect to which a dispute has
arisen (collectively, the "Responding Party"), on the other hand, shall select
and designate in writing to the other party one reputable, disinterested
individual (a "Qualified Individual") willing to act as an arbitrator of the
claim, dispute or controversy in question. Each of the Requesting Party and the
Responding Party shall use its best efforts to select a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof), having
at least ten (10) years experience in real estate partnership matters, having no
affiliation with any of the parties as its respective Qualified Individual.
Within fifteen (15) days after the foregoing selections have been made, the
arbitrators so selected shall jointly select a present or former partner of a
"Big 6" accounting firm (or a "Big 8" predecessor thereof) having no affiliation
with any of the parties as the third Qualified Individual willing to act as an
arbitrator of the claim, dispute or controversy in question (the "Third
Arbitrator"). In the event that the two arbitrators initially selected are
unable to agree on the Third Arbitrator within the second fifteen (15) day
period referred to above, then, on the application of either party, the American
Arbitration Association shall promptly select and appoint a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof) having
no affiliation with any of the parties as the Qualified Individual to act as the
Third Arbitrator in accordance with the terms of the Arbitration Rules. The
three arbitrators selected pursuant to this subsection (b) shall constitute the
arbitration panel for the arbitration in question.
(c) The presentations of the parties hereto in the arbitration proceeding shall
be commenced and completed within sixty (60) days after the selection of the
arbitration panel pursuant to subsection (b) above, and the arbitration panel
shall render its decision in writing within thirty (30) days after the
completion of such presentations. Any decision concurred in by any two (2) of
the arbitrators shall constitute the decision of the arbitration panel, and
unanimity shall not be required. If a decision concurred in by at least two (2)
of the arbitrators is not rendered within such thirty (30) day period, then each
of the parties shall select a new Qualified Individual willing to act as an
arbitrator and a new arbitration proceeding shall commence in accordance with
this Article XII.
(d) The arbitration panel shall have the discretion to include in its decision a
direction that all or part of the attorneys' fees and costs of any party or
parties and/or the costs of such arbitration be paid by any other party or
parties. On the application of a party before or after the initial decision of
the arbitration panel, and proof of its attorneys' fees and costs, the
arbitration panel shall order the other party to make any payments directed
pursuant to the preceding sentence.
<PAGE>
(e) The Third Arbitrator shall have the right in its discretion to authorize the
obtaining of discovery, including the taking of depositions of witnesses for the
purpose of discovery.
(F) At the request of any party, the arbitrators shall make and provide to the
parties written findings of fact and conclusions of law.
12.3 BINDING CHARACTER. Any decision rendered by the arbitration panel pursuant
to this Article XII shall be final and binding on the parties hereto, and
judgment thereon may be entered by any state or federal court of competent
jurisdiction.
12.4 EXCLUSIVITY. Arbitration shall be the exclusive method available for
resolution of claims, disputes and controversies described in Section 12.1
hereof, and the Partnership and its Partners stipulate that the provisions
hereof shall be a complete defense to any suit, action, or proceeding in any
court or before any administrative or arbitration tribunal with respect to any
such claim, controversy or dispute. The provisions of this Article XII shall
survive the dissolution of the Partnership.
12.5 NO ALTERATION OF AGREEMENT. Nothing contained herein shall be deemed to
give the arbitrators any authority, power or right to alter, change, amend,
modify, add to, or subtract from any of the provisions of this Partnership
Agreement.
<PAGE>
ARTICLE XIII
General Provisions
13.1 NOTICES. All notices, offers or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and may be personally
served, telecopied or sent by United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy or three business
days after deposit in United States mail, registered or certified, postage
prepaid, and properly addressed, by or to the appropriate party. For purposes of
this Section 13.1, the addresses of the parties hereto shall be as set forth in
attached Exhibit A. The address of any Limited Partner may be changed by a
notice in writing given to the General Partner or the Special Limited Partner in
accordance with the provisions hereof, and the address of the General Partner
and the Special Limited Partner may be changed by a notice in writing given to
each of the Limited Partners in accordance with the provisions hereof.
13.2 SUCCESSORS. This Agreement and all the terms and provisions hereof shall be
binding upon and shall inure to the benefit of all Partners, and their legal
representatives, heirs, successors and permitted assigns, except as expressly
herein otherwise provided.
13.1 EFFECT AND INTERPRETATION. This Agreement shall be governed by and
construed in conformity with the laws of the State of California.
13.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
13.5 PARTNERS NOT AGENTS. Except as specifically provided herein, nothing
contained herein shall be construed to constitute any Partner the agent of
another Partner, or in any manner to limit the Partners in the carrying on of
their own respective businesses or activities.
13.6 ENTIRE UNDERSTANDING; ETC. This Agreement constitutes the entire agreement
and understanding among the Partners and supersedes any prior understandings
and/or written or oral agreements among them respecting the subject matter
within.
13.7 AMENDMENTS. The General Partner is hereby authorized, without the consent
of the Limited Partners, to amend this Agreement, including, without limitation,
Exhibit A attached hereto to reflect (i) the admission of any substituted
Limited Partner or Additional Limited Partner into the Partnership or the
withdrawal of any Limited Partner from the Partnership, or (ii) any adjustment
to the Percentage Interests, Partnership Units or Capital Accounts of the
Partners in connection with any of the actions described in clause (i) above,
Section 4.3, or elsewhere in this Agreement. Except as provided in the previous
sentence, this Agreement may not be amended, and no provision benefiting the
General Partner or the Special Limited Partner may be waived, except by a
written instrument signed by the General Partner and the Special Limited Partner
(and Essex to the extent provided in Section 13.16) and (except as provided in
Article IV and Article IX), if the Limited Partners (other than the Special
Limited Partner) collectively own forty percent (40%) or more of the Partnership
Units, a Majority-In-Interest of the Limited Partners, except that this
<PAGE>
Agreement may not be amended to alter the priority of distributions or to
decrease any Limited Partner's Percentage Interest (except pursuant to a
provision of this Agreement other than this Section 13.7) without the consent of
all of the affected Limited Partners (regardless of the size of their collective
Partnership Unit ownership).
13.8 SEVERABILITY. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those to which it is
held invalid by such court, shall not be affected thereby.
13.9 TRUST PROVISION. This Agreement, to the extent executed by the trustee of a
trust, is executed by such trustee solely as trustee and not in a separate
capacity. Nothing herein contained shall create any liability on, or require the
performance of any covenant by, any such trustee individually, nor shall
anything contained herein subject the individual personal property of any
trustee to any liability.
13.10 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the
masculine, feminine and neuter, and all defined terms shall include the singular
and plural thereof whatever the context and facts require such construction. The
headings, titles and subtitles herein are inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof. Any
references in this Agreement to "including" shall be deemed to mean "including
without limitation".
13.11 ASSURANCES. Each of the Partners shall hereafter execute and deliver such
further instruments and do such further acts and things as may be required or
useful to carry out the intent and purpose of this Agreement and as are not
inconsistent with the terms hereof.
13.12 TAX CONSEQUENCES. Each Partner acknowledges and agrees that he or she has
relied fully upon the advice of its own legal counsel and/or accountant in
determining the tax consequences of this Agreement and the transactions
contemplated hereby and not upon any representations or advice by the General
Partner or by any other Partner.
13.13 SECURITIES REPRESENTATIONS. Each Limited Partner hereby represents and
warrants to the Partnership and the General Partner that
(a) such Limited Partner understands the risks of, and other considerations
relating to accepting the Partnership Units in connection with its contribution
of property to the Partnership.
(b) such Limited Partner is an "accredited investor" as defined in Rule 501
under the Securities Act, and by reason of its business and financial
experience, together with the business and financial experience of those
persons, if any, retained by it to represent or advise it with respect to the
transactions contemplated by this Agreement, (a) has such knowledge,
sophistication and experience in financial and business matters and in making
<PAGE>
investment decisions of this type, and it is capable of evaluating the merits
and risks of an investment in the Partnership and of making an informed
investment decision, (b) is capable of protecting its own interest or has
engaged representatives or advisors to assist it in protecting its interest, and
(c) is capable of bearing the economic risk of such investment.
(c) such Limited Partner understands that an investment in the Partnership
involves substantial risks. Each Limited Partner has been given the opportunity
to make a thorough investigation of the proposed activities of the Partnership.
Each Limited Partner has been afforded the opportunity to obtain any information
deemed necessary by such Limited Partner. Each Limited Partner confirms that all
documents, records, and book pertaining to its investment in the Partnership and
requested by such Limited Partner have been made available or delivered to such
Limited Partner. Each Limited Partner has had an opportunity to ask questions of
and receive answers from the Partnership, or from a person or persons acting on
the Partnership's behalf, concerning the terms and conditions of the
transactions contemplated by this Agreement and its acquisition of Partnership
Units. Each Limited Partner has relied upon, and is making its investment
decisions, solely upon such information as has been provided to such Limited
Partner in writing by the Partnership.
(d) The Partnership Units issued or to be issued to each Limited Partner by the
Partnership will be held or acquired by such Limited Partner for its own account
for investment only and not with a view to, or with any intention of, a
distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Limited Partner's
right (subject to the terms of this Agreement) at all times to sell or otherwise
dispose of all or any part of its Partnership Units under an exemption from such
registration available under the Securities Act and applicable state securities
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Each Limited Partner was not formed for the specific
purpose of acquiring an interest in the Partnership.
Each Limited Partner agrees and acknowledges that (i) the Partnership Units
issued or to be issued to such Limited Partner have not been registered under
the Securities Act or state securities laws by reason of a specific exemption or
exemptions from registration under the Securities Act and applicable state
securities laws and, if such Partnership Units are represented by certificates,
such certificates will bear a legend to such effect; (ii) the Partnership's
reliance on such exemptions is predicated in part on the accuracy and
completeness of the representations, warranties and covenants of such Limited
Partner contained herein; (iii) such Partnership Units, therefore, cannot be
resold unless registered under the Securities Act and applicable state
securities laws, or unless an exemption from registration is available; (iv)
there is no public market for such Partnership Units; (v) notwithstanding
anything to the contrary set forth in this Agreement, Partnership Units issued
to such Limited Partner may not be Transferred unless the General Partner
determines that the Transfer of the same is a valid private placement under
applicable federal and state securities laws; and (vi) the Partnership has no
obligation or intention to register such Partnership Units for resale under the
Securities Act or any state securities laws or to take any action that would
make available any exemption from the registration requirements of such laws.
Each Limited Partner hereby acknowledges that because of the restrictions on
Transfer of such Partnership Units to be issued hereunder, such Limited Partner
<PAGE>
may have to bear the economic risk of the investment commitment evidenced by
this Agreement for an indefinite period of time.
13.14 ORIGINAL GENERAL PARTNER REPRESENTATIONS. Each of the Current General
Partners, hereby, jointly and severally, represents and warrants to the General
Partner, the Special Limited Partner and the Partnership, as of the date hereof,
as follows:
(a) There is no litigation pending or, after due and diligent inquiry, to the
best of such Current General Partner's knowledge, threatened, (i) against the
Partnership, or (ii) any of the Current General Partners relating to the
operation or management of the Partnership or any of the Partnership's current
or prior assets.
(b) The Partnership is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of California. This Agreement
will not violate any provision of any agreement or judicial or administrative
order to which the Partnership or its current or prior assets are subject. The
Partnership and its operations are (and have at all times in the past been) in
compliance with all applicable laws.
(c) There are no outstanding (i) liabilities, debts, obligations or
responsibilities of the Partnership (including, without limitation, debts owed
by the Partnership to any of the Partners or any other Person), or (ii) written
or oral agreements to which the Partnership is subject or its assets bound,
which have not been disclosed to the General Partner, in writing, prior to the
date hereof.
(d) None of the Current General Partners is or has been the subject of any
Bankruptcy.
13.15 POWER OF ATTORNEY. Each Limited Partner and each Assignee hereby
irrevocably constitutes and appoints the General Partner, any Liquidating
Trustee, and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, coupled with an interest, with full power
and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments, supplements or restatements thereof) that the General Partner or the
Liquidating Trustee deems appropriate or necessary to form, qualify or continue
the existence or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of California and in all other
jurisdictions in which the Partnership may conduct business or own property; (b)
all instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all conveyances and other instruments or
documents that the General Partner or the Liquidating Trustee deems appropriate
<PAGE>
or necessary to reflect the distribution or exchange of assets of the
Partnership pursuant to the terms of this Agreement; (e) all instruments
relating to the dissolution, liquidation or winding up of the Partnership or the
admission, withdrawal, removal or substitution of any Partner or any of the
other events described in, Article VIII, Article IX or Section 13.7 hereof or
the Capital Contribution of any Partner; and (f) all certificates, documents and
other instruments relating to the determination of the rights, preferences and
privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents, approvals,
waivers, certificates and other instruments appropriate or necessary, in the
sole and absolute discretion of the General Partner, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole and absolute discretion of
the General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with this Article XIII hereof or as
may be otherwise expressly provided for in this Agreement.
The foregoing power of attorney is hereby declared to be irrevocable and a
special power coupled with an interest, in recognition of the fact that each of
the Limited Partners and Assignees will be relying upon the power of the General
Partner to act as contemplated by this Agreement in any filing or other action
by it on behalf of the Partnership, and it shall survive and not be affected by
the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of
all or any portion of such Limited Partner's or Assignee's Partnership Units or
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner or Assignee hereby waives any and all defenses that
may be available to contest, negate or disaffirm the action of the General
Partner, taken in good faith under such power of attorney. Each Limited Partner
or Assignee shall execute and deliver to the General Partner or the Liquidating
Trustee, within fifteen (15) days after receipt of the General Partner's or the
Liquidating Trustee's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidating
Trustee, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
13.16 THIRD PARTY BENEFICIARY. Essex is and is hereby deemed a third party
beneficiary of this Agreement to the extent of the option granted to Essex
pursuant to Section 11.1(b) hereof and the other rights granted to Essex
hereunder, and Essex shall have the right to directly enforce such option and
all other rights provided to Essex pursuant to this Agreement. Neither Section
7.13 (nor the definition of "REIT Requirements"), Section 9.4 nor Section 11.1
(nor the definition of "Charter") shall be modified in any manner without
Essex's prior written consent in Essex's sole discretion.
<PAGE>
13.17 COSTS OF AGREEMENT. All costs incurred in connection with the preparation
and execution of this Agreement shall be paid by the Partnership.
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby entered into among the
undersigned Partners as of the date first written above.
GENERAL PARTNER: ESSEX MANAGEMENT CORPORATION,
a California corporation
By: ________________________________________________
Name:_______________________________________________
Its: _______________________________________________
SPECIAL LIMITED
PARTNER:
ESSEX PORTFOLIO, L.P., a
California limited partnership
By: ESSEX PROPERTY TRUST, INC., a
Maryland corporation
By: __________________________________________
Name: _________________________________________
Its: _____________________________
<PAGE>
LIMITED PARTNERS:
NOTICE: BY EXECUTING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION IN
ARTICLE XII (THE "ARBITRATION PROVISION") DECIDED BY NEUTRAL ARBITRATION AS
PROVIDED BY SUCH ARBITRATION PROVISION AND BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL EXCEPT AS SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. BY EXECUTING
THIS AGREEMENT YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL,
UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THE ARBITRATION PROVISION,
YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE. YOUR AGREEMENT TO THE ARBITRATION PROVISION IS VOLUNTARY.
THE UNDERSIGNED HAS READ AND UNDERSTANDS THE FOREGOING AND AGREES TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION PROVISION TO
NEUTRAL ARBITRATION.
/s/ Edwin E. Murphy /s/ Richard Lawson
Edwin E. Murphy Richard Lawson
/s/ Susan Lawson /s/ G.B. 1992 Family Partnership
Susan Lawson G.B. 1992 Family Partnership
/s/ Ann M. Barry Trust /s/ Tillmanns Family Trust
Ann M. Barry Trust Tillmanns Family Trust
/s/ Sally Tillmanns /s/ Rosser Revocable Trust
Sally Tillmanns Rosser Revocable Trust
/s/ Meltzer Family Partnership /s/ Harvard Holmes Trust
Meltzer Family Partnership Harvard Holmes Trust
/s/ Michael Lamarche /s/ Gaylord Mossing
Michael Lamarche Gaylord Mossing
<PAGE>
/s/ Rene Marasigan, M.D. and /s/ Carmita Mossing
Ramona Marasigan 4/86 Trust Carmita Mossing
Rene Marasigan, M.D. and
Ramona Marsigan 4/86 Trust
/s/ Robert Mindelzun /s/ Naomi Mindelzun
Robert Mindelzun Naomi Mindelzun
/s/ Kent Jonas /s/ Joan Graff
Kent Jonas Joan Graff
/s/ Tom Fierravanti /s/ Karen Fierravanti
Tom Fierravanti Karen Fierravanti
/s/ Flemming & Diane Nielsen Trust /s/ Robert Hawke
Flemming & Diane Nielsen Trust Robert Hawke
/s/ Delores Hawke /s/ Gilbert Winter
Delores Hawke Gilbert Winter
/s/ Irene Winter /s/ Anmol Mahal, M.D.
Irene Winter Anmol Mahal, M.D.
/s/ Dennis Kinoshita /s/ Sylvia Prozan
Dennis Kinoshita Sylvia Prozan
/s/ Jean C. Baptist /s/ Donald V. Baptist
Jean C. Baptist Donald V. Baptist
/s/ James Fuqua /s/ Craig Zimmerman
James Fuqua Craig Zimmerman
/s/ Hanover Property Company, a California Corporation
Hanover Property Company
/s/ Oscar E. Espinas, M.D. Profit Sharing Plan Trust
Oscar E. Espinas, M.D.
<PAGE>
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Western-Highridge Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit A: Partners and Addresses
<PAGE>
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Western-Highridge Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit B: Examples Regarding Adjustment Factor
<PAGE>
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Western-Highridge Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
<PAGE>
Exhibit C: Notice of Redemption
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Western-Highridge Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit E: Allocations
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN-HIGHRIDGE INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
---------------------------
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO HEREIN HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, UNLESS IT HAS BEEN CONFIRMED
TO YOU IN WRITING, WITH ANY STATE REGULATORY AGENCY. THESE LIMITED PARTNERSHIP
INTERESTS MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS PARTNERSHIP
AGREEMENT, MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH LIMITED PARTNERSHIP INTERESTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE REGULATIONS PROMULGATED PURSUANT THERETO AND ANY APPLICABLE STATE LAW
(UNLESS EXEMPT THEREFROM), AND WITHOUT COMPLIANCE WITH THE REQUIREMENTS SET
FORTH IN THIS PARTNERSHIP AGREEMENT.
NO STATE OR FEDERAL SECURITY COMMISSIONERS OR STATE OR FEDERAL REGULATORY
AGENCIES HAVE PASSED UPON THE VALUE OF THE SECURITIES, NOR HAVE THEY APPROVED OR
DISAPPROVED THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
* * * * * * * * * * * * *
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS; ETC.....................................................1
1.1 Definitions...............................................................1
1.2 Exhibit, Etc.............................................................16
ARTICLE II ORGANIZATION.......................................................16
2.1 Continuation of Partnership...............................................16
2.2 Name.....................................................................16
2.3 Character of the Business................................................16
2.4 Partnership Only for Purposes Specified..................................17
2.5 Location of the Principal Place of Business..............................17
2.6 Agent for Service of Process.............................................17
2.7 Admission of New General Partner; Removal of Existing General Partners...17
2.8 Certificates of Ownership................................................17
ARTICLE III TERM..............................................................18
3.1 Commencement.............................................................18
3.2 Termination..............................................................18
ARTICLE IV CONTRIBUTIONS TO CAPITAL...........................................18
4.1 General Partner and Special Limited Partner Capital Contributions........18
4.2 Limited Partner Capital Contributions....................................18
4.3 Additional Funds.........................................................18
4.4 Contributions of Property................................................19
4.5 No Third Party Beneficiary...............................................20
4.6 No Interest; No Return...................................................20
ARTICLE V CONCURRENT TRANSACTIONS.............................................20
5.1 Concurrent Transactions..................................................20
ARTICLE VI ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS...................20
6.1 Allocations..............................................................20
6.2 Distributions............................................................20
6.3 Withholding..............................................................21
6.4 Books of Account.........................................................21
6.5 Reports..................................................................21
6.6 [Intentionally Omitted]..................................................22
6.7 Tax Elections and Returns................................................22
6.8 Tax Matters Partner......................................................22
ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER............23
7.1 Expenditures by Partnership..............................................23
7.2 Powers and Duties of General Partner.....................................23
7.3 Major Decisions..........................................................26
7.4 Actions with Respect to Certain Documents................................26
7.5 Other Business of General Partner and Special Limited Partner............27
7.6 Contracts With Affiliates................................................27
7.7 Proscriptions............................................................27
7.8 Additional Partners......................................................28
7.9 Title Holder.............................................................28
7.10 Compensation of the General Partner.....................................28
<PAGE>
7.11 Waiver and Indemnification..............................................28
7.12 Contracts With Controlled Entities......................................29
7.13 Operation in Accordance with REIT Requirements..........................29
ARTICLE VIII DISSOLUTION, LIQUIDATION AND WINDING-UP..........................30
8.1 Liquidating Events.......................................................30
8.2 Accounting...............................................................30
8.3 Distribution on Dissolution..............................................30
8.4 Timing Requirements......................................................31
8.5 Sale of Partnership Assets...............................................31
8.6 Distributions in Kind....................................................31
8.7 Documentation of Liquidation.............................................32
8.8 Liability of the Liquidating Trustee.....................................32
ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS..................................32
9.1 General Partner and Special Limited Partner Transfers....................32
9.2 Transfers by Limited Partners............................................33
9.3 Issuance of Additional Partnership Interests and Admittance of Additional
Partners.................................................................34
9.4 Restrictions on Transfer.................................................34
ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS......................35
10.1 No Participation in Management..........................................35
10.2 Bankruptcy of a Limited Partner and Certain Other Events................35
10.3 No Withdrawal...........................................................35
10.4 Duties and Conflicts....................................................35
ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNERS................................36
11.1 Grant of Rights.........................................................36
11.2 Partnership Right to Call Limited Partner Interest......................40
11.3 Other Redemptions.......................................................41
ARTICLE XII ARBITRATION OF DISPUTES...........................................41
12.1 Arbitration.............................................................41
12.2 Procedures..............................................................41
12.3 Binding Character.......................................................43
12.4 Exclusivity.............................................................43
12.5 No Alteration of Agreement..............................................43
ARTICLE XIII GENERAL PROVISIONS...............................................44
13.1 Notices.................................................................44
13.2 Successors..............................................................44
13.3 Effect and Interpretation...............................................44
13.4 Counterparts............................................................44
13.5 Partners Not Agents.....................................................44
13.6 Entire Understanding; Etc...............................................44
13.7 Amendments..............................................................44
13.8 Severability............................................................45
13.9 Trust Provision.........................................................45
13.10 Pronouns and Headings..................................................45
13.11 Assurances.............................................................45
13.12 Tax Consequences.......................................................45
13.13 Securities Representations.............................................45
13.14 Original General Partner Representations...............................47
<PAGE>
13.15 Power of Attorney......................................................47
13.16 Third Party Beneficiary................................................48
13.17 Costs of Agreement.....................................................49
EXHIBITS
A Partners and Addresses
B Examples Regarding Adjustment Factor
C Notice of Redemption
D Intentionally Omitted
E Allocations
<PAGE>
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN-HIGHRIDGE INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
------------------
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
IRVINGTON SQUARE ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is
made and entered into as of the 1st day of January, 1997, by and among the
undersigned parties.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement of Limited Partnership
entered into as of March 4, 1985, as amended (the "Original Agreement"), the
parties to the Original Agreement formed Irvington Square Associates, a
California limited partnership (the "Partnership"), pursuant to the California
Revised Limited Partnership Act as set forth in Title 2, Chapter 3 of the
California Corporations Code, subject to the terms and conditions of the
Original Agreement; and
WHEREAS, the parties, hereto, constituting all of the partners in the
Partnership, hereby desire to amend, restate and supersede the Original
Agreement in its entirety, pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby amend, restate and supersede the Original
Agreement, in its entirety, to provide as follows:
ARTICLE 1
DEFINITIONS; ETC.
1.1 DEFINITIONS. Except as otherwise herein expressly provided, the following
terms and phrases shall have the meanings set forth below:
"ACCOUNTANTS" shall mean the firm or firms of
independent certified public accountants selected by the
General Partner on behalf of the Partnership.
"ACQUISITION COST" shall have the meaning set forth in
Section 4.1 hereof.
"ACT" shall mean the California Revised Limited
Partnership Act, California Corporations Code Sections
15611, et seq., as the same may hereafter be amended from
time to time.
"ADDITIONAL INTERESTS" shall have the meaning set forth
in Section 9.3 hereof.
"ADDITIONAL PARTNER" shall have the meaning set forth
in Section 9.3 hereof.
<PAGE>
"ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with
respect to any Limited Partner, the deficit balance, if any,
in such Partner's Capital Account as of the end of any
relevant fiscal year and after giving effect to the
following adjustments:
(a) credit to such Capital Account any amounts which such Partner is obligated
or treated as obligated to restore with respect to any deficit balance in such
Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or
is deemed to be obligated to restore with respect to any deficit balance
pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"ADJUSTMENT DATE" shall have the meaning set forth in
Section 4.3(a)(ii) hereof.
"ADJUSTMENT FACTOR" means 1.0; provided, however, that
in the event that:
(a) Essex (as hereinafter defined) (i) declares or pays a dividend on the
outstanding REIT Shares (as hereinafter defined) in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii)
splits or subdivides its outstanding REIT Shares or (iii) effects a reverse
stock split or otherwise combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying
the Adjustment Factor previously in effect by a fraction, (1) the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has occurred as of such time) and (2)
the denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or combination;
(b) Essex distributes any rights, options or warrants to all holders of its REIT
Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or
other securities or rights convertible into, exchangeable for or exercisable for
REIT Shares) at a price per share less than the Value of a REIT Share on the
record date for such distribution (each a "Distributed Right"), then the
Adjustment Factor shall be adjusted by multiplying the Adjustment Factor
previously in effect by a fraction, (i) the numerator of which shall be the
number of REIT Shares issued and outstanding on the record date plus the maximum
number of REIT Shares purchasable under such Distributed Rights, and (ii) the
denominator of which shall be the number of REIT Shares issued and outstanding
on the record date plus a fraction, (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights, and (2) the
denominator of which is the Value of a REIT Share as of the record date;
<PAGE>
provided, however, that, if any such Distributed Rights expire or become no
longer exercisable, then the Adjustment Factor shall be adjusted, effective
retroactive to the date of distribution of the Distributed Rights, to reflect a
reduced maximum number of REIT Shares or any change in the minimum purchase
price for the purposes of the above fractions; or
(c) Essex shall, by dividend or otherwise, distribute to all holders of
outstanding REIT Shares evidences of its indebtedness or assets (including
securities, but excluding any dividend or distribution referred to in subsection
(a) above), which evidences of indebtedness or assets relate to assets not
received by Essex pursuant to a pro rata distribution by the Partnership, then
the Adjustment Factor shall be adjusted to equal the amount determined by
multiplying the Adjustment Factor in effect immediately prior to the close of
business on the date fixed for determination of shareholders entitled to receive
such distribution by a fraction, (i) the numerator shall be the Value on the
date fixed for such determination and (ii) the denominator shall be the Value on
the dated fixed for such determination less the then fair market value (as
determined by Essex, whose determination shall be conclusive) of the portion of
the evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event; provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment which
results in an increase (but not a decrease) to the Adjustment Factor applicable
to the Partnership Units held by such Limited Partner, and, thereafter, such
adjustment will not be effective as to such Partnership Units. For illustrative
purposes only, examples of adjustments to the Adjustment Factor are set forth on
Exhibit B attached hereto.
"ADMINISTRATIVE EXPENSES" shall mean (i) all
administrative and operating costs and expenses incurred by
the Partnership, and (ii) those administrative costs and
expenses of the General Partner and the Special Limited
Partner, including salaries paid to officers of the General
Partner and the Special Limited Partner, and accounting and
legal expenses undertaken by the General Partner and the
Special Limited Partner on behalf or for the benefit of the
Partnership.
"AFFILIATE" shall mean, with respect to any Partner (or
as to any other person the affiliates of whom are relevant
for purposes of any of the provisions of this Agreement),
(i) any member of the Immediate Family of such Partner; (ii)
any trustee or beneficiary of a Partner; (iii) any legal
representative, successor, or assignee of any Person
referred to in the preceding clauses (i) and (ii); (iv) any
trustee for the benefit of any Person referred to in the
preceding clauses (i) through (iii); or (v) any Entity which
directly or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with,
any Person referred to in the preceding clauses (i) through
(iv).
"AGREEMENT" shall mean this First Amended and Restated
Agreement of Limited Partnership, as originally executed and
as amended, modified, supplemented or restated from time to
time, as the context requires.
"APPLICABLE PERCENTAGE" has the meaning set forth in
Section 11.1(b) hereof.
<PAGE>
"ARBITRATION RULES" shall have the meaning set forth in
Section 12.1 hereof.
"ASSIGNEE" shall mean a Person to whom one or more
Partnership Units have been Transferred in a manner
permitted under this Agreement, but who has not become a
Substituted Limited Partner.
"AVAILABLE CASH" shall mean, with respect to any fiscal
period of the Partnership, the excess, if any, of "Receipts"
over "Expenditures." For purposes hereof, the term
"Receipts" means the sum of all cash receipts of the
Partnership from all sources for such period, (x) including
(i) Net Sale Proceeds and Net Financing Proceeds and (ii)
any amounts held as reserves as of the last day of such
period which the General Partner reasonably deems to be in
excess of necessary reserves as determined below, and (y)
excluding Capital Contributions. The term "Expenditures"
means the sum of (a) all cash expenses of the Partnership
for such period, (b) the amount of all payments of principal
and interest on account of any indebtedness of the
Partnership including payments of principal and interest on
account of Partner Loans, or amounts due on such
indebtedness during such period, (c) any amount distributed
or paid in redemption of Partnership Units pursuant to
Article XI hereof, including, without limitation, any Cash
Amount paid, and (d) such additional cash reserves as of the
last day of such period as the General Partner deems
necessary for any capital or operating expenditure permitted
hereunder, but excluding all amounts payable under the
clauses (a), (b), (c) and (d) above with the proceeds of
Capital Contributions, as determined by the General Partner.
"BANKRUPTCY" shall mean, with respect to any Partner,
(i) the commencement by such Partner of any proceeding
seeking relief under any provision or chapter of the federal
Bankruptcy Code or any other federal or state law relating
to insolvency, bankruptcy or reorganization, (ii) an
adjudication that such Partner is insolvent or bankrupt;
(iii) the entry of an order for relief under the federal
Bankruptcy Code with respect to such Partner, (iv) the
filing of any such petition or the commencement of any such
case or proceeding against such Partner, unless such
petition and the case or proceeding initiated thereby are
dismissed within ninety (90) days from the date of such
filing, (v) the filing of an answer by such Partner
admitting the allegations of any such petition, (vi) the
appointment of a trustee, receiver or custodian for all or
substantially all of the assets of such Partner unless such
appointment is vacated or dismissed within ninety (90) days
from the date of such appointment but not less than five (5)
days before the proposed sale of any assets of such Partner,
(vii) the insolvency of such Partner or the execution by
such Partner of a general assignment for the benefit of
creditors, (viii) the failure of such Partner to pay its
debts as they mature, (ix) the levy, attachment, execution
or other seizure of all or substantially all of the assets
of such Partner where such seizure is not discharged within
thirty (30) days thereafter, or (x) the admission by such
Partner in writing of its inability to pay its debts as they
mature or that it is generally not paying its debts as they
become due.
"CAPITAL ACCOUNT" shall mean, with respect to any
Partner, the separate "book" account which the Partnership
shall establish and maintain for such Partner in accordance
with Section 704(b) of the Code and Section
1.704-1(b)(2)(iv) of the Regulations and such other
provisions of Section 1.704-1(b) of the Regulations that
must be complied with in order for the Capital Accounts to
<PAGE>
be determined in accordance with the provisions of said
Regulations. In furtherance of the foregoing, the Capital
Accounts shall be maintained in compliance with Section
1.704-1(b)(2)(iv) of the Regulations; and the provisions
hereof shall be interpreted and applied in a manner
consistent therewith. In the event that any Partnership
Interest is transferred in accordance with the terms of this
Agreement, the Capital Account, at the time of the transfer,
of the transferor attributable to the transferred interest
shall carry over to the transferee.
"CAPITAL CONTRIBUTION" shall mean, with respect to any
Partner, the amount of money and the initial Gross Asset
Value of any property other than money contributed by such
Partner to the Partnership pursuant to the terms of this
Agreement (net of liabilities secured by such property that
the Partnership is considered to assume or take subject to
under Section 752 of the Code). Gross Asset Value shall be
calculated as provided herein.
"CASH AMOUNT" means (1) the lesser of (A) an amount of
cash equal to the product of (i) the product of (a) the
Value of a REIT Share and (b) the REIT Shares Amount
determined as of the applicable Valuation Date, and (ii)
0.98, or (B) in the case of a Declination followed by a
Public Offering Funding, the Public Offering Funding Amount,
plus (2) all accrued but unpaid distributions, if any, with
respect to the Tendered Units, pursuant to Section 6.2(b).
"CERTIFICATE" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the
office of the California Secretary of State, as the same has
been amended and may be amended from time to time in
accordance with the terms of the Original Agreement, this
Agreement and the Act.
"CHARTER" means the Articles of Amendment and
Restatement of Essex filed with the Maryland State
Department of Assessments and Taxation on July 5, 1995, as
amended, supplemented or restated from time to time.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"CONSENT OF THE LIMITED PARTNERS" means the written
consent of a Majority-In-Interest of the Limited Partners,
which Consent shall be obtained prior to the taking of any
action for which it is required by this Agreement and may be
given or withheld by a Majority-In-Interest of the Limited
Partners, unless otherwise expressly provided herein, in
their sole and absolute discretion.
"CONTRIBUTED FUNDS" shall have the meaning set forth in
Section 4.3(a)(ii) hereof.
"CONTRIBUTED PROPERTY" shall have the meaning set forth
in Section 4.1 hereof.
"CONTROL" shall mean the ability, whether by the direct
or indirect ownership of shares or other equity interests,
by contract or otherwise, to elect a majority of the
directors of a corporation, to select the managing partner
of a partnership, or otherwise to select, or have the power
<PAGE>
to remove and then select, a majority of those persons
exercising governing authority over an Entity. In the case
of a limited partnership, the sole general partner, all of
the general partners to the extent each has equal management
control and authority, or the managing general partner or
managing general partners thereof shall be deemed to have
control of such partnership and, in the case of a trust, any
trustee thereof or any Person having the right to select any
such trustee shall be deemed to have control of such trust.
"CONTROLLED ENTITY" shall mean, with respect to any
Limited Partner or Person, any Entity which directly or
indirectly Controls, is Controlled by, or is under common
Control with, such Limited Partner or Person.
"CURRENT GENERAL PARTNERS" shall have the meaning set
forth in Section 2.7 hereof.
"CUT-OFF DATE" means the tenth (10th) business day
after the General Partner's receipt of a Notice of
Redemption.
"DECLINATION" has the meaning set forth in Section
11.1(d) hereof.
"DEMAND NOTICE" shall have the meaning set forth in
Section 12.2 hereof.
"DEPRECIATION" shall mean, with respect to any asset of
the Partnership for any fiscal year or other period, the
depreciation, depletion or amortization, as the case may be,
allowed or allowable for Federal income tax purposes in
respect of such asset for such fiscal year or other period;
provided, however, that if there is a difference between the
Gross Asset Value and the adjusted tax basis of such asset,
Depreciation shall mean "book depreciation, depletion or
amortization" as determined under Section
1.704-1(b)(2)(iv)(g)(3) of the Regulations.
"DISTRIBUTED RIGHT" has the meaning set forth in the
definition of "Adjustment Factor."
"ENTITY" shall mean any general partnership, limited
partnership, limited liability partnership, limited
liability company, corporation, joint venture, trust,
business trust, cooperative or association.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time (or any
corresponding provisions of succeeding laws).
"ESSEX" shall mean Essex Property Trust, Inc., a
Maryland corporation, the general partner of the Special
Limited Partner.
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC
promulgated thereunder.
"EXPENDITURES" shall have the meaning set forth in the
definition of Available Cash.
<PAGE>
"FISCAL YEAR" shall mean the fiscal year of the
Partnership, which shall be the calendar year.
"FUNDING DATE" shall mean the date on which (i) the
General Partner or the Special Limited Partner makes a
Partner Loan, or (ii) the Partnership receives Contributed
Funds pursuant to Section 4.3(a)(ii) hereof.
"FUNDING LOAN PROCEEDS" shall mean the net cash
proceeds received by the General Partner or the Special
Limited Partner, as applicable, in connection with any
Funding Loan, after deduction of all costs and expenses
incurred by the General Partner or the Special Limited
Partner, as applicable, in connection with such Funding
Loan.
"FUNDING LOAN(S)" shall mean any borrowing or
refinancing of borrowings by or on behalf of the General
Partner or the Special Limited Partner, as applicable, from
any Person (including, without limitation, the General
Partner and the Special Limited Partner) for the purpose of
advancing the Funding Loan Proceeds to the Partnership as a
loan pursuant to Section 4.3(a)(i) hereof.
"GENERAL PARTNER" shall mean Essex Management
Corporation, a California corporation, its duly admitted
successors and assigns and any other Person who is a general
partner of the Partnership at the time of reference thereto.
"GROSS ASSET VALUE" shall mean, with respect to any
asset of the Partnership, such asset's adjusted basis for
Federal income tax purposes, except as follows:
(a) the Gross Asset Value of any asset contributed to the Partnership by a
Partner shall be the gross fair market value of such asset as determined by the
General Partner, in its reasonable discretion, provided that the General
Partner's determination of the gross fair market value of any asset pursuant to
this paragraph (a) shall be deemed reasonable unless contested by the
contributing Partner (i) within sixty (60) days after such determination, with
respect to contributions by existing Partners, or (ii) prior to the contributing
Partner's execution of any document admitting such Partner as a Partner in the
Partnership, with respect to new Partners;
(b)if the General Partner reasonably determines that an adjustment is necessary
or appropriate to reflect the relative economic interests of the Partners, the
Gross Asset Values of all Partnership assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the General
Partner, as of the following times:
(i) a Capital Contribution (other than a de minimis Capital Contribution) to the
Partnership by the General Partner or a new or existing Limited Partner as
consideration for a Partnership Interest;
(ii) the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for the redemption of a
Partnership Interest;
<PAGE>
(iii) the liquidation of the Partnership within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations; and
(iv) at such other times as the General Partner shall reasonably determine
necessary or advisable in order to comply with Regulations Sections 1.704-1(b)
and 1.704-2.
(c) the Gross Asset Values of Partnership assets distributed to any Partner
shall be the gross fair market values of such assets (taking Section 7701(g) of
the Code into account) as determined by the General Partner, in its reasonable
discretion, as of the date of distribution, provided that the General Partner's
determination of the gross fair market value of any asset pursuant to this
paragraph (c) shall be deemed reasonable unless contested within sixty (60) days
after such distribution; and
(d) the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Section 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts pursuant
to Section 1.704-1(b)(2)(iv)(m) of the Regulations (see attached Exhibit E);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this paragraph to the extent that the General Partner reasonably determines that
an adjustment pursuant to paragraph (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partners' Capital Accounts; as for
the manner in which such adjustments are allocated to the Capital Accounts, see
paragraph (c) of the definition of Net Income and Net Loss in the case of
adjustment by Depreciation, and paragraph (e) of said definition in all other
cases.
"IMMEDIATE FAMILY MEMBER" shall mean, with respect to
any Person that is an individual, such Person's spouse,
parents, parents-in-law, aunts, uncles, descendants,
nephews, nieces, brothers, sisters, brothers-in-law,
sisters-in-law and children-in-law, provided that the
General Partner has been (a) notified of such individual and
(b) provided with any and all documentation reasonably
requested by the General Partner to verify that such
individual is an Immediate Family Member.
"LIEN" shall mean any liens, security interests,
mortgages, deeds of trust, charges, claims, encumbrances,
pledges, options, rights of first offer or first refusal and
any other rights or interests of others of any kind or
nature, actual or contingent, or other similar encumbrances
of any nature whatsoever.
"LIMITED PARTNERS" shall mean the Special Limited
Partner and those Persons listed under the heading "Limited
Partners" on the signature page hereto in their respective
capacities as limited partners of the Partnership or any
<PAGE>
Person who, at the time of reference thereto, is a limited
partner of the Partnership (including, without limitation,
all Additional Partners and Substituted Limited Partners);
provided, however, that "Limited Partners" does not include
any Assignee or any unpermitted transferee of a Limited
Partner's Partnership Units.
"LIQUIDATING EVENT" shall have the meaning set forth in
Section 8.1 hereof.
"LIQUIDATING TRUSTEE" shall mean such individual or
Entity as is selected as the Liquidating Trustee hereunder
by the General Partner (or, in the event that there is no
remaining General Partner, an individual or Entity elected
by a Majority-in-Interest of the Limited Partners), which
individual or Entity may include an Affiliate of the General
Partner, provided such Liquidating Trustee agrees in writing
to be bound by the terms of this Agreement. The Liquidating
Trustee shall be empowered to give and receive notices,
reports and payments in connection with the dissolution,
liquidation and/or winding-up of the Partnership and shall
hold and exercise such other rights and powers as are
necessary or required to permit all parties to deal with the
Liquidating Trustee in connection with the dissolution,
liquidation and/or winding-up of the Partnership.
"MAJOR DECISIONS" shall have the meaning set forth in
Section 7.3 hereof.
"MAJORITY-IN-INTEREST OF THE LIMITED PARTNERS" shall
mean Limited Partner(s) (other than the Special Limited
Partner) who hold in the aggregate more than fifty percent
(50%) of the aggregate Partnership Units of all Limited
Partners (other than the Special Limited Partner).
"MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT"
shall mean "partner nonrecourse debt minimum gain" as
determined in accordance with Regulation Section
1.704-2(i)(2).
"NET FINANCING PROCEEDS" shall mean the cash proceeds
received by the Partnership in connection with any borrowing
or refinancing of borrowing by or on behalf of the
Partnership (whether or not secured), after deduction of all
costs and expenses incurred by the Partnership in connection
with such borrowing, and after deduction of that portion of
such proceeds used to repay any other indebtedness of the
Partnership, or any interest or premium thereon.
"NET INCOME OR NET LOSS" shall mean, for each fiscal
year or other applicable period, an amount equal to the
Partnership's net income or loss for such year or period as
determined for federal income tax purposes by the
Accountants, determined in accordance with Section 703(a) of
the Code (for this purpose, all items of income, gain, loss
or deduction required to be stated separately pursuant to
Section 703(a) of the Code shall be included in taxable
income or loss), with the following adjustments: (a) by
including as an item of gross income any tax-exempt income
received by the Partnership; (b) by treating as a deductible
expense any expenditure of the Partnership described in
Section 705(a)(2)(B) of the Code (including amounts paid or
incurred to organize the Partnership (unless an election is
made pursuant to Code Section 709(b)) or to promote the sale
of interests in the Partnership and by treating deductions
for any losses incurred in connection with the sale or
exchange of Partnership property disallowed pursuant to
Section 267(a)(1) or Section 707(b) of the Code as
<PAGE>
expenditures described in Section 705(a)(2)(B) of the Code);
(c) in lieu of depreciation, depletion, amortization, and
other recovery deductions taken into account in computing
total income or loss, there shall be taken into account
Depreciation; (d) gain or loss resulting from any
disposition of Partnership property with respect to which
gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of
such property rather than its adjusted tax basis; and (e) in
the event of an adjustment of the Gross Asset Value of any
Partnership asset which requires that the Capital Accounts
of the Partnership be adjusted pursuant to Regulation
Section 1.704-1(b)(2)(v)(e), (f) and (m), the amount of such
adjustment is to be taken into account as additional Net
Income or Net Loss pursuant to attached Exhibit E.
"NET SALE PROCEEDS" means the cash proceeds received by
the Partnership in connection with a sale of any asset by or
on behalf of the Partnership after deduction of any costs or
expenses incurred by the Partnership, or payable
specifically out of the proceeds of such sale (including,
without limitation, any repayment of any indebtedness
required to be repaid as a result of such sale or which the
General Partner elects to repay out of the proceeds of such
sale, together with accrued interest and premium, if any,
thereon and any sales commissions or other costs and
expenses due and payable to any Person in connection with a
sale, including to a Partner or its Affiliates).
"NONRECOURSE DEDUCTIONS" shall have the meaning set
forth in Sections 1.704-2(b)(1) and (c) of the Regulations.
"NONRECOURSE LIABILITIES" shall have the meaning set
forth in Section 1.704-2(b)(3) of the Regulations.
"NOTICE OF REDEMPTION" means the Notice of Redemption
substantially in the form of Exhibit C attached to this
Agreement.
"ORIGINAL AGREEMENT" means that certain Agreement of
Limited Partnership of the Partnership entered into as of
March 4, 1985.
"PARTNER LOAN" shall have the meaning set forth in
Section 4.3(a)(i) hereof.
"PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning
set forth in Section 1.704-2(i)(2) of the Regulations.
"PARTNERS" shall mean the General Partner, the Special
Limited Partner and the other Limited Partners.
"PARTNERSHIP" means the limited partnership formed
pursuant to the Original Agreement, as the same is amended,
restated and superseded hereby and as hereby constituted, as
such limited partnership may from time to time in the future
be constituted.
"PARTNERSHIP INTEREST" shall mean the ownership
interest of a Partner in the Partnership from time to time,
including each Partner's Percentage Interest and such
Partner's Capital Account. Wherever in this Agreement
<PAGE>
reference is made to a particular Partner's Partnership
Interest, it shall be deemed to refer to such Partner's
Percentage Interest and shall include the proportionate
amount of such Partner's other interests in the Partnership
which are attributable to or based upon the Partner's
Partnership Interest.
"PARTNERSHIP MINIMUM GAIN" shall have the meaning set
forth in Section 1.704-2(b)(2) of the Regulations.
"PARTNERSHIP RECORD DATE" shall mean the record date
established by the General Partner for the distribution of
Available Cash pursuant to Section 6.2 hereof, which record
date shall generally be the same as the record date
established by the General Partner for a distribution to its
shareholders of some or all of its portion of such
distribution.
"PARTNERSHIP UNIT" shall mean a fractional, undivided
share of the Partnership Interests of all Partners issued
pursuant to the terms of this Agreement. The number of
Partnership Units held by the Partners shall be as indicated
on attached Exhibit A, as the same may be modified from time
to time.
"PERCENTAGE INTEREST" shall mean, with respect to any
Partner, the undivided percentage ownership interest of such
Partner in the Partnership, which interest shall be
determined by dividing the number of Partnership Units owned
by such Partner by the total number of Partnership Units
outstanding.
"PERSON" shall mean any individual or Entity.
"PREFERRED RETURN PER UNIT" means
(a) as to a Limited Partner (other than the Special Limited Partner, except with
respect to any Partnership Units contributed to the Special Limited Partner by
Essex) or its Assignee (including, without limitation, Essex following the
acquisition of Tendered Units pursuant to Section 11.1(b) hereof), the amount
provided on Exhibit A with respect to each Partnership Unit held by such Limited
Partner; or
(b) in the case of each additional Partnership Unit issued in exchange for
additional Capital Contributions as provided in Section 4.3, the amount provided
on Exhibit A with respect to the Partner to whom such Partnership Unit is
issued.
The Preferred Return Per Unit, being determined with regard to the Partnership's
income, shall not constitute a "guaranteed payment" under Code Section 707(c).
"PRIMARY OFFERING NOTICE" has the meaning set forth in
Section 11.1(e)(iii) hereof.
"PROPERTY" OR "PROPERTIES" shall mean any real property
in which the Partnership, directly or indirectly, acquires
any ownership leasehold or other interest.
"PUBLIC OFFERING FUNDING" has the meaning set forth in
Section 11.1(d)(ii) hereof.
<PAGE>
"PUBLIC OFFERING FUNDING AMOUNT" means the dollar
amount equal to (i) the product of (x) the number of
Registrable Shares sold in a Public Offering Funding and (y)
the public offering price per share of such Registrable
Shares in such Public Offering Funding, less (ii) the
aggregate underwriting discounts, and commissions and other
expenses incurred by Essex in such Public Offering Funding.
"Qualified Individual" shall have the meaning set forth in
Section 12.2(b) hereof. "Qualifying Party" means (a) a
Limited Partner (other than the Special Limited Partner, an
Additional Partner or a Substituted Limited Partner), (b) an
Additional Partner or a Substituted Limited Partner (unless
the terms of such Additional Partner's or such Substituted
Limited Partner's admission to the Partnership otherwise
provide), or (c) an Immediate Family Member of a Qualifying
Party, or a lending institution as the pledgee of a pledge
of Partnership Interests, who is the transferee in a
Transfer permitted by this Agreement.
"REDEMPTION" has the meaning set forth in Section
11.1(a) hereof.
"REGISTRABLE SHARES" has the meaning set forth in
Section 11.1(d)(ii) hereof.
"REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement dated as of even date herewith
by and among Essex and, among others, the Limited Partners
(other than the Special Limited Partner).
"REGULATIONS" shall mean the final, temporary or
proposed Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time
(including corresponding provisions of succeeding
regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set
forth in attached Exhibit E.
"REIT" shall mean a real estate investment trust as
defined in Section 856 of the Code.
"REIT REQUIREMENTS" shall have the meaning set forth in
Section 6.2 hereof.
"REIT SHARE" shall mean one share of the common stock,
par value $.0001 per share, of Essex Property Trust, Inc.
"REIT SHARES AMOUNT" means a number of REIT Shares
equal to the product of (a) the number of Tendered Units,
(b) the Adjustment Factor and (c) the applicable Specific
Adjustment Factor, if any, taking into account any
applicable Specific Adjustment Limitations, if any;
provided, however, that, in the event that Essex issues to
all holders of REIT Shares as of a certain record date
rights, options, warrants or convertible or exchangeable
securities entitling Essex's shareholders to subscribe for
or purchase REIT Shares, or any other securities or property
(collectively, the "Rights"), with the record date for such
Rights issuance falling within the period starting on the
date of the Notice of Redemption and ending on the day
<PAGE>
immediately preceding the Specified Redemption Date, which
Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also
include such Rights that a holder of that number of REIT
Shares would be entitled to receive, expressed, where
relevant hereunder, in a number of REIT Shares determined by
the General Partner in good faith.
"RELATED PARTY" shall mean, with respect to any Person,
any other Person whose ownership of shares of Essex's
capital stock would be attributed to the first such Person
under Code Section 544 (as modified by Code Section
856(h)(1)(B)).
"REQUESTING PARTY" shall have the meaning set forth in
Section 12.2(a) hereof.
"REQUIRED FUNDS" shall have the meaning set forth in
Section 4.3 hereof.
"RESPONDING PARTY" shall have the meaning set forth in
Section 12.2(b) hereof.
"RIGHTS" shall have the meaning set forth in the
definition of "REIT Shares Amount."
"SEC" shall mean the United States Securities and
Exchange Commission.
"SECTION 704(C) TAX ITEMS" shall have the meaning set
forth in attached Exhibit E.
"SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
"SINGLE FUNDING NOTICE" has the meaning set forth in
Section 11.1(d)(iii) hereof. "Six-month Period" shall mean a
180-day period (or, as to a particular Qualifying Party,
such shorter period as the General Partner may, in its sole
and absolute discretion, agree to in writing) ending on the
180th day after (i) the date hereof, with respect to Limited
Partners of the Partnership as of the date hereof (other
than the Special Limited Partner), and (ii) with respect to
Persons becoming Qualifying Parties subsequent to the date
hereof, either (x) the admission of such Qualifying Party as
a Limited Partner in the Partnership or (y) the Transfer of
Partnership Units to such Qualifying Party, and on each
180th day thereafter (or, in the case of a period shorter
than 180 days, such other period as may be agreed to by the
General Partner in writing). "Special Limited Partner" shall
mean Essex Portfolio, L.P., a California limited
partnership, its duly admitted successors and assigns.
"SPECIFIC ADJUSTMENT FACTOR" means, as to a Limited
Partner or its Assignee, the amount specified as such on
Exhibit A with respect to such Limited Partner; provided,
however, that, if no such amount is specified on Exhibit A,
the Specific Adjustment Factor shall be 1.0. The Specific
Adjustment Factor need not be the same for each Limited
Partner and Assignee.
<PAGE>
"SPECIFIC ADJUSTMENT LIMITATIONS" means, as to a
Limited Partner or its Assignee, the limitations and
restrictions, if any, specified as such on Exhibit A with
respect to such Limited Partner. The Specific Adjustment
Limitations need not be the same for each Limited Partner
and Assignee.
"SPECIFIED REDEMPTION DATE" means the later of (a) the
eleventh (11th) business day after the receipt by the
General Partner of a Notice of Redemption (or in the case of
a purchase by Essex pursuant to Section 11.1(b) hereof, the
thirtieth (30th) day after such receipt), or (b) in the case
of a Declination followed by a Public Offering Funding, the
business day next following the date of the closing of the
Public Offering Funding; provided, however, that the
Specified Redemption Date, as well as the closing of a
Redemption, or an acquisition of Tendered Units by Essex
pursuant to Section 11.1(b) hereof, on any Specified
Redemption Date, may be deferred, in the General Partner's
sole and absolute discretion, for such time (but in any
event not more than one hundred eighty (180) days in the
aggregate) as may reasonably be required to effect, as
applicable, (i) any necessary funding arrangements, (ii)
compliance with the Securities Act or other law (including,
but not limited to, (a) state "blue sky" or other securities
laws and (b) the expiration or termination of the applicable
waiting period, if any, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended), (iii)
compliance with any and all requirements set forth in the
Charter relating to such transaction, and (iv) satisfaction
or waiver of other commercially reasonable and customary
closing conditions and requirements for a transaction of
such nature.
"SUBSTITUTED LIMITED PARTNER" shall mean a "substituted
limited partner" as such term is defined in Section 15519 of
the Act.
"TAX ITEMS" shall have the meaning set forth in
attached Exhibit E.
"TENDERED UNITS" has the meaning set forth in Section
11.1(a) hereof.
"TENDERING PARTY" has the meaning set forth in Section
11.1(a) hereof.
"THIRD ARBITRATOR" shall have the meaning set forth in
Section 12.2 hereof.
"TRADING DAY" shall mean a day on which the principal
national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of
business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, shall mean
any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"TRANSFER," when used with respect to a Partnership
Unit or all or any portion of a Partnership Interest, means
any sale, assignment, bequest, conveyance, devise, gift
(outright or in trust), pledge, encumbrance, hypothecation,
mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation
of law; provided, however, that, when the term is used in
Article IX hereof, Transfer does not include (a) any
Redemption of Partnership Units by the Partnership, or
acquisition of Tendered Units from the Limited Partners by
<PAGE>
Essex, pursuant to Section 11.1 hereof or (b) any redemption
of Partnership Units pursuant to Section 11.2 or Section
11.3 hereof. The terms "Transferred" and "Transferring" have
correlative meanings.
"UNAUDITED FINANCIAL STATEMENTS" shall mean unaudited
financial statements (balance sheet, statement of income,
statement of partners' equity and statement of cash flows)
prepared with respect to the Partnership's operations.
"UNITHOLDER" means the General Partner or any other
holder of Partnership Units.
"VALUATION DATE" means (a) in the case of a tender of
Partnership Units for Redemption, two (2) business days
after the date of receipt by the General Partner of a Notice
of Redemption, (b) for the purposes of the Registration
Rights Agreement, the date of delivery of a request under
Section 2(a) thereof, or (c) in any other case, the date
specified in this Agreement.
"VALUE" means, on any Valuation Date with respect to
one (1) REIT Share, the market price of such REIT Share on
such Valuation Date (or if such Valuation Date is not a
Trading Day, the immediately preceding Trading Day). The
market price for any such Valuation Date shall be:
(1) if the REIT Shares are listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system,
(2) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the last reported
sale price on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, as reported by a reliable
quotation source designated by the General Partner, or
(3) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System and no such last
reported sale price or closing bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or if there shall
be no bid and asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
<PAGE>
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
that a holder of REIT Shares would be entitled to receive, then the Value of
such Rights shall be determined by the General Partner acting in good faith on
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
~~1.2 EXHIBIT, ETC.~~ References to "Exhibit" or to a
"Schedule" are, unless otherwise specified, to one of the
Exhibits or Schedules attached to this Agreement, and
references to an "Article" or a "Section" are, unless
otherwise specified, to one of the Articles or Sections of
this Agreement. Each Exhibit and Schedule attached hereto
and referred to herein is hereby incorporated herein by
reference.
ARTICLE II
Organization
2.1 CONTINUATION OF PARTNERSHIP. The parties hereto do hereby continue the
Partnership, provided that, from and after the date hereof, the Partnership
shall be subject to the provisions of the Act, and all other pertinent laws of
the State of California, subject to the terms and conditions hereinafter set
forth. The Partners agree that the rights and liabilities of the Partners shall
be as provided in the Act except as otherwise herein expressly provided.
Promptly upon the execution and delivery hereof, the General Partner shall
execute an amendment to the Certificate and file it with the Office of the
Secretary of State of the State of California. A certified copy of the amendment
to the Certificate shall be filed for record in each county in which the
Partnership shall own real property or an interest therein, and the General
Partner shall cause such other notice, instrument, document or certificate as
may be required by applicable law, and which may be necessary to enable the
Partnership to conduct its business and to own the Properties under the
Partnership name, to be filed or recorded in all appropriate public offices. The
General Partner shall execute and file with the Office of the Secretary of State
of the State of California any further amendments to the Certificate required by
law. A certified copy of each such amendment shall be filed by the General
Partner for record in each county in which a copy of the Certificate has been
filed for record.
2.2 NAME. The business of the Partnership shall be conducted under the name of
"Irvington Square Associates, a California limited partnership", or such other
name as the General Partner may select, and all transactions of the Partnership,
to the extent permitted by applicable law, shall be carried on and completed in
such name.
2.3 CHARACTER OF THE BUSINESS. The purpose of the Partnership shall be to
acquire, hold, own, develop, construct, improve, maintain, operate, manage,
sell, provide seller financing, lease, transfer, encumber, convey, exchange,
lend money, and otherwise dispose of or deal with Properties and ownership
interests therein; to acquire, hold, own, develop, construct, improve, maintain,
operate, manage, sell, provide seller financing, lease, transfer, encumber,
convey, exchange, lend money, and otherwise dispose of or deal with real and
personal property of all kinds, whether owned by the Partnership or otherwise;
and to undertake such other activities as may be necessary, advisable, desirable
or convenient to the business of the Partnership, and to engage in such other
ancillary activities as shall be necessary or desirable to effectuate the
foregoing purposes. The Partnership shall have all powers necessary or desirable
to accomplish the purposes enumerated. In connection with the foregoing, but
subject to all of the terms, covenants, conditions and limitations contained in
this Agreement and any other agreement entered into by the Partnership, the
Partnership shall have full power and authority, directly or indirectly, to
<PAGE>
enter into, perform and carry out contracts of any kind, to borrow money and to
issue evidences of indebtedness, whether or not secured by mortgage, trust deed,
pledge or other lien, and, directly or indirectly, to acquire and construct
additional Properties necessary or useful in connection with its business, and
to lend money secured by additional Properties and other real and personal
property.
2.4 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED. The Partnership shall be a limited
partnership only for the purposes specified in Section 2.3 hereof, and this
Agreement shall not be deemed to create a company, venture or partnership
between or among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 2.3 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any indebtedness or obligation of another Partner, nor
shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
2.5 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the principal
place of business of the Partnership shall be at 777 California Avenue, Palo
Alto, California 94304, or such other location as shall be selected from time to
time by the General Partner in its sole discretion.
2.6 AGENT FOR SERVICE OF PROCESS. The Partnership hereby appoints Jordan Ritter,
Esq., whose address is 777 California Avenue, Palo Alto, California 94304, as
its agent for service of process. Such agent may be changed from time to time by
the General Partner in its sole discretion by filing an amendment to the
Certificate.
2.7 ADMISSION OF NEW GENERAL PARTNER; REMOVAL OF EXISTING GENERAL PARTNERS.
Effective the date hereof, the General Partner is hereby admitted as a general
partner of the Partnership. Immediately thereafter, the general partners of the
Partnership pursuant to the Original Agreement, Hanover Property Company, Donald
V. Baptist and James Fuqua (collectively, the "Current General Partners"), are
hereby converted to limited partners and their interests in the partnership are
hereby converted to Limited Partner Partnership Interests. Effective immediately
thereafter, the sole general partner of the Partnership shall be the General
Partner.
2.8 CERTIFICATES OF OWNERSHIP. In the sole discretion of the General Partner,
each Partner's Partnership Units may be evidenced by one or more registered
certificates of ownership, which certificates, if issued, shall be executed by
the General Partner. Such certificates shall contain a legend evidencing the
restrictions on transfer of the Partnership Interests, which legend shall be
substantially similar to the legend contained on the cover page of this
Agreement.
<PAGE>
ARTICLE III
Term
3.1 COMMENCEMENT. The Partnership commenced on or about March 4, 1985.
3.2 TERMINATION. The Partnership shall continue until December 31, 2097, unless
it is dissolved and wound up sooner pursuant to the provisions of Article VIII
hereof or otherwise as provided by law.
ARTICLE IV
Contributions to Capital
4.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of
the General Partner and the Special Limited Partner has contributed to the
Partnership, as its initial contribution to the capital of the Partnership, the
sum of Thirteen Thousand Seven Hundred Eighty Eight and 62/100 Dollars
($13,788.62). The gross fair market value of any property in the future
contributed by the General Partner or the Special Limited Partner to the
Partnership ("Contributed Property"), other than money, shall be the Acquisition
Cost of such Contributed Property. For purposes hereof, the "Acquisition Cost"
of Contributed Property shall be the amount of such consideration, as reasonably
determined by the General Partner plus, in either case, any costs and expenses
incurred by the General Partner or the Special Limited Partner, as applicable,
in connection with such acquisition or contribution; provided, however, that if
the Contributed Property secures liabilities that the General Partner, the
Special Limited Partner or the Partnership assumes or takes subject to and the
consideration is not net of such liabilities, the Acquisition Cost shall be
equal to such consideration less the amount of such liabilities, and provided
further that if the General Partner or the Special Limited Partner, as
applicable, has assumed such liabilities, the Partnership shall assume such
liabilities of the General Partner or the Special Limited Partner, as
applicable, concurrently with the contribution of such property to the
Partnership or, if impossible, shall obligate itself to the General Partner or
the Special Limited Partner, as applicable, in an amount and on terms equal to
such liabilities.
4.2 LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of the Limited Partners (other
than the Special Limited Partner) has contributed the cash or other assets in
the amount set forth opposite such Limited Partner's name on Exhibit A.
4.3 Additional Funds.
(a) If the Partnership requires funds ("Required Funds") for any proper
Partnership purpose in excess of any other funds anticipated by the General
Partner to be available to the Partnership (including through borrowings and
prior Capital Contributions), the General Partner or the Special Limited
Partner, as applicable, shall on the Funding Date, either:
(i) to the extent the General Partner or the Special Limited Partner borrows all
or any portion of the Required Funds by entering into a Funding Loan, lend (the
<PAGE>
"Partner Loan") to the Partnership the Funding Loan Proceeds on the same terms
and conditions, including the effective interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with the Funding Loan; or
(ii) the General Partner on behalf of the Partnership may, in its sole
discretion, raise all or any portion of the Required Funds by making additional
Capital Contributions and/or accepting additional Capital Contributions from any
other Partners and/or other Persons in the amount of the Required Funds not
loaned to the Partnership as General Partner Loans ("Contributed Funds")
(hereinafter, each Funding Date on which the General Partner or such other
Person so contributes Contributed Funds pursuant to this subparagraph (ii) is
referred to as an "Adjustment Date"). In the event the General Partner, the
Special Limited Partner, one or more of the other Limited Partners or other
Persons advances Required Funds to the Partnership as Contributed Funds pursuant
to this subparagraph (ii), the General Partner shall either (a) in the case of
Partners (including the General Partner and the Special Limited Partner),
increase such Partner's Partnership Units or (b) in the case of any other
Person, admit such Person as an Additional Partner (in accordance with Section
9.3 hereof). Subject to the terms of this Section 4.3 and to the definition of
"Gross Asset Value," the General Partner shall determine in good faith the
amount, terms and conditions of such additional Capital Contributions; provided,
however, that, in the case of an additional Capital Contribution by the General
Partner or the Special Limited Partner, the Partnership shall issue to the
General Partner or the Special Limited Partner, as applicable, the number of
Partnership Units derived by dividing (1) the amount of the additional Capital
Contribution (net of any liabilities assumed or taken subject to by the
Partnership), by (2) the Value determined as of the date of such Capital
Contribution. On the Adjustment Date with respect to any Contributed Funds, the
Partnership Interests of the non-contributing Partners shall be equitably
reduced.
(b) No Limited Partner (other than the Special Limited Partner) shall have any
right under this Agreement to lend funds to the Partnership or to make
additional capital contributions to the Partnership without the consent of the
General Partner, in the General Partner's sole discretion.
(c) Notwithstanding anything contained herein to the contrary, the liability of
the Limited Partners shall be limited to the aggregate amount of any Capital
Contributions made by the Limited Partners pursuant to this Agreement. Except to
the extent that additional Capital Contributions are unanimously approved by the
Partners, the Limited Partners shall have no personal liability to contribute or
lend money to, or in respect of, the liabilities or the obligations of the
Partnership.
4.4 CONTRIBUTIONS OF PROPERTY. If at any time or from time to time the General
Partner or the Special Limited Partner, as applicable, contributes to the
Partnership any property other than money pursuant to the terms of this
Agreement, the General Partner or the Special Limited Partner, as applicable,
shall be deemed to have contributed to the Partnership as Contributed Funds
pursuant to Section 4.3(a)(ii) hereof, including, for Capital Account purposes,
an amount equal to the Acquisition Cost of such property as determined pursuant
<PAGE>
to Section 4.1 hereof, and the Percentage Interests of the Partners shall be
redetermined in the manner provided in Section 4.3(a)(ii) hereof as of the date
of such contribution.
4.5 NO THIRD PARTY BENEFICIARY. No creditor or other third party having dealings
with the Partnership shall have the right to enforce the right or obligation of
any Partner to make Capital Contributions or loans or to pursue any other right
or remedy hereunder or at law or in equity, it being understood and agreed that
the provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns. None of the rights or obligations of the Partners herein set forth to
make Capital Contributions or loans to the Partnership shall be deemed an asset
of the Partnership for any purpose by any creditor or other third party, nor may
such rights or obligations be sold, transferred or assigned by the Partnership
or pledged or encumbered by the Partnership to secure any debt or other
obligation of the Partnership or of any of the Partners.
4.6 NO INTEREST; NO RETURN. No Partner shall be entitled to interest on its
Capital Contribution or on such Partner's Capital Account. Except as provided
herein or by law, no Partner shall have any right to demand or receive the
return of its Capital Contribution from the Partnership.
ARTICLE V
Concurrent Transactions
5.1 CONCURRENT TRANSACTIONS. Concurrently with the execution of this Agreement,
the following events shall occur: the Partnership, the Limited Partners and/or
the General Partner shall execute and deliver (and/or cause to be executed and
delivered) such further instruments and undertake such further acts as may be
necessary or desirable to carry out the intent and purposes of this Agreement
and as are not inconsistent with the terms hereof.
ARTICLE VI
Allocations and Other Tax and Accounting Matters
6.1 ALLOCATIONS. The Net Income, Net Loss and/or other Partnership items shall
be allocated pursuant to the provisions of attached Exhibit E.
6.2 DISTRIBUTIONS. The General Partner shall cause the Partnership to distribute
all or a portion of Available Cash, as the General Partner in its sole
discretion may determine, to the Unitholders from time to time as determined by
the General Partner, but in any event not less frequently than quarterly, as
follows:
(a) First, to the General Partner, one percent (1%) of the Available Cash
available for distribution;
(b) Second, to each Unitholder, pari passu, an amount equal to the sum of (i)
the product of (1) the Preferred Return Per Unit for such Unitholder (or its
predecessor) for such quarter (or for such other period) and (2) the number of
Partnership Units held by such Unitholder as of the Partnership Record Date and
(ii) any unpaid amounts previously distributable to such Unitholder (or its
predecessor) under this Section 6.2(b); provided, however, that the amount
distributable pursuant to clause (i) to any Additional Partner admitted to the
<PAGE>
Partnership in the quarter immediately preceding and ending with such
Partnership Record Date shall be prorated based on the number of days that such
Additional Partner was a Unitholder during such quarter; and
(c) Third, the balance, (i) ninety-nine percent (99%) to the Special Limited
Partner and (ii) one percent (1%) to the Unitholders (including, without
limitation, the General Partner, and the Special Limited Partner) in proportion
to their Partnership Units as of the Partnership Record Date.
The General Partner in its sole and absolute discretion may distribute to the
Unitholders Available Cash in accordance with the foregoing priorities on a more
frequent basis and provide for an appropriate record date. The General Partner
shall take such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with Essex's qualification as a REIT, to cause the
Partnership to distribute sufficient amounts to enable Essex, as the general
partner of the Special Limited Partner, to pay shareholder dividends that will
(a) satisfy the requirements for Essex's continuing to qualify as a REIT under
the Code and Regulations (the "REIT Requirements") and (b) avoid any federal
income or excise tax liability of Essex.
6.3 WITHHOLDING. The General Partner may withhold taxes from any allocation or
distribution to any Partner to the extent required by the Code or any other
applicable law. For purposes of this Agreement, any taxes so withheld by the
Partnership shall be deemed to be a distribution or payment to such Partner,
reduce the amount otherwise distributable or allocable to such Partner pursuant
to this Agreement and reduce the Capital Account of such Partner.
6.4 BOOKS OF ACCOUNT. At all times during the continuance of the Partnership,
the General Partner shall maintain or cause to be maintained full, true,
complete and correct books of account in accordance with generally accepted
accounting principles wherein shall be entered particulars of all monies, goods
or effects belonging to or owing to or by the Partnership, or paid, received,
sold or purchased in the course of the Partnership's business, and all of such
other transactions, matters and things relating to the business of the
Partnership as are usually entered in books of account kept by persons engaged
in a business of a like kind and character. In addition, the Partnership shall
keep all records as required to be kept pursuant to the Act. The books and
records of account shall be kept at the principal office of the Partnership, and
each Partner shall at all reasonable times have access to such books and records
and the right to inspect the same.
6.5 REPORTS. The General Partner shall cause to be submitted to the Limited
Partners promptly upon preparation of the same and in no event later than April
1 of each year, copies of Unaudited Financial Statements prepared for the
Partnership, together with the reports thereon, and all supplementary schedules
and information. The Partnership shall also cause to be prepared such reports
and/or information as are necessary for Essex to determine its qualification as
a REIT and its compliance with REIT Requirements.
<PAGE>
6.6 [Intentionally Omitted].
6.7 TAX ELECTIONS AND RETURNS. All elections required or permitted to be made by
the Partnership under any applicable tax law shall be made by the General
Partner in its sole discretion; provided, however, the General Partner shall
file an election on behalf of the Partnership pursuant to Section 754 of the
Code to adjust the basis of the Partnership property in the case of a transfer
of a Partnership Interest, including transfers made in connection with the
exercise of rights under Article XI hereof, made in accordance with the
provisions of the Agreement. The General Partner shall cause the Accountants to
prepare and file all state and federal tax returns on a timely basis. The
General Partner shall cause the Accountants to prepare and submit to the Limited
Partners on or before April 1 of each year for review all federal and state
income tax returns of the Partnership. If a Majority-in-Interest of the Limited
Partners determines that any modifications to the tax returns of the Partnership
should be considered, such Limited Partners shall, within thirty (30) days
following receipt of such tax returns from the Accountants or the General
Partner, indicate to the Accountants the suggested revisions to the tax returns,
which returns shall be resubmitted to the Limited Partners for their review (but
not approval). The Limited Partners shall complete their review of the
resubmitted returns within ten (10) days after receipt thereof from the
Accountants or the General Partner. The General Partner shall consult in good
faith with the Limited Partners regarding any proposed modifications to the tax
returns of the Partnership. A statement of the allocation of Net Income or Loss
of the Partnership shown on the annual income tax returns prepared by the
Accountants shall be transmitted and delivered to the Limited Partners within
ten (10) days of the receipt thereof by the Partnership. The General Partner
shall be responsible for preparing and filing all federal and state tax returns
for the Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law.
6.8 TAX MATTERS PARTNER. The General Partner is hereby designated as the Tax
Matters Partner within the meaning of Section 6231(a)(7) of the Code for the
Partnership; provided, however, (i) in exercising its authority as Tax Matters
Partner it shall be limited by the provisions of this Agreement affecting tax
aspects of the Partnership; (ii) the General Partner shall consult in good faith
with the Limited Partners regarding the filing of a Code Section 6227(b)
administrative adjustment request with respect to the Partnership or a Property
before filing such request, it being understood, however, that the provisions
hereof shall not be construed to limit the ability of any Partner, including the
General Partner, to file an administrative adjustment request on its own behalf
pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult
in good faith with the Limited Partners regarding the filing of a petition for
judicial review of an administrative adjustment request under Section 6228 of
the Code, or a petition for judicial review of a final partnership
administrative judgment under Section 6226 of the Code relating to the
Partnership before filing such petition; (iv) the General Partner shall give
prompt notice to the Limited Partners of the receipt of any written notice that
the Internal Revenue Service or any state or local taxing authority intends to
examine Partnership income tax returns for any year, receipt of written notice
of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, receipt of written
<PAGE>
notice of the final Partnership administrative adjustment relating to the
Partnership pursuant to Section 6223 of the Code, and receipt of any request
from the Internal Revenue Service for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Partnership; and
(v) the General Partner shall promptly notify the Limited Partners if the
General Partner does not intend to file for judicial review with respect to the
Partnership.
ARTICLE VII
Rights, Duties and Restrictions of the General Partner
7.1 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby authorized to pay
compensation for accounting, administrative, legal, technical, management and
other services rendered to the Partnership. All of the aforesaid expenditures
shall be made on behalf of the Partnership, and the General Partner shall be
entitled to reimbursement by the Partnership for any expenditures incurred by it
on behalf of the Partnership which shall be made other than out of the funds of
the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
7.2 POWERS AND DUTIES OF GENERAL PARTNER. The General Partner shall be
responsible for the management of the Partnership's business and affairs.
Subject solely to the limitations contained in Section 7.3 and Section 7.7
hereof, the General Partner shall have, and is hereby granted, full and complete
power, authority and discretion to take such action for and on behalf of the
Partnership and in its name as the General Partner shall, in its sole and
absolute discretion, deem necessary or appropriate to carry out the purposes for
which the Partnership was organized. Without limiting the generality of the
foregoing, the General Partner shall have the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase, lease, exchange
or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise
options to purchase, options to sell or conversion rights, assign, transfer,
convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, develop,
repair, maintain, manage, insure, lease for any term and otherwise deal with any
and all property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the purposes of the Partnership;
(b) To acquire, directly or indirectly, interests in real estate or entities
owning real estate of any kind and of any type, and any and all kinds of
interests therein (whether through direct ownership, partnerships, security
interests or any other type of interests), and to determine the manner in which
title thereto is to be held; to manage, insure against loss, protect and
subdivide any of the real estate, interests therein or parts thereof; to
improve, develop or redevelop any such real estate; to participate in the
ownership and development of any property; to dedicate for public use, to vacate
any subdivisions or parts thereof, to re-subdivide, to contract to sell or
exchange, to grant options to purchase, lease or exchange, to sell or exchange
on any terms; to convey, to mortgage or receive mortgages, pledge or otherwise
encumber said property, or any part thereof; to lease said property or any part
thereof from time to time, upon any terms and for any period of time, and to
renew or extend leases, to amend, change or modify the terms and provisions or
any leases and to grant options to lease and options to renew leases and options
<PAGE>
to purchase; to partition or to exchange said real property, or any part
thereof, for other real or personal property; to grant easements or charges of
any kind; to release, convey or assign any right, title or interest in or about
or easement appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on said
premises; to insure any Person having an interest in or responsibility for the
care, management or repair of such property; to direct the trustee of any land
trust to mortgage, lease, convey or contract to convey the real estate held in
such land trust or to execute and deliver deeds, mortgages, notes, and any and
all documents pertaining to the property subject to such land trust or in any
matter regarding such trust; to execute assignments of all or any part of the
beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from employment or engagement
Persons to the extent deemed necessary by the General Partner for the operation
and management of the Partnership business, including but not limited to,
contractors, subcontractors, engineers, architects, surveyors, mechanics,
consultants, accountants, attorneys, insurance brokers, real estate brokers and
others;
(d) To negotiate and enter into contracts on behalf of the Partnership
(including, without limitation, right of first opportunity arrangements and
other conflict avoidance agreements) that the General Partner considers useful
or necessary to the conduct of the Partnership's operations or implementation of
the General Partner's powers under this Agreement;
(e) To borrow money, procure loans and advances from any Person for Partnership
purposes, and to apply for and secure, from any Person, credit or
accommodations; to contract liabilities and obligations, direct or contingent
and of every kind and nature with or without security; and to repay, discharge,
settle, adjust, compromise, or liquidate any such loan, advance, credit,
obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale
and leaseback arrangements or otherwise give as security or as additional or
substitute security, or for sale or other disposition any and all Partnership
property, tangible or intangible, including, but not limited to, real estate and
beneficial interests in land trusts, and to make substitutions thereof, and to
receive any proceeds thereof upon the release or surrender thereof (such right,
power and authority to include, without limitation, the right, power and
authority to encumber Partnership property to secure the debts and obligations
of the General Partner and/or Affiliates of the General Partner, including,
without limitation, the Special Limited Partner); to sign, execute and deliver
any and all assignments, deeds and other contracts and instruments in writing;
to authorize, give, make, procure, accept and receive moneys, payments,
property, notices, demands, vouchers, receipts, releases, compromises and
adjustments; to waive notices, demands, protests and authorize and execute
waivers of every kind and nature; to enter into, make, execute, deliver and
receive written agreements, undertakings and instruments of every kind and
nature; to give oral instructions and make oral agreements; and generally to do
any and all other acts and things incidental to any of the foregoing or with
reference to any dealings or transactions which any attorney may deem necessary,
proper or advisable;
<PAGE>
(g) To acquire and enter into any contract of insurance which the General
Partner deems necessary or appropriate for the protection of the Partnership,
for the conservation of the Partnership's assets or for any purpose convenient
or beneficial to the Partnership;
(h) To conduct any and all banking transactions on behalf of the Partnership; to
adjust and settle checking, savings, and other accounts with such institutions
as the General Partner shall deem appropriate; to draw, sign, execute, accept,
endorse, guarantee, deliver, receive and pay any checks, drafts, bills of
exchange, acceptances, notes, obligations, undertakings and other instruments
for or relating to the payment of money in, into, or from any account in the
Partnership's name; to execute, procure, consent to and authorize extensions and
renewals of the same; to make deposits and withdraw the same and to negotiate or
discount commercial paper, acceptances, negotiable instruments, bills of
exchange and dollar drafts;
(i) To demand, sue for, receive, and otherwise take steps to collect or recover
all debts, rents, proceeds, interest, dividends, goods, chattels, income from
property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any accounts,
debts, claims, disputes and matters which may arise between the Partnership and
any other Person and to grant an extension of time for the payment or
satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking of all action
deemed necessary or appropriate by the General Partner to cause any approved
loans to be closed;
(k) To take all reasonable measures necessary to insure compliance by the
Partnership with applicable arrangements, and other contractual obligations and
arrangements entered into by the Partnership from time to time in accordance
with the provisions of this Agreement, including periodic reports as required to
lenders and using all due diligence to insure that the Partnership is in
compliance with its contractual obligations;
(l) To maintain the Partnership's books and records;
(m) To prepare and deliver, or cause to be prepared and delivered by the
Partnership's Accountants, all financial and other reports with respect to the
operations of the Partnership, and preparation and filing of all federal and
state tax returns and reports;
(n) To prepare and deliver all financial, regulatory, tax and other filings or
reports to governmental or other agencies having jurisdiction over the
Partnership; and
(o) To do all other actions of a partner in a partnership without limited
partners, recognizing that the Limited Partners shall have only the right and
authority to participate in the affairs of the Partnership to the extent
specifically set forth in this Agreement.
<PAGE>
Except as otherwise provided herein, to the extent the duties of the General
Partner require expenditures of funds to be paid to third parties, the General
Partner shall not have any obligations hereunder except to the extent that
Partnership funds are reasonably available to it for the performance of such
duties, and nothing herein contained shall be deemed to require the General
Partner, in its capacity as such, to expend its individual funds for payment to
third parties or to undertake any individual liability or obligation on behalf
of the Partnership. Each of the Limited Partners agrees that the General Partner
is authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not in itself constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
7.3 MAJOR DECISIONS. The General Partner shall not, without the prior Consent of
the Limited Partners, on behalf of the Partnership, undertake any of the
following actions (the "Major Decisions"):
(a) Amend, modify or terminate this Agreement other than in accordance with the
provisions of Article IV, Article VIII, Article IX, Section 13.7 and the
definitions of the terms "Gross Asset Value" and "Partnership Units."
(b) Make a general assignment for the benefit of creditors or appoint or
acquiesce in the appointment of a custodian, receiver or trustee for all or any
part of the assets of the Partnership.
(c) Take title to any personal or real property, other than in the name of the
Partnership or pursuant to Section 7.9 hereof.
(d) Institute any proceeding for Bankruptcy on behalf of the Partnership.
(e) Dissolve the Partnership, except as otherwise set forth in this Partnership
Agreement.
Notwithstanding the foregoing, none of the actions described in Section 7.3
shall be a Major Decision if the Limited Partners (other than the Special
Limited Partner) collectively own less than forty percent (40%) of the
Partnership Units at the time that such action is undertaken.
7.4 ACTIONS WITH RESPECT TO CERTAIN DOCUMENTS. Notwithstanding the provisions of
Section 7.3 hereof to the contrary, whenever the consent, agreement,
authorization or approval of the Partnership is required under any agreement to
which the Limited Partners and/or their Controlled Entities are parties in
interest other than in their capacities as Limited Partners of the Partnership,
the Consent of the Limited Partners shall not be required.
<PAGE>
7.5 OTHER BUSINESS OF GENERAL PARTNER AND SPECIAL LIMITED PARTNER.
Notwithstanding anything to the contrary set forth in this Agreement, the
General Partner and the Special Limited Partner may engage independently or with
others (including, without limitation, Affiliates of the General Partner and the
Special Limited Partner) in other business ventures of every nature and
description, including, without limitation, the ownership of other properties
and the making or management of other investments. In furtherance of any such
venture, the General Partner and the Special Limited Partner may serve as a
general or limited partner in any partnership, a shareholder in any corporation,
a joint venturer in any joint venture, a member and/or manager in any limited
liability company, or an equity or other participant in any other business
venture. Nothing in this Agreement shall be deemed to prohibit the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner from dealing, or otherwise engaging in business
with, Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property and receiving compensation therefor, not
involving any rebate or reciprocal arrangement that would have the effect of
circumventing any restriction set forth herein upon dealings with the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner. Neither the Partnership nor any Partner shall
have any right by virtue of this Agreement or the Partnership relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom, and, to the fullest extent permitted by the Act, the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper.
7.6 CONTRACTS WITH AFFILIATES.
(a) Without limiting the provisions of Section 7.5 above, the Partnership may
lend or contribute funds or other assets to its Affiliates or other Persons in
which it has (or proposes to have) an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Affiliates or any other
Person.
(b) Without limiting the provisions of Section 7.5 above, the Partnership may
transfer assets to other Entities in which it is or thereby becomes a
participant upon such terms and subject to applicable law as the General
Partner, in its sole and absolute discretion, believes to be advisable.
7.7 PROSCRIPTIONS. The General Partner shall not have the authority to:
(a) Do any act in contravention of this Agreement or which would make it
impossible to carry on the ordinary business of the Partnership;
(b) Possess any Partnership property or assign rights in specific Partnership
property for other than Partnership purposes; or
(c) Do any act in contravention of applicable law.
<PAGE>
Nothing herein contained shall impose any obligation on any Person or firm doing
business with the Partnership to inquire as to whether or not the General
Partner has properly exercised its authority in executing any contract, lease,
mortgage, deed or other instrument on behalf of the Partnership, and any such
third Person shall be fully protected in relying upon such authority.
7.8 ADDITIONAL PARTNERS. Additional Partners may be admitted to the Partnership
only as provided in Section 9.3 hereof.
7.9 TITLE HOLDER. To the extent allowable under applicable law, title to all or
any part of the properties of the Partnership may be held in the name of the
Partnership or any other individual, corporation, partnership, trust or
otherwise, the beneficial interest in which shall at all times be vested in the
Partnership. Any such title holder shall perform any and all of its respective
functions to the extent and upon such terms and conditions as may be determined
from time to time by the General Partner.
7.10 COMPENSATION OF THE GENERAL PARTNER. The General Partner shall not be
entitled to any compensation for services rendered to the Partnership solely in
its capacity as General Partner, except with respect to reimbursement for those
costs and expenses constituting Administrative Expenses.
7.11 WAIVER AND INDEMNIFICATION.
(a) Neither the General Partner, the Special Limited Partner nor any Person
acting on their behalf, pursuant hereto, shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for any
acts or omissions performed or omitted to be performed by them within the scope
of the authority conferred upon the General Partner or the Special Limited
Partner by this Agreement and the Act, provided that the General Partner's, the
Special Limited Partner's or such other Person's conduct or omission to act was
taken in good faith and in the belief that such conduct or omission was in the
best interests of the Partnership and, provided further, that the General
Partner, the Special Limited Partner or such other Person shall not be guilty of
fraud, misconduct, bad faith, or gross negligence. The Partnership shall, and
hereby does, agree to indemnify, defend, protect and hold harmless the General
Partner, the Special Limited Partner and their Affiliates and any individual or
Entity acting on their behalf from and against any loss, damage, cost, expense,
claim or liability, including, but not limited to, reasonable attorneys' fees,
court costs and expenses, incurred by them by reason of any acts or omissions
performed or omitted to be performed by them in connection with the business and
affairs of the Partnership as described herein, subject to the standards set
forth above; provided, however, no Partner shall have any personal liability
with respect to the foregoing indemnification, any such indemnification to be
satisfied solely out of the assets of the Partnership.
(b) Any Person entitled to indemnification under this Agreement shall be
entitled to receive, upon application therefor, the costs reasonably incurred
defending any proceeding against such Person; provided, however, that such
advances shall be repaid to the Partnership, without interest, if such Person is
found by a court of competent jurisdiction upon entry of a final judgment not to
be entitled to such indemnification. All rights of the indemnitee hereunder
<PAGE>
shall survive the dissolution of the Partnership. The indemnification rights
contained in this Agreement shall be cumulative of, and in addition to, any and
all rights, remedies and recourse to which the person seeking indemnification
shall be entitled, whether at law or in equity. Indemnification pursuant to this
Agreement shall be made solely and entirely from the assets of the Partnership,
and no Partner shall be liable therefor.
7.12 CONTRACTS WITH CONTROLLED ENTITIES. The General Partner and the Special
Limited Partner may contract with any of their Controlled Entities for the
provision of property management, asset management, brokerage or similar
services or any other services customarily rendered by the Controlled Entities;
provided that all such contracts or agreements shall be for compensation and on
terms and conditions substantially similar to other such contracts or agreements
available from similarly qualified third parties.
7.13 OPERATION IN ACCORDANCE WITH REIT REQUIREMENTS. Essex, the sole general
partner of the Special Limited Partner, is a REIT and is subject to the
provisions of Section 856 through and including 860 of the Code. The Partners
acknowledge and agree that the Partnership shall be operated in a manner that
will enable Essex to (a) satisfy the REIT Requirements and (b) eliminate the
imposition of any federal income or excise tax liability. Notwithstanding
anything to the contrary set forth in this Agreement, the Partnership shall
avoid taking any action that would result in Essex ceasing to satisfy the REIT
Requirements or would result in the imposition of any federal income or excise
tax liability on Essex. Without limiting the foregoing, so long as Essex owns,
directly or indirectly, any interest in the Partnership, then notwithstanding
any other provision of this Agreement:
(i) leases or subleases of any of the Partnership's real estate assets shall
provide for rents which qualify as "rents from real property" within the meaning
of Section 856(d) of the Code with respect to Essex;
(ii) the Partnership shall not furnish or render services to tenants or other
persons that are not usually or customarily rendered in connection with the
rental of real property in order that the rents received by the partnership with
respect to its real estate assets qualify as "rents from real property" within
the meaning of Section 856(d) of the Code with respect to Essex;
(iii) the Partnership shall not own, directly or indirectly or by attribution
(in accordance with the attribution rules referred to in Section 856(d) of the
Code), in the aggregate more than 1% of all classes of stock or more than 1% of
the voting power (or, with respect to any such person which is not a
corporation, an interest of 1% or more in the assets or net profits of such
person) of a lessee or sublessee of all or any part of the real estate assets of
the Partnership, except in each case with the specific written approval of
Essex;
(iv)the Partnership shall not own, directly or indirectly or by attribution,
more than 10% of the outstanding voting securities of any issuer;
(v) the Partnership shall not engage in any prohibited transactions within the
meaning of Section 857(b)(6) of the Code; and
<PAGE>
(vi) the determination as to whether the Partnership has operated in the manner
prescribed in this Section 7.13 shall be made without regard to any action or
inaction of the General Partner with respect to distributions and the timing
thereof.
ARTICLE VIII
Dissolution, Liquidation and Winding-Up
8.1 LIQUIDATING EVENTS. The Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following (each, a "Liquidating
Event"):
(a) The dissolution, termination, retirement or Bankruptcy of the General
Partner unless the Partnership is continued as provided in Section 9.1 hereof;
(b) The election to dissolve the Partnership made in writing by the General
Partner with the Consent of the Limited Partners, provided that the Consent of
the Limited Partners shall not be required if the Limited Partners (other than
the Special Limited Partner) collectively own less than forty percent (40%) of
the Partnership Units at the time of such election;
(c) The sale or other disposition of all or substantially all the assets of the
Partnership, other than in connection with a "like kind" exchange, pursuant to
Section 1031 of the Code (or any similar transaction), unless the General
Partner, with the Consent of the Limited Partners, elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership), provided that the
Consent of the Limited Partners shall not be required if the Limited Partners
(other than the Special Limited Partner) collectively own less than forty
percent (40%) of the Partnership Units at the time of such sale or disposition;
(d) Dissolution required by operation of law; or
(e) The expiration of its term as provided in Section 3.2.
8.2 ACCOUNTING. In the event of a Liquidating Event, a proper accounting (which
shall be certified) shall be made of the Capital Account of each Partner and of
the Net Profits or Net Losses of the Partnership from the date of the last
previous accounting to the date of dissolution. Financial statements presenting
such accounting shall be prepared at the direction of the Liquidating Trustee.
8.3 DISTRIBUTION ON DISSOLUTION. In the event of a Liquidating Event, the assets
of the Partnership shall be liquidated for distribution in the following rank
and order:
(a) First, to the payment and discharge of all of the Partnership's debt and
liabilities to creditors of the Partnership (other than Partners) in the order
of priority as provided by law;
<PAGE>
(b) Second, to the establishment of reserves as provided by the General Partner
to provide for contingent liabilities, if any;
(c) Third, to the payment of debts of the Partnership to Partners, if any, in
the order of priority provided by law; and
(d) The balance, if any, to the Partners in accordance with the positive
balances in their Capital Accounts after giving effect to all contributions,
distributions (pursuant to Section 6.2) and allocations for all periods,
including the period in which such distribution occurs (other than those
adjustments made pursuant to this Section 8.3(d) and Section 8.4 hereof).
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (b) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with Section 6.2.
8.4 TIMING REQUIREMENTS. In the event that the Partnership is "liquidated"
within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and
all distributions to the Partners pursuant to Section 8.3(d) hereof shall be
made no later than the later to occur of (i) the last day of the taxable year of
the Partnership in which such liquidation occurs or (ii) ninety (90) days after
the date of such liquidation.
8.5 SALE OF PARTNERSHIP ASSETS. In the event of the liquidation of the
Partnership in accordance with the terms of this Agreement, the Liquidating
Trustee may, with the Consent of the Limited Partners, sell Partnership property
if the Liquidating Trustee has in good faith solicited bids from unrelated third
parties and obtained independent appraisals before making any such sale;
provided, however, all sales, leases, encumbrances or transfers of Partnership
assets shall be made by the Liquidating Trustee with the prior Consent of the
Limited Partners and solely on an "arm's-length" basis, at the best price and on
the best terms and conditions as the General Partner in good faith believes are
reasonably available at the time and under the circumstances and on a
non-recourse basis to the Limited Partners. Notwithstanding the foregoing, the
Consent of the Limited Partners shall not be required under the preceding
sentence if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time that the Liquidating Trustee undertakes such action. The liquidation of the
Partnership shall not be deemed finally terminated until the Partnership shall
have received cash payments in full with respect to obligations such as notes,
installment sale contracts or other similar receivables received by the
Partnership in connection with the sale of Partnership assets and all
obligations of the Partnership have been satisfied or assumed by the General
Partner. The Liquidating Trustee shall continue to act to enforce all of the
rights of the Partnership pursuant to any such obligations until paid in full.
8.6 DISTRIBUTIONS IN KIND. Notwithstanding the provisions of Section 8.3 hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidating Trustee determines that an immediate sale of part or
<PAGE>
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) and/or distribute to the Partners in lieu of cash as
tenants in common and in accordance with the provisions of Section 8.3 hereof,
undivided interests in such Partnership assets as the Liquidating Trustee deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good-faith judgment of the Liquidating Trustee, such distributions in
kind are in the best interest of the Partners and shall be subject to such
conditions relating to the disposition and management of such properties as the
Liquidating Trustee deems reasonable and equitable and to any agreements
governing the operation of such properties at such time. The Liquidating Trustee
shall determine the fair market value of any property distributed in kind using
such reasonable method of valuation as it may adopt.
8.7 DOCUMENTATION OF LIQUIDATION. Upon the completion of the dissolution and
liquidation of the Partnership, the Partnership shall terminate and the
Liquidating Trustee shall have the authority to execute and record any and all
documents or instruments required to effect the dissolution, liquidation and
termination of the Partnership.
8.8 LIABILITY OF THE LIQUIDATING TRUSTEE. The Partnership hereby indemnifies,
defends, protects and holds harmless the Liquidating Trustee from and against
any and all claims, demands, losses, liabilities, costs (including, without
limitation, reasonable attorneys' fees and costs), damages and causes of action
of any nature whatsoever arising out of or incidental to the Liquidating
Trustee's taking of any action authorized under or within the scope of this
Agreement; provided, however, that the Liquidating Trustee shall not be entitled
to indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arose out of:
(a) A matter entirely unrelated to the Liquidating Trustee's action or conduct
pursuant to the provisions of this Agreement; or
(b) The proven misconduct or gross negligence of the Liquidating Trustee.
ARTICLE IX
Transfer of Partnership Interests
9.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER TRANSFERS. Except as provided in
the next sentence, neither the General Partner nor the Special Limited Partner
shall withdraw from the Partnership or Transfer all or any portion of their
interests in the Partnership without the Consent of the Limited Partners,
provided that the Consent of the Limited Partners shall not be required if the
Limited Partners (other than the Special Limited Partner) collectively own less
than forty percent (40%) of the Partnership Units at the time of such Transfer.
Notwithstanding the foregoing, the General Partner and/or the Special Limited
Partner may (i) engage in any merger, consolidation or other combination with or
into another Person regardless of whether Essex or another REIT continues to be
the general partner of the Special Limited Partner, (ii) sell all or
substantially all of their assets, or (iii) effect any reclassification or
<PAGE>
recapitalization, all without the approval of the Limited Partners. Upon any
Transfer of all of the General Partner's or the Special Limited Partner's
Partnership Interest in accordance with the provisions of this Section 9.1, the
transferee General Partner or Special Limited Partner, as applicable, shall
become vested with the powers and rights of the transferor General Partner or
Special Limited Partner, as applicable, and shall be liable for all obligations
and responsible for all duties of the General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership Interest so
acquired. It is a condition to any Transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor General Partner or Special Limited Partner, as
applicable, under this Agreement with respect to such transferred Partnership
Interest, and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor General
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor General Partner or Special Limited Partner, as
applicable, of its obligations under this Agreement without the Consent of the
Limited Partners, provided that the Consent of the Limited Partners shall not be
required if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time of such Transfer. In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or dissolves,
terminates or upon the Bankruptcy of the General Partner, a Majority-In-Interest
of the Limited Partners may elect to continue the Partnership business by
selecting a substitute general partner.
9.2 TRANSFERS BY LIMITED PARTNERS.
(a) No Limited Partner (other than the Special Limited Partner) shall have the
right to Transfer to any Person all or any portion of its Partnership Interest,
without the General Partner's written consent, in the General Partner's sole
discretion. Any purported Transfer, in violation of this Section 9.2, shall be
void, ab initio.
(b) It is a condition to any Transfer otherwise permitted under this Section 9.2
that the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Upon such Transfer and upon obtaining the General Partner's
written consent, in the General Partner's sole discretion, the transferee shall
be admitted as a Substituted Limited Partner and shall succeed to all of the
rights, including rights with respect to the Rights, of the transferor Limited
Partner under this Agreement in the place and stead of such transferor Limited
Partner; provided, however, that notwithstanding the foregoing, any transferee
of any transferred Partnership Interest shall be subject to any and all
ownership limitations contained in the Charter which may, among other things,
limit or restrict such transferee's ability to exercise all or portions of the
rights set forth in Article XI. Any transferee, whether or not admitted as a
<PAGE>
Substituted Limited Partner, shall acquire such Partnership Interest subject to
the obligations of the transferor hereunder. Unless admitted as a Substituted
Limited Partner, no transferee, whether by a voluntary transfer, by operation of
law or otherwise, shall have rights hereunder (including, without limitation,
pursuant to Article XI, unless such transferee, is a Qualifying Party), other
than to receive such portion of the distributions made by the Partnership as are
allocable to the Percentage Interest transferred.
9.3 ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS AND ADMITTANCE OF ADDITIONAL
PARTNERS. At any time after the date hereof without the consent of any Partner,
but subject to the provisions of Section 9.4 hereof, the General Partner may,
upon its determination that the issuance of additional Partnership Interests
("Additional Interests") is in the best interests of the Partnership, cause the
Partnership (i) to issue Additional Interests to any Limited Partner or any
other Person (such other person being referred to as an "Additional Partner") in
exchange for the contribution by such Limited Partner or Person of cash and/or
property desirable to further the purposes of the Partnership under Section 2.3
hereof and (ii) in the case of such contribution by an Additional Partner, to
admit such person as a limited partner in the Partnership. In the event that an
Additional Interest is issued by the Partnership pursuant to this Section 9.3:
(a) the Percentage Interest of the Additional Partner that is issued the
Additional Interest and the reduction of the Percentage Interests of the other
Partner shall be determined by the General Partner in the same manner as that
provided in subsection 4.3(a)(ii) hereof with respect to Contributed Funds.
The General Partner shall be authorized on behalf of each of the Partners to
amend this Agreement to reflect the admission of any Additional Partner or any
increase in the Percentage Interests of any Partner and the corresponding
reduction of the Percentage Interests of the other Partners in accordance with
the provisions of this Section 9.3, and the General Partner shall promptly
deliver a copy of such amendment to each Limited Partner. Notwithstanding
anything contained herein to the contrary, without the consent of the General
Partner, in its sole and absolute discretion, an Additional Partner that
acquires an Additional Interest pursuant to this Section 9.3 shall not acquire
any interest in, and may not exercise or otherwise participate in, any rights
pursuant to Article XI.
9.4 RESTRICTIONS ON TRANSFER. In addition to any other restrictions on transfer
herein contained, in no event may any Transfer of a Partnership Interest by any
Partner be made (i) to any Person that lacks the legal right, power or capacity
to own a Partnership Interest; (ii) in violation of any provision of any
mortgage or trust deed (or the note or bond secured thereby) constituting a Lien
against a Property or any part thereof, or other instrument, document or
agreement to which the Partnership, the General Partner, the Special Limited
Partner or any Affiliate of either of them is a party or otherwise bound; (iii)
in violation of applicable law, including, without limitation, any applicable
federal securities law or state securities "Blue Sky" law (including investment
suitability standards); (iv) of any component portion of a Partnership Interest,
such as the Capital Account, or rights to Available Cash, separate and apart
from all other components of a Partnership Interest; (v) in the event such
transfer would cause Essex to cease to comply with the REIT Requirements or
<PAGE>
result in a violation of Section 7.13 hereof; (vi) if such transfer would cause
a termination of the Partnership for federal income tax purposes; (vii) if such
transfer would, in the opinion of counsel to the Partnership, cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes; (viii) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title 1 of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (ix) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.3-101; (x) if such
transfer may not be effected without registration of such Partnership Interest
under the Securities Act; or (xi) if such transfer would violate any provision
of the Charter. As a condition to any Transfer, the General Partner may, in its
sole and absolute discretion, require the proposed transferee to deliver to the
General Partner an opinion of counsel and such other certifications, affidavits
and/or undertakings, in form and content reasonably acceptable to the General
Partner, to satisfy the General Partner that the proposed Transfer will not
violate any of the provisions of this Section 9.4. Any purported transfer in
violation of this Section 9.4 shall be void ab initio.
ARTICLE X
Rights and Obligations of the Limited Partners
10.1 NO PARTICIPATION IN MANAGEMENT. Except as expressly permitted hereunder,
the Limited Partners shall not take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership and shall have no rights,
powers or authority, except as specifically provided herein.
10.2 BANKRUPTCY OF A LIMITED PARTNER AND CERTAIN OTHER EVENTS. The Bankruptcy,
death, incompetency, legal incapacity, withdrawal or retirement of any Limited
Partner shall not cause a dissolution of the Partnership, but the rights of such
Limited Partner to share in the Net Profits or Losses of the Partnership and to
receive distributions of Partnership funds shall, on the happening of such
event, devolve on its successors or assigns, subject to the terms and conditions
of this Agreement, and the Partnership shall continue as a limited partnership.
However, in no event shall such assignee(s) become a Substituted Limited
Partner, except in accordance with Article IX hereof.
10.3 NO WITHDRAWAL. Notwithstanding anything to the contrary provided in Section
10.2 above, no Limited Partner may withdraw or retire from the Partnership
without the prior written consent of the General Partner, in its sole and
absolute discretion, other than as expressly provided in this Agreement.
10.4 DUTIES AND CONFLICTS. The General Partner recognizes that the Limited
Partners and their Affiliates have or may have other business interests,
activities and investments, some of which may be in conflict or competition with
the business of the Partnership, and that, subject to the provisions of any
<PAGE>
agreements entered into by any Limited Partner or its Affiliate with the General
Partner, the Partnership or any of their Affiliates, such persons are entitled
to carry on such other business interests, activities and investments. Subject
to the immediately preceding sentence, the Limited Partners and their Affiliates
may engage in or possess an interest in any other business or venture of any
kind, independently or with others, on their own behalf or on behalf of other
entities with which they are affiliated or associated, and such persons may
engage in any activities, whether or not competitive with the Partnership,
without any obligation to offer any interest in such activities to the
Partnership or to any Partner. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such activities, or the
income or profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper.
ARTICLE XI
Grant of Rights to Limited Partners
11.1 GRANT OF RIGHTS.
(a) Subject to Section 11.1(b) below and the other provisions of this Section
11.1, a Qualifying Party, but no other Person, shall have the right (subject to
the terms and conditions set forth herein) to require the Partnership to redeem
all or a portion of the Partnership Units held by such Qualifying Party (such
Partnership Units being hereafter called "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Qualifying Party when exercising the Redemption right
(the "Tendering Party"). The Partnership's obligation to effect a Redemption,
however, shall not arise or be binding against the Partnership until and unless
there has been a Declination. Regardless of the binding or non-binding nature of
a pending Redemption, a Tendering Party shall have no right to receive
distributions with respect to any Tendered Units (other than the Cash Amount)
paid after delivery of the Notice of Redemption, whether or not the Partnership
Record Date for such distribution precedes or coincides with such delivery of
the Notice of Redemption. In the event of a Redemption, the Cash Amount shall be
delivered as a good check payable to the Tendering Party or, in the General
Partner's sole and discretion, in immediately available funds.
(b) (i) Subject to Section 11.1(b)(ii) below, notwithstanding the provisions of
Section 11.1(a) hereof, on or before the close of business on the Cutoff Date,
Essex shall, in its sole and absolute discretion but subject to the Ownership
Limit (as defined in the Charter) and any transfer restrictions or other
limitations of the Charter and subject to the written consent of the General
Partner in its sole discretion, have the option (and Essex is hereby granted
such an option) to acquire some or all (such amount, expressed as a percentage,
being referred to as the "Applicable Percentage") of the Tendered Units from the
Tendering Party in exchange for REIT Shares. If Essex exercises such option, on
the Specified Redemption Date the Tendering Party shall sell such number of the
Tendered Units to Essex in exchange for a number of REIT Shares equal to the
product of the REIT Shares Amount and the Applicable Percentage (expressed as a
decimal), provided, however, that in lieu of any fractional REIT Share resulting
from such calculation, the General Partner or Special Limited Partner may
contribute to the Partnership the Cash Amount attributable to such fractional
REIT Share. The Tendering Party shall submit such information, investment
letters, representations, undertakings, legal opinions, certifications and/or
affidavits as Essex may reasonably require to comply with the Securities Act,
<PAGE>
the Code and the Charter (including, without limitation, the Ownership Limit).
In the event of a purchase of the Tendered Units pursuant to this Section
11.1(b), the Tendering Party shall no longer have the right to cause the
Partnership to effect a Redemption of such Tendered Units, and, upon notice to
the Tendering Party by Essex, given on or before the close of business on the
Cut-Off Date, that Essex has exercised its option to acquire some or all of the
Tendered Units pursuant to this Section 11.1(b), the obligation of the
Partnership to effect a Redemption of the Tendered Units as to which Essex's
notice relates shall immediately and automatically terminate and be of no
further force or effect. The product of the Applicable Percentage and the REIT
Shares Amount shall be delivered by Essex as duly authorized, validly issued,
fully paid and nonassessable REIT Shares and, if applicable, Rights, free of any
pledge, lien, encumbrance or restriction, other than the Ownership Limit and
other restrictions provided in the Charter, the bylaws of Essex, the Securities
Act and relevant state securities or "blue sky" laws. Neither any Tendering
Party whose Tendered Units are acquired by Essex pursuant to this Section
11.1(b), any other Partner, any Assignee nor any other interested Person shall
have any right to require or cause Essex to register, qualify or list any REIT
Shares owned or held by such Person, whether or not such REIT Shares are issued
pursuant to this Section 11.1(b), with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between Essex and any such Person. REIT Shares issued
upon an acquisition of the Tendered Units by Essex pursuant to this Section
11.1(b) may contain such legends regarding restrictions under the Securities Act
and applicable state securities laws as Essex in good faith determines to be
necessary or advisable in order to ensure compliance with such laws.
(ii) Notwithstanding anything to the contrary set forth in Section 11.1(b)(i)
above, Essex may not exercise its option set forth in Section 11.1(b)(i) above
in any calendar year unless and until the Partnership shall have received
Notices of Redemption for Tendered Units (including, without limitation, Notices
of Redemption with respect to all completed Redemptions) during such calendar
year in the aggregate Cash Amount (or, if, as of the date of calculation, any
applicable Cash Amount is not yet determined pursuant to the terms of this
Agreement, the estimated Cash Amount as determined by the General Partner in its
reasonable judgment) in excess of $500,000. At such time as such $500,000
minimum is exceeded pursuant to the previous sentence during such calendar year,
Essex may exercise its option set forth in Section 11.1(b)(i) above with respect
to (x) all pending Redemptions, and (y) all Notices of Redemption received by
the Partnership during the remainder of such calendar year.
(iii) If Essex exercises its option pursuant to Section 11.1(b)(i) above, on the
Specified Redemption Date, the Partnership shall pay to the Tendering Party all
accrued but unpaid distributions, if any, with respect to the Tendered Units
pursuant to Section 6.2(b).
(c) Notwithstanding the provisions of Sections 11.1(a) and 11.1(b) hereof, no
Tendering Party shall have any rights under this Agreement that would otherwise
be prohibited under the Charter. To the extent that any attempted Redemption or
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof
would be in violation of this Section 11.1(c), it shall be null and void ab
<PAGE>
initio, and, in the case of a proposed purchase by Essex pursuant to Section
11.1(b) hereof, the Tendering Party shall not acquire any rights or economic
interests in REIT Shares otherwise issuable by Essex under Section 11.1(b)
hereof.
(d) In the event that, following receipt of a Notice of Redemption, Essex is not
permitted to exercise its option pursuant to Section 11.1(b)(ii), or Essex
declines or fails to exercise its option pursuant to Section 11.1(b)(i) hereof
(a "Declination"):
(i) The General Partner shall give notice of such Declination to the Tendering
Party on or before the close of business on the Cut-Off Date. The failure of the
General Partner to give notice of such Declination by the close of business on
the Cut-Off Date shall itself constitute a Declination.
(ii) The Partnership may elect to raise funds for the payment of the Cash Amount
either (a) by requiring that the Special Limited Partner contribute such funds
to the Partnership from (1) the proceeds of a registered public offering (a
"Public Offering Funding") by Essex of a number of REIT Shares ("Registrable
Shares") equal to the REIT Shares Amount with respect to the Tendered Units,
which proceeds are contributed by Essex to the Special Limited Partner, or (2)
any other source, or (b) from any other sources (including, but not limited to,
the sale of any Property or other assets of the Partnership and the incurrence
of Partnership debt) available to the Partnership.
(iii) Upon the General Partner's receipt of the Notice of Redemption and the
General Partner giving notice of its Declination, the General Partner, at its
election, may give notice (a "Single Funding Notice") to all Qualifying Parties
then holding a Partnership Interest (or an interest therein) and having
Redemption rights pursuant to this Section 11.1 and require that, due to (x) a
pending or anticipated public underwritten offering of Essex's securities or (y)
any other Essex activity, all such Qualifying Parties elect whether or not to
effect a Redemption of their Partnership Units. In the event that any such
Qualifying Party elects to effect such a Redemption, it shall give notice
thereof and of the number of Partnership Units to be made subject thereto in
writing to the General Partner within ten (10) business days after receipt of
the Single Funding Notice, and such Qualifying Party shall be treated as a
Tendering Party for all purposes of this Section 11.1. In the event that a
Qualifying Party does not so elect, it shall be deemed to have waived its right
to effect a Redemption for the current Six-month Period.
(e) Notwithstanding anything herein to the contrary (but subject to Section
11.1(c) hereof), with respect to any Redemption (or any tender of Partnership
Units for Redemption if the Tendered Units are acquired by Essex pursuant to
Section 11.1(b) hereof) pursuant to this Section 11.1:
(i) Subject to the Ownership Limit, no Tendering Party may effect a Redemption,
(a) to the extent that the aggregate Partnership Units of the Limited Partners
(other than the General Partner or the Special Limited Partner) would be
reduced, as a result of the Redemption (or the acquisition of the Tendered Units
by Essex pursuant to Section 11.1(b) hereof), to less than one percent (1%) of
<PAGE>
all Partnership Units outstanding immediately prior to delivery of the Notice of
Redemption, where the Redemption would consist of less than all the Partnership
Units held by Partners, other than the General Partner and the Special Limited
Partner, (b) for less than one thousand (1,000) Partnership Units or, if such
Tendering Party holds (as a Limited Partner or, economically, as an Assignee)
less than one thousand (1,000) Partnership Units, all of the Partnership Units
held by such Tendering Party, or (c) for less than all of such Tendering Party's
Partnership Units if, after giving effect to the requested Redemption, such
Tendering Party would continue to hold less than one thousand (1,000)
Partnership Units.
(ii) Each Tendering Party (a) may effect a Redemption only once in each
Six-month Period (unless the restriction contained in this Section 11.1(e)(ii)
is waived by the General Partner in its sole and absolute discretion) and (b)
may not effect a Redemption during the period after the Partnership Record Date
with respect to a distribution hereunder and before the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such Partnership distribution.
(iii) Notwithstanding anything herein to the contrary, with respect to any
Redemption or acquisition of Tendered Units by Essex pursuant to Section 11.1(b)
hereof, in the event that the General Partner gives notice to all Limited
Partners (but excluding the Special Limited Partner and any Assignees) then
owning Partnership Interests (a "Primary Offering Notice") that Essex desires to
effect an offering (whether or not underwritten and whether or not a public or
private placement) of REIT Shares or other securities of Essex, commencement of
the actions denoted in Section 11.1(d) hereof as to a Public Offering Funding
with respect to any Notice of Redemption thereafter received, whether or not the
Tendering Party is a Limited Partner, may be delayed, at the option of the
General Partner until the earlier of (a) the completion of the offering or (b)
ninety (90) days following the giving of the Primary Offering Notice.
(iv) Without the consent of the General Partner (which may be given or withheld
in its sole and absolute discretion), no Tendering Party may effect a Redemption
within ninety (90) days following the closing of any prior Public Offering
Funding.
(v) The consummation of such Redemption (or an acquisition of Tendered Units by
Essex pursuant to Section 11.1(b) hereof, as the case may be) shall be subject
to the expiration or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(vi) The Tendering Party shall continue to hold all Partnership Units subject to
any Redemption, and be treated as a Limited Partner or an Assignee, as
applicable, with respect such Partnership Units for all purposes of this
Agreement, until such Partnership Units are either paid for by the Partnership
pursuant to Section 11.1(a) hereof or transferred to Essex and paid for by the
issuance of the REIT Shares, pursuant to Section 11.1(b) hereof, on the
Specified Redemption Date. Until a Specified Redemption Date and an acquisition
of the Tendered Units by Essex pursuant to Section 11.1(b) hereof, the Tendering
<PAGE>
Party shall have no rights as a shareholder of Essex with respect to the REIT
Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 11.1(e), all Partnership Units beneficially owned by a Related Party of
a Tendering Party shall be considered to be owned or held by such Tendering
Party.
(f) In connection with an exercise of Redemption rights pursuant to this Section
11.1, the Tendering Party shall submit the following to the General Partner, in
addition to the Notice of Redemption:
(i) A written affidavit, dated the same date as, and accompanying, the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as determined
for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such
Tendering Party and (ii) any Related Party and (b) representing that, after
giving effect to the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof, neither the Tendering Party nor any Related
Party will own REIT Shares in excess of any ownership limitations set forth in
the Charter;
(ii) A written representation that neither the Tendering Party nor any Related
Party has any intention to acquire any additional REIT Shares prior to the
closing of the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof on the Specified Redemption Date; and
(iii) An undertaking to certify, at and as a condition to the closing of (i) the
Redemption or (ii) the acquisition of the Tendered Units by Essex pursuant to
Section 11.1(b) hereof on the Specified Redemption Date, that either (a) the
actual and constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit required by
Section 11.1(f)(i) or (b) after giving effect to the Redemption or an
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof,
neither the Tendering Party nor any Related Party shall own REIT Shares in
violation of the Ownership Limit.
11.2 PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTEREST. Notwithstanding any
other provision of this Agreement, on and after the date on which the aggregate
Partnership Units of the Limited Partners (other than the Special Limited
Partner) constitute less than twenty-five percent (25%) of the aggregate
Partnership Units of all Partners, the Partnership shall have the right, but not
the obligation, from time to time and at any time to redeem any and all
outstanding Partnership Interests of the Limited Partners (other than the
Special Limited Partner) by treating any Limited Partner (other than the Special
Limited Partner) as a Tendering Party who has delivered a Notice of Redemption
pursuant to Section 11.1 hereof for the amount of Partnership Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 11.2. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 11.2 shall be treated as if it were a Notice of
<PAGE>
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 11.2, (a) any Limited Partner (whether or not otherwise
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 11.1(c), 11.1(e)(i), 11.1(e)(ii), and 11.1.(e)(iv) hereof
shall not apply, but the remainder of Section 11.1 hereof (including, without
limitation, the rights of the General Partner under Section 11.1(b) hereof)
shall apply with such adjustments as shall be necessary in the circumstances.
Notwithstanding the foregoing, the Partnership shall have no rights pursuant to
this Section 11.2 prior to January 1, 2016.
11.3 OTHER REDEMPTIONS. Notwithstanding the provisions of Section 11.1 hereof,
nothing in this Agreement shall preclude the redemption of any Partnership
Interest of a Limited Partner or Partnership Units by the Partnership upon such
terms and conditions as may be negotiated between the Limited Partner or
Assignee holding such Limited Partner's Partnership Interest or Partnership
Units, on the one hand, and the General Partner, on the other hand, in their
sole and absolute discretion. Such a redemption may include, without limitation,
the payment of cash by the Partnership to the Limited Partner or Assignee, in a
lump sum or in installments, or the distribution in kind of Partnership assets
to such Limited Partner or Assignee (which assets may be encumbered), including
assets to be designated by the Limited Partner or Assignee and acquired (with or
without debt financing) by the Partnership. Upon any such redemption, the
Partnership Units and Partnership Interest redeemed shall be cancelled and
Exhibit A shall be amended as appropriate to reflect such redemption. In
effecting any such redemption by negotiated agreement, none of the Partnership,
the General Partner, the Limited Partner and the Assignee, as the case may be,
shall incur any liability to any other Unitholder or have any duty to offer the
same or similar terms for redemption of any other Partnership Interest or
Partnership Units.
ARTICLE XII
Arbitration of Disputes
12.1 ARBITRATION. Notwithstanding anything to the contrary contained in this
Agreement, all claims, disputes and controversies between the parties hereto
(including, without limitation, any claims, disputes and controversies between
the Partnership and any one or more of the Partners and any claims, disputes and
controversies between any one or more Partners) arising out of or in connection
with this Agreement or the Partnership created hereby, relating to the validity,
construction, performance, breach, enforcement or termination thereof, or
otherwise, shall be resolved by binding arbitration in San Francisco,
California, in accordance with California Civil Procedure Code Sections 1280 et
seq. (other than Section 1283.05), this Article XII and, to the extent not
inconsistent with this Article XII (other than the reference in this Article to
Sections of the California Civil Procedure Code), the Expedited Procedures and
Commercial Arbitration Rules of the American Arbitration Association (the
"Arbitration Rules").
12.2 PROCEDURES. Any arbitration called for by this Article XII shall be
conducted in accordance with the following procedures:
<PAGE>
(a) The Partnership or any Partner (the "Requesting Party") may demand
arbitration pursuant to Section 12.1 hereof at any time by giving written notice
of such demand (the "Demand Notice") to all other Partners and (if the
Requesting Party is not the Partnership) to the Partnership which Demand Notice
shall describe in reasonable detail the nature of the claim, dispute or
controversy.
(b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting
Party, on the one hand, and each of the other Partners and/or the Partnership
against whom the claim has been made or with respect to which a dispute has
arisen (collectively, the "Responding Party"), on the other hand, shall select
and designate in writing to the other party one reputable, disinterested
individual (a "Qualified Individual") willing to act as an arbitrator of the
claim, dispute or controversy in question. Each of the Requesting Party and the
Responding Party shall use its best efforts to select a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof), having
at least ten (10) years experience in real estate partnership matters, having no
affiliation with any of the parties as its respective Qualified Individual.
Within fifteen (15) days after the foregoing selections have been made, the
arbitrators so selected shall jointly select a present or former partner of a
"Big 6" accounting firm (or a "Big 8" predecessor thereof) having no affiliation
with any of the parties as the third Qualified Individual willing to act as an
arbitrator of the claim, dispute or controversy in question (the "Third
Arbitrator"). In the event that the two arbitrators initially selected are
unable to agree on the Third Arbitrator within the second fifteen (15) day
period referred to above, then, on the application of either party, the American
Arbitration Association shall promptly select and appoint a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof) having
no affiliation with any of the parties as the Qualified Individual to act as the
Third Arbitrator in accordance with the terms of the Arbitration Rules. The
three arbitrators selected pursuant to this subsection (b) shall constitute the
arbitration panel for the arbitration in question.
(c) The presentations of the parties hereto in the arbitration proceeding shall
be commenced and completed within sixty (60) days after the selection of the
arbitration panel pursuant to subsection (b) above, and the arbitration panel
shall render its decision in writing within thirty (30) days after the
completion of such presentations. Any decision concurred in by any two (2) of
the arbitrators shall constitute the decision of the arbitration panel, and
unanimity shall not be required. If a decision concurred in by at least two (2)
of the arbitrators is not rendered within such thirty (30) day period, then each
of the parties shall select a new Qualified Individual willing to act as an
arbitrator and a new arbitration proceeding shall commence in accordance with
this Article XII.
(d) The arbitration panel shall have the discretion to include in its decision a
direction that all or part of the attorneys' fees and costs of any party or
parties and/or the costs of such arbitration be paid by any other party or
parties. On the application of a party before or after the initial decision of
the arbitration panel, and proof of its attorneys' fees and costs, the
arbitration panel shall order the other party to make any payments directed
pursuant to the preceding sentence.
<PAGE>
(e) The Third Arbitrator shall have the right in its discretion to authorize the
obtaining of discovery, including the taking of depositions of witnesses for the
purpose of discovery.
(f) At the request of any party, the arbitrators shall make and provide to the
parties written findings of fact and conclusions of law.
12.3 BINDING CHARACTER. Any decision rendered by the arbitration panel pursuant
to this Article XII shall be final and binding on the parties hereto, and
judgment thereon may be entered by any state or federal court of competent
jurisdiction.
12.4 EXCLUSIVITY. Arbitration shall be the exclusive method available for
resolution of claims, disputes and controversies described in Section 12.1
hereof, and the Partnership and its Partners stipulate that the provisions
hereof shall be a complete defense to any suit, action, or proceeding in any
court or before any administrative or arbitration tribunal with respect to any
such claim, controversy or dispute. The provisions of this Article XII shall
survive the dissolution of the Partnership.
12.5 NO ALTERATION OF AGREEMENT. Nothing contained herein shall be deemed to
give the arbitrators any authority, power or right to alter, change, amend,
modify, add to, or subtract from any of the provisions of this Partnership
Agreement.
<PAGE>
ARTICLE XIII
General Provisions
13.1 NOTICES. All notices, offers or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and may be personally
served, telecopied or sent by United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy or three business
days after deposit in United States mail, registered or certified, postage
prepaid, and properly addressed, by or to the appropriate party. For purposes of
this Section 13.1, the addresses of the parties hereto shall be as set forth in
attached Exhibit A. The address of any Limited Partner may be changed by a
notice in writing given to the General Partner or the Special Limited Partner in
accordance with the provisions hereof, and the address of the General Partner
and the Special Limited Partner may be changed by a notice in writing given to
each of the Limited Partners in accordance with the provisions hereof.
13.2 SUCCESSORS. This Agreement and all the terms and provisions hereof shall be
binding upon and shall inure to the benefit of all Partners, and their legal
representatives, heirs, successors and permitted assigns, except as expressly
herein otherwise provided.
13.3 EFFECT AND INTERPRETATION. This Agreement shall be governed by and
construed in conformity with the laws of the State of California.
13.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
13.5 PARTNERS NOT AGENTS. Except as specifically provided herein, nothing
contained herein shall be construed to constitute any Partner the agent of
another Partner, or in any manner to limit the Partners in the carrying on of
their own respective businesses or activities.
13.6 ENTIRE UNDERSTANDING; ETC. This Agreement constitutes the entire agreement
and understanding among the Partners and supersedes any prior understandings
and/or written or oral agreements among them respecting the subject matter
within.
13.7 AMENDMENTS. The General Partner is hereby authorized, without the consent
of the Limited Partners, to amend this Agreement, including, without limitation,
Exhibit A attached hereto to reflect (i) the admission of any substituted
Limited Partner or Additional Limited Partner into the Partnership or the
withdrawal of any Limited Partner from the Partnership, or (ii) any adjustment
to the Percentage Interests, Partnership Units or Capital Accounts of the
Partners in connection with any of the actions described in clause (i) above,
Section 4.3, or elsewhere in this Agreement. Except as provided in the previous
sentence, this Agreement may not be amended, and no provision benefiting the
General Partner or the Special Limited Partner may be waived, except by a
written instrument signed by the General Partner and the Special Limited Partner
(and Essex to the extent provided in Section 13.16) and (except as provided in
Article IV and Article IX), if the Limited Partners (other than the Special
Limited Partner) collectively own forty percent (40%) or more of the Partnership
<PAGE>
Units, a Majority-In-Interest of the Limited Partners, except that this
Agreement may not be amended to alter the priority of distributions or to
decrease any Limited Partner's Percentage Interest (except pursuant to a
provision of this Agreement other than this Section 13.7) without the consent of
all of the affected Limited Partners (regardless of the size of their collective
Partnership Unit ownership).
13.8 SEVERABILITY. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those to which it is
held invalid by such court, shall not be affected thereby.
13.9 TRUST PROVISION. This Agreement, to the extent executed by the trustee of a
trust, is executed by such trustee solely as trustee and not in a separate
capacity. Nothing herein contained shall create any liability on, or require the
performance of any covenant by, any such trustee individually, nor shall
anything contained herein subject the individual personal property of any
trustee to any liability.
13.10 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the
masculine, feminine and neuter, and all defined terms shall include the singular
and plural thereof whatever the context and facts require such construction. The
headings, titles and subtitles herein are inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof. Any
references in this Agreement to "including" shall be deemed to mean "including
without limitation".
13.11 ASSURANCES. Each of the Partners shall hereafter execute and deliver such
further instruments and do such further acts and things as may be required or
useful to carry out the intent and purpose of this Agreement and as are not
inconsistent with the terms hereof.
13.12 TAX CONSEQUENCES. Each Partner acknowledges and agrees that he or she has
relied fully upon the advice of its own legal counsel and/or accountant in
determining the tax consequences of this Agreement and the transactions
contemplated hereby and not upon any representations or advice by the General
Partner or by any other Partner.
13.13 SECURITIES REPRESENTATIONS. Each Limited Partner hereby represents and
warrants to the Partnership and the General Partner that
(a) such Limited Partner understands the risks of, and other considerations
relating to accepting the Partnership Units in connection with its contribution
of property to the Partnership.
(b) such Limited Partner is an "accredited investor" as defined in Rule 501
under the Securities Act, and by reason of its business and financial
experience, together with the business and financial experience of those
persons, if any, retained by it to represent or advise it with respect to the
transactions contemplated by this Agreement, (a) has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type, and it is capable of evaluating the merits
and risks of an investment in the Partnership and of making an informed
<PAGE>
investment decision, (b) is capable of protecting its own interest or has
engaged representatives or advisors to assist it in protecting its interest, and
(c) is capable of bearing the economic risk of such investment.
(c) such Limited Partner understands that an investment in the Partnership
involves substantial risks. Each Limited Partner has been given the opportunity
to make a thorough investigation of the proposed activities of the Partnership.
Each Limited Partner has been afforded the opportunity to obtain any information
deemed necessary by such Limited Partner. Each Limited Partner confirms that all
documents, records, and book pertaining to its investment in the Partnership and
requested by such Limited Partner have been made available or delivered to such
Limited Partner. Each Limited Partner has had an opportunity to ask questions of
and receive answers from the Partnership, or from a person or persons acting on
the Partnership's behalf, concerning the terms and conditions of the
transactions contemplated by this Agreement and its acquisition of Partnership
Units. Each Limited Partner has relied upon, and is making its investment
decisions, solely upon such information as has been provided to such Limited
Partner in writing by the Partnership.
(d) The Partnership Units issued or to be issued to each Limited Partner by the
Partnership will be held or acquired by such Limited Partner for its own account
for investment only and not with a view to, or with any intention of, a
distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Limited Partner's
right (subject to the terms of this Agreement) at all times to sell or otherwise
dispose of all or any part of its Partnership Units under an exemption from such
registration available under the Securities Act and applicable state securities
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Each Limited Partner was not formed for the specific
purpose of acquiring an interest in the Partnership.
Each Limited Partner agrees and acknowledges that (i) the Partnership Units
issued or to be issued to such Limited Partner have not been registered under
the Securities Act or state securities laws by reason of a specific exemption or
exemptions from registration under the Securities Act and applicable state
securities laws and, if such Partnership Units are represented by certificates,
such certificates will bear a legend to such effect; (ii) the Partnership's
reliance on such exemptions is predicated in part on the accuracy and
completeness of the representations, warranties and covenants of such Limited
Partner contained herein; (iii) such Partnership Units, therefore, cannot be
resold unless registered under the Securities Act and applicable state
securities laws, or unless an exemption from registration is available; (iv)
there is no public market for such Partnership Units; (v) notwithstanding
anything to the contrary set forth in this Agreement, Partnership Units issued
to such Limited Partner may not be Transferred unless the General Partner
determines that the Transfer of the same is a valid private placement under
applicable federal and state securities laws; and (vi) the Partnership has no
obligation or intention to register such Partnership Units for resale under the
Securities Act or any state securities laws or to take any action that would
make available any exemption from the registration requirements of such laws.
Each Limited Partner hereby acknowledges that because of the restrictions on
Transfer of such Partnership Units to be issued hereunder, such Limited Partner
may have to bear the economic risk of the investment commitment evidenced by
this Agreement for an indefinite period of time.
13.14 ORIGINAL GENERAL PARTNER REPRESENTATIONS. Each of the Current General
Partners, hereby, jointly and severally, represents and warrants to the General
Partner, the Special Limited Partner and the Partnership, as of the date hereof,
as follows:
(a) There is no litigation pending or, after due and diligent inquiry, to the
best of such Current General Partner's knowledge, threatened, (i) against the
Partnership, or (ii) any of the Current General Partners relating to the
operation or management of the Partnership or any of the Partnership's current
or prior assets.
(b) The Partnership is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of California. This Agreement
will not violate any provision of any agreement or judicial or administrative
order to which the Partnership or its current or prior assets are subject. The
Partnership and its operations are (and have at all times in the past been) in
compliance with all applicable laws.
(c) There are no outstanding (i) liabilities, debts, obligations or
responsibilities of the Partnership (including, without limitation, debts owed
by the Partnership to any of the Partners or any other Person), or (ii) written
or oral agreements to which the Partnership is subject or its assets bound,
which have not been disclosed to the General Partner, in writing, prior to the
date hereof.
(d) None of the Current General Partners is or has been the subject of any
Bankruptcy.
13.15 POWER OF ATTORNEY. Each Limited Partner and each Assignee hereby
irrevocably constitutes and appoints the General Partner, any Liquidating
Trustee, and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, coupled with an interest, with full power
and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments, supplements or restatements thereof) that the General Partner or the
Liquidating Trustee deems appropriate or necessary to form, qualify or continue
the existence or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of California and in all other
jurisdictions in which the Partnership may conduct business or own property; (b)
all instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all conveyances and other instruments or
<PAGE>
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the distribution or exchange of assets of the
Partnership pursuant to the terms of this Agreement; (e) all instruments
relating to the dissolution, liquidation or winding up of the Partnership or the
admission, withdrawal, removal or substitution of any Partner or any of the
other events described in, Article VIII, Article IX or Section 13.7 hereof or
the Capital Contribution of any Partner; and (f) all certificates, documents and
other instruments relating to the determination of the rights, preferences and
privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents, approvals,
waivers, certificates and other instruments appropriate or necessary, in the
sole and absolute discretion of the General Partner, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole and absolute discretion of
the General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with this Article XIII hereof or as
may be otherwise expressly provided for in this Agreement.
The foregoing power of attorney is hereby declared to be irrevocable and a
special power coupled with an interest, in recognition of the fact that each of
the Limited Partners and Assignees will be relying upon the power of the General
Partner to act as contemplated by this Agreement in any filing or other action
by it on behalf of the Partnership, and it shall survive and not be affected by
the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of
all or any portion of such Limited Partner's or Assignee's Partnership Units or
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner or Assignee hereby waives any and all defenses that
may be available to contest, negate or disaffirm the action of the General
Partner, taken in good faith under such power of attorney. Each Limited Partner
or Assignee shall execute and deliver to the General Partner or the Liquidating
Trustee, within fifteen (15) days after receipt of the General Partner's or the
Liquidating Trustee's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidating
Trustee, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
13.16 THIRD PARTY BENEFICIARY. Essex is and is hereby deemed a third party
beneficiary of this Agreement to the extent of the option granted to Essex
pursuant to Section 11.1(b) hereof and the other rights granted to Essex
hereunder, and Essex shall have the right to directly enforce such option and
all other rights provided to Essex pursuant to this Agreement. Neither Section
7.13 (nor the definition of "REIT Requirements"), Section 9.4 nor Section 11.1
(nor the definition of "Charter") shall be modified in any manner without
Essex's prior written consent in Essex's sole discretion.
<PAGE>
13.17 COSTS OF AGREEMENT. All costs incurred in connection with the preparation
and execution of this Agreement shall be paid by the Partnership.
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby entered into among the undersigned
Partners as of the date first written above.
GENERAL PARTNER:
ESSEX MANAGEMENT CORPORATION,
a California corporation
By: ________________________________________________
Name:_______________________________________________
Its: _______________________________________________
SPECIAL LIMITED
PARTNER:
ESSEX PORTFOLIO, L.P., a
California limited partnership
By: ESSEX PROPERTY TRUST, INC., a
Maryland corporation
By: __________________________________________
Name: _________________________________________
Its: __________________________________________
<PAGE>
LIMITED PARTNERS:
NOTICE: BY EXECUTING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION IN
ARTICLE XII (THE "ARBITRATION PROVISION") DECIDED BY NEUTRAL ARBITRATION AS
PROVIDED BY SUCH ARBITRATION PROVISION AND BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL EXCEPT AS SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. BY EXECUTING
THIS AGREEMENT YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL,
UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THE ARBITRATION PROVISION,
YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE. YOUR AGREEMENT TO THE ARBITRATION PROVISION IS VOLUNTARY.
THE UNDERSIGNED HAS READ AND UNDERSTANDS THE FOREGOING AND AGREES TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION PROVISION TO
NEUTRAL ARBITRATION.
/s/ Donald V. Baptist /s/ James Fuqua
Donald V. Baptist James Fuqua
/s/ Mayo Family Revocable Trust /s/ FBO Berghorn Trust
Mayo Family Revocable Trust FBO Berghorn Trust
/s/ Jean C. Baptist /s/ Craig Zimmerman
Jean C. Baptist Craig Zimmerman
/s/Rene Marasigan, M.D. and Ramona Marasigan 4/86 Trust
Rene Marasigan, M.D. and Ramona Marasigan 4/86 Trust
/s/ Hanover Property Company, a California Corporation
Hanover Property Company
<PAGE>
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Irvington Square Associates, a California Limited Partnership
Agreement between Essex management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit A: Partners and Addresses
<PAGE>
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Irvington Square Associates, a California Limited Partnership
Agreement between Essex management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit B: Examples Regarding Adjustment Factor
<PAGE>
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Irvington Square Associates, a California Limited Partnership
Agreement between Essex management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit C: Notices of Redemption
<PAGE>
The following exhibit to this First Amended and Restated Agreement of Limited
Partnership of Irvington Square Associates, a California Limited Partnership
Agreement between Essex management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit E: Allocations
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
IRVINGTON SQUARE ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
---------------------------
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO HEREIN HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, UNLESS IT HAS BEEN CONFIRMED
TO YOU IN WRITING, WITH ANY STATE REGULATORY AGENCY. THESE LIMITED PARTNERSHIP
INTERESTS MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS PARTNERSHIP
AGREEMENT, MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH LIMITED PARTNERSHIP INTERESTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE REGULATIONS PROMULGATED PURSUANT THERETO AND ANY APPLICABLE STATE LAW
(UNLESS EXEMPT THEREFROM), AND WITHOUT COMPLIANCE WITH THE REQUIREMENTS SET
FORTH IN THIS PARTNERSHIP AGREEMENT.
NO STATE OR FEDERAL SECURITY COMMISSIONERS OR STATE OR FEDERAL REGULATORY
AGENCIES HAVE PASSED UPON THE VALUE OF THE SECURITIES, NOR HAVE THEY APPROVED OR
DISAPPROVED THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
* * * * * * * * * * * * *
<PAGE>
TABLE OF CONTENTS (Continued)
TABLE OF CONTENTS
ARTICLE I DEFINITIONS; ETC....................................................1
1.1 Definitions..............................................................1
1.2 Exhibit, Etc............................................................16
ARTICLE II ORGANIZATION......................................................16
2.1 Continuation of Partnership..............................................16
2.2 Name....................................................................16
2.3 Character of the Business...............................................16
2.4 Partnership Only for Purposes Specified.................................17
2.5 Location of the Principal Place of Business.............................17
2.6 Agent for Service of Process............................................17
2.7 Admission of New General Partner; Removal of Existing General Partners..17
2.8 Certificates of Ownership...............................................17
ARTICLE III TERM.............................................................18
3.1 Commencement............................................................18
3.2 Termination.............................................................18
ARTICLE IV CONTRIBUTIONS TO CAPITAL..........................................18
4.1 General Partner and Special Limited Partner Capital Contributions.......18
4.2 Limited Partner Capital Contributions...................................18
4.3 Additional Funds........................................................18
4.4 Contributions of Property...............................................20
4.5 No Third Party Beneficiary..............................................20
4.6 No Interest; No Return..................................................20
ARTICLE V CONCURRENT TRANSACTIONS............................................20
5.1 Concurrent Transactions.................................................20
ARTICLE VI ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS..................20
6.1 Allocations.............................................................20
6.2 Distributions...........................................................20
6.3 Withholding.............................................................21
6.4 Books of Account........................................................21
6.5 Reports.................................................................21
6.6 [Intentionally Omitted].................................................22
6.7 Tax Elections and Returns...............................................22
6.8 Tax Matters Partner.....................................................22
ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER...........23
7.1 Expenditures by Partnership.............................................23
7.2 Powers and Duties of General Partner....................................23
7.3 Major Decisions.........................................................26
7.4 Actions with Respect to Certain Documents...............................26
7.5 Other Business of General Partner and Special Limited Partner...........27
7.6 Contracts With Affiliates...............................................27
7.7 Proscriptions...........................................................27
7.8 Additional Partners.....................................................28
7.9 Title Holder............................................................28
7.10 Compensation of the General Partner....................................28
<PAGE>
7.11 Waiver and Indemnification.............................................28
7.12 Contracts With Controlled Entities.....................................29
7.13 Operation in Accordance with REIT Requirements.........................29
ARTICLE VIII DISSOLUTION, LIQUIDATION AND WINDING-UP.........................30
8.1 Liquidating Events......................................................30
8.2 Accounting..............................................................30
8.3 Distribution on Dissolution.............................................30
8.4 Timing Requirements.....................................................31
8.5 Sale of Partnership Assets..............................................31
8.6 Distributions in Kind...................................................31
8.7 Documentation of Liquidation............................................32
8.8 Liability of the Liquidating Trustee....................................32
ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS.................................32
9.1 General Partner and Special Limited Partner Transfers...................32
9.2 Transfers by Limited Partners...........................................33
9.3 Issuance of Additional Partnership Interests and Admittance of Additional
Partners................................................................34
9.4 Restrictions on Transfer................................................34
ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.....................35
10.1 No Participation in Management.........................................35
10.2 Bankruptcy of a Limited Partner and Certain Other Events...............35
10.3 No Withdrawal..........................................................35
10.4 Duties and Conflicts...................................................35
ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNERS...............................36
11.1 Grant of Rights........................................................36
11.2 Partnership Right to Call Limited Partner Interest.....................40
11.3 Other Redemptions......................................................41
ARTICLE XII ARBITRATION OF DISPUTES..........................................41
12.1 Arbitration............................................................41
12.2 Procedures.............................................................41
12.3 Binding Character......................................................43
12.4 Exclusivity............................................................43
12.5 No Alteration of Agreement.............................................43
ARTICLE XIII GENERAL PROVISIONS..............................................44
13.1 Notices................................................................44
13.2 Successors.............................................................44
13.3 Effect and Interpretation..............................................44
13.4 Counterparts...........................................................44
13.5 Partners Not Agents....................................................44
13.6 Entire Understanding; Etc..............................................44
13.7 Amendments.............................................................44
13.8 Severability...........................................................44
13.9 Trust Provision........................................................45
13.10 Pronouns and Headings.................................................45
13.11 Assurances............................................................45
13.12 Tax Consequences......................................................45
13.13 Securities Representations............................................45
13.14 Original General Partner Representations..............................46
<PAGE>
13.15 Power of Attorney.....................................................47
13.16 Third Party Beneficiary...............................................48
13.17 Costs of Agreement....................................................49
EXHIBITS
A Partners and Addresses
B Examples Regarding Adjustment Factor
C Notice of Redemption
D Intentionally Omitted
E Allocations
<PAGE>
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
IRVINGTON SQUARE ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
------------------
<PAGE>
FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN PALO ALTO II INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
THIS FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is
made and entered into as of the 1st day of January, 1997, by and among the
undersigned parties.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Third Amended and Restated Agreement
of Limited Partnership entered into as of March 6, 1985 (the "Original
Agreement"), the parties to the Original Agreement continued Western Palo Alto
II Investors, a California limited partnership (the "Partnership"), pursuant to
the Uniform Limited Partnership Act of California, subject to the terms and
conditions of the Original Agreement; and
WHEREAS, the parties, hereto, constituting all of the partners in the
Partnership, hereby desire to amend, restate and supersede the Original
Agreement in its entirety, pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby amend, restate and supersede the Original
Agreement, in its entirety, to provide as follows:
ARTICLE I
Definitions; Etc.
1.1 DEFINITIONS. Except as otherwise herein expressly provided, the following
terms and phrases shall have the meanings set forth below:
"ACCOUNTANTS" shall mean the firm or firms of independent certified public
accountants selected by the General Partner on behalf of the Partnership.
"ACQUISITION COST" shall have the meaning set forth in Section 4.1 hereof.
"ACT" shall mean the California Revised Limited Partnership Act, California
Corporations Code Sections 15611, et seq., as the same may hereafter be amended
from time to time.
"ADDITIONAL INTERESTS" shall have the meaning set forth in Section 9.3 hereof.
"ADDITIONAL PARTNER" shall have the meaning set forth in Section 9.3 hereof.
<PAGE>
"ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with respect to any Limited
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of any relevant fiscal year and after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which such Partner is obligated
or treated as obligated to restore with respect to any deficit balance in such
Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or
is deemed to be obligated to restore with respect to any deficit balance
pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"ADJUSTMENT DATE" shall have the meaning set forth in Section 4.3(a)(ii) hereof.
"ADJUSTMENT FACTOR" means 1.0; provided, however, that in the event that:
(a) Essex (as hereinafter defined) (i) declares or pays a dividend on the
outstanding REIT Shares (as hereinafter defined) in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii)
splits or subdivides its outstanding REIT Shares or (iii) effects a reverse
stock split or otherwise combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying
the Adjustment Factor previously in effect by a fraction, (1) the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has occurred as of such time) and (2)
the denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or combination;
(b) Essex distributes any rights, options or warrants to all holders of its REIT
Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or
other securities or rights convertible into, exchangeable for or exercisable for
REIT Shares) at a price per share less than the Value of a REIT Share on the
record date for such distribution (each a "Distributed Right"), then the
Adjustment Factor shall be adjusted by multiplying the Adjustment Factor
previously in effect by a fraction, (i) the numerator of which shall be the
number of REIT Shares issued and outstanding on the record date plus the maximum
number of REIT Shares purchasable under such Distributed Rights, and (ii) the
denominator of which shall be the number of REIT Shares issued and outstanding
on the record date plus a fraction, (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights, and (2) the
denominator of which is the Value of a REIT Share as of the record date;
<PAGE>
provided, however, that, if any such Distributed Rights expire or become no
longer exercisable, then the Adjustment Factor shall be adjusted, effective
retroactive to the date of distribution of the Distributed Rights, to reflect a
reduced maximum number of REIT Shares or any change in the minimum purchase
price for the purposes of the above fractions; or
(c) Essex shall, by dividend or otherwise, distribute to all holders of
outstanding REIT Shares evidences of its indebtedness or assets (including
securities, but excluding any dividend or distribution referred to in subsection
(a) above), which evidences of indebtedness or assets relate to assets not
received by Essex pursuant to a pro rata distribution by the Partnership, then
the Adjustment Factor shall be adjusted to equal the amount determined by
multiplying the Adjustment Factor in effect immediately prior to the close of
business on the date fixed for determination of shareholders entitled to receive
such distribution by a fraction, (i) the numerator shall be the Value on the
date fixed for such determination and (ii) the denominator shall be the Value on
the dated fixed for such determination less the then fair market value (as
determined by Essex, whose determination shall be conclusive) of the portion of
the evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event; provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment which
results in an increase (but not a decrease) to the Adjustment Factor applicable
to the Partnership Units held by such Limited Partner, and, thereafter, such
adjustment will not be effective as to such Partnership Units. For illustrative
purposes only, examples of adjustments to the Adjustment Factor are set forth on
Exhibit B attached hereto.
"ADMINISTRATIVE EXPENSES" shall mean (i) all administrative and operating costs
and expenses incurred by the Partnership, and (ii) those administrative costs
and expenses of the General Partner and the Special Limited Partner, including
salaries paid to officers of the General Partner and the Special Limited
Partner, and accounting and legal expenses undertaken by the General Partner and
the Special Limited Partner on behalf or for the benefit of the Partnership.
"AFFILIATE" shall mean, with respect to any Partner (or as to any other person
the affiliates of whom are relevant for purposes of any of the provisions of
this Agreement), (i) any member of the Immediate Family of such Partner; (ii)
any trustee or beneficiary of a Partner; (iii) any legal representative,
successor, or assignee of any Person referred to in the preceding clauses (i)
and (ii); (iv) any trustee for the benefit of any Person referred to in the
preceding clauses (i) through (iii); or (v) any Entity which directly or
indirectly through one or more intermediaries, Controls, is Controlled by, or is
under common Control with, any Person referred to in the preceding clauses (i)
through (iv).
"AGREEMENT" shall mean this Fourth Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended, modified, supplemented or
restated from time to time, as the context requires.
"APPLICABLE PERCENTAGE" has the meaning set forth in Section 11.1(b) hereof.
<PAGE>
"ARBITRATION RULES" shall have the meaning set forth in Section 12.1 hereof.
"ASSIGNEE" shall mean a Person to whom one or more Partnership Units have been
Transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner.
"AVAILABLE CASH" shall mean, with respect to any fiscal period of the
Partnership, the excess, if any, of "Receipts" over "Expenditures." For purposes
hereof, the term "Receipts" means the sum of all cash receipts of the
Partnership from all sources for such period, (x) including (i) Net Sale
Proceeds and Net Financing Proceeds and (ii) any amounts held as reserves as of
the last day of such period which the General Partner reasonably deems to be in
excess of necessary reserves as determined below, and (y) excluding Capital
Contributions. The term "Expenditures" means the sum of (a) all cash expenses of
the Partnership for such period, (b) the amount of all payments of principal and
interest on account of any indebtedness of the Partnership including payments of
principal and interest on account of Partner Loans, or amounts due on such
indebtedness during such period, (c) any amount distributed or paid in
redemption of Partnership Units pursuant to Article XI hereof, including,
without limitation, any Cash Amount paid, and (d) such additional cash reserves
as of the last day of such period as the General Partner deems necessary for any
capital or operating expenditure permitted hereunder, but excluding all amounts
payable under the clauses (a), (b), (c) and (d) above with the proceeds of
Capital Contributions, as determined by the General Partner.
"BANKRUPTCY" shall mean, with respect to any Partner, (i) the commencement by
such Partner of any proceeding seeking relief under any provision or chapter of
the federal Bankruptcy Code or any other federal or state law relating to
insolvency, bankruptcy or reorganization, (ii) an adjudication that such Partner
is insolvent or bankrupt; (iii) the entry of an order for relief under the
federal Bankruptcy Code with respect to such Partner, (iv) the filing of any
such petition or the commencement of any such case or proceeding against such
Partner, unless such petition and the case or proceeding initiated thereby are
dismissed within ninety (90) days from the date of such filing, (v) the filing
of an answer by such Partner admitting the allegations of any such petition,
(vi) the appointment of a trustee, receiver or custodian for all or
substantially all of the assets of such Partner unless such appointment is
vacated or dismissed within ninety (90) days from the date of such appointment
but not less than five (5) days before the proposed sale of any assets of such
Partner, (vii) the insolvency of such Partner or the execution by such Partner
of a general assignment for the benefit of creditors, (viii) the failure of such
Partner to pay its debts as they mature, (ix) the levy, attachment, execution or
other seizure of all or substantially all of the assets of such Partner where
such seizure is not discharged within thirty (30) days thereafter, or (x) the
admission by such Partner in writing of its inability to pay its debts as they
mature or that it is generally not paying its debts as they become due.
"CAPITAL ACCOUNT" shall mean, with respect to any Partner, the separate "book"
account which the Partnership shall establish and maintain for such Partner in
accordance with Section 704(b) of the Code and Section 1.704-1(b)(2)(iv) of the
Regulations and such other provisions of Section 1.704-1(b) of the Regulations
that must be complied with in order for the Capital Accounts to be determined in
<PAGE>
accordance with the provisions of said Regulations. In furtherance of the
foregoing, the Capital Accounts shall be maintained in compliance with Section
1.704-1(b)(2)(iv) of the Regulations; and the provisions hereof shall be
interpreted and applied in a manner consistent therewith. In the event that any
Partnership Interest is transferred in accordance with the terms of this
Agreement, the Capital Account, at the time of the transfer, of the transferor
attributable to the transferred interest shall carry over to the transferee.
"CAPITAL CONTRIBUTION" shall mean, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any property other than money
contributed by such Partner to the Partnership pursuant to the terms of this
Agreement (net of liabilities secured by such property that the Partnership is
considered to assume or take subject to under Section 752 of the Code). Gross
Asset Value shall be calculated as provided herein.
"CASH AMOUNT" means (1) the lesser of (A) an amount of cash equal to the product
of (i) the product of (a) the Value of a REIT Share and (b) the REIT Shares
Amount determined as of the applicable Valuation Date, and (ii) 0.98, or (B) in
the case of a Declination followed by a Public Offering Funding, the Public
Offering Funding Amount, plus (2) all accrued but unpaid distributions, if any,
with respect to the Tendered Units, pursuant to Section 6.2(b).
"CERTIFICATE" shall mean the Certificate of Limited Partnership establishing the
Partnership, as filed with the office of the California Secretary of State, as
the same has been amended and may be amended from time to time in accordance
with the terms of the Original Agreement, this Agreement and the Act.
"CHARTER" means the Articles of Amendment and Restatement of Essex filed with
the Maryland State Department of Assessments and Taxation on July 5, 1995, as
amended, supplemented or restated from time to time.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"CONSENT OF THE LIMITED PARTNERS" means the written consent of a
Majority-In-Interest of the Limited Partners, which Consent shall be obtained
prior to the taking of any action for which it is required by this Agreement and
may be given or withheld by a Majority-In-Interest of the Limited Partners,
unless otherwise expressly provided herein, in their sole and absolute
discretion.
"CONTRIBUTED FUNDS" shall have the meaning set forth in Section 4.3(a)(ii)
hereof.
"CONTRIBUTED PROPERTY" shall have the meaning set forth in Section 4.1 hereof.
"CONTROL" shall mean the ability, whether by the direct or indirect ownership of
shares or other equity interests, by contract or otherwise, to elect a majority
of the directors of a corporation, to select the managing partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
<PAGE>
Entity. In the case of a limited partnership, the sole general partner, all of
the general partners to the extent each has equal management control and
authority, or the managing general partner or managing general partners thereof
shall be deemed to have control of such partnership and, in the case of a trust,
any trustee thereof or any Person having the right to select any such trustee
shall be deemed to have control of such trust.
"CONTROLLED ENTITY" shall mean, with respect to any Limited Partner or Person,
any Entity which directly or indirectly Controls, is Controlled by, or is under
common Control with, such Limited Partner or Person.
"CURRENT GENERAL PARTNERS" shall have the meaning set forth in Section 2.7
hereof.
"CUT-OFF DATE" means the tenth (10th) business day after the General Partner's
receipt of a Notice of Redemption.
"DECLINATION" has the meaning set forth in Section 11.1(d) hereof.
"DEMAND NOTICE" shall have the meaning set forth in Section 12.2 hereof.
"DEPRECIATION" shall mean, with respect to any asset of the Partnership for any
fiscal year or other period, the depreciation, depletion or amortization, as the
case may be, allowed or allowable for Federal income tax purposes in respect of
such asset for such fiscal year or other period; provided, however, that if
there is a difference between the Gross Asset Value and the adjusted tax basis
of such asset, Depreciation shall mean "book depreciation, depletion or
amortization" as determined under Section 1.704-1(b)(2)(iv)(g)(3) of the
Regulations.
"DISTRIBUTED RIGHT" has the meaning set forth in the definition of "Adjustment
Factor."
"ENTITY" shall mean any general partnership, limited partnership, limited
liability partnership, limited liability company, corporation, joint venture,
trust, business trust, cooperative or association.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time (or any corresponding provisions of succeeding laws).
"ESSEX" shall mean Essex Property Trust, Inc., a Maryland corporation, the
general partner of the Special Limited Partner.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"EXPENDITURES" shall have the meaning set forth in the definition of Available
Cash.
<PAGE>
"FISCAL YEAR" shall mean the fiscal year of the Partnership, which shall be the
calendar year.
"FUNDING DATE" shall mean the date on which (i) the General Partner or the
Special Limited Partner makes a Partner Loan, or (ii) the Partnership receives
Contributed Funds pursuant to Section 4.3(a)(ii) hereof.
"FUNDING LOAN PROCEEDS" shall mean the net cash proceeds received by the General
Partner or the Special Limited Partner, as applicable, in connection with any
Funding Loan, after deduction of all costs and expenses incurred by the General
Partner or the Special Limited Partner, as applicable, in connection with such
Funding Loan.
"FUNDING LOAN(S)" shall mean any borrowing or refinancing of borrowings by or on
behalf of the General Partner or the Special Limited Partner, as applicable,
from any Person (including, without limitation, the General Partner and the
Special Limited Partner) for the purpose of advancing the Funding Loan Proceeds
to the Partnership as a loan pursuant to Section 4.3(a)(i) hereof.
"GENERAL PARTNER" shall mean Essex Management Corporation, a California
corporation, its duly admitted successors and assigns and any other Person who
is a general partner of the Partnership at the time of reference thereto.
"GROSS ASSET VALUE" shall mean, with respect to any asset of the Partnership,
such asset's adjusted basis for Federal income tax purposes, except as follows:
(a) the Gross Asset Value of any asset contributed to the Partnership by a
Partner shall be the gross fair market value of such asset as determined by the
General Partner, in its reasonable discretion, provided that the General
Partner's determination of the gross fair market value of any asset pursuant to
this paragraph (a) shall be deemed reasonable unless contested by the
contributing Partner (i) within sixty (60) days after such determination, with
respect to contributions by existing Partners, or (ii) prior to the contributing
Partner's execution of any document admitting such Partner as a Partner in the
Partnership, with respect to new Partners;
(b) if the General Partner reasonably determines that an adjustment is necessary
or appropriate to reflect the relative economic interests of the Partners, the
Gross Asset Values of all Partnership assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the General
Partner, as of the following times:
(i) a Capital Contribution (other than a de minimis Capital Contribution) to the
Partnership by the General Partner or a new or existing Limited Partner as
consideration for a Partnership Interest;
(ii) the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for the redemption of a
Partnership Interest;
<PAGE>
(iii) the liquidation of the Partnership within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations; and
(iv) at such other times as the General Partner shall reasonably determine
necessary or advisable in order to comply with Regulations Sections 1.704-1(b)
and 1.704-2.
(c) the Gross Asset Values of Partnership assets distributed to any Partner
shall be the gross fair market values of such assets (taking Section 7701(g) of
the Code into account) as determined by the General Partner, in its reasonable
discretion, as of the date of distribution, provided that the General Partner's
determination of the gross fair market value of any asset pursuant to this
paragraph (c) shall be deemed reasonable unless contested within sixty (60) days
after such distribution; and
(d) the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Section 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts pursuant
to Section 1.704-1(b)(2)(iv)(m) of the Regulations (see attached Exhibit E);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this paragraph to the extent that the General Partner reasonably determines that
an adjustment pursuant to paragraph (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partners' Capital Accounts; as for
the manner in which such adjustments are allocated to the Capital Accounts, see
paragraph (c) of the definition of Net Income and Net Loss in the case of
adjustment by Depreciation, and paragraph (e) of said definition in all other
cases.
"IMMEDIATE FAMILY MEMBER" shall mean, with respect to any Person that is an
individual, such Person's spouse, parents, parents-in-law, aunts, uncles,
descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law
and children-in-law, provided that the General Partner has been (a) notified of
such individual and (b) provided with any and all documentation reasonably
requested by the General Partner to verify that such individual is an Immediate
Family Member.
"LIEN" shall mean any liens, security interests, mortgages, deeds of trust,
charges, claims, encumbrances, pledges, options, rights of first offer or first
refusal and any other rights or interests of others of any kind or nature,
actual or contingent, or other similar encumbrances of any nature whatsoever.
"LIMITED PARTNERS" shall mean the Special Limited Partner and those Persons
listed under the heading "Limited Partners" on the signature page hereto in
their respective capacities as limited partners of the Partnership or any Person
who, at the time of reference thereto, is a limited partner of the Partnership
(including, without limitation, all Additional Partners and Substituted Limited
<PAGE>
Partners); provided, however, that "Limited Partners" does not include any
Assignee or any unpermitted transferee of a Limited Partner's Partnership Units.
"LIQUIDATING EVENT" shall have the meaning set forth in Section 8.1 hereof.
"LIQUIDATING TRUSTEE" shall mean such individual or Entity as is selected as the
Liquidating Trustee hereunder by the General Partner (or, in the event that
there is no remaining General Partner, an individual or Entity elected by a
Majority-in-Interest of the Limited Partners), which individual or Entity may
include an Affiliate of the General Partner, provided such Liquidating Trustee
agrees in writing to be bound by the terms of this Agreement. The Liquidating
Trustee shall be empowered to give and receive notices, reports and payments in
connection with the dissolution, liquidation and/or winding-up of the
Partnership and shall hold and exercise such other rights and powers as are
necessary or required to permit all parties to deal with the Liquidating Trustee
in connection with the dissolution, liquidation and/or winding-up of the
Partnership.
"MAJOR DECISIONS" shall have the meaning set forth in Section 7.3 hereof.
"MAJORITY-IN-INTEREST OF THE LIMITED PARTNERS" shall mean Limited Partner(s)
(other than the Special Limited Partner) who hold in the aggregate more than
fifty percent (50%) of the aggregate Partnership Units of all Limited Partners
(other than the Special Limited Partner).
"MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT" shall mean "partner
nonrecourse debt minimum gain" as determined in accordance with Regulation
Section 1.704-2(i)(2).
"NET FINANCING PROCEEDS" shall mean the cash proceeds received by the
Partnership in connection with any borrowing or refinancing of borrowing by or
on behalf of the Partnership (whether or not secured), after deduction of all
costs and expenses incurred by the Partnership in connection with such
borrowing, and after deduction of that portion of such proceeds used to repay
any other indebtedness of the Partnership, or any interest or premium thereon.
"NET INCOME OR NET LOSS" shall mean, for each fiscal year or other applicable
period, an amount equal to the Partnership's net income or loss for such year or
period as determined for federal income tax purposes by the Accountants,
determined in accordance with Section 703(a) of the Code (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a) of the Code shall be included in taxable income or
loss), with the following adjustments: (a) by including as an item of gross
income any tax-exempt income received by the Partnership; (b) by treating as a
deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code (including amounts paid or incurred to organize the
Partnership (unless an election is made pursuant to Code Section 709(b)) or to
promote the sale of interests in the Partnership and by treating deductions for
any losses incurred in connection with the sale or exchange of Partnership
property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code
<PAGE>
as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of
depreciation, depletion, amortization, and other recovery deductions taken into
account in computing total income or loss, there shall be taken into account
Depreciation; (d) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of such
property rather than its adjusted tax basis; and (e) in the event of an
adjustment of the Gross Asset Value of any Partnership asset which requires that
the Capital Accounts of the Partnership be adjusted pursuant to Regulation
Section 1.704-1(b)(2)(v)(e), (f) and (m), the amount of such adjustment is to be
taken into account as additional Net Income or Net Loss pursuant to attached
Exhibit E.
"NET SALE PROCEEDS" means the cash proceeds received by the Partnership in
connection with a sale of any asset by or on behalf of the Partnership after
deduction of any costs or expenses incurred by the Partnership, or payable
specifically out of the proceeds of such sale (including, without limitation,
any repayment of any indebtedness required to be repaid as a result of such sale
or which the General Partner elects to repay out of the proceeds of such sale,
together with accrued interest and premium, if any, thereon and any sales
commissions or other costs and expenses due and payable to any Person in
connection with a sale, including to a Partner or its Affiliates).
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Sections
1.704-2(b)(1) and (c) of the Regulations.
"NONRECOURSE LIABILITIES" shall have the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially in the form
of Exhibit C attached to this Agreement.
"ORIGINAL AGREEMENT" means that certain Third Amended and Restated Agreement of
Limited Partnership of the Partnership entered into as of March 6, 1985.
"PARTNER LOAN" shall have the meaning set forth in Section 4.3(a)(i) hereof.
"PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Section
1.704-2(i)(2) of the Regulations.
"PARTNERS" shall mean the General Partner, the Special Limited Partner and the
other Limited Partners.
"PARTNERSHIP" means the limited partnership formed pursuant to the Original
Agreement, as the same is amended, restated and superseded hereby and as hereby
constituted, as such limited partnership may from time to time in the future be
constituted.
"PARTNERSHIP INTEREST" shall mean the ownership interest of a Partner in the
Partnership from time to time, including each Partner's Percentage Interest and
such Partner's Capital Account. Wherever in this Agreement reference is made to
<PAGE>
a particular Partner's Partnership Interest, it shall be deemed to refer to such
Partner's Percentage Interest and shall include the proportionate amount of such
Partner's other interests in the Partnership which are attributable to or based
upon the Partner's Partnership Interest.
"PARTNERSHIP MINIMUM GAIN" shall have the meaning set forth in Section
1.704-2(b)(2) of the Regulations.
"PARTNERSHIP RECORD DATE" shall mean the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 6.2 hereof,
which record date shall generally be the same as the record date established by
the General Partner for a distribution to its shareholders of some or all of its
portion of such distribution.
"PARTNERSHIP UNIT" shall mean a fractional, undivided share of the Partnership
Interests of all Partners issued pursuant to the terms of this Agreement. The
number of Partnership Units held by the Partners shall be as indicated on
attached Exhibit A, as the same may be modified from time to time.
"PERCENTAGE INTEREST" shall mean, with respect to any Partner, the undivided
percentage ownership interest of such Partner in the Partnership, which interest
shall be determined by dividing the number of Partnership Units owned by such
Partner by the total number of Partnership Units outstanding.
"PERSON" shall mean any individual or Entity.
"PREFERRED RETURN PER UNIT" means
(a) as to a Limited Partner (other than the Special Limited Partner, except with
respect to any Partnership Units contributed to the Special Limited Partner by
Essex) or its Assignee (including, without limitation, Essex following the
acquisition of Tendered Units pursuant to Section 11.1(b) hereof), the amount
provided on Exhibit A with respect to each Partnership Unit held by such Limited
Partner; or
(b) in the case of each additional Partnership Unit issued in exchange for
additional Capital Contributions as provided in Section 4.3, the amount provided
on Exhibit A with respect to the Partner to whom such Partnership Unit is
issued.
The Preferred Return Per Unit, being determined with regard to the Partnership's
income, shall not constitute a "guaranteed payment" under Code Section 707(c).
"PRIMARY OFFERING NOTICE" has the meaning set forth in Section 11.1(e)(iii)
hereof.
"PROPERTY" OR "PROPERTIES" shall mean any real property in which the
Partnership, directly or indirectly, acquires any ownership leasehold or other
interest.
"PUBLIC OFFERING FUNDING" has the meaning set forth in Section 11.1(d)(ii)
hereof.
<PAGE>
"PUBLIC OFFERING FUNDING AMOUNT" means the dollar amount equal to (i) the
product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts,
and commissions and other expenses incurred by Essex in such Public Offering
Funding.
"QUALIFIED INDIVIDUAL" shall have the meaning set forth in Section 12.2(b)
hereof.
"QUALIFYING PARTY" means (a) a Limited Partner (other than the Special Limited
Partner, an Additional Partner or a Substituted Limited Partner), (b) an
Additional Partner or a Substituted Limited Partner (unless the terms of such
Additional Partner's or such Substituted Limited Partner's admission to the
Partnership otherwise provide), or (c) an Immediate Family Member of a
Qualifying Party, or a lending institution as the pledgee of a pledge of
Partnership Interests, who is the transferee in a Transfer permitted by this
Agreement.
"REDEMPTION" has the meaning set forth in Section 11.1(a) hereof.
"REGISTRABLE SHARES" has the meaning set forth in Section 11.1(d)(ii) hereof.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement
dated as of even date herewith by and among Essex and, among others, the Limited
Partners (other than the Special Limited Partner).
"REGULATIONS" shall mean the final, temporary or proposed Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set forth in attached Exhibit E.
"REIT" shall mean a real estate investment trust as defined in Section 856 of
the Code.
"REIT REQUIREMENTS" shall have the meaning set forth in Section 6.2 hereof.
"REIT SHARE" shall mean one share of the common stock, par value $.0001 per
share, of Essex Property Trust, Inc.
"REIT SHARES AMOUNT" means a number of REIT Shares equal to the product of (a)
the number of Tendered Units, (b) the Adjustment Factor and (c) the applicable
Specific Adjustment Factor, if any, taking into account any applicable Specific
Adjustment Limitations, if any; provided, however, that, in the event that Essex
issues to all holders of REIT Shares as of a certain record date rights,
options, warrants or convertible or exchangeable securities entitling Essex's
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), with the record date for such Rights
<PAGE>
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the General
Partner in good faith.
"RELATED PARTY" shall mean, with respect to any Person, any other Person whose
ownership of shares of Essex's capital stock would be attributed to the first
such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)).
"REQUESTING PARTY" shall have the meaning set forth in Section 12.2(a) hereof.
"REQUIRED FUNDS" shall have the meaning set forth in Section 4.3 hereof.
"RESPONDING PARTY" shall have the meaning set forth in Section 12.2(b) hereof.
"RIGHTS" shall have the meaning set forth in the definition of "REIT Shares
Amount."
"SEC" shall mean the United States Securities and Exchange Commission.
"SECTION 704(C) TAX ITEMS" shall have the meaning set forth in attached Exhibit
E.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SINGLE FUNDING NOTICE" has the meaning set forth in Section 11.1(d)(iii)
hereof.
"SIX-MONTH PERIOD" shall mean a 180-day period (or, as to a particular
Qualifying Party, such shorter period as the General Partner may, in its sole
and absolute discretion, agree to in writing) ending on the 180th day after (i)
the date hereof, with respect to Limited Partners of the Partnership as of the
date hereof (other than the Special Limited Partner), and (ii) with respect to
Persons becoming Qualifying Parties subsequent to the date hereof, either (x)
the admission of such Qualifying Party as a Limited Partner in the Partnership
or (y) the Transfer of Partnership Units to such Qualifying Party, and on each
180th day thereafter (or, in the case of a period shorter than 180 days, such
other period as may be agreed to by the General Partner in writing).
"SPECIAL LIMITED PARTNER" shall mean Essex Portfolio, L.P., a California limited
partnership, its duly admitted successors and assigns.
"SPECIFIC ADJUSTMENT FACTOR" means, as to a Limited Partner or its Assignee, the
amount specified as such on Exhibit A with respect to such Limited Partner;
provided, however, that, if no such amount is specified on Exhibit A, the
Specific Adjustment Factor shall be 1.0. The Specific Adjustment Factor need not
be the same for each Limited Partner and Assignee.
<PAGE>
"SPECIFIC ADJUSTMENT LIMITATIONS" means, as to a Limited Partner or its
Assignee, the limitations and restrictions, if any, specified as such on Exhibit
A with respect to such Limited Partner. The Specific Adjustment Limitations need
not be the same for each Limited Partner and Assignee.
"SPECIFIED REDEMPTION DATE" means the later of (a) the eleventh (11th) business
day after the receipt by the General Partner of a Notice of Redemption (or in
the case of a purchase by Essex pursuant to Section 11.1(b) hereof, the
thirtieth (30th) day after such receipt), or (b) in the case of a Declination
followed by a Public Offering Funding, the business day next following the date
of the closing of the Public Offering Funding; provided, however, that the
Specified Redemption Date, as well as the closing of a Redemption, or an
acquisition of Tendered Units by Essex pursuant to Section 11.1(b) hereof, on
any Specified Redemption Date, may be deferred, in the General Partner's sole
and absolute discretion, for such time (but in any event not more than one
hundred eighty (180) days in the aggregate) as may reasonably be required to
effect, as applicable, (i) any necessary funding arrangements, (ii) compliance
with the Securities Act or other law (including, but not limited to, (a) state
"blue sky" or other securities laws and (b) the expiration or termination of the
applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended), (iii) compliance with any and all
requirements set forth in the Charter relating to such transaction, and (iv)
satisfaction or waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature.
"SUBSTITUTED LIMITED PARTNER" shall mean a "substituted limited partner" as such
term is defined in Section 15519 of the Act.
"TAX ITEMS" shall have the meaning set forth in attached Exhibit E.
"TENDERED UNITS" has the meaning set forth in Section 11.1(a) hereof.
"TENDERING PARTY" has the meaning set forth in Section 11.1(a) hereof.
"THIRD ARBITRATOR" shall have the meaning set forth in Section 12.2 hereof.
"TRADING DAY" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
"TRANSFER," when used with respect to a Partnership Unit or all or any portion
of a Partnership Interest, means any sale, assignment, bequest, conveyance,
devise, gift (outright or in trust), pledge, encumbrance, hypothecation,
mortgage, exchange, transfer or other disposition or act of alienation, whether
voluntary or involuntary or by operation of law; provided, however, that, when
the term is used in Article IX hereof, Transfer does not include (a) any
Redemption of Partnership Units by the Partnership, or acquisition of Tendered
Units from the Limited Partners by Essex, pursuant to Section 11.1 hereof or (b)
any redemption of Partnership Units pursuant to Section 11.2 or Section 11.3
hereof. The terms "Transferred" and "Transferring" have correlative meanings.
<PAGE>
"UNAUDITED FINANCIAL STATEMENTS" shall mean unaudited financial statements
(balance sheet, statement of income, statement of partners' equity and statement
of cash flows) prepared with respect to the Partnership's operations.
"UNITHOLDER" means the General Partner or any other holder of Partnership Units.
"VALUATION DATE" means (a) in the case of a tender of Partnership Units for
Redemption, two (2) business days after the date of receipt by the General
Partner of a Notice of Redemption, (b) for the purposes of the Registration
Rights Agreement, the date of delivery of a request under Section 2(a) thereof,
or (c) in any other case, the date specified in this Agreement.
"VALUE" means, on any Valuation Date with respect to one (1) REIT Share, the
market price of such REIT Share on such Valuation Date (or if such Valuation
Date is not a Trading Day, the immediately preceding Trading Day). The market
price for any such Valuation Date shall be:
(1) if the REIT Shares are listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system,
(2) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the last reported
sale price on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, as reported by a reliable
quotation source designated by the General Partner, or
(3) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System and no such last
reported sale price or closing bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or if there shall
be no bid and asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
that a holder of REIT Shares would be entitled to receive, then the Value of
such Rights shall be determined by the General Partner acting in good faith on
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
<PAGE>
1.2 EXHIBIT, ETC. References to "Exhibit" or to a "Schedule" are, unless
otherwise specified, to one of the Exhibits or Schedules attached to this
Agreement, and references to an "Article" or a "Section" are, unless otherwise
specified, to one of the Articles or Sections of this Agreement. Each Exhibit
and Schedule attached hereto and referred to herein is hereby incorporated
herein by reference.
ARTICLE II
Organization
2.1 CONTINUATION OF PARTNERSHIP. The parties hereto do hereby continue the
Partnership, provided that, from and after the date hereof, the Partnership
shall be subject to the provisions of the Act, and all other pertinent laws of
the State of California, subject to the terms and conditions hereinafter set
forth. The Partners agree that the rights and liabilities of the Partners shall
be as provided in the Act except as otherwise herein expressly provided.
Promptly upon the execution and delivery hereof, the General Partner shall
execute an amendment to the Certificate and file it with the Office of the
Secretary of State of the State of California. A certified copy of the amendment
to the Certificate shall be filed for record in each county in which the
Partnership shall own real property or an interest therein, and the General
Partner shall cause such other notice, instrument, document or certificate as
may be required by applicable law, and which may be necessary to enable the
Partnership to conduct its business and to own the Properties under the
Partnership name, to be filed or recorded in all appropriate public offices. The
General Partner shall execute and file with the Office of the Secretary of State
of the State of California any further amendments to the Certificate required by
law. A certified copy of each such amendment shall be filed by the General
Partner for record in each county in which a copy of the Certificate has been
filed for record.
2.2 NAME. The business of the Partnership shall be conducted under the name of
"Western Palo Alto II Investors, a California limited partnership", or such
other name as the General Partner may select, and all transactions of the
Partnership, to the extent permitted by applicable law, shall be carried on and
completed in such name.
2.3 CHARACTER OF THE BUSINESS. The purpose of the Partnership shall be to
acquire, hold, own, develop, construct, improve, maintain, operate, manage,
sell, provide seller financing, lease, transfer, encumber, convey, exchange,
lend money, and otherwise dispose of or deal with Properties and ownership
interests therein; to acquire, hold, own, develop, construct, improve, maintain,
operate, manage, sell, provide seller financing, lease, transfer, encumber,
convey, exchange, lend money, and otherwise dispose of or deal with real and
personal property of all kinds, whether owned by the Partnership or otherwise;
and to undertake such other activities as may be necessary, advisable, desirable
or convenient to the business of the Partnership, and to engage in such other
ancillary activities as shall be necessary or desirable to effectuate the
foregoing purposes. The Partnership shall have all powers necessary or desirable
to accomplish the purposes enumerated. In connection with the foregoing, but
subject to all of the terms, covenants, conditions and limitations contained in
this Agreement and any other agreement entered into by the Partnership, the
Partnership shall have full power and authority, directly or indirectly, to
enter into, perform and carry out contracts of any kind, to borrow money and to
<PAGE>
issue evidences of indebtedness, whether or not secured by mortgage, trust deed,
pledge or other lien, and, directly or indirectly, to acquire and construct
additional Properties necessary or useful in connection with its business, and
to lend money secured by additional Properties and other real and personal
property.
2.4 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED. The Partnership shall be a limited
partnership only for the purposes specified in Section 2.3 hereof, and this
Agreement shall not be deemed to create a company, venture or partnership
between or among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 2.3 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any indebtedness or obligation of another Partner, nor
shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
2.5 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the principal
place of business of the Partnership shall be at 777 California Avenue, Palo
Alto, California 94304, or such other location as shall be selected from time to
time by the General Partner in its sole discretion.
2.6 AGENT FOR SERVICE OF PROCESS. The Partnership hereby appoints Jordan Ritter,
Esq., whose address is 777 California Avenue, Palo Alto, California 94304, as
its agent for service of process. Such agent may be changed from time to time by
the General Partner in its sole discretion by filing an amendment to the
Certificate.
2.7 ADMISSION OF NEW GENERAL PARTNER; REMOVAL OF EXISTING GENERAL PARTNERS.
Effective the date hereof, the General Partner is hereby admitted as a general
partner of the Partnership. Immediately thereafter, the general partners of the
Partnership pursuant to the Original Agreement, George M. Marcus, Donald V.
Baptist and James Fuqua (collectively, the "Current General Partners"), are
hereby converted to limited partners and their interests in the partnership are
hereby converted to Limited Partner Partnership Interests. Effective immediately
thereafter, the sole general partner of the Partnership shall be the General
Partner.
2.8 CERTIFICATES OF OWNERSHIP. In the sole discretion of the General Partner,
each Partner's Partnership Units may be evidenced by one or more registered
certificates of ownership, which certificates, if issued, shall be executed by
the General Partner. Such certificates shall contain a legend evidencing the
restrictions on transfer of the Partnership Interests, which legend shall be
substantially similar to the legend contained on the cover page of this
Agreement.
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ARTICLE III
Term
3.1 COMMENCEMENT. The Partnership commenced on or about May 4, 1972.
3.2 TERMINATION. The Partnership shall continue until December 31, 2097, unless
it is dissolved and wound up sooner pursuant to the provisions of Article VIII
hereof or otherwise as provided by law.
ARTICLE IV
Contributions to Capital
4.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of
the General Partner and the Special Limited Partner has contributed to the
Partnership, as its initial contribution to the capital of the Partnership, the
sum of Fifteen Thousand Five Hundred Twenty One and 76/100 Dollars ($15,521.76).
The gross fair market value of any property in the future contributed by the
General Partner or the Special Limited Partner to the Partnership ("Contributed
Property"), other than money, shall be the Acquisition Cost of such Contributed
Property. For purposes hereof, the "Acquisition Cost" of Contributed Property
shall be the amount of such consideration, as reasonably determined by the
General Partner plus, in either case, any costs and expenses incurred by the
General Partner or the Special Limited Partner, as applicable, in connection
with such acquisition or contribution; provided, however, that if the
Contributed Property secures liabilities that the General Partner, the Special
Limited Partner or the Partnership assumes or takes subject to and the
consideration is not net of such liabilities, the Acquisition Cost shall be
equal to such consideration less the amount of such liabilities, and provided
further that if the General Partner or the Special Limited Partner, as
applicable, has assumed such liabilities, the Partnership shall assume such
liabilities of the General Partner or the Special Limited Partner, as
applicable, concurrently with the contribution of such property to the
Partnership or, if impossible, shall obligate itself to the General Partner or
the Special Limited Partner, as applicable, in an amount and on terms equal to
such liabilities.
4.2 LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of the Limited Partners (other
than the Special Limited Partner) has contributed the cash or other assets in
the amount set forth opposite such Limited Partner's name on Exhibit A.
4.3 ADDITIONAL FUNDS.
(a) If the Partnership requires funds ("Required Funds") for any proper
Partnership purpose in excess of any other funds anticipated by the General
Partner to be available to the Partnership (including through borrowings and
prior Capital Contributions), the General Partner or the Special Limited
Partner, as applicable, shall on the Funding Date, either:
(i) to the extent the General Partner or the Special Limited Partner borrows all
or any portion of the Required Funds by entering into a Funding Loan, lend (the
<PAGE>
"Partner Loan") to the Partnership the Funding Loan Proceeds on the same terms
and conditions, including the effective interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with the Funding Loan; or
(ii) the General Partner on behalf of the Partnership may, in its sole
discretion, raise all or any portion of the Required Funds by making additional
Capital Contributions and/or accepting additional Capital Contributions from any
other Partners and/or other Persons in the amount of the Required Funds not
loaned to the Partnership as General Partner Loans ("Contributed Funds")
(hereinafter, each Funding Date on which the General Partner or such other
Person so contributes Contributed Funds pursuant to this subparagraph (ii) is
referred to as an "Adjustment Date"). In the event the General Partner, the
Special Limited Partner, one or more of the other Limited Partners or other
Persons advances Required Funds to the Partnership as Contributed Funds pursuant
to this subparagraph (ii), the General Partner shall either (a) in the case of
Partners (including the General Partner and the Special Limited Partner),
increase such Partner's Partnership Units or (b) in the case of any other
Person, admit such Person as an Additional Partner (in accordance with Section
9.3 hereof). Subject to the terms of this Section 4.3 and to the definition of
"Gross Asset Value," the General Partner shall determine in good faith the
amount, terms and conditions of such additional Capital Contributions; provided,
however, that, in the case of an additional Capital Contribution by the General
Partner or the Special Limited Partner, the Partnership shall issue to the
General Partner or the Special Limited Partner, as applicable, the number of
Partnership Units derived by dividing (1) the amount of the additional Capital
Contribution (net of any liabilities assumed or taken subject to by the
Partnership), by (2) the Value determined as of the date of such Capital
Contribution. On the Adjustment Date with respect to any Contributed Funds, the
Partnership Interests of the non-contributing Partners shall be equitably
reduced.
(b) No Limited Partner (other than the Special Limited Partner) shall have any
right under this Agreement to lend funds to the Partnership or to make
additional capital contributions to the Partnership without the consent of the
General Partner, in the General Partner's sole discretion.
(c) Notwithstanding anything contained herein to the contrary, the liability of
the Limited Partners shall be limited to the aggregate amount of any Capital
Contributions made by the Limited Partners pursuant to this Agreement. Except to
the extent that additional Capital Contributions are unanimously approved by the
Partners, the Limited Partners shall have no personal liability to contribute or
lend money to, or in respect of, the liabilities or the obligations of the
Partnership.
4.4 CONTRIBUTIONS OF PROPERTY. If at any time or from time to time the General
Partner or the Special Limited Partner, as applicable, contributes to the
Partnership any property other than money pursuant to the terms of this
Agreement, the General Partner or the Special Limited Partner, as applicable,
shall be deemed to have contributed to the Partnership as Contributed Funds
pursuant to Section 4.3(a)(ii) hereof, including, for Capital Account purposes,
an amount equal to the Acquisition Cost of such property as determined pursuant
to Section 4.1 hereof, and the Percentage Interests of the Partners shall be
<PAGE>
redetermined in the manner provided in Section 4.3(a)(ii) hereof as of the date
of such contribution.
4.5 NO THIRD PARTY BENEFICIARY. No creditor or other third party having dealings
with the Partnership shall have the right to enforce the right or obligation of
any Partner to make Capital Contributions or loans or to pursue any other right
or remedy hereunder or at law or in equity, it being understood and agreed that
the provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns. None of the rights or obligations of the Partners herein set forth to
make Capital Contributions or loans to the Partnership shall be deemed an asset
of the Partnership for any purpose by any creditor or other third party, nor may
such rights or obligations be sold, transferred or assigned by the Partnership
or pledged or encumbered by the Partnership to secure any debt or other
obligation of the Partnership or of any of the Partners.
4.6 NO INTEREST; NO RETURN. No Partner shall be entitled to interest on its
Capital Contribution or on such Partner's Capital Account. Except as provided
herein or by law, no Partner shall have any right to demand or receive the
return of its Capital Contribution from the Partnership.
ARTICLE V
Concurrent Transactions
5.1 CONCURRENT TRANSACTIONS. Concurrently with the execution of this Agreement,
the following events shall occur: the Partnership, the Limited Partners and/or
the General Partner shall execute and deliver (and/or cause to be executed and
delivered) such further instruments and undertake such further acts as may be
necessary or desirable to carry out the intent and purposes of this Agreement
and as are not inconsistent with the terms hereof.
ARTICLE VI
Allocations and Other Tax and Accounting Matters
6.1 ALLOCATIONS. The Net Income, Net Loss and/or other Partnership items shall
be allocated pursuant to the provisions of attached Exhibit E.
6.2 DISTRIBUTIONS. The General Partner shall cause the Partnership to distribute
all or a portion of Available Cash, as the General Partner in its sole
discretion may determine, to the Unitholders from time to time as determined by
the General Partner, but in any event not less frequently than quarterly, as
follows:
(a) First, to the General Partner, one percent (1%) of the Available Cash
available for distribution;
(b) Second, to each Unitholder, pari passu, an amount equal to the sum of (i)
the product of (1) the Preferred Return Per Unit for such Unitholder (or its
predecessor) for such quarter (or for such other period) and (2) the number of
Partnership Units held by such Unitholder as of the Partnership Record Date and
<PAGE>
(ii) any unpaid amounts previously distributable to such Unitholder (or its
predecessor) under this Section 6.2(b); provided, however, that the amount
distributable pursuant to clause (i) to any Additional Partner admitted to the
Partnership in the quarter immediately preceding and ending with such
Partnership Record Date shall be prorated based on the number of days that such
Additional Partner was a Unitholder during such quarter; and
(c) Third, the balance, (i) ninety-nine percent (99%) to the Special Limited
Partner and (ii) one percent (1%) to the Unitholders (including, without
limitation, the General Partner, and the Special Limited Partner) in proportion
to their Partnership Units as of the Partnership Record Date.
The General Partner in its sole and absolute discretion may distribute to the
Unitholders Available Cash in accordance with the foregoing priorities on a more
frequent basis and provide for an appropriate record date. The General Partner
shall take such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with Essex's qualification as a REIT, to cause the
Partnership to distribute sufficient amounts to enable Essex, as the general
partner of the Special Limited Partner, to pay shareholder dividends that will
(a) satisfy the requirements for Essex's continuing to qualify as a REIT under
the Code and Regulations (the "REIT Requirements") and (b) avoid any federal
income or excise tax liability of Essex.
6.3 WITHHOLDING. The General Partner may withhold taxes from any allocation or
distribution to any Partner to the extent required by the Code or any other
applicable law. For purposes of this Agreement, any taxes so withheld by the
Partnership shall be deemed to be a distribution or payment to such Partner,
reduce the amount otherwise distributable or allocable to such Partner pursuant
to this Agreement and reduce the Capital Account of such Partner.
6.4 BOOKS OF ACCOUNT. At all times during the continuance of the Partnership,
the General Partner shall maintain or cause to be maintained full, true,
complete and correct books of account in accordance with generally accepted
accounting principles wherein shall be entered particulars of all monies, goods
or effects belonging to or owing to or by the Partnership, or paid, received,
sold or purchased in the course of the Partnership's business, and all of such
other transactions, matters and things relating to the business of the
Partnership as are usually entered in books of account kept by persons engaged
in a business of a like kind and character. In addition, the Partnership shall
keep all records as required to be kept pursuant to the Act. The books and
records of account shall be kept at the principal office of the Partnership, and
each Partner shall at all reasonable times have access to such books and records
and the right to inspect the same.
6.5 REPORTS. The General Partner shall cause to be submitted to the Limited
Partners promptly upon preparation of the same and in no event later than April
1 of each year, copies of Unaudited Financial Statements prepared for the
Partnership, together with the reports thereon, and all supplementary schedules
and information. The Partnership shall also cause to be prepared such reports
and/or information as are necessary for Essex to determine its qualification as
a REIT and its compliance with REIT Requirements.
<PAGE>
6.6 [Intentionally Omitted].
6.7 TAX ELECTIONS AND RETURNS. All elections required or permitted to be made by
the Partnership under any applicable tax law shall be made by the General
Partner in its sole discretion; provided, however, the General Partner shall
file an election on behalf of the Partnership pursuant to Section 754 of the
Code to adjust the basis of the Partnership property in the case of a transfer
of a Partnership Interest, including transfers made in connection with the
exercise of rights under Article XI hereof, made in accordance with the
provisions of the Agreement. The General Partner shall cause the Accountants to
prepare and file all state and federal tax returns on a timely basis. The
General Partner shall cause the Accountants to prepare and submit to the Limited
Partners on or before April 1 of each year for review all federal and state
income tax returns of the Partnership. If a Majority-in-Interest of the Limited
Partners determines that any modifications to the tax returns of the Partnership
should be considered, such Limited Partners shall, within thirty (30) days
following receipt of such tax returns from the Accountants or the General
Partner, indicate to the Accountants the suggested revisions to the tax returns,
which returns shall be resubmitted to the Limited Partners for their review (but
not approval). The Limited Partners shall complete their review of the
resubmitted returns within ten (10) days after receipt thereof from the
Accountants or the General Partner. The General Partner shall consult in good
faith with the Limited Partners regarding any proposed modifications to the tax
returns of the Partnership. A statement of the allocation of Net Income or Loss
of the Partnership shown on the annual income tax returns prepared by the
Accountants shall be transmitted and delivered to the Limited Partners within
ten (10) days of the receipt thereof by the Partnership. The General Partner
shall be responsible for preparing and filing all federal and state tax returns
for the Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law.
6.8 TAX MATTERS PARTNER. The General Partner is hereby designated as the Tax
Matters Partner within the meaning of Section 6231(a)(7) of the Code for the
Partnership; provided, however, (i) in exercising its authority as Tax Matters
Partner it shall be limited by the provisions of this Agreement affecting tax
aspects of the Partnership; (ii) the General Partner shall consult in good faith
with the Limited Partners regarding the filing of a Code Section 6227(b)
administrative adjustment request with respect to the Partnership or a Property
before filing such request, it being understood, however, that the provisions
hereof shall not be construed to limit the ability of any Partner, including the
General Partner, to file an administrative adjustment request on its own behalf
pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult
in good faith with the Limited Partners regarding the filing of a petition for
judicial review of an administrative adjustment request under Section 6228 of
the Code, or a petition for judicial review of a final partnership
administrative judgment under Section 6226 of the Code relating to the
Partnership before filing such petition; (iv) the General Partner shall give
prompt notice to the Limited Partners of the receipt of any written notice that
the Internal Revenue Service or any state or local taxing authority intends to
examine Partnership income tax returns for any year, receipt of written notice
of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, receipt of written
notice of the final Partnership administrative adjustment relating to the
<PAGE>
Partnership pursuant to Section 6223 of the Code, and receipt of any request
from the Internal Revenue Service for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Partnership; and
(v) the General Partner shall promptly notify the Limited Partners if the
General Partner does not intend to file for judicial review with respect to the
Partnership.
ARTICLE VII
Rights, Duties and Restrictions of the General Partner
7.1 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby authorized to pay
compensation for accounting, administrative, legal, technical, management and
other services rendered to the Partnership. All of the aforesaid expenditures
shall be made on behalf of the Partnership, and the General Partner shall be
entitled to reimbursement by the Partnership for any expenditures incurred by it
on behalf of the Partnership which shall be made other than out of the funds of
the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
7.2 POWERS AND DUTIES OF GENERAL PARTNER. The General Partner shall be
responsible for the management of the Partnership's business and affairs.
Subject solely to the limitations contained in Section 7.3 and Section 7.7
hereof, the General Partner shall have, and is hereby granted, full and complete
power, authority and discretion to take such action for and on behalf of the
Partnership and in its name as the General Partner shall, in its sole and
absolute discretion, deem necessary or appropriate to carry out the purposes for
which the Partnership was organized. Without limiting the generality of the
foregoing, the General Partner shall have the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase, lease, exchange
or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise
options to purchase, options to sell or conversion rights, assign, transfer,
convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, develop,
repair, maintain, manage, insure, lease for any term and otherwise deal with any
and all property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the purposes of the Partnership;
(b) To acquire, directly or indirectly, interests in real estate or entities
owning real estate of any kind and of any type, and any and all kinds of
interests therein (whether through direct ownership, partnerships, security
interests or any other type of interests), and to determine the manner in which
title thereto is to be held; to manage, insure against loss, protect and
subdivide any of the real estate, interests therein or parts thereof; to
improve, develop or redevelop any such real estate; to participate in the
ownership and development of any property; to dedicate for public use, to vacate
any subdivisions or parts thereof, to re-subdivide, to contract to sell or
exchange, to grant options to purchase, lease or exchange, to sell or exchange
on any terms; to convey, to mortgage or receive mortgages, pledge or otherwise
encumber said property, or any part thereof; to lease said property or any part
thereof from time to time, upon any terms and for any period of time, and to
renew or extend leases, to amend, change or modify the terms and provisions or
any leases and to grant options to lease and options to renew leases and options
<PAGE>
to purchase; to partition or to exchange said real property, or any part
thereof, for other real or personal property; to grant easements or charges of
any kind; to release, convey or assign any right, title or interest in or about
or easement appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on said
premises; to insure any Person having an interest in or responsibility for the
care, management or repair of such property; to direct the trustee of any land
trust to mortgage, lease, convey or contract to convey the real estate held in
such land trust or to execute and deliver deeds, mortgages, notes, and any and
all documents pertaining to the property subject to such land trust or in any
matter regarding such trust; to execute assignments of all or any part of the
beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from employment or engagement
Persons to the extent deemed necessary by the General Partner for the operation
and management of the Partnership business, including but not limited to,
contractors, subcontractors, engineers, architects, surveyors, mechanics,
consultants, accountants, attorneys, insurance brokers, real estate brokers and
others;
(d) To negotiate and enter into contracts on behalf of the Partnership
(including, without limitation, right of first opportunity arrangements and
other conflict avoidance agreements) that the General Partner considers useful
or necessary to the conduct of the Partnership's operations or implementation of
the General Partner's powers under this Agreement;
(e) To borrow money, procure loans and advances from any Person for Partnership
purposes, and to apply for and secure, from any Person, credit or
accommodations; to contract liabilities and obligations, direct or contingent
and of every kind and nature with or without security; and to repay, discharge,
settle, adjust, compromise, or liquidate any such loan, advance, credit,
obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale
and leaseback arrangements or otherwise give as security or as additional or
substitute security, or for sale or other disposition any and all Partnership
property, tangible or intangible, including, but not limited to, real estate and
beneficial interests in land trusts, and to make substitutions thereof, and to
receive any proceeds thereof upon the release or surrender thereof (such right,
power and authority to include, without limitation, the right, power and
authority to encumber Partnership property to secure the debts and obligations
of the General Partner and/or Affiliates of the General Partner, including,
without limitation, the Special Limited Partner); to sign, execute and deliver
any and all assignments, deeds and other contracts and instruments in writing;
to authorize, give, make, procure, accept and receive moneys, payments,
property, notices, demands, vouchers, receipts, releases, compromises and
adjustments; to waive notices, demands, protests and authorize and execute
waivers of every kind and nature; to enter into, make, execute, deliver and
receive written agreements, undertakings and instruments of every kind and
nature; to give oral instructions and make oral agreements; and generally to do
any and all other acts and things incidental to any of the foregoing or with
reference to any dealings or transactions which any attorney may deem necessary,
proper or advisable;
<PAGE>
(g) To acquire and enter into any contract of insurance which the General
Partner deems necessary or appropriate for the protection of the Partnership,
for the conservation of the Partnership's assets or for any purpose convenient
or beneficial to the Partnership;
(h) To conduct any and all banking transactions on behalf of the Partnership; to
adjust and settle checking, savings, and other accounts with such institutions
as the General Partner shall deem appropriate; to draw, sign, execute, accept,
endorse, guarantee, deliver, receive and pay any checks, drafts, bills of
exchange, acceptances, notes, obligations, undertakings and other instruments
for or relating to the payment of money in, into, or from any account in the
Partnership's name; to execute, procure, consent to and authorize extensions and
renewals of the same; to make deposits and withdraw the same and to negotiate or
discount commercial paper, acceptances, negotiable instruments, bills of
exchange and dollar drafts;
(i) To demand, sue for, receive, and otherwise take steps to collect or recover
all debts, rents, proceeds, interest, dividends, goods, chattels, income from
property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any accounts,
debts, claims, disputes and matters which may arise between the Partnership and
any other Person and to grant an extension of time for the payment or
satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking of all action
deemed necessary or appropriate by the General Partner to cause any approved
loans to be closed;
(k) To take all reasonable measures necessary to insure compliance by the
Partnership with applicable arrangements, and other contractual obligations and
arrangements entered into by the Partnership from time to time in accordance
with the provisions of this Agreement, including periodic reports as required to
lenders and using all due diligence to insure that the Partnership is in
compliance with its contractual obligations;
(l) To maintain the Partnership's books and records;
(m) To prepare and deliver, or cause to be prepared and delivered by the
Partnership's Accountants, all financial and other reports with respect to the
operations of the Partnership, and preparation and filing of all federal and
state tax returns and reports;
(n) To prepare and deliver all financial, regulatory, tax and other filings or
reports to governmental or other agencies having jurisdiction over the
Partnership; and
(o) To do all other actions of a partner in a partnership without limited
partners, recognizing that the Limited Partners shall have only the right and
authority to participate in the affairs of the Partnership to the extent
specifically set forth in this Agreement.
<PAGE>
Except as otherwise provided herein, to the extent the duties of the General
Partner require expenditures of funds to be paid to third parties, the General
Partner shall not have any obligations hereunder except to the extent that
Partnership funds are reasonably available to it for the performance of such
duties, and nothing herein contained shall be deemed to require the General
Partner, in its capacity as such, to expend its individual funds for payment to
third parties or to undertake any individual liability or obligation on behalf
of the Partnership. Each of the Limited Partners agrees that the General Partner
is authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not in itself constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
7.3 MAJOR DECISIONS. The General Partner shall not, without the prior Consent of
the Limited Partners, on behalf of the Partnership, undertake any of the
following actions (the "Major Decisions"):
(a) Amend, modify or terminate this Agreement other than in accordance with the
provisions of Article IV, Article VIII, Article IX, Section 13.7 and the
definitions of the terms "Gross Asset Value" and "Partnership Units."
(b) Make a general assignment for the benefit of creditors or appoint or
acquiesce in the appointment of a custodian, receiver or trustee for all or any
part of the assets of the Partnership.
(c) Take title to any personal or real property, other than in the name of the
Partnership or pursuant to Section 7.9 hereof.
(d) Institute any proceeding for Bankruptcy on behalf of the Partnership.
(e) Dissolve the Partnership, except as otherwise set forth in this Partnership
Agreement.
Notwithstanding the foregoing, none of the actions described in Section 7.3
shall be a Major Decision if the Limited Partners (other than the Special
Limited Partner) collectively own less than forty percent (40%) of the
Partnership Units at the time that such action is undertaken.
7.4 ACTIONS WITH RESPECT TO CERTAIN DOCUMENTS. Notwithstanding the provisions of
Section 7.3 hereof to the contrary, whenever the consent, agreement,
authorization or approval of the Partnership is required under any agreement to
which the Limited Partners and/or their Controlled Entities are parties in
interest other than in their capacities as Limited Partners of the Partnership,
the Consent of the Limited Partners shall not be required.
<PAGE>
7.5 OTHER BUSINESS OF GENERAL PARTNER AND SPECIAL LIMITED PARTNER.
Notwithstanding anything to the contrary set forth in this Agreement, the
General Partner and the Special Limited Partner may engage independently or with
others (including, without limitation, Affiliates of the General Partner and the
Special Limited Partner) in other business ventures of every nature and
description, including, without limitation, the ownership of other properties
and the making or management of other investments. In furtherance of any such
venture, the General Partner and the Special Limited Partner may serve as a
general or limited partner in any partnership, a shareholder in any corporation,
a joint venturer in any joint venture, a member and/or manager in any limited
liability company, or an equity or other participant in any other business
venture. Nothing in this Agreement shall be deemed to prohibit the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner from dealing, or otherwise engaging in business
with, Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property and receiving compensation therefor, not
involving any rebate or reciprocal arrangement that would have the effect of
circumventing any restriction set forth herein upon dealings with the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner. Neither the Partnership nor any Partner shall
have any right by virtue of this Agreement or the Partnership relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom, and, to the fullest extent permitted by the Act, the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper.
7.6 CONTRACTS WITH AFFILIATES.
(a) Without limiting the provisions of Section 7.5 above, the Partnership may
lend or contribute funds or other assets to its Affiliates or other Persons in
which it has (or proposes to have) an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Affiliates or any other
Person.
(b) Without limiting the provisions of Section 7.5 above, the Partnership may
transfer assets to other Entities in which it is or thereby becomes a
participant upon such terms and subject to applicable law as the General
Partner, in its sole and absolute discretion, believes to be advisable.
7.7 PROSCRIPTIONS. The General Partner shall not have the authority to:
(a) Do any act in contravention of this Agreement or which would make it
impossible to carry on the ordinary business of the Partnership;
(b) Possess any Partnership property or assign rights in specific Partnership
property for other than Partnership purposes; or
(c) Do any act in contravention of applicable law.
<PAGE>
Nothing herein contained shall impose any obligation on any Person or firm doing
business with the Partnership to inquire as to whether or not the General
Partner has properly exercised its authority in executing any contract, lease,
mortgage, deed or other instrument on behalf of the Partnership, and any such
third Person shall be fully protected in relying upon such authority.
7.8 ADDITIONAL PARTNERS. Additional Partners may be admitted to the Partnership
only as provided in Section 9.3 hereof.
7.9 TITLE HOLDER. To the extent allowable under applicable law, title to all or
any part of the properties of the Partnership may be held in the name of the
Partnership or any other individual, corporation, partnership, trust or
otherwise, the beneficial interest in which shall at all times be vested in the
Partnership. Any such title holder shall perform any and all of its respective
functions to the extent and upon such terms and conditions as may be determined
from time to time by the General Partner.
7.10 COMPENSATION OF THE GENERAL PARTNER. The General Partner shall not be
entitled to any compensation for services rendered to the Partnership solely in
its capacity as General Partner, except with respect to reimbursement for those
costs and expenses constituting Administrative Expenses.
7.11 WAIVER AND INDEMNIFICATION.
(a) Neither the General Partner, the Special Limited Partner nor any Person
acting on their behalf, pursuant hereto, shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for any
acts or omissions performed or omitted to be performed by them within the scope
of the authority conferred upon the General Partner or the Special Limited
Partner by this Agreement and the Act, provided that the General Partner's, the
Special Limited Partner's or such other Person's conduct or omission to act was
taken in good faith and in the belief that such conduct or omission was in the
best interests of the Partnership and, provided further, that the General
Partner, the Special Limited Partner or such other Person shall not be guilty of
fraud, misconduct, bad faith, or gross negligence. The Partnership shall, and
hereby does, agree to indemnify, defend, protect and hold harmless the General
Partner, the Special Limited Partner and their Affiliates and any individual or
Entity acting on their behalf from and against any loss, damage, cost, expense,
claim or liability, including, but not limited to, reasonable attorneys' fees,
court costs and expenses, incurred by them by reason of any acts or omissions
performed or omitted to be performed by them in connection with the business and
affairs of the Partnership as described herein, subject to the standards set
forth above; provided, however, no Partner shall have any personal liability
with respect to the foregoing indemnification, any such indemnification to be
satisfied solely out of the assets of the Partnership.
(b) Any Person entitled to indemnification under this Agreement shall be
entitled to receive, upon application therefor, the costs reasonably incurred
defending any proceeding against such Person; provided, however, that such
advances shall be repaid to the Partnership, without interest, if such Person is
found by a court of competent jurisdiction upon entry of a final judgment not to
<PAGE>
be entitled to such indemnification. All rights of the indemnitee hereunder
shall survive the dissolution of the Partnership. The indemnification rights
contained in this Agreement shall be cumulative of, and in addition to, any and
all rights, remedies and recourse to which the person seeking indemnification
shall be entitled, whether at law or in equity. Indemnification pursuant to this
Agreement shall be made solely and entirely from the assets of the Partnership,
and no Partner shall be liable therefor.
7.12 CONTRACTS WITH CONTROLLED ENTITIES. The General Partner and the Special
Limited Partner may contract with any of their Controlled Entities for the
provision of property management, asset management, brokerage or similar
services or any other services customarily rendered by the Controlled Entities;
provided that all such contracts or agreements shall be for compensation and on
terms and conditions substantially similar to other such contracts or agreements
available from similarly qualified third parties.
7.13 OPERATION IN ACCORDANCE WITH REIT REQUIREMENTS. Essex, the sole general
partner of the Special Limited Partner, is a REIT and is subject to the
provisions of Section 856 through and including 860 of the Code. The Partners
acknowledge and agree that the Partnership shall be operated in a manner that
will enable Essex to (a) satisfy the REIT Requirements and (b) eliminate the
imposition of any federal income or excise tax liability. Notwithstanding
anything to the contrary set forth in this Agreement, the Partnership shall
avoid taking any action that would result in Essex ceasing to satisfy the REIT
Requirements or would result in the imposition of any federal income or excise
tax liability on Essex. Without limiting the foregoing, so long as Essex owns,
directly or indirectly, any interest in the Partnership, then notwithstanding
any other provision of this Agreement:
(i) leases or subleases of any of the Partnership's real estate assets shall
provide for rents which qualify as "rents from real property" within the meaning
of Section 856(d) of the Code with respect to Essex;
(ii) the Partnership shall not furnish or render services to tenants or other
persons that are not usually or customarily rendered in connection with the
rental of real property in order that the rents received by the partnership with
respect to its real estate assets qualify as "rents from real property" within
the meaning of Section 856(d) of the Code with respect to Essex;
(iii) the Partnership shall not own, directly or indirectly or by attribution
(in accordance with the attribution rules referred to in Section 856(d) of the
Code), in the aggregate more than 1% of all classes of stock or more than 1% of
the voting power (or, with respect to any such person which is not a
corporation, an interest of 1% or more in the assets or net profits of such
person) of a lessee or sublessee of all or any part of the real estate assets of
the Partnership, except in each case with the specific written approval of
Essex;
(iv) the Partnership shall not own, directly or indirectly or by attribution,
more than 10% of the outstanding voting securities of any issuer;
(v) the Partnership shall not engage in any prohibited transactions within the
meaning of Section 857(b)(6) of the Code; and
<PAGE>
(vi) the determination as to whether the Partnership has operated in the manner
prescribed in this Section 7.13 shall be made without regard to any action or
inaction of the General Partner with respect to distributions and the timing
thereof.
ARTICLE VIII
Dissolution, Liquidation and Winding-Up
8.1 LIQUIDATING EVENTS. The Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following (each, a "Liquidating
Event"):
(a) The dissolution, termination, retirement or Bankruptcy of the General
Partner unless the Partnership is continued as provided in Section 9.1 hereof;
(b) The election to dissolve the Partnership made in writing by the General
Partner with the Consent of the Limited Partners, provided that the Consent of
the Limited Partners shall not be required if the Limited Partners (other than
the Special Limited Partner) collectively own less than forty percent (40%) of
the Partnership Units at the time of such election;
(c) The sale or other disposition of all or substantially all the assets of the
Partnership, other than in connection with a "like kind" exchange, pursuant to
Section 1031 of the Code (or any similar transaction), unless the General
Partner, with the Consent of the Limited Partners, elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership), provided that the
Consent of the Limited Partners shall not be required if the Limited Partners
(other than the Special Limited Partner) collectively own less than forty
percent (40%) of the Partnership Units at the time of such sale or disposition;
(d) Dissolution required by operation of law; or
(e) The expiration of its term as provided in Section 3.2.
8.2 ACCOUNTING. In the event of a Liquidating Event, a proper accounting (which
shall be certified) shall be made of the Capital Account of each Partner and of
the Net Profits or Net Losses of the Partnership from the date of the last
previous accounting to the date of dissolution. Financial statements presenting
such accounting shall be prepared at the direction of the Liquidating Trustee.
8.3 DISTRIBUTION ON DISSOLUTION. In the event of a Liquidating Event, the assets
of the Partnership shall be liquidated for distribution in the following rank
and order:
(a) First, to the payment and discharge of all of the Partnership's debt and
liabilities to creditors of the Partnership (other than Partners) in the order
of priority as provided by law;
<PAGE>
(b) Second, to the establishment of reserves as provided by the General Partner
to provide for contingent liabilities, if any;
(c) Third, to the payment of debts of the Partnership to Partners, if any, in
the order of priority provided by law; and
(d) The balance, if any, to the Partners in accordance with the positive
balances in their Capital Accounts after giving effect to all contributions,
distributions (pursuant to Section 6.2) and allocations for all periods,
including the period in which such distribution occurs (other than those
adjustments made pursuant to this Section 8.3(d) and Section 8.4 hereof).
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (b) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with Section 6.2.
8.4 Timing Requirements. In the event that the Partnership is "liquidated"
within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and
all distributions to the Partners pursuant to Section 8.3(d) hereof shall be
made no later than the later to occur of (i) the last day of the taxable year of
the Partnership in which such liquidation occurs or (ii) ninety (90) days after
the date of such liquidation.
8.5 SALE OF PARTNERSHIP ASSETS. In the event of the liquidation of the
Partnership in accordance with the terms of this Agreement, the Liquidating
Trustee may, with the Consent of the Limited Partners, sell Partnership property
if the Liquidating Trustee has in good faith solicited bids from unrelated third
parties and obtained independent appraisals before making any such sale;
provided, however, all sales, leases, encumbrances or transfers of Partnership
assets shall be made by the Liquidating Trustee with the prior Consent of the
Limited Partners and solely on an "arm's-length" basis, at the best price and on
the best terms and conditions as the General Partner in good faith believes are
reasonably available at the time and under the circumstances and on a
non-recourse basis to the Limited Partners. Notwithstanding the foregoing, the
Consent of the Limited Partners shall not be required under the preceding
sentence if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time that the Liquidating Trustee undertakes such action. The liquidation of the
Partnership shall not be deemed finally terminated until the Partnership shall
have received cash payments in full with respect to obligations such as notes,
installment sale contracts or other similar receivables received by the
Partnership in connection with the sale of Partnership assets and all
obligations of the Partnership have been satisfied or assumed by the General
Partner. The Liquidating Trustee shall continue to act to enforce all of the
rights of the Partnership pursuant to any such obligations until paid in full.
8.6 DISTRIBUTIONS IN KIND. Notwithstanding the provisions of Section 8.3 hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidating Trustee determines that an immediate sale of part or
<PAGE>
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) and/or distribute to the Partners in lieu of cash as
tenants in common and in accordance with the provisions of Section 8.3 hereof,
undivided interests in such Partnership assets as the Liquidating Trustee deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good-faith judgment of the Liquidating Trustee, such distributions in
kind are in the best interest of the Partners and shall be subject to such
conditions relating to the disposition and management of such properties as the
Liquidating Trustee deems reasonable and equitable and to any agreements
governing the operation of such properties at such time. The Liquidating Trustee
shall determine the fair market value of any property distributed in kind using
such reasonable method of valuation as it may adopt.
8.7 DOCUMENTATION OF LIQUIDATION. Upon the completion of the dissolution and
liquidation of the Partnership, the Partnership shall terminate and the
Liquidating Trustee shall have the authority to execute and record any and all
documents or instruments required to effect the dissolution, liquidation and
termination of the Partnership.
8.8 LIABILITY OF THE LIQUIDATING TRUSTEE. The Partnership hereby indemnifies,
defends, protects and holds harmless the Liquidating Trustee from and against
any and all claims, demands, losses, liabilities, costs (including, without
limitation, reasonable attorneys' fees and costs), damages and causes of action
of any nature whatsoever arising out of or incidental to the Liquidating
Trustee's taking of any action authorized under or within the scope of this
Agreement; provided, however, that the Liquidating Trustee shall not be entitled
to indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arose out of:
(a) A matter entirely unrelated to the Liquidating Trustee's action or conduct
pursuant to the provisions of this Agreement; or
(b) The proven misconduct or gross negligence of the Liquidating Trustee.
ARTICLE IX
Transfer of Partnership Interests
9.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER TRANSFERS. Except as provided in
the next sentence, neither the General Partner nor the Special Limited Partner
shall withdraw from the Partnership or Transfer all or any portion of their
interests in the Partnership without the Consent of the Limited Partners,
provided that the Consent of the Limited Partners shall not be required if the
Limited Partners (other than the Special Limited Partner) collectively own less
than forty percent (40%) of the Partnership Units at the time of such Transfer.
Notwithstanding the foregoing, the General Partner and/or the Special Limited
Partner may (i) engage in any merger, consolidation or other combination with or
into another Person regardless of whether Essex or another REIT continues to be
the general partner of the Special Limited Partner, (ii) sell all or
substantially all of their assets, or (iii) effect any reclassification or
<PAGE>
recapitalization, all without the approval of the Limited Partners. Upon any
Transfer of all of the General Partner's or the Special Limited Partner's
Partnership Interest in accordance with the provisions of this Section 9.1, the
transferee General Partner or Special Limited Partner, as applicable, shall
become vested with the powers and rights of the transferor General Partner or
Special Limited Partner, as applicable, and shall be liable for all obligations
and responsible for all duties of the General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership Interest so
acquired. It is a condition to any Transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor General Partner or Special Limited Partner, as
applicable, under this Agreement with respect to such transferred Partnership
Interest, and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor General
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor General Partner or Special Limited Partner, as
applicable, of its obligations under this Agreement without the Consent of the
Limited Partners, provided that the Consent of the Limited Partners shall not be
required if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time of such Transfer. In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or dissolves,
terminates or upon the Bankruptcy of the General Partner, a Majority-In-Interest
of the Limited Partners may elect to continue the Partnership business by
selecting a substitute general partner.
9.2 TRANSFERS BY LIMITED PARTNERS.
(a) No Limited Partner (other than the Special Limited Partner) shall have the
right to Transfer to any Person all or any portion of its Partnership Interest,
without the General Partner's written consent, in the General Partner's sole
discretion. Any purported Transfer, in violation of this Section 9.2, shall be
void, ab initio.
(b) It is a condition to any Transfer otherwise permitted under this Section 9.2
that the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Upon such Transfer and upon obtaining the General Partner's
written consent, in the General Partner's sole discretion, the transferee shall
be admitted as a Substituted Limited Partner and shall succeed to all of the
rights, including rights with respect to the Rights, of the transferor Limited
Partner under this Agreement in the place and stead of such transferor Limited
Partner; provided, however, that notwithstanding the foregoing, any transferee
of any transferred Partnership Interest shall be subject to any and all
ownership limitations contained in the Charter which may, among other things,
limit or restrict such transferee's ability to exercise all or portions of the
rights set forth in Article XI. Any transferee, whether or not admitted as a
<PAGE>
Substituted Limited Partner, shall acquire such Partnership Interest subject to
the obligations of the transferor hereunder. Unless admitted as a Substituted
Limited Partner, no transferee, whether by a voluntary transfer, by operation of
law or otherwise, shall have rights hereunder (including, without limitation,
pursuant to Article XI, unless such transferee, is a Qualifying Party), other
than to receive such portion of the distributions made by the Partnership as are
allocable to the Percentage Interest transferred.
9.3 ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS AND ADMITTANCE OF ADDITIONAL
PARTNERS. At any time after the date hereof without the consent of any Partner,
but subject to the provisions of Section 9.4 hereof, the General Partner may,
upon its determination that the issuance of additional Partnership Interests
("Additional Interests") is in the best interests of the Partnership, cause the
Partnership (i) to issue Additional Interests to any Limited Partner or any
other Person (such other person being referred to as an "Additional Partner") in
exchange for the contribution by such Limited Partner or Person of cash and/or
property desirable to further the purposes of the Partnership under Section 2.3
hereof and (ii) in the case of such contribution by an Additional Partner, to
admit such person as a limited partner in the Partnership. In the event that an
Additional Interest is issued by the Partnership pursuant to this Section 9.3:
(a) the Percentage Interest of the Additional Partner that is issued the
Additional Interest and the reduction of the Percentage Interests of the other
Partner shall be determined by the General Partner in the same manner as that
provided in subsection 4.3(a)(ii) hereof with respect to Contributed Funds.
The General Partner shall be authorized on behalf of each of the Partners to
amend this Agreement to reflect the admission of any Additional Partner or any
increase in the Percentage Interests of any Partner and the corresponding
reduction of the Percentage Interests of the other Partners in accordance with
the provisions of this Section 9.3, and the General Partner shall promptly
deliver a copy of such amendment to each Limited Partner. Notwithstanding
anything contained herein to the contrary, without the consent of the General
Partner, in its sole and absolute discretion, an Additional Partner that
acquires an Additional Interest pursuant to this Section 9.3 shall not acquire
any interest in, and may not exercise or otherwise participate in, any rights
pursuant to Article XI.
9.4 RESTRICTIONS ON TRANSFER. In addition to any other restrictions on transfer
herein contained, in no event may any Transfer of a Partnership Interest by any
Partner be made (i) to any Person that lacks the legal right, power or capacity
to own a Partnership Interest; (ii) in violation of any provision of any
mortgage or trust deed (or the note or bond secured thereby) constituting a Lien
against a Property or any part thereof, or other instrument, document or
agreement to which the Partnership, the General Partner, the Special Limited
Partner or any Affiliate of either of them is a party or otherwise bound; (iii)
in violation of applicable law, including, without limitation, any applicable
federal securities law or state securities "Blue Sky" law (including investment
suitability standards); (iv) of any component portion of a Partnership Interest,
such as the Capital Account, or rights to Available Cash, separate and apart
from all other components of a Partnership Interest; (v) in the event such
transfer would cause Essex to cease to comply with the REIT Requirements or
result in a violation of Section 7.13 hereof; (vi) if such transfer would cause
<PAGE>
a termination of the Partnership for federal income tax purposes; (vii) if such
transfer would, in the opinion of counsel to the Partnership, cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes; (viii) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title 1 of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (ix) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.3-101; (x) if such
transfer may not be effected without registration of such Partnership Interest
under the Securities Act; or (xi) if such transfer would violate any provision
of the Charter. As a condition to any Transfer, the General Partner may, in its
sole and absolute discretion, require the proposed transferee to deliver to the
General Partner an opinion of counsel and such other certifications, affidavits
and/or undertakings, in form and content reasonably acceptable to the General
Partner, to satisfy the General Partner that the proposed Transfer will not
violate any of the provisions of this Section 9.4. Any purported transfer in
violation of this Section 9.4 shall be void ab initio.
ARTICLE X
Rights and Obligations of the Limited Partners
10.1 NO PARTICIPATION IN MANAGEMENT. Except as expressly permitted hereunder,
the Limited Partners shall not take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership and shall have no rights,
powers or authority, except as specifically provided herein.
10.2 BANKRUPTCY OF A LIMITED PARTNER AND CERTAIN OTHER EVENTS. The Bankruptcy,
death, incompetency, legal incapacity, withdrawal or retirement of any Limited
Partner shall not cause a dissolution of the Partnership, but the rights of such
Limited Partner to share in the Net Profits or Losses of the Partnership and to
receive distributions of Partnership funds shall, on the happening of such
event, devolve on its successors or assigns, subject to the terms and conditions
of this Agreement, and the Partnership shall continue as a limited partnership.
However, in no event shall such assignee(s) become a Substituted Limited
Partner, except in accordance with Article IX hereof.
10.3 NO WITHDRAWAL. Notwithstanding anything to the contrary provided in Section
10.2 above, no Limited Partner may withdraw or retire from the Partnership
without the prior written consent of the General Partner, in its sole and
absolute discretion, other than as expressly provided in this Agreement.
10.4 DUTIES AND CONFLICTS. The General Partner recognizes that the Limited
Partners and their Affiliates have or may have other business interests,
activities and investments, some of which may be in conflict or competition with
the business of the Partnership, and that, subject to the provisions of any
agreements entered into by any Limited Partner or its Affiliate with the General
Partner, the Partnership or any of their Affiliates, such persons are entitled
to carry on such other business interests, activities and investments. Subject
to the immediately preceding sentence, the Limited Partners and their Affiliates
<PAGE>
may engage in or possess an interest in any other business or venture of any
kind, independently or with others, on their own behalf or on behalf of other
entities with which they are affiliated or associated, and such persons may
engage in any activities, whether or not competitive with the Partnership,
without any obligation to offer any interest in such activities to the
Partnership or to any Partner. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such activities, or the
income or profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper.
ARTICLE XI
Grant of Rights to Limited Partners
11.1 Grant of Rights.
(a) Subject to Section 11.1(b) below and the other provisions of this Section
11.1, a Qualifying Party, but no other Person, shall have the right (subject to
the terms and conditions set forth herein) to require the Partnership to redeem
all or a portion of the Partnership Units held by such Qualifying Party (such
Partnership Units being hereafter called "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Qualifying Party when exercising the Redemption right
(the "Tendering Party"). The Partnership's obligation to effect a Redemption,
however, shall not arise or be binding against the Partnership until and unless
there has been a Declination. Regardless of the binding or non-binding nature of
a pending Redemption, a Tendering Party shall have no right to receive
distributions with respect to any Tendered Units (other than the Cash Amount)
paid after delivery of the Notice of Redemption, whether or not the Partnership
Record Date for such distribution precedes or coincides with such delivery of
the Notice of Redemption. In the event of a Redemption, the Cash Amount shall be
delivered as a good check payable to the Tendering Party or, in the General
Partner's sole and discretion, in immediately available funds.
(b) (i) Subject to Section 11.1(b)(ii) below, notwithstanding the provisions of
Section 11.1(a) hereof, on or before the close of business on the Cutoff Date,
Essex shall, in its sole and absolute discretion but subject to the Ownership
Limit (as defined in the Charter) and any transfer restrictions or other
limitations of the Charter and subject to the written consent of the General
Partner in its sole discretion, have the option (and Essex is hereby granted
such an option) to acquire some or all (such amount, expressed as a percentage,
being referred to as the "Applicable Percentage") of the Tendered Units from the
Tendering Party in exchange for REIT Shares. If Essex exercises such option, on
the Specified Redemption Date the Tendering Party shall sell such number of the
Tendered Units to Essex in exchange for a number of REIT Shares equal to the
product of the REIT Shares Amount and the Applicable Percentage (expressed as a
decimal), provided, however, that in lieu of any fractional REIT Share resulting
from such calculation, the General Partner or Special Limited Partner may
contribute to the Partnership the Cash Amount attributable to such fractional
REIT Share. The Tendering Party shall submit such information, investment
letters, representations, undertakings, legal opinions, certifications and/or
affidavits as Essex may reasonably require to comply with the Securities Act,
<PAGE>
the Code and the Charter (including, without limitation, the Ownership Limit).
In the event of a purchase of the Tendered Units pursuant to this Section
11.1(b), the Tendering Party shall no longer have the right to cause the
Partnership to effect a Redemption of such Tendered Units, and, upon notice to
the Tendering Party by Essex, given on or before the close of business on the
Cut-Off Date, that Essex has exercised its option to acquire some or all of the
Tendered Units pursuant to this Section 11.1(b), the obligation of the
Partnership to effect a Redemption of the Tendered Units as to which Essex's
notice relates shall immediately and automatically terminate and be of no
further force or effect. The product of the Applicable Percentage and the REIT
Shares Amount shall be delivered by Essex as duly authorized, validly issued,
fully paid and nonassessable REIT Shares and, if applicable, Rights, free of any
pledge, lien, encumbrance or restriction, other than the Ownership Limit and
other restrictions provided in the Charter, the bylaws of Essex, the Securities
Act and relevant state securities or "blue sky" laws. Neither any Tendering
Party whose Tendered Units are acquired by Essex pursuant to this Section
11.1(b), any other Partner, any Assignee nor any other interested Person shall
have any right to require or cause Essex to register, qualify or list any REIT
Shares owned or held by such Person, whether or not such REIT Shares are issued
pursuant to this Section 11.1(b), with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between Essex and any such Person. REIT Shares issued
upon an acquisition of the Tendered Units by Essex pursuant to this Section
11.1(b) may contain such legends regarding restrictions under the Securities Act
and applicable state securities laws as Essex in good faith determines to be
necessary or advisable in order to ensure compliance with such laws.
(ii) Notwithstanding anything to the contrary set forth in Section 11.1(b)(i)
above, Essex may not exercise its option set forth in Section 11.1(b)(i) above
in any calendar year unless and until the Partnership shall have received
Notices of Redemption for Tendered Units (including, without limitation, Notices
of Redemption with respect to all completed Redemptions) during such calendar
year in the aggregate Cash Amount (or, if, as of the date of calculation, any
applicable Cash Amount is not yet determined pursuant to the terms of this
Agreement, the estimated Cash Amount as determined by the General Partner in its
reasonable judgment) in excess of $500,000. At such time as such $500,000
minimum is exceeded pursuant to the previous sentence during such calendar year,
Essex may exercise its option set forth in Section 11.1(b)(i) above with respect
to (x) all pending Redemptions, and (y) all Notices of Redemption received by
the Partnership during the remainder of such calendar year.
(iii) If Essex exercises its option pursuant to Section 11.1(b)(i) above, on the
Specified Redemption Date, the Partnership shall pay to the Tendering Party all
accrued but unpaid distributions, if any, with respect to the Tendered Units
pursuant to Section 6.2(b).
(c) Notwithstanding the provisions of Sections 11.1(a) and 11.1(b) hereof, no
Tendering Party shall have any rights under this Agreement that would otherwise
be prohibited under the Charter. To the extent that any attempted Redemption or
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof
would be in violation of this Section 11.1(c), it shall be null and void ab
initio, and, in the case of a proposed purchase by Essex pursuant to Section
<PAGE>
11.1(b) hereof, the Tendering Party shall not acquire any rights or economic
interests in REIT Shares otherwise issuable by Essex under Section 11.1(b)
hereof.
(d) In the event that, following receipt of a Notice of Redemption, Essex is not
permitted to exercise its option pursuant to Section 11.1(b)(ii), or Essex
declines or fails to exercise its option pursuant to Section 11.1(b)(i) hereof
(a "Declination"):
(i) The General Partner shall give notice of such Declination to the Tendering
Party on or before the close of business on the Cut-Off Date. The failure of the
General Partner to give notice of such Declination by the close of business on
the Cut-Off Date shall itself constitute a Declination.
(ii) The Partnership may elect to raise funds for the payment of the Cash Amount
either (a) by requiring that the Special Limited Partner contribute such funds
to the Partnership from (1) the proceeds of a registered public offering (a
"Public Offering Funding") by Essex of a number of REIT Shares ("Registrable
Shares") equal to the REIT Shares Amount with respect to the Tendered Units,
which proceeds are contributed by Essex to the Special Limited Partner, or (2)
any other source, or (b) from any other sources (including, but not limited to,
the sale of any Property or other assets of the Partnership and the incurrence
of Partnership debt) available to the Partnership.
(iii) Upon the General Partner's receipt of the Notice of Redemption and the
General Partner giving notice of its Declination, the General Partner, at its
election, may give notice (a "Single Funding Notice") to all Qualifying Parties
then holding a Partnership Interest (or an interest therein) and having
Redemption rights pursuant to this Section 11.1 and require that, due to (x) a
pending or anticipated public underwritten offering of Essex's securities or (y)
any other Essex activity, all such Qualifying Parties elect whether or not to
effect a Redemption of their Partnership Units. In the event that any such
Qualifying Party elects to effect such a Redemption, it shall give notice
thereof and of the number of Partnership Units to be made subject thereto in
writing to the General Partner within ten (10) business days after receipt of
the Single Funding Notice, and such Qualifying Party shall be treated as a
Tendering Party for all purposes of this Section 11.1. In the event that a
Qualifying Party does not so elect, it shall be deemed to have waived its right
to effect a Redemption for the current Six-month Period.
(e) Notwithstanding anything herein to the contrary (but subject to Section
11.1(c) hereof), with respect to any Redemption (or any tender of Partnership
Units for Redemption if the Tendered Units are acquired by Essex pursuant to
Section 11.1(b) hereof) pursuant to this Section 11.1:
(i) Subject to the Ownership Limit, no Tendering Party may effect a Redemption,
(a) to the extent that the aggregate Partnership Units of the Limited Partners
(other than the General Partner or the Special Limited Partner) would be
reduced, as a result of the Redemption (or the acquisition of the Tendered Units
by Essex pursuant to Section 11.1(b) hereof), to less than one percent (1%) of
<PAGE>
all Partnership Units outstanding immediately prior to delivery of the Notice of
Redemption, where the Redemption would consist of less than all the Partnership
Units held by Partners, other than the General Partner and the Special Limited
Partner, (b) for less than one thousand (1,000) Partnership Units or, if such
Tendering Party holds (as a Limited Partner or, economically, as an Assignee)
less than one thousand (1,000) Partnership Units, all of the Partnership Units
held by such Tendering Party, or (c) for less than all of such Tendering Party's
Partnership Units if, after giving effect to the requested Redemption, such
Tendering Party would continue to hold less than one thousand (1,000)
Partnership Units.
(ii) Each Tendering Party (a) may effect a Redemption only once in each
Six-month Period (unless the restriction contained in this Section 11.1(e)(ii)
is waived by the General Partner in its sole and absolute discretion) and (b)
may not effect a Redemption during the period after the Partnership Record Date
with respect to a distribution hereunder and before the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such Partnership distribution.
(iii) Notwithstanding anything herein to the contrary, with respect to any
Redemption or acquisition of Tendered Units by Essex pursuant to Section 11.1(b)
hereof, in the event that the General Partner gives notice to all Limited
Partners (but excluding the Special Limited Partner and any Assignees) then
owning Partnership Interests (a "Primary Offering Notice") that Essex desires to
effect an offering (whether or not underwritten and whether or not a public or
private placement) of REIT Shares or other securities of Essex, commencement of
the actions denoted in Section 11.1(d) hereof as to a Public Offering Funding
with respect to any Notice of Redemption thereafter received, whether or not the
Tendering Party is a Limited Partner, may be delayed, at the option of the
General Partner until the earlier of (a) the completion of the offering or (b)
ninety (90) days following the giving of the Primary Offering Notice.
(iv) Without the consent of the General Partner (which may be given or withheld
in its sole and absolute discretion), no Tendering Party may effect a Redemption
within ninety (90) days following the closing of any prior Public Offering
Funding.
(v) The consummation of such Redemption (or an acquisition of Tendered Units by
Essex pursuant to Section 11.1(b) hereof, as the case may be) shall be subject
to the expiration or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(vi) The Tendering Party shall continue to hold all Partnership Units subject to
any Redemption, and be treated as a Limited Partner or an Assignee, as
applicable, with respect such Partnership Units for all purposes of this
Agreement, until such Partnership Units are either paid for by the Partnership
pursuant to Section 11.1(a) hereof or transferred to Essex and paid for by the
issuance of the REIT Shares, pursuant to Section 11.1(b) hereof, on the
Specified Redemption Date. Until a Specified Redemption Date and an acquisition
of the Tendered Units by Essex pursuant to Section 11.1(b) hereof, the Tendering
<PAGE>
Party shall have no rights as a shareholder of Essex with respect to the REIT
Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 11.1(e), all Partnership Units beneficially owned by a Related Party of
a Tendering Party shall be considered to be owned or held by such Tendering
Party.
(f) In connection with an exercise of Redemption rights pursuant to this Section
11.1, the Tendering Party shall submit the following to the General Partner, in
addition to the Notice of Redemption:
(i) A written affidavit, dated the same date as, and accompanying, the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as determined
for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such
Tendering Party and (ii) any Related Party and (b) representing that, after
giving effect to the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof, neither the Tendering Party nor any Related
Party will own REIT Shares in excess of any ownership limitations set forth in
the Charter;
(ii) A written representation that neither the Tendering Party nor any Related
Party has any intention to acquire any additional REIT Shares prior to the
closing of the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof on the Specified Redemption Date; and
(iii) An undertaking to certify, at and as a condition to the closing of (i) the
Redemption or (ii) the acquisition of the Tendered Units by Essex pursuant to
Section 11.1(b) hereof on the Specified Redemption Date, that either (a) the
actual and constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit required by
Section 11.1(f)(i) or (b) after giving effect to the Redemption or an
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof,
neither the Tendering Party nor any Related Party shall own REIT Shares in
violation of the Ownership Limit.
11.2 PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTEREST. Notwithstanding any
other provision of this Agreement, on and after the date on which the aggregate
Partnership Units of the Limited Partners (other than the Special Limited
Partner) constitute less than twenty-five percent (25%) of the aggregate
Partnership Units of all Partners, the Partnership shall have the right, but not
the obligation, from time to time and at any time to redeem any and all
outstanding Partnership Interests of the Limited Partners (other than the
Special Limited Partner) by treating any Limited Partner (other than the Special
Limited Partner) as a Tendering Party who has delivered a Notice of Redemption
pursuant to Section 11.1 hereof for the amount of Partnership Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 11.2. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 11.2 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 11.2, (a) any Limited Partner (whether or not otherwise
<PAGE>
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 11.1(c), 11.1(e)(i), 11.1(e)(ii), and 11.1.(e)(iv) hereof
shall not apply, but the remainder of Section 11.1 hereof (including, without
limitation, the rights of the General Partner under Section 11.1(b) hereof)
shall apply with such adjustments as shall be necessary in the circumstances.
Notwithstanding the foregoing, the Partnership shall have no rights pursuant to
this Section 11.2 prior to January 1, 2016.
11.3 OTHER REDEMPTIONS. Notwithstanding the provisions of Section 11.1 hereof,
nothing in this Agreement shall preclude the redemption of any Partnership
Interest of a Limited Partner or Partnership Units by the Partnership upon such
terms and conditions as may be negotiated between the Limited Partner or
Assignee holding such Limited Partner's Partnership Interest or Partnership
Units, on the one hand, and the General Partner, on the other hand, in their
sole and absolute discretion. Such a redemption may include, without limitation,
the payment of cash by the Partnership to the Limited Partner or Assignee, in a
lump sum or in installments, or the distribution in kind of Partnership assets
to such Limited Partner or Assignee (which assets may be encumbered), including
assets to be designated by the Limited Partner or Assignee and acquired (with or
without debt financing) by the Partnership. Upon any such redemption, the
Partnership Units and Partnership Interest redeemed shall be cancelled and
Exhibit A shall be amended as appropriate to reflect such redemption. In
effecting any such redemption by negotiated agreement, none of the Partnership,
the General Partner, the Limited Partner and the Assignee, as the case may be,
shall incur any liability to any other Unitholder or have any duty to offer the
same or similar terms for redemption of any other Partnership Interest or
Partnership Units.
ARTICLE XII
Arbitration of Disputes
12.1 ARBITRATION. Notwithstanding anything to the contrary contained in this
Agreement, all claims, disputes and controversies between the parties hereto
(including, without limitation, any claims, disputes and controversies between
the Partnership and any one or more of the Partners and any claims, disputes and
controversies between any one or more Partners) arising out of or in connection
with this Agreement or the Partnership created hereby, relating to the validity,
construction, performance, breach, enforcement or termination thereof, or
otherwise, shall be resolved by binding arbitration in San Francisco,
California, in accordance with California Civil Procedure Code Sections 1280 et
seq. (other than Section 1283.05), this Article XII and, to the extent not
inconsistent with this Article XII (other than the reference in this Article to
Sections of the California Civil Procedure Code), the Expedited Procedures and
Commercial Arbitration Rules of the American Arbitration Association (the
"Arbitration Rules").
12.2 PROCEDURES. Any arbitration called for by this Article XII shall be
conducted in accordance with the following procedures:
<PAGE>
(a) The Partnership or any Partner (the "Requesting Party") may demand
arbitration pursuant to Section 12.1 hereof at any time by giving written notice
of such demand (the "Demand Notice") to all other Partners and (if the
Requesting Party is not the Partnership) to the Partnership which Demand Notice
shall describe in reasonable detail the nature of the claim, dispute or
controversy.
(b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting
Party, on the one hand, and each of the other Partners and/or the Partnership
against whom the claim has been made or with respect to which a dispute has
arisen (collectively, the "Responding Party"), on the other hand, shall select
and designate in writing to the other party one reputable, disinterested
individual (a "Qualified Individual") willing to act as an arbitrator of the
claim, dispute or controversy in question. Each of the Requesting Party and the
Responding Party shall use its best efforts to select a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof), having
at least ten (10) years experience in real estate partnership matters, having no
affiliation with any of the parties as its respective Qualified Individual.
Within fifteen (15) days after the foregoing selections have been made, the
arbitrators so selected shall jointly select a present or former partner of a
"Big 6" accounting firm (or a "Big 8" predecessor thereof) having no affiliation
with any of the parties as the third Qualified Individual willing to act as an
arbitrator of the claim, dispute or controversy in question (the "Third
Arbitrator"). In the event that the two arbitrators initially selected are
unable to agree on the Third Arbitrator within the second fifteen (15) day
period referred to above, then, on the application of either party, the American
Arbitration Association shall promptly select and appoint a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof) having
no affiliation with any of the parties as the Qualified Individual to act as the
Third Arbitrator in accordance with the terms of the Arbitration Rules. The
three arbitrators selected pursuant to this subsection (b) shall constitute the
arbitration panel for the arbitration in question.
(c) The presentations of the parties hereto in the arbitration proceeding shall
be commenced and completed within sixty (60) days after the selection of the
arbitration panel pursuant to subsection (b) above, and the arbitration panel
shall render its decision in writing within thirty (30) days after the
completion of such presentations. Any decision concurred in by any two (2) of
the arbitrators shall constitute the decision of the arbitration panel, and
unanimity shall not be required. If a decision concurred in by at least two (2)
of the arbitrators is not rendered within such thirty (30) day period, then each
of the parties shall select a new Qualified Individual willing to act as an
arbitrator and a new arbitration proceeding shall commence in accordance with
this Article XII.
(d) The arbitration panel shall have the discretion to include in its decision a
direction that all or part of the attorneys' fees and costs of any party or
parties and/or the costs of such arbitration be paid by any other party or
parties. On the application of a party before or after the initial decision of
the arbitration panel, and proof of its attorneys' fees and costs, the
arbitration panel shall order the other party to make any payments directed
pursuant to the preceding sentence.
<PAGE>
(e) The Third Arbitrator shall have the right in its discretion to authorize the
obtaining of discovery, including the taking of depositions of witnesses for the
purpose of discovery.
(f) At the request of any party, the arbitrators shall make and provide to the
parties written findings of fact and conclusions of law.
12.3 BINDING CHARACTER. Any decision rendered by the arbitration panel pursuant
to this Article XII shall be final and binding on the parties hereto, and
judgment thereon may be entered by any state or federal court of competent
jurisdiction.
12.4 EXCLUSIVITY. Arbitration shall be the exclusive method available for
resolution of claims, disputes and controversies described in Section 12.1
hereof, and the Partnership and its Partners stipulate that the provisions
hereof shall be a complete defense to any suit, action, or proceeding in any
court or before any administrative or arbitration tribunal with respect to any
such claim, controversy or dispute. The provisions of this Article XII shall
survive the dissolution of the Partnership.
12.5 NO ALTERATION OF AGREEMENT. Nothing contained herein shall be deemed to
give the arbitrators any authority, power or right to alter, change, amend,
modify, add to, or subtract from any of the provisions of this Partnership
Agreement.
<PAGE>
ARTICLE XIII
General Provisions
13.1 NOTICES. All notices, offers or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and may be personally
served, telecopied or sent by United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy or three business
days after deposit in United States mail, registered or certified, postage
prepaid, and properly addressed, by or to the appropriate party. For purposes of
this Section 13.1, the addresses of the parties hereto shall be as set forth in
attached Exhibit A. The address of any Limited Partner may be changed by a
notice in writing given to the General Partner or the Special Limited Partner in
accordance with the provisions hereof, and the address of the General Partner
and the Special Limited Partner may be changed by a notice in writing given to
each of the Limited Partners in accordance with the provisions hereof.
13.2 SUCCESSORS. This Agreement and all the terms and provisions hereof shall be
binding upon and shall inure to the benefit of all Partners, and their legal
representatives, heirs, successors and permitted assigns, except as expressly
herein otherwise provided.
13.3 EFFECT AND INTERPRETATION. This Agreement shall be governed by and
construed in conformity with the laws of the State of California.
13.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
13.5 PARTNERS NOT AGENTS. Except as specifically provided herein, nothing
contained herein shall be construed to constitute any Partner the agent of
another Partner, or in any manner to limit the Partners in the carrying on of
their own respective businesses or activities.
13.6 ENTIRE UNDERSTANDING; ETC. This Agreement constitutes the entire agreement
and understanding among the Partners and supersedes any prior understandings
and/or written or oral agreements among them respecting the subject matter
within.
13.7 AMENDMENTS. The General Partner is hereby authorized, without the consent
of the Limited Partners, to amend this Agreement, including, without limitation,
Exhibit A attached hereto to reflect (i) the admission of any substituted
Limited Partner or Additional Limited Partner into the Partnership or the
withdrawal of any Limited Partner from the Partnership, or (ii) any adjustment
to the Percentage Interests, Partnership Units or Capital Accounts of the
Partners in connection with any of the actions described in clause (i) above,
Section 4.3, or elsewhere in this Agreement. Except as provided in the previous
sentence, this Agreement may not be amended, and no provision benefiting the
General Partner or the Special Limited Partner may be waived, except by a
written instrument signed by the General Partner and the Special Limited Partner
(and Essex to the extent provided in Section 13.16) and (except as provided in
Article IV and Article IX), if the Limited Partners (other than the Special
Limited Partner) collectively own forty percent (40%) or more of the Partnership
<PAGE>
Units, a Majority-In-Interest of the Limited Partners, except that this
Agreement may not be amended to alter the priority of distributions or to
decrease any Limited Partner's Percentage Interest (except pursuant to a
provision of this Agreement other than this Section 13.7) without the consent of
all of the affected Limited Partners (regardless of the size of their collective
Partnership Unit ownership).
13.8 SEVERABILITY. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those to which it is
held invalid by such court, shall not be affected thereby.
13.9 TRUST PROVISION. This Agreement, to the extent executed by the trustee of a
trust, is executed by such trustee solely as trustee and not in a separate
capacity. Nothing herein contained shall create any liability on, or require the
performance of any covenant by, any such trustee individually, nor shall
anything contained herein subject the individual personal property of any
trustee to any liability.
13.10 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the
masculine, feminine and neuter, and all defined terms shall include the singular
and plural thereof whatever the context and facts require such construction. The
headings, titles and subtitles herein are inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof. Any
references in this Agreement to "including" shall be deemed to mean "including
without limitation".
13.11 ASSURANCES. Each of the Partners shall hereafter execute and deliver such
further instruments and do such further acts and things as may be required or
useful to carry out the intent and purpose of this Agreement and as are not
inconsistent with the terms hereof.
13.12 TAX CONSEQUENCES. Each Partner acknowledges and agrees that he or she has
relied fully upon the advice of its own legal counsel and/or accountant in
determining the tax consequences of this Agreement and the transactions
contemplated hereby and not upon any representations or advice by the General
Partner or by any other Partner.
13.13 SECURITIES REPRESENTATIONS. Each Limited Partner hereby represents and
warrants to the Partnership and the General Partner that
(a) such Limited Partner understands the risks of, and other considerations
relating to accepting the Partnership Units in connection with its contribution
of property to the Partnership.
(b) such Limited Partner is an "accredited investor" as defined in Rule 501
under the Securities Act, and by reason of its business and financial
experience, together with the business and financial experience of those
persons, if any, retained by it to represent or advise it with respect to the
transactions contemplated by this Agreement, (a) has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type, and it is capable of evaluating the merits
<PAGE>
and risks of an investment in the Partnership and of making an informed
investment decision, (b) is capable of protecting its own interest or has
engaged representatives or advisors to assist it in protecting its interest, and
(c) is capable of bearing the economic risk of such investment.
(c) such Limited Partner understands that an investment in the Partnership
involves substantial risks. Each Limited Partner has been given the opportunity
to make a thorough investigation of the proposed activities of the Partnership.
Each Limited Partner has been afforded the opportunity to obtain any information
deemed necessary by such Limited Partner. Each Limited Partner confirms that all
documents, records, and book pertaining to its investment in the Partnership and
requested by such Limited Partner have been made available or delivered to such
Limited Partner. Each Limited Partner has had an opportunity to ask questions of
and receive answers from the Partnership, or from a person or persons acting on
the Partnership's behalf, concerning the terms and conditions of the
transactions contemplated by this Agreement and its acquisition of Partnership
Units. Each Limited Partner has relied upon, and is making its investment
decisions, solely upon such information as has been provided to such Limited
Partner in writing by the Partnership.
(d) The Partnership Units issued or to be issued to each Limited Partner by the
Partnership will be held or acquired by such Limited Partner for its own account
for investment only and not with a view to, or with any intention of, a
distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Limited Partner's
right (subject to the terms of this Agreement) at all times to sell or otherwise
dispose of all or any part of its Partnership Units under an exemption from such
registration available under the Securities Act and applicable state securities
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Each Limited Partner was not formed for the specific
purpose of acquiring an interest in the Partnership.
Each Limited Partner agrees and acknowledges that (i) the Partnership Units
issued or to be issued to such Limited Partner have not been registered under
the Securities Act or state securities laws by reason of a specific exemption or
exemptions from registration under the Securities Act and applicable state
securities laws and, if such Partnership Units are represented by certificates,
such certificates will bear a legend to such effect; (ii) the Partnership's
reliance on such exemptions is predicated in part on the accuracy and
completeness of the representations, warranties and covenants of such Limited
Partner contained herein; (iii) such Partnership Units, therefore, cannot be
resold unless registered under the Securities Act and applicable state
securities laws, or unless an exemption from registration is available; (iv)
there is no public market for such Partnership Units; (v) notwithstanding
anything to the contrary set forth in this Agreement, Partnership Units issued
to such Limited Partner may not be Transferred unless the General Partner
determines that the Transfer of the same is a valid private placement under
applicable federal and state securities laws; and (vi) the Partnership has no
obligation or intention to register such Partnership Units for resale under the
Securities Act or any state securities laws or to take any action that would
make available any exemption from the registration requirements of such laws.
Each Limited Partner hereby acknowledges that because of the restrictions on
Transfer of such Partnership Units to be issued hereunder, such Limited Partner
<PAGE>
may have to bear the economic risk of the investment commitment evidenced by
this Agreement for an indefinite period of time.
13.14 ORIGINAL GENERAL PARTNER REPRESENTATIONS. Each of the Current General
Partners, hereby, jointly and severally, represents and warrants to the General
Partner, the Special Limited Partner and the Partnership, as of the date hereof,
as follows:
(a) There is no litigation pending or, after due and diligent inquiry, to the
best of such Current General Partner's knowledge, threatened, (i) against the
Partnership, or (ii) any of the Current General Partners relating to the
operation or management of the Partnership or any of the Partnership's current
or prior assets.
(b) The Partnership is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of California. This Agreement
will not violate any provision of any agreement or judicial or administrative
order to which the Partnership or its current or prior assets are subject. The
Partnership and its operations are (and have at all times in the past been) in
compliance with all applicable laws.
(c) There are no outstanding (i) liabilities, debts, obligations or
responsibilities of the Partnership (including, without limitation, debts owed
by the Partnership to any of the Partners or any other Person), or (ii) written
or oral agreements to which the Partnership is subject or its assets bound,
which have not been disclosed to the General Partner, in writing, prior to the
date hereof.
(d) None of the Current General Partners is or has been the subject of any
Bankruptcy.
13.15 POWER OF ATTORNEY. Each Limited Partner and each Assignee hereby
irrevocably constitutes and appoints the General Partner, any Liquidating
Trustee, and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, coupled with an interest, with full power
and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments, supplements or restatements thereof) that the General Partner or the
Liquidating Trustee deems appropriate or necessary to form, qualify or continue
the existence or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of California and in all other
jurisdictions in which the Partnership may conduct business or own property; (b)
all instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all conveyances and other instruments or
<PAGE>
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the distribution or exchange of assets of the
Partnership pursuant to the terms of this Agreement; (e) all instruments
relating to the dissolution, liquidation or winding up of the Partnership or the
admission, withdrawal, removal or substitution of any Partner or any of the
other events described in, Article VIII, Article IX or Section 13.7 hereof or
the Capital Contribution of any Partner; and (f) all certificates, documents and
other instruments relating to the determination of the rights, preferences and
privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents, approvals,
waivers, certificates and other instruments appropriate or necessary, in the
sole and absolute discretion of the General Partner, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole and absolute discretion of
the General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with this Article XIII hereof or as
may be otherwise expressly provided for in this Agreement.
The foregoing power of attorney is hereby declared to be irrevocable and a
special power coupled with an interest, in recognition of the fact that each of
the Limited Partners and Assignees will be relying upon the power of the General
Partner to act as contemplated by this Agreement in any filing or other action
by it on behalf of the Partnership, and it shall survive and not be affected by
the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of
all or any portion of such Limited Partner's or Assignee's Partnership Units or
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner or Assignee hereby waives any and all defenses that
may be available to contest, negate or disaffirm the action of the General
Partner, taken in good faith under such power of attorney. Each Limited Partner
or Assignee shall execute and deliver to the General Partner or the Liquidating
Trustee, within fifteen (15) days after receipt of the General Partner's or the
Liquidating Trustee's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidating
Trustee, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
13.16 Third Party Beneficiary. Essex is and is hereby deemed a third party
beneficiary of this Agreement to the extent of the option granted to Essex
pursuant to Section 11.1(b) hereof and the other rights granted to Essex
hereunder, and Essex shall have the right to directly enforce such option and
all other rights provided to Essex pursuant to this Agreement. Neither Section
7.13 (nor the definition of "REIT Requirements"), Section 9.4 nor Section 11.1
(nor the definition of "Charter") shall be modified in any manner without
Essex's prior written consent in Essex's sole discretion.
<PAGE>
13.17 Costs of Agreement. All costs incurred in connection with the preparation
and execution of this Agreement shall be paid by the Partnership.
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby entered into among the undersigned
Partners as of the date first written above.
GENERAL PARTNER:
ESSEX MANAGEMENT CORPORATION,
a California corporation
By: ________________________________________________
Name:_______________________________________________
Its: _______________________________________________
SPECIAL LIMITED
PARTNER:
ESSEX PORTFOLIO, L.P., a
California limited partnership
By: ESSEX PROPERTY TRUST, INC., a
Maryland corporation
By: __________________________________________
Name: _________________________________________
Its: __________________________________________
<PAGE>
LIMITED PARTNERS:
NOTICE: BY EXECUTING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION IN
ARTICLE XII (THE "ARBITRATION PROVISION") DECIDED BY NEUTRAL ARBITRATION AS
PROVIDED BY SUCH ARBITRATION PROVISION AND BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL EXCEPT AS SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. BY EXECUTING
THIS AGREEMENT YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL,
UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THE ARBITRATION PROVISION,
YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE. YOUR AGREEMENT TO THE ARBITRATION PROVISION IS VOLUNTARY.
THE UNDERSIGNED HAS READ AND UNDERSTANDS THE FOREGOING AND AGREES TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION PROVISION TO
NEUTRAL ARBITRATION.
/s/ Ann M. Barry Trust /s/FBO Berghorn Trust
Ann M. Barry Trust FBO Berghorn Trust
/s/ G.B. 1992 Family Partnership /s/ Hansen Revocable Trust
G.B. 1992 Family Partnership Hansen Revocable Trust
/s/ Robert D. Junge Trust /s/ Richard Prentice
Robert D. Junge Trust Richard Prentice
/s/ Williams Revocable Trust /s/ Rosser Revocable Trust
Williams Revocable Trust Rosser Revocable Trust
/s/ George M. Marcus /s/ Donald V. Baptist
George M. Marcus Donald V. Baptist
/s/ James Fuqua /s/ Jean C. Baptist
James Fuqua Jean C. Baptist
/S/ Craig Zimmerman
Craig Zimmerman
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western Palo Alto II Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit A: Partners and Addresses
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western Palo Alto II Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit B: Examples Regarding Adjustment Factor
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western Palo Alto II Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit C: Notice of Redemption
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western Palo Alto II Investors, a California Limited Partnership
Agreement between Essex Management Corporation, Essex Portfolio, L.P. and the
Limited Partners listed on the signature page thereto has been omitted. Such
exhibit will be submitted to the Securities and Exchange Commission upon
request.
Exhibit E: Allocations
<PAGE>
FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN PALO ALTO II INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
---------------------------
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO HEREIN HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, UNLESS IT HAS BEEN
CONFIRMED TO YOU IN WRITING, WITH ANY STATE REGULATORY AGENCY. THESE LIMITED
PARTNERSHIP INTERESTS MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH
A VIEW TO DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS
PARTNERSHIP AGREEMENT, MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH LIMITED PARTNERSHIP INTERESTS UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REGULATIONS PROMULGATED PURSUANT THERETO AND ANY
APPLICABLE STATE LAW (UNLESS EXEMPT THEREFROM), AND WITHOUT COMPLIANCE WITH THE
REQUIREMENTS SET FORTH IN THIS PARTNERSHIP AGREEMENT.
NO STATE OR FEDERAL SECURITY COMMISSIONERS OR STATE OR FEDERAL REGULATORY
AGENCIES HAVE PASSED UPON THE VALUE OF THE SECURITIES, NOR HAVE THEY APPROVED OR
DISAPPROVED THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
* * * * * * * * * * * * *
<PAGE>
TABLE OF CONTENTS (Continued)
TABLE OF CONTENTS
ARTICLE I DEFINITIONS; ETC.....................................................1
1.1 Definitions...............................................................1
1.2 Exhibit, Etc.............................................................16
ARTICLE II ORGANIZATION.......................................................16
2.1 Continuation of Partnership...............................................16
2.2 Name.....................................................................16
2.3 Character of the Business................................................16
2.4 Partnership Only for Purposes Specified..................................17
2.5 Location of the Principal Place of Business..............................17
2.6 Agent for Service of Process.............................................17
2.7 Admission of New General Partner; Removal of Existing General Partners...17
2.8 Certificates of Ownership................................................17
ARTICLE III TERM..............................................................18
3.1 Commencement.............................................................18
3.2 Termination..............................................................18
ARTICLE IV CONTRIBUTIONS TO CAPITAL...........................................18
4.1 General Partner and Special Limited Partner Capital Contributions........18
4.2 Limited Partner Capital Contributions....................................18
4.3 Additional Funds.........................................................18
4.4 Contributions of Property................................................19
4.5 No Third Party Beneficiary...............................................20
4.6 No Interest; No Return...................................................20
ARTICLE V CONCURRENT TRANSACTIONS.............................................20
5.1 Concurrent Transactions..................................................20
ARTICLE VI ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS...................20
6.1 Allocations..............................................................20
6.2 Distributions............................................................20
6.3 Withholding..............................................................21
6.4 Books of Account.........................................................21
6.5 Reports..................................................................21
6.6 [Intentionally Omitted]..................................................22
6.7 Tax Elections and Returns................................................22
6.8 Tax Matters Partner......................................................22
ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER............23
7.1 Expenditures by Partnership..............................................23
7.2 Powers and Duties of General Partner.....................................23
7.3 Major Decisions..........................................................26
7.4 Actions with Respect to Certain Documents................................26
7.5 Other Business of General Partner and Special Limited Partner............27
7.6 Contracts With Affiliates................................................27
7.7 Proscriptions............................................................27
7.8 Additional Partners......................................................28
7.9 Title Holder.............................................................28
7.10 Compensation of the General Partner.....................................28
<PAGE>
7.11 Waiver and Indemnification..............................................28
7.12 Contracts With Controlled Entities......................................29
7.13 Operation in Accordance with REIT Requirements..........................29
ARTICLE VIII DISSOLUTION, LIQUIDATION AND WINDING-UP..........................30
8.1 Liquidating Events.......................................................30
8.2 Accounting...............................................................30
8.3 Distribution on Dissolution..............................................30
8.4 Timing Requirements......................................................31
8.5 Sale of Partnership Assets...............................................31
8.6 Distributions in Kind....................................................31
8.7 Documentation of Liquidation.............................................32
8.8 Liability of the Liquidating Trustee.....................................32
ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS..................................32
9.1 General Partner and Special Limited Partner Transfers....................32
9.2 Transfers by Limited Partners............................................33
9.3 Issuance of Additional Partnership Interests and Admittance of Additional
Partners.................................................................34
9.4 Restrictions on Transfer.................................................34
ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS......................35
10.1 No Participation in Management..........................................35
10.2 Bankruptcy of a Limited Partner and Certain Other Events................35
10.3 No Withdrawal...........................................................35
10.4 Duties and Conflicts....................................................35
ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNERS................................36
11.1 Grant of Rights.........................................................36
11.2 Partnership Right to Call Limited Partner Interest......................40
11.3 Other Redemptions.......................................................41
ARTICLE XII ARBITRATION OF DISPUTES...........................................41
12.1 Arbitration.............................................................41
12.2 Procedures..............................................................41
12.3 Binding Character.......................................................43
12.4 Exclusivity.............................................................43
12.5 No Alteration of Agreement..............................................43
ARTICLE XIII GENERAL PROVISIONS...............................................44
13.1 Notices.................................................................44
13.2 Successors..............................................................44
13.3 Effect and Interpretation...............................................44
13.4 Counterparts............................................................44
13.5 Partners Not Agents.....................................................44
13.6 Entire Understanding; Etc...............................................44
13.7 Amendments..............................................................44
13.8 Severability............................................................45
13.9 Trust Provision.........................................................45
13.10 Pronouns and Headings..................................................45
13.11 Assurances.............................................................45
13.12 Tax Consequences.......................................................45
13.13 Securities Representations.............................................45
13.14 Original General Partner Representations...............................47
<PAGE>
13.15 Power of Attorney......................................................47
13.16 Third Party Beneficiary................................................48
13.17 Costs of Agreement.....................................................49
EXHIBITS
A Partners and Addresses
B Examples Regarding Adjustment Factor
C Notice of Redemption
D Intentionally Omitted
E Allocations
<PAGE>
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN PALO ALTO II INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
------------------
<PAGE>
FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN-RIVIERA,
A CALIFORNIA LIMITED PARTNERSHIP
THIS FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is
made and entered into as of the 1st day of January, 1997, by and among the
undersigned parties.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Third Amended and Restated Agreement
of Limited Partnership entered into as of March 6, 1985 (the "Original
Agreement"), the parties to the Original Agreement formed Western-Riviera
Investors, a California limited partnership (the "Partnership"), pursuant to the
Uniform Limited Partnership Act of California, subject to the terms and
conditions of the Original Agreement; and
WHEREAS, the parties, hereto, constituting all of the partners in the
Partnership, hereby desire to amend, restate and supersede the Original
Agreement in its entirety, pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby amend, restate and supersede the Original
Agreement, in its entirety, to provide as follows:
ARTICLE I
Definitions; Etc.
1.1 DEFINITIONS. Except as otherwise herein expressly provided, the following
terms and phrases shall have the meanings set forth below:
"ACCOUNTANTS" shall mean the firm or firms of independent certified public
accountants selected by the General Partner on behalf of the Partnership.
"ACQUISITION COST" shall have the meaning set forth in Section 4.1 hereof.
"ACT" shall mean the California Revised Limited Partnership Act, California
Corporations Code Sections 15611, et seq., as the same may hereafter be amended
from time to time.
"ADDITIONAL INTERESTS" shall have the meaning set forth in Section 9.3 hereof.
"ADDITIONAL PARTNER" shall have the meaning set forth in Section 9.3 hereof.
<PAGE>
"ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with respect to any Limited
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of any relevant fiscal year and after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which such Partner is obligated
or treated as obligated to restore with respect to any deficit balance in such
Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or
is deemed to be obligated to restore with respect to any deficit balance
pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"ADJUSTMENT DATE" shall have the meaning set forth in Section 4.3(a)(ii) hereof.
"ADJUSTMENT FACTOR" means 1.0; provided, however, that in the event that:
(a) Essex (as hereinafter defined) (i) declares or pays a dividend on the
outstanding REIT Shares (as hereinafter defined) in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii)
splits or subdivides its outstanding REIT Shares or (iii) effects a reverse
stock split or otherwise combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying
the Adjustment Factor previously in effect by a fraction, (1) the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has occurred as of such time) and (2)
the denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or combination;
(b) Essex distributes any rights, options or warrants to all holders of its REIT
Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or
other securities or rights convertible into, exchangeable for or exercisable for
REIT Shares) at a price per share less than the Value of a REIT Share on the
record date for such distribution (each a "Distributed Right"), then the
Adjustment Factor shall be adjusted by multiplying the Adjustment Factor
previously in effect by a fraction, (i) the numerator of which shall be the
number of REIT Shares issued and outstanding on the record date plus the maximum
number of REIT Shares purchasable under such Distributed Rights, and (ii) the
denominator of which shall be the number of REIT Shares issued and outstanding
on the record date plus a fraction, (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights, and (2) the
denominator of which is the Value of a REIT Share as of the record date;
<PAGE>
provided, however, that, if any such Distributed Rights expire or become no
longer exercisable, then the Adjustment Factor shall be adjusted, effective
retroactive to the date of distribution of the Distributed Rights, to reflect a
reduced maximum number of REIT Shares or any change in the minimum purchase
price for the purposes of the above fractions; or
(c) Essex shall, by dividend or otherwise, distribute to all holders of
outstanding REIT Shares evidences of its indebtedness or assets (including
securities, but excluding any dividend or distribution referred to in subsection
(a) above), which evidences of indebtedness or assets relate to assets not
received by Essex pursuant to a pro rata distribution by the Partnership, then
the Adjustment Factor shall be adjusted to equal the amount determined by
multiplying the Adjustment Factor in effect immediately prior to the close of
business on the date fixed for determination of shareholders entitled to receive
such distribution by a fraction, (i) the numerator shall be the Value on the
date fixed for such determination and (ii) the denominator shall be the Value on
the dated fixed for such determination less the then fair market value (as
determined by Essex, whose determination shall be conclusive) of the portion of
the evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event; provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment which
results in an increase (but not a decrease) to the Adjustment Factor applicable
to the Partnership Units held by such Limited Partner, and, thereafter, such
adjustment will not be effective as to such Partnership Units. For illustrative
purposes only, examples of adjustments to the Adjustment Factor are set forth on
Exhibit B attached hereto.
"ADMINISTRATIVE EXPENSES" shall mean (i) all administrative and operating costs
and expenses incurred by the Partnership, and (ii) those administrative costs
and expenses of the General Partner and the Special Limited Partner, including
salaries paid to officers of the General Partner and the Special Limited
Partner, and accounting and legal expenses undertaken by the General Partner and
the Special Limited Partner on behalf or for the benefit of the Partnership.
"AFFILIATE" shall mean, with respect to any Partner (or as to any other person
the affiliates of whom are relevant for purposes of any of the provisions of
this Agreement), (i) any member of the Immediate Family of such Partner; (ii)
any trustee or beneficiary of a Partner; (iii) any legal representative,
successor, or assignee of any Person referred to in the preceding clauses (i)
and (ii); (iv) any trustee for the benefit of any Person referred to in the
preceding clauses (i) through (iii); or (v) any Entity which directly or
indirectly through one or more intermediaries, Controls, is Controlled by, or is
under common Control with, any Person referred to in the preceding clauses (i)
through (iv).
"AGREEMENT" shall mean this Fourth Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended, modified, supplemented or
restated from time to time, as the context requires.
"APPLICABLE PERCENTAGE" has the meaning set forth in Section 11.1(b) hereof.
<PAGE>
"ARBITRATION RULES" shall have the meaning set forth in Section 12.1 hereof.
"ASSIGNEE" shall mean a Person to whom one or more Partnership Units have been
Transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner.
"AVAILABLE CASH" shall mean, with respect to any fiscal period of the
Partnership, the excess, if any, of "Receipts" over "Expenditures." For purposes
hereof, the term "Receipts" means the sum of all cash receipts of the
Partnership from all sources for such period, (x) including (i) Net Sale
Proceeds and Net Financing Proceeds and (ii) any amounts held as reserves as of
the last day of such period which the General Partner reasonably deems to be in
excess of necessary reserves as determined below, and (y) excluding Capital
Contributions. The term "Expenditures" means the sum of (a) all cash expenses of
the Partnership for such period, (b) the amount of all payments of principal and
interest on account of any indebtedness of the Partnership including payments of
principal and interest on account of Partner Loans, or amounts due on such
indebtedness during such period, (c) any amount distributed or paid in
redemption of Partnership Units pursuant to Article XI hereof, including,
without limitation, any Cash Amount paid, and (d) such additional cash reserves
as of the last day of such period as the General Partner deems necessary for any
capital or operating expenditure permitted hereunder, but excluding all amounts
payable under the clauses (a), (b), (c) and (d) above with the proceeds of
Capital Contributions, as determined by the General Partner.
"BANKRUPTCY" shall mean, with respect to any Partner, (i) the commencement by
such Partner of any proceeding seeking relief under any provision or chapter of
the federal Bankruptcy Code or any other federal or state law relating to
insolvency, bankruptcy or reorganization, (ii) an adjudication that such Partner
is insolvent or bankrupt; (iii) the entry of an order for relief under the
federal Bankruptcy Code with respect to such Partner, (iv) the filing of any
such petition or the commencement of any such case or proceeding against such
Partner, unless such petition and the case or proceeding initiated thereby are
dismissed within ninety (90) days from the date of such filing, (v) the filing
of an answer by such Partner admitting the allegations of any such petition,
(vi) the appointment of a trustee, receiver or custodian for all or
substantially all of the assets of such Partner unless such appointment is
vacated or dismissed within ninety (90) days from the date of such appointment
but not less than five (5) days before the proposed sale of any assets of such
Partner, (vii) the insolvency of such Partner or the execution by such Partner
of a general assignment for the benefit of creditors, (viii) the failure of such
Partner to pay its debts as they mature, (ix) the levy, attachment, execution or
other seizure of all or substantially all of the assets of such Partner where
such seizure is not discharged within thirty (30) days thereafter, or (x) the
admission by such Partner in writing of its inability to pay its debts as they
mature or that it is generally not paying its debts as they become due.
"CAPITAL ACCOUNT" shall mean, with respect to any Partner, the separate "book"
account which the Partnership shall establish and maintain for such Partner in
accordance with Section 704(b) of the Code and Section 1.704-1(b)(2)(iv) of the
Regulations and such other provisions of Section 1.704-1(b) of the Regulations
<PAGE>
that must be complied with in order for the Capital Accounts to be determined in
accordance with the provisions of said Regulations. In furtherance of the
foregoing, the Capital Accounts shall be maintained in compliance with Section
1.704-1(b)(2)(iv) of the Regulations; and the provisions hereof shall be
interpreted and applied in a manner consistent therewith. In the event that any
Partnership Interest is transferred in accordance with the terms of this
Agreement, the Capital Account, at the time of the transfer, of the transferor
attributable to the transferred interest shall carry over to the transferee.
"CAPITAL CONTRIBUTION" shall mean, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any property other than money
contributed by such Partner to the Partnership pursuant to the terms of this
Agreement (net of liabilities secured by such property that the Partnership is
considered to assume or take subject to under Section 752 of the Code). Gross
Asset Value shall be calculated as provided herein.
"CASH AMOUNT" means (1) the lesser of (A) an amount of cash equal to the product
of (i) the product of (a) the Value of a REIT Share and (b) the REIT Shares
Amount determined as of the applicable Valuation Date, and (ii) 0.98, or (B) in
the case of a Declination followed by a Public Offering Funding, the Public
Offering Funding Amount, plus (2) all accrued but unpaid distributions, if any,
with respect to the Tendered Units, pursuant to Section 6.2(b).
"CERTIFICATE" shall mean the Certificate of Limited Partnership establishing the
Partnership, as filed with the office of the California Secretary of State, as
the same has been amended and may be amended from time to time in accordance
with the terms of the Original Agreement, this Agreement and the Act.
"CHARTER" means the Articles of Amendment and Restatement of Essex filed with
the Maryland State Department of Assessments and Taxation on July 5, 1995, as
amended, supplemented or restated from time to time.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"CONSENT OF THE LIMITED PARTNERS" means the written consent of a
Majority-In-Interest of the Limited Partners, which Consent shall be obtained
prior to the taking of any action for which it is required by this Agreement and
may be given or withheld by a Majority-In-Interest of the Limited Partners,
unless otherwise expressly provided herein, in their sole and absolute
discretion.
"CONTRIBUTED FUNDS" shall have the meaning set forth in Section 4.3(a)(ii)
hereof.
"CONTRIBUTED PROPERTY" shall have the meaning set forth in Section 4.1 hereof.
"CONTROL" shall mean the ability, whether by the direct or indirect ownership of
shares or other equity interests, by contract or otherwise, to elect a majority
of the directors of a corporation, to select the managing partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
<PAGE>
Entity. In the case of a limited partnership, the sole general partner, all of
the general partners to the extent each has equal management control and
authority, or the managing general partner or managing general partners thereof
shall be deemed to have control of such partnership and, in the case of a trust,
any trustee thereof or any Person having the right to select any such trustee
shall be deemed to have control of such trust.
"CONTROLLED ENTITY" shall mean, with respect to any Limited Partner or Person,
any Entity which directly or indirectly Controls, is Controlled by, or is under
common Control with, such Limited Partner or Person.
"CURRENT GENERAL PARTNERS" shall have the meaning set forth in Section 2.7
hereof.
"CUT-OFF DATE" means the tenth (10th) business day after the General Partner's
receipt of a Notice of Redemption.
"DECLINATION" has the meaning set forth in Section 11.1(d) hereof.
"DEMAND NOTICE" shall have the meaning set forth in Section 12.2 hereof.
"DEPRECIATION" shall mean, with respect to any asset of the Partnership for any
fiscal year or other period, the depreciation, depletion or amortization, as the
case may be, allowed or allowable for Federal income tax purposes in respect of
such asset for such fiscal year or other period; provided, however, that if
there is a difference between the Gross Asset Value and the adjusted tax basis
of such asset, Depreciation shall mean "book depreciation, depletion or
amortization" as determined under Section 1.704-1(b)(2)(iv)(g)(3) of the
Regulations.
"DISTRIBUTED RIGHT" has the meaning set forth in the definition of "Adjustment
Factor."
"ENTITY" shall mean any general partnership, limited partnership, limited
liability partnership, limited liability company, corporation, joint venture,
trust, business trust, cooperative or association.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time (or any corresponding provisions of succeeding laws).
"ESSEX" shall mean Essex Property Trust, Inc., a Maryland corporation, the
general partner of the Special Limited Partner.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"EXPENDITURES" shall have the meaning set forth in the definition of Available
Cash.
<PAGE>
"FISCAL YEAR" shall mean the fiscal year of the Partnership, which shall be the
calendar year.
"FUNDING DATE" shall mean the date on which (i) the General Partner or the
Special Limited Partner makes a Partner Loan, or (ii) the Partnership receives
Contributed Funds pursuant to Section 4.3(a)(ii) hereof.
"FUNDING LOAN PROCEEDS" shall mean the net cash proceeds received by the General
Partner or the Special Limited Partner, as applicable, in connection with any
Funding Loan, after deduction of all costs and expenses incurred by the General
Partner or the Special Limited Partner, as applicable, in connection with such
Funding Loan.
"FUNDING LOAN(S)" shall mean any borrowing or refinancing of borrowings by or on
behalf of the General Partner or the Special Limited Partner, as applicable,
from any Person (including, without limitation, the General Partner and the
Special Limited Partner) for the purpose of advancing the Funding Loan Proceeds
to the Partnership as a loan pursuant to Section 4.3(a)(i) hereof.
"GENERAL PARTNER" shall mean Essex Management Corporation, a California
corporation, its duly admitted successors and assigns and any other Person who
is a general partner of the Partnership at the time of reference thereto.
"GROSS ASSET VALUE" shall mean, with respect to any asset of the Partnership,
such asset's adjusted basis for Federal income tax purposes, except as follows:
(a) the Gross Asset Value of any asset contributed to the Partnership by a
Partner shall be the gross fair market value of such asset as determined by the
General Partner, in its reasonable discretion, provided that the General
Partner's determination of the gross fair market value of any asset pursuant to
this paragraph (a) shall be deemed reasonable unless contested by the
contributing Partner (i) within sixty (60) days after such determination, with
respect to contributions by existing Partners, or (ii) prior to the contributing
Partner's execution of any document admitting such Partner as a Partner in the
Partnership, with respect to new Partners;
(b) if the General Partner reasonably determines that an adjustment is necessary
or appropriate to reflect the relative economic interests of the Partners, the
Gross Asset Values of all Partnership assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the General
Partner, as of the following times:
(i) a Capital Contribution (other than a de minimis Capital Contribution) to the
Partnership by the General Partner or a new or existing Limited Partner as
consideration for a Partnership Interest;
(ii) the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for the redemption of a
Partnership Interest;
<PAGE>
(iii) the liquidation of the Partnership within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations; and
(iv) at such other times as the General Partner shall reasonably determine
necessary or advisable in order to comply with Regulations Sections 1.704-1(b)
and 1.704-2.
(c) the Gross Asset Values of Partnership assets distributed to any Partner
shall be the gross fair market values of such assets (taking Section 7701(g) of
the Code into account) as determined by the General Partner, in its reasonable
discretion, as of the date of distribution, provided that the General Partner's
determination of the gross fair market value of any asset pursuant to this
paragraph (c) shall be deemed reasonable unless contested within sixty (60) days
after such distribution; and
(d) the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Section 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts pursuant
to Section 1.704-1(b)(2)(iv)(m) of the Regulations (see attached Exhibit E);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this paragraph to the extent that the General Partner reasonably determines that
an adjustment pursuant to paragraph (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partners' Capital Accounts; as for
the manner in which such adjustments are allocated to the Capital Accounts, see
paragraph (c) of the definition of Net Income and Net Loss in the case of
adjustment by Depreciation, and paragraph (e) of said definition in all other
cases.
"IMMEDIATE FAMILY MEMBER" shall mean, with respect to any Person that is an
individual, such Person's spouse, parents, parents-in-law, aunts, uncles,
descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law
and children-in-law, provided that the General Partner has been (a) notified of
such individual and (b) provided with any and all documentation reasonably
requested by the General Partner to verify that such individual is an Immediate
Family Member.
"LIEN" shall mean any liens, security interests, mortgages, deeds of trust,
charges, claims, encumbrances, pledges, options, rights of first offer or first
refusal and any other rights or interests of others of any kind or nature,
actual or contingent, or other similar encumbrances of any nature whatsoever.
"LIMITED PARTNERS" shall mean the Special Limited Partner and those Persons
listed under the heading "Limited Partners" on the signature page hereto in
their respective capacities as limited partners of the Partnership or any Person
who, at the time of reference thereto, is a limited partner of the Partnership
<PAGE>
(including, without limitation, all Additional Partners and Substituted Limited
Partners); provided, however, that "Limited Partners" does not include any
Assignee or any unpermitted transferee of a Limited Partner's Partnership Units.
"LIQUIDATING EVENT" shall have the meaning set forth in Section 8.1 hereof.
"LIQUIDATING TRUSTEE" shall mean such individual or Entity as is selected as the
Liquidating Trustee hereunder by the General Partner (or, in the event that
there is no remaining General Partner, an individual or Entity elected by a
Majority-in-Interest of the Limited Partners), which individual or Entity may
include an Affiliate of the General Partner, provided such Liquidating Trustee
agrees in writing to be bound by the terms of this Agreement. The Liquidating
Trustee shall be empowered to give and receive notices, reports and payments in
connection with the dissolution, liquidation and/or winding-up of the
Partnership and shall hold and exercise such other rights and powers as are
necessary or required to permit all parties to deal with the Liquidating Trustee
in connection with the dissolution, liquidation and/or winding-up of the
Partnership.
"MAJOR DECISIONS" shall have the meaning set forth in Section 7.3 hereof.
"MAJORITY-IN-INTEREST OF THE LIMITED PARTNERS" shall mean Limited Partner(s)
(other than the Special Limited Partner) who hold in the aggregate more than
fifty percent (50%) of the aggregate Partnership Units of all Limited Partners
(other than the Special Limited Partner).
"MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT" shall mean "partner
nonrecourse debt minimum gain" as determined in accordance with Regulation
Section 1.704-2(i)(2).
"NET FINANCING PROCEEDS" shall mean the cash proceeds received by the
Partnership in connection with any borrowing or refinancing of borrowing by or
on behalf of the Partnership (whether or not secured), after deduction of all
costs and expenses incurred by the Partnership in connection with such
borrowing, and after deduction of that portion of such proceeds used to repay
any other indebtedness of the Partnership, or any interest or premium thereon.
"NET INCOME OR NET LOSS" shall mean, for each fiscal year or other applicable
period, an amount equal to the Partnership's net income or loss for such year or
period as determined for federal income tax purposes by the Accountants,
determined in accordance with Section 703(a) of the Code (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a) of the Code shall be included in taxable income or
loss), with the following adjustments: (a) by including as an item of gross
income any tax-exempt income received by the Partnership; (b) by treating as a
deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code (including amounts paid or incurred to organize the
Partnership (unless an election is made pursuant to Code Section 709(b)) or to
promote the sale of interests in the Partnership and by treating deductions for
any losses incurred in connection with the sale or exchange of Partnership
property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code
<PAGE>
as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of
depreciation, depletion, amortization, and other recovery deductions taken into
account in computing total income or loss, there shall be taken into account
Depreciation; (d) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of such
property rather than its adjusted tax basis; and (e) in the event of an
adjustment of the Gross Asset Value of any Partnership asset which requires that
the Capital Accounts of the Partnership be adjusted pursuant to Regulation
Section 1.704-1(b)(2)(v)(e), (f) and (m), the amount of such adjustment is to be
taken into account as additional Net Income or Net Loss pursuant to attached
Exhibit E.
"NET SALE PROCEEDS" means the cash proceeds received by the Partnership in
connection with a sale of any asset by or on behalf of the Partnership after
deduction of any costs or expenses incurred by the Partnership, or payable
specifically out of the proceeds of such sale (including, without limitation,
any repayment of any indebtedness required to be repaid as a result of such sale
or which the General Partner elects to repay out of the proceeds of such sale,
together with accrued interest and premium, if any, thereon and any sales
commissions or other costs and expenses due and payable to any Person in
connection with a sale, including to a Partner or its Affiliates).
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Sections
1.704-2(b)(1) and (c) of the Regulations.
"NONRECOURSE LIABILITIES" shall have the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially in the form
of Exhibit C attached to this Agreement.
"ORIGINAL AGREEMENT" means that certain Third Amended and Restated Agreement of
Limited Partnership of the Partnership entered into as of March 6, 1985, as
amended.
"PARTNER LOAN" shall have the meaning set forth in Section 4.3(a)(i) hereof.
"PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Section
1.704-2(i)(2) of the Regulations.
"PARTNERS" shall mean the General Partner, the Special Limited Partner and the
other Limited Partners.
"PARTNERSHIP" means the limited partnership formed pursuant to the Original
Agreement, as the same is amended, restated and superseded hereby and as hereby
constituted, as such limited partnership may from time to time in the future be
constituted.
"PARTNERSHIP INTEREST" shall mean the ownership interest of a Partner in the
Partnership from time to time, including each Partner's Percentage Interest and
<PAGE>
such Partner's Capital Account. Wherever in this Agreement reference is made to
a particular Partner's Partnership Interest, it shall be deemed to refer to such
Partner's Percentage Interest and shall include the proportionate amount of such
Partner's other interests in the Partnership which are attributable to or based
upon the Partner's Partnership Interest.
"PARTNERSHIP MINIMUM GAIN" shall have the meaning set forth in Section
1.704-2(b)(2) of the Regulations.
"PARTNERSHIP RECORD DATE" shall mean the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 6.2 hereof,
which record date shall generally be the same as the record date established by
the General Partner for a distribution to its shareholders of some or all of its
portion of such distribution.
"PARTNERSHIP UNIT" shall mean a fractional, undivided share of the Partnership
Interests of all Partners issued pursuant to the terms of this Agreement. The
number of Partnership Units held by the Partners shall be as indicated on
attached Exhibit A, as the same may be modified from time to time.
"PERCENTAGE INTEREST" shall mean, with respect to any Partner, the undivided
percentage ownership interest of such Partner in the Partnership, which interest
shall be determined by dividing the number of Partnership Units owned by such
Partner by the total number of Partnership Units outstanding.
"PERSON" shall mean any individual or Entity.
"PREFERRED RETURN PER UNIT" means
(a) as to a Limited Partner (other than the Special Limited Partner, except with
respect to any Partnership Units contributed to the Special Limited Partner by
Essex) or its Assignee (including, without limitation, Essex following the
acquisition of Tendered Units pursuant to Section 11.1(b) hereof), the amount
provided on Exhibit A with respect to each Partnership Unit held by such Limited
Partner; or
(b) in the case of each additional Partnership Unit issued in exchange for
additional Capital Contributions as provided in Section 4.3, the amount provided
on Exhibit A with respect to the Partner to whom such Partnership Unit is
issued.
The Preferred Return Per Unit, being determined with regard to the Partnership's
income, shall not constitute a "guaranteed payment" under Code Section 707(c).
"PRIMARY OFFERING NOTICE" has the meaning set forth in Section 11.1(e)(iii)
hereof.
"PROPERTY" OR "PROPERTIES" shall mean any real property in which the
Partnership, directly or indirectly, acquires any ownership leasehold or other
interest.
<PAGE>
"PUBLIC OFFERING FUNDING" has the meaning set forth in Section 11.1(d)(ii)
hereof.
"PUBLIC OFFERING FUNDING AMOUNT" means the dollar amount equal to (i) the
product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts,
and commissions and other expenses incurred by Essex in such Public Offering
Funding.
"QUALIFIED INDIVIDUAL" shall have the meaning set forth in Section 12.2(b)
hereof.
"QUALIFYING PARTY" means (a) a Limited Partner (other than the Special Limited
Partner, an Additional Partner or a Substituted Limited Partner), (b) an
Additional Partner or a Substituted Limited Partner (unless the terms of such
Additional Partner's or such Substituted Limited Partner's admission to the
Partnership otherwise provide), or (c) an Immediate Family Member of a
Qualifying Party, or a lending institution as the pledgee of a pledge of
Partnership Interests, who is the transferee in a Transfer permitted by this
Agreement.
"REDEMPTION" has the meaning set forth in Section 11.1(a) hereof.
"REGISTRABLE SHARES" has the meaning set forth in Section 11.1(d)(ii) hereof.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement
dated as of even date herewith by and among Essex and, among others, the Limited
Partners (other than the Special Limited Partner).
"REGULATIONS" shall mean the final, temporary or proposed Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set forth in attached Exhibit E.
"REIT" shall mean a real estate investment trust as defined in Section 856 of
the Code.
"REIT REQUIREMENTS" shall have the meaning set forth in Section 6.2 hereof.
"REIT SHARE" shall mean one share of the common stock, par value $.0001 per
share, of Essex Property Trust, Inc.
"REIT SHARES AMOUNT" means a number of REIT Shares equal to the product of (a)
the number of Tendered Units, (b) the Adjustment Factor and (c) the applicable
Specific Adjustment Factor, if any, taking into account any applicable Specific
Adjustment Limitations, if any; provided, however, that, in the event that Essex
issues to all holders of REIT Shares as of a certain record date rights,
options, warrants or convertible or exchangeable securities entitling Essex's
shareholders to subscribe for or purchase REIT Shares, or any other securities
<PAGE>
or property (collectively, the "Rights"), with the record date for such Rights
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the General
Partner in good faith.
"RELATED PARTY" shall mean, with respect to any Person, any other Person whose
ownership of shares of Essex's capital stock would be attributed to the first
such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)).
"REQUESTING PARTY" shall have the meaning set forth in Section 12.2(a) hereof.
"REQUIRED FUNDS" shall have the meaning set forth in Section 4.3 hereof.
"RESPONDING PARTY" shall have the meaning set forth in Section 12.2(b) hereof.
"RIGHTS" shall have the meaning set forth in the definition of "REIT Shares
Amount."
"SEC" shall mean the United States Securities and Exchange Commission.
"SECTION 704(C) TAX ITEMS" shall have the meaning set forth in attached Exhibit
E.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SINGLE FUNDING NOTICE" has the meaning set forth in Section 11.1(d)(iii)
hereof.
"SIX-MONTH PERIOD" shall mean a 180-day period (or, as to a particular
Qualifying Party, such shorter period as the General Partner may, in its sole
and absolute discretion, agree to in writing) ending on the 180th day after (i)
the date hereof, with respect to Limited Partners of the Partnership as of the
date hereof (other than the Special Limited Partner), and (ii) with respect to
Persons becoming Qualifying Parties subsequent to the date hereof, either (x)
the admission of such Qualifying Party as a Limited Partner in the Partnership
or (y) the Transfer of Partnership Units to such Qualifying Party, and on each
180th day thereafter (or, in the case of a period shorter than 180 days, such
other period as may be agreed to by the General Partner in writing).
"SPECIAL LIMITED PARTNER" shall mean Essex Portfolio, L.P., a California limited
partnership, its duly admitted successors and assigns.
"SPECIFIC ADJUSTMENT FACTOR" means, as to a Limited Partner or its Assignee, the
amount specified as such on Exhibit A with respect to such Limited Partner;
provided, however, that, if no such amount is specified on Exhibit A, the
Specific Adjustment Factor shall be 1.0. The Specific Adjustment Factor need not
<PAGE>
be the same for each Limited Partner and Assignee.
"SPECIFIC ADJUSTMENT LIMITATIONS" means, as to a Limited Partner or its
Assignee, the limitations and restrictions, if any, specified as such on Exhibit
A with respect to such Limited Partner. The Specific Adjustment Limitations need
not be the same for each Limited Partner and Assignee.
"SPECIFIED REDEMPTION DATE" means the later of (a) the eleventh (11th) business
day after the receipt by the General Partner of a Notice of Redemption (or in
the case of a purchase by Essex pursuant to Section 11.1(b) hereof, the
thirtieth (30th) day after such receipt), or (b) in the case of a Declination
followed by a Public Offering Funding, the business day next following the date
of the closing of the Public Offering Funding; provided, however, that the
Specified Redemption Date, as well as the closing of a Redemption, or an
acquisition of Tendered Units by Essex pursuant to Section 11.1(b) hereof, on
any Specified Redemption Date, may be deferred, in the General Partner's sole
and absolute discretion, for such time (but in any event not more than one
hundred eighty (180) days in the aggregate) as may reasonably be required to
effect, as applicable, (i) any necessary funding arrangements, (ii) compliance
with the Securities Act or other law (including, but not limited to, (a) state
"blue sky" or other securities laws and (b) the expiration or termination of the
applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended), (iii) compliance with any and all
requirements set forth in the Charter relating to such transaction, and (iv)
satisfaction or waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature.
"SUBSTITUTED LIMITED PARTNER" shall mean a "substituted limited partner" as such
term is defined in Section 15519 of the Act.
"TAX ITEMS" shall have the meaning set forth in attached Exhibit E.
"TENDERED UNITS" has the meaning set forth in Section 11.1(a) hereof.
"TENDERING PARTY" has the meaning set forth in Section 11.1(a) hereof.
"THIRD ARBITRATOR" shall have the meaning set forth in Section 12.2 hereof.
"TRADING DAY" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
"TRANSFER," when used with respect to a Partnership Unit or all or any portion
of a Partnership Interest, means any sale, assignment, bequest, conveyance,
devise, gift (outright or in trust), pledge, encumbrance, hypothecation,
<PAGE>
mortgage, exchange, transfer or other disposition or act of alienation, whether
voluntary or involuntary or by operation of law; provided, however, that, when
the term is used in Article IX hereof, Transfer does not include (a) any
Redemption of Partnership Units by the Partnership, or acquisition of Tendered
Units from the Limited Partners by Essex, pursuant to Section 11.1 hereof or (b)
any redemption of Partnership Units pursuant to Section 11.2 or Section 11.3
hereof. The terms "Transferred" and "Transferring" have correlative meanings.
"UNAUDITED FINANCIAL STATEMENTS" shall mean unaudited financial statements
(balance sheet, statement of income, statement of partners' equity and statement
of cash flows) prepared with respect to the Partnership's operations.
"UNITHOLDER" means the General Partner or any other holder of Partnership Units.
"VALUATION DATE" means (a) in the case of a tender of Partnership Units for
Redemption, two (2) business days after the date of receipt by the General
Partner of a Notice of Redemption, (b) for the purposes of the Registration
Rights Agreement, the date of delivery of a request under Section 2(a) thereof,
or (c) in any other case, the date specified in this Agreement.
"VALUE" means, on any Valuation Date with respect to one (1) REIT Share, the
market price of such REIT Share on such Valuation Date (or if such Valuation
Date is not a Trading Day, the immediately preceding Trading Day). The market
price for any such Valuation Date shall be:
(1) if the REIT Shares are listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system,
(2) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the last reported
sale price on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, as reported by a reliable
quotation source designated by the General Partner, or
(3) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System and no such last
reported sale price or closing bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or if there shall
be no bid and asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
<PAGE>
that a holder of REIT Shares would be entitled to receive, then the Value of
such Rights shall be determined by the General Partner acting in good faith on
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
1.2 EXHIBIT, ETC. References to "Exhibit" or to a "Schedule" are, unless
otherwise specified, to one of the Exhibits or Schedules attached to this
Agreement, and references to an "Article" or a "Section" are, unless otherwise
specified, to one of the Articles or Sections of this Agreement. Each Exhibit
and Schedule attached hereto and referred to herein is hereby incorporated
herein by reference.
ARTICLE II
Organization
2.1 CONTINUATION OF PARTNERSHIP. The parties hereto do hereby continue the
Partnership, provided that, from and after the date hereof, the Partnership
shall be subject to the provisions of the Act, and all other pertinent laws of
the State of California, subject to the terms and conditions hereinafter set
forth. The Partners agree that the rights and liabilities of the Partners shall
be as provided in the Act except as otherwise herein expressly provided.
Promptly upon the execution and delivery hereof, the General Partner shall
execute an amendment to the Certificate and file it with the Office of the
Secretary of State of the State of California. A certified copy of the amendment
to the Certificate shall be filed for record in each county in which the
Partnership shall own real property or an interest therein, and the General
Partner shall cause such other notice, instrument, document or certificate as
may be required by applicable law, and which may be necessary to enable the
Partnership to conduct its business and to own the Properties under the
Partnership name, to be filed or recorded in all appropriate public offices. The
General Partner shall execute and file with the Office of the Secretary of State
of the State of California any further amendments to the Certificate required by
law. A certified copy of each such amendment shall be filed by the General
Partner for record in each county in which a copy of the Certificate has been
filed for record.
2.2 NAME. The business of the Partnership shall be conducted under the name of
"Western Riviera Investors, a California limited partnership", or such other
name as the General Partner may select, and all transactions of the Partnership,
to the extent permitted by applicable law, shall be carried on and completed in
such name.
2.3 CHARACTER OF THE BUSINESS. The purpose of the Partnership shall be to
acquire, hold, own, develop, construct, improve, maintain, operate, manage,
sell, provide seller financing, lease, transfer, encumber, convey, exchange,
lend money, and otherwise dispose of or deal with Properties and ownership
interests therein; to acquire, hold, own, develop, construct, improve, maintain,
operate, manage, sell, provide seller financing, lease, transfer, encumber,
convey, exchange, lend money, and otherwise dispose of or deal with real and
personal property of all kinds, whether owned by the Partnership or otherwise;
and to undertake such other activities as may be necessary, advisable, desirable
or convenient to the business of the Partnership, and to engage in such other
ancillary activities as shall be necessary or desirable to effectuate the
foregoing purposes. The Partnership shall have all powers necessary or desirable
<PAGE>
to accomplish the purposes enumerated. In connection with the foregoing, but
subject to all of the terms, covenants, conditions and limitations contained in
this Agreement and any other agreement entered into by the Partnership, the
Partnership shall have full power and authority, directly or indirectly, to
enter into, perform and carry out contracts of any kind, to borrow money and to
issue evidences of indebtedness, whether or not secured by mortgage, trust deed,
pledge or other lien, and, directly or indirectly, to acquire and construct
additional Properties necessary or useful in connection with its business, and
to lend money secured by additional Properties and other real and personal
property.
2.4 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED. The Partnership shall be a limited
partnership only for the purposes specified in Section 2.3 hereof, and this
Agreement shall not be deemed to create a company, venture or partnership
between or among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 2.3 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any indebtedness or obligation of another Partner, nor
shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
2.5 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the principal
place of business of the Partnership shall be at 777 California Avenue, Palo
Alto, California 94304, or such other location as shall be selected from time to
time by the General Partner in its sole discretion.
2.6 AGENT FOR SERVICE OF PROCESS. The Partnership hereby appoints Jordan Ritter,
Esq., whose address is 777 California Avenue, Palo Alto, California 94304, as
its agent for service of process. Such agent may be changed from time to time by
the General Partner in its sole discretion by filing an amendment to the
Certificate.
2.7 ADMISSION OF NEW GENERAL PARTNER; REMOVAL OF EXISTING GENERAL PARTNERS.
Effective the date hereof, the General Partner is hereby admitted as a general
partner of the Partnership. Immediately thereafter, the general partners of the
Partnership pursuant to the Original Agreement, George M. Marcus, Donald V.
Baptist and James Fuqua (collectively, the "Current General Partners"), are
hereby converted to limited partners and their interests in the partnership are
hereby converted to Limited Partner Partnership Interests. Effective immediately
thereafter, the sole general partner of the Partnership shall be the General
Partner.
2.8 CERTIFICATES OF OWNERSHIP. In the sole discretion of the General Partner,
each Partner's Partnership Units may be evidenced by one or more registered
certificates of ownership, which certificates, if issued, shall be executed by
the General Partner. Such certificates shall contain a legend evidencing the
<PAGE>
restrictions on transfer of the Partnership Interests, which legend shall be
substantially similar to the legend contained on the cover page of this
Agreement.
ARTICLE III
Term
3.1 COMMENCEMENT. The Partnership commenced on March 1, 1985.
3.2 Termination. The Partnership shall continue until December 31, 2097, unless
it is dissolved and wound up sooner pursuant to the provisions of Article VIII
hereof or otherwise as provided by law.
ARTICLE IV
Contributions to Capital
4.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of
the General Partner and the Special Limited Partner has contributed to the
Partnership, as its initial contribution to the capital of the Partnership, the
sum of Thirty-Eight Thousand Four Hundred Sixteen and 99/100 Dollars
($38,416.99). The gross fair market value of any property in the future
contributed by the General Partner or the Special Limited Partner to the
Partnership ("Contributed Property"), other than money, shall be the Acquisition
Cost of such Contributed Property. For purposes hereof, the "Acquisition Cost"
of Contributed Property shall be the amount of such consideration, as reasonably
determined by the General Partner plus, in either case, any costs and expenses
incurred by the General Partner or the Special Limited Partner, as applicable,
in connection with such acquisition or contribution; provided, however, that if
the Contributed Property secures liabilities that the General Partner, the
Special Limited Partner or the Partnership assumes or takes subject to and the
consideration is not net of such liabilities, the Acquisition Cost shall be
equal to such consideration less the amount of such liabilities, and provided
further that if the General Partner or the Special Limited Partner, as
applicable, has assumed such liabilities, the Partnership shall assume such
liabilities of the General Partner or the Special Limited Partner, as
applicable, concurrently with the contribution of such property to the
Partnership or, if impossible, shall obligate itself to the General Partner or
the Special Limited Partner, as applicable, in an amount and on terms equal to
such liabilities.
4.2 LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of the Limited Partners (other
than the Special Limited Partner) has contributed the cash or other assets in
the amount set forth opposite such Limited Partner's name on Exhibit A.
4.3 ADDITIONAL FUNDS.
(a) If the Partnership requires funds ("Required Funds") for any proper
Partnership purpose in excess of any other funds anticipated by the General
Partner to be available to the Partnership (including through borrowings and
prior Capital Contributions), the General Partner or the Special Limited
Partner, as applicable, shall on the Funding Date, either:
<PAGE>
(i) to the extent the General Partner or the Special Limited Partner borrows all
or any portion of the Required Funds by entering into a Funding Loan, lend (the
"Partner Loan") to the Partnership the Funding Loan Proceeds on the same terms
and conditions, including the effective interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with the Funding Loan; or
(ii) the General Partner on behalf of the Partnership may, in its sole
discretion, raise all or any portion of the Required Funds by making additional
Capital Contributions and/or accepting additional Capital Contributions from any
other Partners and/or other Persons in the amount of the Required Funds not
loaned to the Partnership as General Partner Loans ("Contributed Funds")
(hereinafter, each Funding Date on which the General Partner or such other
Person so contributes Contributed Funds pursuant to this subparagraph (ii) is
referred to as an "Adjustment Date"). In the event the General Partner, the
Special Limited Partner, one or more of the other Limited Partners or other
Persons advances Required Funds to the Partnership as Contributed Funds pursuant
to this subparagraph (ii), the General Partner shall either (a) in the case of
Partners (including the General Partner and the Special Limited Partner),
increase such Partner's Partnership Units or (b) in the case of any other
Person, admit such Person as an Additional Partner (in accordance with Section
9.3 hereof). Subject to the terms of this Section 4.3 and to the definition of
"Gross Asset Value," the General Partner shall determine in good faith the
amount, terms and conditions of such additional Capital Contributions; provided,
however, that, in the case of an additional Capital Contribution by the General
Partner or the Special Limited Partner, the Partnership shall issue to the
General Partner or the Special Limited Partner, as applicable, the number of
Partnership Units derived by dividing (1) the amount of the additional Capital
Contribution (net of any liabilities assumed or taken subject to by the
Partnership), by (2) the Value determined as of the date of such Capital
Contribution. On the Adjustment Date with respect to any Contributed Funds, the
Partnership Interests of the non-contributing Partners shall be equitably
reduced.
(b) No Limited Partner (other than the Special Limited Partner) shall have any
right under this Agreement to lend funds to the Partnership or to make
additional capital contributions to the Partnership without the consent of the
General Partner, in the General Partner's sole discretion.
(c) Notwithstanding anything contained herein to the contrary, the liability of
the Limited Partners shall be limited to the aggregate amount of any Capital
Contributions made by the Limited Partners pursuant to this Agreement. Except to
the extent that additional Capital Contributions are unanimously approved by the
Partners, the Limited Partners shall have no personal liability to contribute or
lend money to, or in respect of, the liabilities or the obligations of the
Partnership.
4.4 CONTRIBUTIONS OF PROPERTY. If at any time or from time to time the General
Partner or the Special Limited Partner, as applicable, contributes to the
Partnership any property other than money pursuant to the terms of this
Agreement, the General Partner or the Special Limited Partner, as applicable,
shall be deemed to have contributed to the Partnership as Contributed Funds
pursuant to Section 4.3(a)(ii) hereof, including, for Capital Account purposes,
<PAGE>
an amount equal to the Acquisition Cost of such property as determined pursuant
to Section 4.1 hereof, and the Percentage Interests of the Partners shall be
redetermined in the manner provided in Section 4.3(a)(ii) hereof as of the date
of such contribution.
4.5 NO THIRD PARTY BENEFICIARY. No creditor or other third party having dealings
with the Partnership shall have the right to enforce the right or obligation of
any Partner to make Capital Contributions or loans or to pursue any other right
or remedy hereunder or at law or in equity, it being understood and agreed that
the provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns. None of the rights or obligations of the Partners herein set forth to
make Capital Contributions or loans to the Partnership shall be deemed an asset
of the Partnership for any purpose by any creditor or other third party, nor may
such rights or obligations be sold, transferred or assigned by the Partnership
or pledged or encumbered by the Partnership to secure any debt or other
obligation of the Partnership or of any of the Partners.
4.6 NO INTEREST; NO RETURN. No Partner shall be entitled to interest on its
Capital Contribution or on such Partner's Capital Account. Except as provided
herein or by law, no Partner shall have any right to demand or receive the
return of its Capital Contribution from the Partnership.
ARTICLE V
Concurrent Transactions
5.1 CONCURRENT TRANSACTIONS. Concurrently with the execution of this Agreement,
the following events shall occur: the Partnership, the Limited Partners and/or
the General Partner shall execute and deliver (and/or cause to be executed and
delivered) such further instruments and undertake such further acts as may be
necessary or desirable to carry out the intent and purposes of this Agreement
and as are not inconsistent with the terms hereof.
ARTICLE VI
Allocations and Other Tax and Accounting Matters
6.1 ALLOCATIONS. The Net Income, Net Loss and/or other Partnership items shall
be allocated pursuant to the provisions of attached Exhibit E.
6.2 DISTRIBUTIONS. The General Partner shall cause the Partnership to distribute
all or a portion of Available Cash, as the General Partner in its sole
discretion may determine, to the Unitholders from time to time as determined by
the General Partner, but in any event not less frequently than quarterly, as
follows:
(a) First, to the General Partner, one percent (1%) of the Available Cash
available for distribution;
(b) Second, to each Unitholder, pari passu, an amount equal to the sum of (i)
the product of (1) the Preferred Return Per Unit for such Unitholder (or its
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predecessor) for such quarter (or for such other period) and (2) the number of
Partnership Units held by such Unitholder as of the Partnership Record Date and
(ii) any unpaid amounts previously distributable to such Unitholder (or its
predecessor) under this Section 6.2(b); provided, however, that the amount
distributable pursuant to clause (i) to any Additional Partner admitted to the
Partnership in the quarter immediately preceding and ending with such
Partnership Record Date shall be prorated based on the number of days that such
Additional Partner was a Unitholder during such quarter; and
(c) Third, the balance, (i) ninety-nine percent (99%) to the Special Limited
Partner and (ii) one percent (1%) to the Unitholders (including, without
limitation, the General Partner, and the Special Limited Partner) in proportion
to their Partnership Units as of the Partnership Record Date.
The General Partner in its sole and absolute discretion may distribute to the
Unitholders Available Cash in accordance with the foregoing priorities on a more
frequent basis and provide for an appropriate record date. The General Partner
shall take such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with Essex's qualification as a REIT, to cause the
Partnership to distribute sufficient amounts to enable Essex, as the general
partner of the Special Limited Partner, to pay shareholder dividends that will
(a) satisfy the requirements for Essex's continuing to qualify as a REIT under
the Code and Regulations (the "REIT Requirements") and (b) avoid any federal
income or excise tax liability of Essex.
6.3 WITHHOLDING. The General Partner may withhold taxes from any allocation or
distribution to any Partner to the extent required by the Code or any other
applicable law. For purposes of this Agreement, any taxes so withheld by the
Partnership shall be deemed to be a distribution or payment to such Partner,
reduce the amount otherwise distributable or allocable to such Partner pursuant
to this Agreement and reduce the Capital Account of such Partner.
6.4 BOOKS OF ACCOUNT. At all times during the continuance of the Partnership,
the General Partner shall maintain or cause to be maintained full, true,
complete and correct books of account in accordance with generally accepted
accounting principles wherein shall be entered particulars of all monies, goods
or effects belonging to or owing to or by the Partnership, or paid, received,
sold or purchased in the course of the Partnership's business, and all of such
other transactions, matters and things relating to the business of the
Partnership as are usually entered in books of account kept by persons engaged
in a business of a like kind and character. In addition, the Partnership shall
keep all records as required to be kept pursuant to the Act. The books and
records of account shall be kept at the principal office of the Partnership, and
each Partner shall at all reasonable times have access to such books and records
and the right to inspect the same.
6.5 REPORTS. The General Partner shall cause to be submitted to the Limited
Partners promptly upon preparation of the same and in no event later than April
1 of each year, copies of Unaudited Financial Statements prepared for the
Partnership, together with the reports thereon, and all supplementary schedules
<PAGE>
and information. The Partnership shall also cause to be prepared such reports
and/or information as are necessary for Essex to determine its qualification as
a REIT and its compliance with REIT Requirements.
6.6 [Intentionally Omitted].
6.7 TAX ELECTIONS AND RETURNS. All elections required or permitted to be made by
the Partnership under any applicable tax law shall be made by the General
Partner in its sole discretion; provided, however, the General Partner shall
file an election on behalf of the Partnership pursuant to Section 754 of the
Code to adjust the basis of the Partnership property in the case of a transfer
of a Partnership Interest, including transfers made in connection with the
exercise of rights under Article XI hereof, made in accordance with the
provisions of the Agreement. The General Partner shall cause the Accountants to
prepare and file all state and federal tax returns on a timely basis. The
General Partner shall cause the Accountants to prepare and submit to the Limited
Partners on or before April 1 of each year for review all federal and state
income tax returns of the Partnership. If a Majority-in-Interest of the Limited
Partners determines that any modifications to the tax returns of the Partnership
should be considered, such Limited Partners shall, within thirty (30) days
following receipt of such tax returns from the Accountants or the General
Partner, indicate to the Accountants the suggested revisions to the tax returns,
which returns shall be resubmitted to the Limited Partners for their review (but
not approval). The Limited Partners shall complete their review of the
resubmitted returns within ten (10) days after receipt thereof from the
Accountants or the General Partner. The General Partner shall consult in good
faith with the Limited Partners regarding any proposed modifications to the tax
returns of the Partnership. A statement of the allocation of Net Income or Loss
of the Partnership shown on the annual income tax returns prepared by the
Accountants shall be transmitted and delivered to the Limited Partners within
ten (10) days of the receipt thereof by the Partnership. The General Partner
shall be responsible for preparing and filing all federal and state tax returns
for the Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law.
6.8 TAX MATTERS PARTNER. The General Partner is hereby designated as the Tax
Matters Partner within the meaning of Section 6231(a)(7) of the Code for the
Partnership; provided, however, (i) in exercising its authority as Tax Matters
Partner it shall be limited by the provisions of this Agreement affecting tax
aspects of the Partnership; (ii) the General Partner shall consult in good faith
with the Limited Partners regarding the filing of a Code Section 6227(b)
administrative adjustment request with respect to the Partnership or a Property
before filing such request, it being understood, however, that the provisions
hereof shall not be construed to limit the ability of any Partner, including the
General Partner, to file an administrative adjustment request on its own behalf
pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult
in good faith with the Limited Partners regarding the filing of a petition for
judicial review of an administrative adjustment request under Section 6228 of
the Code, or a petition for judicial review of a final partnership
administrative judgment under Section 6226 of the Code relating to the
Partnership before filing such petition; (iv) the General Partner shall give
prompt notice to the Limited Partners of the receipt of any written notice that
<PAGE>
the Internal Revenue Service or any state or local taxing authority intends to
examine Partnership income tax returns for any year, receipt of written notice
of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, receipt of written
notice of the final Partnership administrative adjustment relating to the
Partnership pursuant to Section 6223 of the Code, and receipt of any request
from the Internal Revenue Service for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Partnership; and
(v) the General Partner shall promptly notify the Limited Partners if the
General Partner does not intend to file for judicial review with respect to the
Partnership.
ARTICLE VII
Rights, Duties and Restrictions of the General Partner
7.1 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby authorized to pay
compensation for accounting, administrative, legal, technical, management and
other services rendered to the Partnership. All of the aforesaid expenditures
shall be made on behalf of the Partnership, and the General Partner shall be
entitled to reimbursement by the Partnership for any expenditures incurred by it
on behalf of the Partnership which shall be made other than out of the funds of
the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
7.2 POWERS AND DUTIES OF GENERAL PARTNER. The General Partner shall be
responsible for the management of the Partnership's business and affairs.
Subject solely to the limitations contained in Section 7.3 and Section 7.7
hereof, the General Partner shall have, and is hereby granted, full and complete
power, authority and discretion to take such action for and on behalf of the
Partnership and in its name as the General Partner shall, in its sole and
absolute discretion, deem necessary or appropriate to carry out the purposes for
which the Partnership was organized. Without limiting the generality of the
foregoing, the General Partner shall have the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase, lease, exchange
or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise
options to purchase, options to sell or conversion rights, assign, transfer,
convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, develop,
repair, maintain, manage, insure, lease for any term and otherwise deal with any
and all property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the purposes of the Partnership;
(b) To acquire, directly or indirectly, interests in real estate or entities
owning real estate of any kind and of any type, and any and all kinds of
interests therein (whether through direct ownership, partnerships, security
interests or any other type of interests), and to determine the manner in which
title thereto is to be held; to manage, insure against loss, protect and
subdivide any of the real estate, interests therein or parts thereof; to
improve, develop or redevelop any such real estate; to participate in the
ownership and development of any property; to dedicate for public use, to vacate
any subdivisions or parts thereof, to re-subdivide, to contract to sell or
exchange, to grant options to purchase, lease or exchange, to sell or exchange
on any terms; to convey, to mortgage or receive mortgages, pledge or otherwise
<PAGE>
encumber said property, or any part thereof; to lease said property or any part
thereof from time to time, upon any terms and for any period of time, and to
renew or extend leases, to amend, change or modify the terms and provisions or
any leases and to grant options to lease and options to renew leases and options
to purchase; to partition or to exchange said real property, or any part
thereof, for other real or personal property; to grant easements or charges of
any kind; to release, convey or assign any right, title or interest in or about
or easement appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on said
premises; to insure any Person having an interest in or responsibility for the
care, management or repair of such property; to direct the trustee of any land
trust to mortgage, lease, convey or contract to convey the real estate held in
such land trust or to execute and deliver deeds, mortgages, notes, and any and
all documents pertaining to the property subject to such land trust or in any
matter regarding such trust; to execute assignments of all or any part of the
beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from employment or engagement
Persons to the extent deemed necessary by the General Partner for the operation
and management of the Partnership business, including but not limited to,
contractors, subcontractors, engineers, architects, surveyors, mechanics,
consultants, accountants, attorneys, insurance brokers, real estate brokers and
others;
(d) To negotiate and enter into contracts on behalf of the Partnership
(including, without limitation, right of first opportunity arrangements and
other conflict avoidance agreements) that the General Partner considers useful
or necessary to the conduct of the Partnership's operations or implementation of
the General Partner's powers under this Agreement;
(e) To borrow money, procure loans and advances from any Person for Partnership
purposes, and to apply for and secure, from any Person, credit or
accommodations; to contract liabilities and obligations, direct or contingent
and of every kind and nature with or without security; and to repay, discharge,
settle, adjust, compromise, or liquidate any such loan, advance, credit,
obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale
and leaseback arrangements or otherwise give as security or as additional or
substitute security, or for sale or other disposition any and all Partnership
property, tangible or intangible, including, but not limited to, real estate and
beneficial interests in land trusts, and to make substitutions thereof, and to
receive any proceeds thereof upon the release or surrender thereof (such right,
power and authority to include, without limitation, the right, power and
authority to encumber Partnership property to secure the debts and obligations
of the General Partner and/or Affiliates of the General Partner, including,
without limitation, the Special Limited Partner); to sign, execute and deliver
any and all assignments, deeds and other contracts and instruments in writing;
to authorize, give, make, procure, accept and receive moneys, payments,
property, notices, demands, vouchers, receipts, releases, compromises and
adjustments; to waive notices, demands, protests and authorize and execute
waivers of every kind and nature; to enter into, make, execute, deliver and
receive written agreements, undertakings and instruments of every kind and
<PAGE>
nature; to give oral instructions and make oral agreements; and generally to do
any and all other acts and things incidental to any of the foregoing or with
reference to any dealings or transactions which any attorney may deem necessary,
proper or advisable;
(g) To acquire and enter into any contract of insurance which the General
Partner deems necessary or appropriate for the protection of the Partnership,
for the conservation of the Partnership's assets or for any purpose convenient
or beneficial to the Partnership;
(h) To conduct any and all banking transactions on behalf of the Partnership; to
adjust and settle checking, savings, and other accounts with such institutions
as the General Partner shall deem appropriate; to draw, sign, execute, accept,
endorse, guarantee, deliver, receive and pay any checks, drafts, bills of
exchange, acceptances, notes, obligations, undertakings and other instruments
for or relating to the payment of money in, into, or from any account in the
Partnership's name; to execute, procure, consent to and authorize extensions and
renewals of the same; to make deposits and withdraw the same and to negotiate or
discount commercial paper, acceptances, negotiable instruments, bills of
exchange and dollar drafts;
(i) To demand, sue for, receive, and otherwise take steps to collect or recover
all debts, rents, proceeds, interest, dividends, goods, chattels, income from
property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any accounts,
debts, claims, disputes and matters which may arise between the Partnership and
any other Person and to grant an extension of time for the payment or
satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking of all action
deemed necessary or appropriate by the General Partner to cause any approved
loans to be closed;
(k) To take all reasonable measures necessary to insure compliance by the
Partnership with applicable arrangements, and other contractual obligations and
arrangements entered into by the Partnership from time to time in accordance
with the provisions of this Agreement, including periodic reports as required to
lenders and using all due diligence to insure that the Partnership is in
compliance with its contractual obligations;
(l) To maintain the Partnership's books and records;
(m) To prepare and deliver, or cause to be prepared and delivered by the
Partnership's Accountants, all financial and other reports with respect to the
operations of the Partnership, and preparation and filing of all federal and
state tax returns and reports;
(n) To prepare and deliver all financial, regulatory, tax and other filings or
reports to governmental or other agencies having jurisdiction over the
Partnership; and
<PAGE>
(o) To do all other actions of a partner in a partnership without limited
partners, recognizing that the Limited Partners shall have only the right and
authority to participate in the affairs of the Partnership to the extent
specifically set forth in this Agreement.
Except as otherwise provided herein, to the extent the duties of the General
Partner require expenditures of funds to be paid to third parties, the General
Partner shall not have any obligations hereunder except to the extent that
Partnership funds are reasonably available to it for the performance of such
duties, and nothing herein contained shall be deemed to require the General
Partner, in its capacity as such, to expend its individual funds for payment to
third parties or to undertake any individual liability or obligation on behalf
of the Partnership. Each of the Limited Partners agrees that the General Partner
is authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not in itself constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
7.3 MAJOR DECISIONS. The General Partner shall not, without the prior Consent of
the Limited Partners, on behalf of the Partnership, undertake any of the
following actions (the "Major Decisions"):
(a) Amend, modify or terminate this Agreement other than in accordance with the
provisions of Article IV, Article VIII, Article IX, Section 13.7 and the
definitions of the terms "Gross Asset Value" and "Partnership Units."
(b) Make a general assignment for the benefit of creditors or appoint or
acquiesce in the appointment of a custodian, receiver or trustee for all or any
part of the assets of the Partnership.
(c) Take title to any personal or real property, other than in the name of the
Partnership or pursuant to Section 7.9 hereof.
(d) Institute any proceeding for Bankruptcy on behalf of the Partnership.
(e) Dissolve the Partnership, except as otherwise set forth in this Partnership
Agreement.
Notwithstanding the foregoing, none of the actions described in Section 7.3
shall be a Major Decision if the Limited Partners (other than the Special
Limited Partner) collectively own less than forty percent (40%) of the
Partnership Units at the time that such action is undertaken.
7.4 ACTIONS WITH RESPECT TO CERTAIN DOCUMENTS. Notwithstanding the provisions of
Section 7.3 hereof to the contrary, whenever the consent, agreement,
<PAGE>
authorization or approval of the Partnership is required under any agreement to
which the Limited Partners and/or their Controlled Entities are parties in
interest other than in their capacities as Limited Partners of the Partnership,
the Consent of the Limited Partners shall not be required.
7.5 OTHER BUSINESS OF GENERAL PARTNER AND SPECIAL LIMITED PARTNER.
Notwithstanding anything to the contrary set forth in this Agreement, the
General Partner and the Special Limited Partner may engage independently or with
others (including, without limitation, Affiliates of the General Partner and the
Special Limited Partner) in other business ventures of every nature and
description, including, without limitation, the ownership of other properties
and the making or management of other investments. In furtherance of any such
venture, the General Partner and the Special Limited Partner may serve as a
general or limited partner in any partnership, a shareholder in any corporation,
a joint venturer in any joint venture, a member and/or manager in any limited
liability company, or an equity or other participant in any other business
venture. Nothing in this Agreement shall be deemed to prohibit the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner from dealing, or otherwise engaging in business
with, Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property and receiving compensation therefor, not
involving any rebate or reciprocal arrangement that would have the effect of
circumventing any restriction set forth herein upon dealings with the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner. Neither the Partnership nor any Partner shall
have any right by virtue of this Agreement or the Partnership relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom, and, to the fullest extent permitted by the Act, the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper.
7.6 CONTRACTS WITH AFFILIATES.
(a) Without limiting the provisions of Section 7.5 above, the Partnership may
lend or contribute funds or other assets to its Affiliates or other Persons in
which it has (or proposes to have) an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Affiliates or any other
Person.
(b) Without limiting the provisions of Section 7.5 above, the Partnership may
transfer assets to other Entities in which it is or thereby becomes a
participant upon such terms and subject to applicable law as the General
Partner, in its sole and absolute discretion, believes to be advisable.
7.7 PROSCRIPTIONS. The General Partner shall not have the authority to:
(a) Do any act in contravention of this Agreement or which would make it
impossible to carry on the ordinary business of the Partnership;
<PAGE>
(b) Possess any Partnership property or assign rights in specific Partnership
property for other than Partnership purposes; or
(c) Do any act in contravention of applicable law.
Nothing herein contained shall impose any obligation on any Person or firm doing
business with the Partnership to inquire as to whether or not the General
Partner has properly exercised its authority in executing any contract, lease,
mortgage, deed or other instrument on behalf of the Partnership, and any such
third Person shall be fully protected in relying upon such authority.
7.8 ADDITIONAL PARTNERS. Additional Partners may be admitted to the Partnership
only as provided in Section 9.3 hereof.
7.9 TITLE HOLDER. To the extent allowable under applicable law, title to all or
any part of the properties of the Partnership may be held in the name of the
Partnership or any other individual, corporation, partnership, trust or
otherwise, the beneficial interest in which shall at all times be vested in the
Partnership. Any such title holder shall perform any and all of its respective
functions to the extent and upon such terms and conditions as may be determined
from time to time by the General Partner.
7.10 COMPENSATION OF THE GENERAL PARTNER. The General Partner shall not be
entitled to any compensation for services rendered to the Partnership solely in
its capacity as General Partner, except with respect to reimbursement for those
costs and expenses constituting Administrative Expenses.
7.11 WAIVER AND INDEMNIFICATION.
(a) Neither the General Partner, the Special Limited Partner nor any Person
acting on their behalf, pursuant hereto, shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for any
acts or omissions performed or omitted to be performed by them within the scope
of the authority conferred upon the General Partner or the Special Limited
Partner by this Agreement and the Act, provided that the General Partner's, the
Special Limited Partner's or such other Person's conduct or omission to act was
taken in good faith and in the belief that such conduct or omission was in the
best interests of the Partnership and, provided further, that the General
Partner, the Special Limited Partner or such other Person shall not be guilty of
fraud, misconduct, bad faith, or gross negligence. The Partnership shall, and
hereby does, agree to indemnify, defend, protect and hold harmless the General
Partner, the Special Limited Partner and their Affiliates and any individual or
Entity acting on their behalf from and against any loss, damage, cost, expense,
claim or liability, including, but not limited to, reasonable attorneys' fees,
court costs and expenses, incurred by them by reason of any acts or omissions
performed or omitted to be performed by them in connection with the business and
affairs of the Partnership as described herein, subject to the standards set
forth above; provided, however, no Partner shall have any personal liability
with respect to the foregoing indemnification, any such indemnification to be
satisfied solely out of the assets of the Partnership.
<PAGE>
(b) Any Person entitled to indemnification under this Agreement shall be
entitled to receive, upon application therefor, the costs reasonably incurred
defending any proceeding against such Person; provided, however, that such
advances shall be repaid to the Partnership, without interest, if such Person is
found by a court of competent jurisdiction upon entry of a final judgment not to
be entitled to such indemnification. All rights of the indemnitee hereunder
shall survive the dissolution of the Partnership. The indemnification rights
contained in this Agreement shall be cumulative of, and in addition to, any and
all rights, remedies and recourse to which the person seeking indemnification
shall be entitled, whether at law or in equity. Indemnification pursuant to this
Agreement shall be made solely and entirely from the assets of the Partnership,
and no Partner shall be liable therefor.
7.12 CONTRACTS WITH CONTROLLED ENTITIES. The General Partner and the Special
Limited Partner may contract with any of their Controlled Entities for the
provision of property management, asset management, brokerage or similar
services or any other services customarily rendered by the Controlled Entities;
provided that all such contracts or agreements shall be for compensation and on
terms and conditions substantially similar to other such contracts or agreements
available from similarly qualified third parties.
7.13 OPERATION IN ACCORDANCE WITH REIT REQUIREMENTS. Essex, the sole general
partner of the Special Limited Partner, is a REIT and is subject to the
provisions of Section 856 through and including 860 of the Code. The Partners
acknowledge and agree that the Partnership shall be operated in a manner that
will enable Essex to (a) satisfy the REIT Requirements and (b) eliminate the
imposition of any federal income or excise tax liability. Notwithstanding
anything to the contrary set forth in this Agreement, the Partnership shall
avoid taking any action that would result in Essex ceasing to satisfy the REIT
Requirements or would result in the imposition of any federal income or excise
tax liability on Essex. Without limiting the foregoing, so long as Essex owns,
directly or indirectly, any interest in the Partnership, then notwithstanding
any other provision of this Agreement:
(i) leases or subleases of any of the Partnership's real estate assets shall
provide for rents which qualify as "rents from real property" within the meaning
of Section 856(d) of the Code with respect to Essex;
(ii) the Partnership shall not furnish or render services to tenants or other
persons that are not usually or customarily rendered in connection with the
rental of real property in order that the rents received by the partnership with
respect to its real estate assets qualify as "rents from real property" within
the meaning of Section 856(d) of the Code with respect to Essex;
(iii) the Partnership shall not own, directly or indirectly or by attribution
(in accordance with the attribution rules referred to in Section 856(d) of the
Code), in the aggregate more than 1% of all classes of stock or more than 1% of
the voting power (or, with respect to any such person which is not a
corporation, an interest of 1% or more in the assets or net profits of such
person) of a lessee or sublessee of all or any part of the real estate assets of
the Partnership, except in each case with the specific written approval of
Essex;
<PAGE>
(iv) the Partnership shall not own, directly or indirectly or by attribution,
more than 10% of the outstanding voting securities of any issuer;
(v) the Partnership shall not engage in any prohibited transactions within the
meaning of Section 857(b)(6) of the Code; and
(vi) the determination as to whether the Partnership has operated in the manner
prescribed in this Section 7.13 shall be made without regard to any action or
inaction of the General Partner with respect to distributions and the timing
thereof.
ARTICLE VIII
Dissolution, Liquidation and Winding-Up
8.1 LIQUIDATING EVENTS. The Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following (each, a "Liquidating
Event"):
(a) The dissolution, termination, retirement or Bankruptcy of the General
Partner unless the Partnership is continued as provided in Section 9.1 hereof;
(b) The election to dissolve the Partnership made in writing by the General
Partner with the Consent of the Limited Partners, provided that the Consent of
the Limited Partners shall not be required if the Limited Partners (other than
the Special Limited Partner) collectively own less than forty percent (40%) of
the Partnership Units at the time of such election;
(c) The sale or other disposition of all or substantially all the assets of the
Partnership, other than in connection with a "like kind" exchange, pursuant to
Section 1031 of the Code (or any similar transaction), unless the General
Partner, with the Consent of the Limited Partners, elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership), provided that the
Consent of the Limited Partners shall not be required if the Limited Partners
(other than the Special Limited Partner) collectively own less than forty
percent (40%) of the Partnership Units at the time of such sale or disposition;
(d) Dissolution required by operation of law; or
(e) The expiration of its term as provided in Section 3.2.
8.2 ACCOUNTING. In the event of a Liquidating Event, a proper accounting (which
shall be certified) shall be made of the Capital Account of each Partner and of
the Net Profits or Net Losses of the Partnership from the date of the last
previous accounting to the date of dissolution. Financial statements presenting
such accounting shall be prepared at the direction of the Liquidating Trustee.
<PAGE>
8.3 Distribution on Dissolution. In the event of a Liquidating Event, the assets
of the Partnership shall be liquidated for distribution in the following rank
and order:
(a) First, to the payment and discharge of all of the Partnership's debt and
liabilities to creditors of the Partnership (other than Partners) in the order
of priority as provided by law;
(b) Second, to the establishment of reserves as provided by the General Partner
to provide for contingent liabilities, if any;
(c) Third, to the payment of debts of the Partnership to Partners, if any, in
the order of priority provided by law; and
(d) The balance, if any, to the Partners in accordance with the positive
balances in their Capital Accounts after giving effect to all contributions,
distributions (pursuant to Section 6.2) and allocations for all periods,
including the period in which such distribution occurs (other than those
adjustments made pursuant to this Section 8.3(d) and Section 8.4 hereof).
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (b) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with Section 6.2.
8.4 TIMING REQUIREMENTS. In the event that the Partnership is "liquidated"
within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and
all distributions to the Partners pursuant to Section 8.3(d) hereof shall be
made no later than the later to occur of (i) the last day of the taxable year of
the Partnership in which such liquidation occurs or (ii) ninety (90) days after
the date of such liquidation.
8.5 SALE OF PARTNERSHIP ASSETS. In the event of the liquidation of the
Partnership in accordance with the terms of this Agreement, the Liquidating
Trustee may, with the Consent of the Limited Partners, sell Partnership property
if the Liquidating Trustee has in good faith solicited bids from unrelated third
parties and obtained independent appraisals before making any such sale;
provided, however, all sales, leases, encumbrances or transfers of Partnership
assets shall be made by the Liquidating Trustee with the prior Consent of the
Limited Partners and solely on an "arm's-length" basis, at the best price and on
the best terms and conditions as the General Partner in good faith believes are
reasonably available at the time and under the circumstances and on a
non-recourse basis to the Limited Partners. Notwithstanding the foregoing, the
Consent of the Limited Partners shall not be required under the preceding
sentence if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time that the Liquidating Trustee undertakes such action. The liquidation of the
Partnership shall not be deemed finally terminated until the Partnership shall
have received cash payments in full with respect to obligations such as notes,
installment sale contracts or other similar receivables received by the
Partnership in connection with the sale of Partnership assets and all
obligations of the Partnership have been satisfied or assumed by the General
<PAGE>
Partner. The Liquidating Trustee shall continue to act to enforce all of the
rights of the Partnership pursuant to any such obligations until paid in full.
8.6 DISTRIBUTIONS IN KIND. Notwithstanding the provisions of Section 8.3 hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidating Trustee determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) and/or distribute to the Partners in lieu of cash as
tenants in common and in accordance with the provisions of Section 8.3 hereof,
undivided interests in such Partnership assets as the Liquidating Trustee deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good-faith judgment of the Liquidating Trustee, such distributions in
kind are in the best interest of the Partners and shall be subject to such
conditions relating to the disposition and management of such properties as the
Liquidating Trustee deems reasonable and equitable and to any agreements
governing the operation of such properties at such time. The Liquidating Trustee
shall determine the fair market value of any property distributed in kind using
such reasonable method of valuation as it may adopt.
8.7 DOCUMENTATION OF LIQUIDATION. Upon the completion of the dissolution and
liquidation of the Partnership, the Partnership shall terminate and the
Liquidating Trustee shall have the authority to execute and record any and all
documents or instruments required to effect the dissolution, liquidation and
termination of the Partnership.
8.8 LIABILITY OF THE LIQUIDATING TRUSTEE. The Partnership hereby indemnifies,
defends, protects and holds harmless the Liquidating Trustee from and against
any and all claims, demands, losses, liabilities, costs (including, without
limitation, reasonable attorneys' fees and costs), damages and causes of action
of any nature whatsoever arising out of or incidental to the Liquidating
Trustee's taking of any action authorized under or within the scope of this
Agreement; provided, however, that the Liquidating Trustee shall not be entitled
to indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arose out of:
(a) A matter entirely unrelated to the Liquidating Trustee's action or conduct
pursuant to the provisions of this Agreement; or
(b) The proven misconduct or gross negligence of the Liquidating Trustee.
ARTICLE IX
Transfer of Partnership Interests
9.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER TRANSFERS. Except as provided in
the next sentence, neither the General Partner nor the Special Limited Partner
shall withdraw from the Partnership or Transfer all or any portion of their
<PAGE>
interests in the Partnership without the Consent of the Limited Partners,
provided that the Consent of the Limited Partners shall not be required if the
Limited Partners (other than the Special Limited Partner) collectively own less
than forty percent (40%) of the Partnership Units at the time of such Transfer.
Notwithstanding the foregoing, the General Partner and/or the Special Limited
Partner may (i) engage in any merger, consolidation or other combination with or
into another Person regardless of whether Essex or another REIT continues to be
the general partner of the Special Limited Partner, (ii) sell all or
substantially all of their assets, or (iii) effect any reclassification or
recapitalization, all without the approval of the Limited Partners. Upon any
Transfer of all of the General Partner's or the Special Limited Partner's
Partnership Interest in accordance with the provisions of this Section 9.1, the
transferee General Partner or Special Limited Partner, as applicable, shall
become vested with the powers and rights of the transferor General Partner or
Special Limited Partner, as applicable, and shall be liable for all obligations
and responsible for all duties of the General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership Interest so
acquired. It is a condition to any Transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor General Partner or Special Limited Partner, as
applicable, under this Agreement with respect to such transferred Partnership
Interest, and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor General
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor General Partner or Special Limited Partner, as
applicable, of its obligations under this Agreement without the Consent of the
Limited Partners, provided that the Consent of the Limited Partners shall not be
required if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time of such Transfer. In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or dissolves,
terminates or upon the Bankruptcy of the General Partner, a Majority-In-Interest
of the Limited Partners may elect to continue the Partnership business by
selecting a substitute general partner.
9.2 TRANSFERS BY LIMITED PARTNERS.
(a) No Limited Partner (other than the Special Limited Partner) shall have the
right to Transfer to any Person all or any portion of its Partnership Interest,
without the General Partner's written consent, in the General Partner's sole
discretion. Any purported Transfer, in violation of this Section 9.2, shall be
void, ab initio.
(b) It is a condition to any Transfer otherwise permitted under this Section 9.2
that the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
<PAGE>
absolute discretion. Upon such Transfer and upon obtaining the General Partner's
written consent, in the General Partner's sole discretion, the transferee shall
be admitted as a Substituted Limited Partner and shall succeed to all of the
rights, including rights with respect to the Rights, of the transferor Limited
Partner under this Agreement in the place and stead of such transferor Limited
Partner; provided, however, that notwithstanding the foregoing, any transferee
of any transferred Partnership Interest shall be subject to any and all
ownership limitations contained in the Charter which may, among other things,
limit or restrict such transferee's ability to exercise all or portions of the
rights set forth in Article XI. Any transferee, whether or not admitted as a
Substituted Limited Partner, shall acquire such Partnership Interest subject to
the obligations of the transferor hereunder. Unless admitted as a Substituted
Limited Partner, no transferee, whether by a voluntary transfer, by operation of
law or otherwise, shall have rights hereunder (including, without limitation,
pursuant to Article XI, unless such transferee, is a Qualifying Party), other
than to receive such portion of the distributions made by the Partnership as are
allocable to the Percentage Interest transferred.
9.3 ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS AND ADMITTANCE OF ADDITIONAL
PARTNERS. At any time after the date hereof without the consent of any Partner,
but subject to the provisions of Section 9.4 hereof, the General Partner may,
upon its determination that the issuance of additional Partnership Interests
("Additional Interests") is in the best interests of the Partnership, cause the
Partnership (i) to issue Additional Interests to any Limited Partner or any
other Person (such other person being referred to as an "Additional Partner") in
exchange for the contribution by such Limited Partner or Person of cash and/or
property desirable to further the purposes of the Partnership under Section 2.3
hereof and (ii) in the case of such contribution by an Additional Partner, to
admit such person as a limited partner in the Partnership. In the event that an
Additional Interest is issued by the Partnership pursuant to this Section 9.3:
(a) the Percentage Interest of the Additional Partner that is issued the
Additional Interest and the reduction of the Percentage Interests of the other
Partner shall be determined by the General Partner in the same manner as that
provided in subsection 4.3(a)(ii) hereof with respect to Contributed Funds.
The General Partner shall be authorized on behalf of each of the Partners to
amend this Agreement to reflect the admission of any Additional Partner or any
increase in the Percentage Interests of any Partner and the corresponding
reduction of the Percentage Interests of the other Partners in accordance with
the provisions of this Section 9.3, and the General Partner shall promptly
deliver a copy of such amendment to each Limited Partner. Notwithstanding
anything contained herein to the contrary, without the consent of the General
Partner, in its sole and absolute discretion, an Additional Partner that
acquires an Additional Interest pursuant to this Section 9.3 shall not acquire
any interest in, and may not exercise or otherwise participate in, any rights
pursuant to Article XI.
9.4 RESTRICTIONS ON TRANSFER. In addition to any other restrictions on transfer
herein contained, in no event may any Transfer of a Partnership Interest by any
Partner be made (i) to any Person that lacks the legal right, power or capacity
to own a Partnership Interest; (ii) in violation of any provision of any
mortgage or trust deed (or the note or bond secured thereby) constituting a Lien
against a Property or any part thereof, or other instrument, document or
<PAGE>
agreement to which the Partnership, the General Partner, the Special Limited
Partner or any Affiliate of either of them is a party or otherwise bound; (iii)
in violation of applicable law, including, without limitation, any applicable
federal securities law or state securities "Blue Sky" law (including investment
suitability standards); (iv) of any component portion of a Partnership Interest,
such as the Capital Account, or rights to Available Cash, separate and apart
from all other components of a Partnership Interest; (v) in the event such
transfer would cause Essex to cease to comply with the REIT Requirements or
result in a violation of Section 7.13 hereof; (vi) if such transfer would cause
a termination of the Partnership for federal income tax purposes; (vii) if such
transfer would, in the opinion of counsel to the Partnership, cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes; (viii) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title 1 of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (ix) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.3-101; (x) if such
transfer may not be effected without registration of such Partnership Interest
under the Securities Act; or (xi) if such transfer would violate any provision
of the Charter. As a condition to any Transfer, the General Partner may, in its
sole and absolute discretion, require the proposed transferee to deliver to the
General Partner an opinion of counsel and such other certifications, affidavits
and/or undertakings, in form and content reasonably acceptable to the General
Partner, to satisfy the General Partner that the proposed Transfer will not
violate any of the provisions of this Section 9.4. Any purported transfer in
violation of this Section 9.4 shall be void ab initio.
ARTICLE X
Rights and Obligations of the Limited Partners
10.1 NO PARTICIPATION IN MANAGEMENT. Except as expressly permitted hereunder,
the Limited Partners shall not take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership and shall have no rights,
powers or authority, except as specifically provided herein.
10.2 BANKRUPTCY OF A LIMITED PARTNER AND CERTAIN OTHER EVENTS. The Bankruptcy,
death, incompetency, legal incapacity, withdrawal or retirement of any Limited
Partner shall not cause a dissolution of the Partnership, but the rights of such
Limited Partner to share in the Net Profits or Losses of the Partnership and to
receive distributions of Partnership funds shall, on the happening of such
event, devolve on its successors or assigns, subject to the terms and conditions
of this Agreement, and the Partnership shall continue as a limited partnership.
However, in no event shall such assignee(s) become a Substituted Limited
Partner, except in accordance with Article IX hereof.
10.3 NO WITHDRAWAL. Notwithstanding anything to the contrary provided in Section
10.2 above, no Limited Partner may withdraw or retire from the Partnership
without the prior written consent of the General Partner, in its sole and
absolute discretion, other than as expressly provided in this Agreement.
<PAGE>
10.4 DUTIES AND CONFLICTS. The General Partner recognizes that the Limited
Partners and their Affiliates have or may have other business interests,
activities and investments, some of which may be in conflict or competition with
the business of the Partnership, and that, subject to the provisions of any
agreements entered into by any Limited Partner or its Affiliate with the General
Partner, the Partnership or any of their Affiliates, such persons are entitled
to carry on such other business interests, activities and investments. Subject
to the immediately preceding sentence, the Limited Partners and their Affiliates
may engage in or possess an interest in any other business or venture of any
kind, independently or with others, on their own behalf or on behalf of other
entities with which they are affiliated or associated, and such persons may
engage in any activities, whether or not competitive with the Partnership,
without any obligation to offer any interest in such activities to the
Partnership or to any Partner. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such activities, or the
income or profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper.
ARTICLE XI
Grant of Rights to Limited Partners
11.1 GRANT OF RIGHTS.
(a) Subject to Section 11.1(b) below and the other provisions of this Section
11.1, a Qualifying Party, but no other Person, shall have the right (subject to
the terms and conditions set forth herein) to require the Partnership to redeem
all or a portion of the Partnership Units held by such Qualifying Party (such
Partnership Units being hereafter called "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Qualifying Party when exercising the Redemption right
(the "Tendering Party"). The Partnership's obligation to effect a Redemption,
however, shall not arise or be binding against the Partnership until and unless
there has been a Declination. Regardless of the binding or non-binding nature of
a pending Redemption, a Tendering Party shall have no right to receive
distributions with respect to any Tendered Units (other than the Cash Amount)
paid after delivery of the Notice of Redemption, whether or not the Partnership
Record Date for such distribution precedes or coincides with such delivery of
the Notice of Redemption. In the event of a Redemption, the Cash Amount shall be
delivered as a good check payable to the Tendering Party or, in the General
Partner's sole and discretion, in immediately available funds.
(b) (i) Subject to Section 11.1(b)(ii) below, notwithstanding the provisions of
Section 11.1(a) hereof, on or before the close of business on the Cutoff Date,
Essex shall, in its sole and absolute discretion but subject to the Ownership
Limit (as defined in the Charter) and any transfer restrictions or other
limitations of the Charter and subject to the written consent of the General
Partner in its sole discretion, have the option (and Essex is hereby granted
such an option) to acquire some or all (such amount, expressed as a percentage,
being referred to as the "Applicable Percentage") of the Tendered Units from the
<PAGE>
Tendering Party in exchange for REIT Shares. If Essex exercises such option, on
the Specified Redemption Date the Tendering Party shall sell such number of the
Tendered Units to Essex in exchange for a number of REIT Shares equal to the
product of the REIT Shares Amount and the Applicable Percentage (expressed as a
decimal), provided, however, that in lieu of any fractional REIT Share resulting
from such calculation, the General Partner or Special Limited Partner may
contribute to the Partnership the Cash Amount attributable to such fractional
REIT Share. The Tendering Party shall submit such information, investment
letters, representations, undertakings, legal opinions, certifications and/or
affidavits as Essex may reasonably require to comply with the Securities Act,
the Code and the Charter (including, without limitation, the Ownership Limit).
In the event of a purchase of the Tendered Units pursuant to this Section
11.1(b), the Tendering Party shall no longer have the right to cause the
Partnership to effect a Redemption of such Tendered Units, and, upon notice to
the Tendering Party by Essex, given on or before the close of business on the
Cut-Off Date, that Essex has exercised its option to acquire some or all of the
Tendered Units pursuant to this Section 11.1(b), the obligation of the
Partnership to effect a Redemption of the Tendered Units as to which Essex's
notice relates shall immediately and automatically terminate and be of no
further force or effect. The product of the Applicable Percentage and the REIT
Shares Amount shall be delivered by Essex as duly authorized, validly issued,
fully paid and nonassessable REIT Shares and, if applicable, Rights, free of any
pledge, lien, encumbrance or restriction, other than the Ownership Limit and
other restrictions provided in the Charter, the bylaws of Essex, the Securities
Act and relevant state securities or "blue sky" laws. Neither any Tendering
Party whose Tendered Units are acquired by Essex pursuant to this Section
11.1(b), any other Partner, any Assignee nor any other interested Person shall
have any right to require or cause Essex to register, qualify or list any REIT
Shares owned or held by such Person, whether or not such REIT Shares are issued
pursuant to this Section 11.1(b), with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between Essex and any such Person. REIT Shares issued
upon an acquisition of the Tendered Units by Essex pursuant to this Section
11.1(b) may contain such legends regarding restrictions under the Securities Act
and applicable state securities laws as Essex in good faith determines to be
necessary or advisable in order to ensure compliance with such laws.
(ii) Notwithstanding anything to the contrary set forth in Section 11.1(b)(i)
above, Essex may not exercise its option set forth in Section 11.1(b)(i) above
in any calendar year unless and until the Partnership shall have received
Notices of Redemption for Tendered Units (including, without limitation, Notices
of Redemption with respect to all completed Redemptions) during such calendar
year in the aggregate Cash Amount (or, if, as of the date of calculation, any
applicable Cash Amount is not yet determined pursuant to the terms of this
Agreement, the estimated Cash Amount as determined by the General Partner in its
reasonable judgment) in excess of $500,000. At such time as such $500,000
minimum is exceeded pursuant to the previous sentence during such calendar year,
Essex may exercise its option set forth in Section 11.1(b)(i) above with respect
to (x) all pending Redemptions, and (y) all Notices of Redemption received by
the Partnership during the remainder of such calendar year.
<PAGE>
(iii) If Essex exercises its option pursuant to Section 11.1(b)(i) above, on the
Specified Redemption Date, the Partnership shall pay to the Tendering Party all
accrued but unpaid distributions, if any, with respect to the Tendered Units
pursuant to Section 6.2(b).
(c) Notwithstanding the provisions of Sections 11.1(a) and 11.1(b) hereof, no
Tendering Party shall have any rights under this Agreement that would otherwise
be prohibited under the Charter. To the extent that any attempted Redemption or
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof
would be in violation of this Section 11.1(c), it shall be null and void ab
initio, and, in the case of a proposed purchase by Essex pursuant to Section
11.1(b) hereof, the Tendering Party shall not acquire any rights or economic
interests in REIT Shares otherwise issuable by Essex under Section 11.1(b)
hereof.
(d) In the event that, following receipt of a Notice of Redemption, Essex is not
permitted to exercise its option pursuant to Section 11.1(b)(ii), or Essex
declines or fails to exercise its option pursuant to Section 11.1(b)(i) hereof
(a "Declination"):
(i) The General Partner shall give notice of such Declination to the Tendering
Party on or before the close of business on the Cut-Off Date. The failure of the
General Partner to give notice of such Declination by the close of business on
the Cut-Off Date shall itself constitute a Declination.
(ii) The Partnership may elect to raise funds for the payment of the Cash Amount
either (a) by requiring that the Special Limited Partner contribute such funds
to the Partnership from (1) the proceeds of a registered public offering (a
"Public Offering Funding") by Essex of a number of REIT Shares ("Registrable
Shares") equal to the REIT Shares Amount with respect to the Tendered Units,
which proceeds are contributed by Essex to the Special Limited Partner, or (2)
any other source, or (b) from any other sources (including, but not limited to,
the sale of any Property or other assets of the Partnership and the incurrence
of Partnership debt) available to the Partnership.
(iii) Upon the General Partner's receipt of the Notice of Redemption and the
General Partner giving notice of its Declination, the General Partner, at its
election, may give notice (a "Single Funding Notice") to all Qualifying Parties
then holding a Partnership Interest (or an interest therein) and having
Redemption rights pursuant to this Section 11.1 and require that, due to (x) a
pending or anticipated public underwritten offering of Essex's securities or (y)
any other Essex activity, all such Qualifying Parties elect whether or not to
effect a Redemption of their Partnership Units. In the event that any such
Qualifying Party elects to effect such a Redemption, it shall give notice
thereof and of the number of Partnership Units to be made subject thereto in
writing to the General Partner within ten (10) business days after receipt of
the Single Funding Notice, and such Qualifying Party shall be treated as a
Tendering Party for all purposes of this Section 11.1. In the event that a
Qualifying Party does not so elect, it shall be deemed to have waived its right
to effect a Redemption for the current Six-month Period.
(e) Notwithstanding anything herein to the contrary (but subject to Section
11.1(c) hereof), with respect to any Redemption (or any tender of Partnership
<PAGE>
Units for Redemption if the Tendered Units are acquired by Essex pursuant to
Section 11.1(b) hereof) pursuant to this Section 11.1:
(i) Subject to the Ownership Limit, no Tendering Party may effect a Redemption,
(a) to the extent that the aggregate Partnership Units of the Limited Partners
(other than the General Partner or the Special Limited Partner) would be
reduced, as a result of the Redemption (or the acquisition of the Tendered Units
by Essex pursuant to Section 11.1(b) hereof), to less than one percent (1%) of
all Partnership Units outstanding immediately prior to delivery of the Notice of
Redemption, where the Redemption would consist of less than all the Partnership
Units held by Partners, other than the General Partner and the Special Limited
Partner, (b) for less than one thousand (1,000) Partnership Units or, if such
Tendering Party holds (as a Limited Partner or, economically, as an Assignee)
less than one thousand (1,000) Partnership Units, all of the Partnership Units
held by such Tendering Party, or (c) for less than all of such Tendering Party's
Partnership Units if, after giving effect to the requested Redemption, such
Tendering Party would continue to hold less than one thousand (1,000)
Partnership Units.
(ii) Each Tendering Party (a) may effect a Redemption only once in each
Six-month Period (unless the restriction contained in this Section 11.1(e)(ii)
is waived by the General Partner in its sole and absolute discretion) and (b)
may not effect a Redemption during the period after the Partnership Record Date
with respect to a distribution hereunder and before the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such Partnership distribution.
(iii) Notwithstanding anything herein to the contrary, with respect to any
Redemption or acquisition of Tendered Units by Essex pursuant to Section 11.1(b)
hereof, in the event that the General Partner gives notice to all Limited
Partners (but excluding the Special Limited Partner and any Assignees) then
owning Partnership Interests (a "Primary Offering Notice") that Essex desires to
effect an offering (whether or not underwritten and whether or not a public or
private placement) of REIT Shares or other securities of Essex, commencement of
the actions denoted in Section 11.1(d) hereof as to a Public Offering Funding
with respect to any Notice of Redemption thereafter received, whether or not the
Tendering Party is a Limited Partner, may be delayed, at the option of the
General Partner until the earlier of (a) the completion of the offering or (b)
ninety (90) days following the giving of the Primary Offering Notice.
(iv) Without the consent of the General Partner (which may be given or withheld
in its sole and absolute discretion), no Tendering Party may effect a Redemption
within ninety (90) days following the closing of any prior Public Offering
Funding.
(v) The consummation of such Redemption (or an acquisition of Tendered Units by
Essex pursuant to Section 11.1(b) hereof, as the case may be) shall be subject
to the expiration or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
<PAGE>
(vi) The Tendering Party shall continue to hold all Partnership Units subject to
any Redemption, and be treated as a Limited Partner or an Assignee, as
applicable, with respect such Partnership Units for all purposes of this
Agreement, until such Partnership Units are either paid for by the Partnership
pursuant to Section 11.1(a) hereof or transferred to Essex and paid for by the
issuance of the REIT Shares, pursuant to Section 11.1(b) hereof, on the
Specified Redemption Date. Until a Specified Redemption Date and an acquisition
of the Tendered Units by Essex pursuant to Section 11.1(b) hereof, the Tendering
Party shall have no rights as a shareholder of Essex with respect to the REIT
Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 11.1(e), all Partnership Units beneficially owned by a Related Party of
a Tendering Party shall be considered to be owned or held by such Tendering
Party.
(f) (In connection with an exercise of Redemption rights pursuant to this
Section 11.1, the Tendering Party shall submit the following to the General
Partner, in addition to the Notice of Redemption:
(i) (iA written affidavit, dated the same date as, and accompanying, the Notice
of Redemption, (a) disclosing the actual and constructive ownership, as
determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by
(i) such Tendering Party and (ii) any Related Party and (b) representing that,
after giving effect to the Redemption or an acquisition of the Tendered Units by
Essex pursuant to Section 11.1(b) hereof, neither the Tendering Party nor any
Related Party will own REIT Shares in excess of any ownership limitations set
forth in the Charter;
(ii) A written representation that neither the Tendering Party nor any Related
Party has any intention to acquire any additional REIT Shares prior to the
closing of the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof on the Specified Redemption Date; and
(iii) (iiiAn undertaking to certify, at and as a condition to the closing of (i)
the Redemption or (ii) the acquisition of the Tendered Units by Essex pursuant
to Section 11.1(b) hereof on the Specified Redemption Date, that either (a) the
actual and constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit required by
Section 11.1(f)(i) or (b) after giving effect to the Redemption or an
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof,
neither the Tendering Party nor any Related Party shall own REIT Shares in
violation of the Ownership Limit.
11.2 PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTEREST. Notwithstanding any
other provision of this Agreement, on and after the date on which the aggregate
Partnership Units of the Limited Partners (other than the Special Limited
Partner) constitute less than twenty-five percent (25%) of the aggregate
Partnership Units of all Partners, the Partnership shall have the right, but not
the obligation, from time to time and at any time to redeem any and all
outstanding Partnership Interests of the Limited Partners (other than the
Special Limited Partner) by treating any Limited Partner (other than the Special
Limited Partner) as a Tendering Party who has delivered a Notice of Redemption
<PAGE>
pursuant to Section 11.1 hereof for the amount of Partnership Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 11.2. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 11.2 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 11.2, (a) any Limited Partner (whether or not otherwise
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 11.1(c), 11.1(e)(i), 11.1(e)(ii), and 11.1.(e)(iv) hereof
shall not apply, but the remainder of Section 11.1 hereof (including, without
limitation, the rights of the General Partner under Section 11.1(b) hereof)
shall apply with such adjustments as shall be necessary in the circumstances.
Notwithstanding the foregoing, the Partnership shall have no rights pursuant to
this Section 11.2 prior to January 1, 2016.
11.3 OTHER REDEMPTIONS. Notwithstanding the provisions of Section 11.1 hereof,
nothing in this Agreement shall preclude the redemption of any Partnership
Interest of a Limited Partner or Partnership Units by the Partnership upon such
terms and conditions as may be negotiated between the Limited Partner or
Assignee holding such Limited Partner's Partnership Interest or Partnership
Units, on the one hand, and the General Partner, on the other hand, in their
sole and absolute discretion. Such a redemption may include, without limitation,
the payment of cash by the Partnership to the Limited Partner or Assignee, in a
lump sum or in installments, or the distribution in kind of Partnership assets
to such Limited Partner or Assignee (which assets may be encumbered), including
assets to be designated by the Limited Partner or Assignee and acquired (with or
without debt financing) by the Partnership. Upon any such redemption, the
Partnership Units and Partnership Interest redeemed shall be cancelled and
Exhibit A shall be amended as appropriate to reflect such redemption. In
effecting any such redemption by negotiated agreement, none of the Partnership,
the General Partner, the Limited Partner and the Assignee, as the case may be,
shall incur any liability to any other Unitholder or have any duty to offer the
same or similar terms for redemption of any other Partnership Interest or
Partnership Units.
ARTICLE XII
Arbitration of Disputes
12.1 ARBITRATION. Notwithstanding anything to the contrary contained in this
Agreement, all claims, disputes and controversies between the parties hereto
(including, without limitation, any claims, disputes and controversies between
the Partnership and any one or more of the Partners and any claims, disputes and
controversies between any one or more Partners) arising out of or in connection
with this Agreement or the Partnership created hereby, relating to the validity,
construction, performance, breach, enforcement or termination thereof, or
otherwise, shall be resolved by binding arbitration in San Francisco,
California, in accordance with California Civil Procedure Code Sections 1280 et
seq. (other than Section 1283.05), this Article XII and, to the extent not
inconsistent with this Article XII (other than the reference in this Article to
Sections of the California Civil Procedure Code), the Expedited Procedures and
<PAGE>
Commercial Arbitration Rules of the American Arbitration Association (the
"Arbitration Rules").
12.2 PROCEDURES. Any arbitration called for by this Article XII shall be
conducted in accordance with the following procedures:
(a) The Partnership or any Partner (the "Requesting Party") may demand
arbitration pursuant to Section 12.1 hereof at any time by giving written notice
of such demand (the "Demand Notice") to all other Partners and (if the
Requesting Party is not the Partnership) to the Partnership which Demand Notice
shall describe in reasonable detail the nature of the claim, dispute or
controversy.
(b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting
Party, on the one hand, and each of the other Partners and/or the Partnership
against whom the claim has been made or with respect to which a dispute has
arisen (collectively, the "Responding Party"), on the other hand, shall select
and designate in writing to the other party one reputable, disinterested
individual (a "Qualified Individual") willing to act as an arbitrator of the
claim, dispute or controversy in question. Each of the Requesting Party and the
Responding Party shall use its best efforts to select a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof), having
at least ten (10) years experience in real estate partnership matters, having no
affiliation with any of the parties as its respective Qualified Individual.
Within fifteen (15) days after the foregoing selections have been made, the
arbitrators so selected shall jointly select a present or former partner of a
"Big 6" accounting firm (or a "Big 8" predecessor thereof) having no affiliation
with any of the parties as the third Qualified Individual willing to act as an
arbitrator of the claim, dispute or controversy in question (the "Third
Arbitrator"). In the event that the two arbitrators initially selected are
unable to agree on the Third Arbitrator within the second fifteen (15) day
period referred to above, then, on the application of either party, the American
Arbitration Association shall promptly select and appoint a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof) having
no affiliation with any of the parties as the Qualified Individual to act as the
Third Arbitrator in accordance with the terms of the Arbitration Rules. The
three arbitrators selected pursuant to this subsection (b) shall constitute the
arbitration panel for the arbitration in question.
(c) The presentations of the parties hereto in the arbitration proceeding shall
be commenced and completed within sixty (60) days after the selection of the
arbitration panel pursuant to subsection (b) above, and the arbitration panel
shall render its decision in writing within thirty (30) days after the
completion of such presentations. Any decision concurred in by any two (2) of
the arbitrators shall constitute the decision of the arbitration panel, and
unanimity shall not be required. If a decision concurred in by at least two (2)
of the arbitrators is not rendered within such thirty (30) day period, then each
of the parties shall select a new Qualified Individual willing to act as an
arbitrator and a new arbitration proceeding shall commence in accordance with
this Article XII.
<PAGE>
(d) The arbitration panel shall have the discretion to include in its decision a
direction that all or part of the attorneys' fees and costs of any party or
parties and/or the costs of such arbitration be paid by any other party or
parties. On the application of a party before or after the initial decision of
the arbitration panel, and proof of its attorneys' fees and costs, the
arbitration panel shall order the other party to make any payments directed
pursuant to the preceding sentence.
(e) The Third Arbitrator shall have the right in its discretion to authorize the
obtaining of discovery, including the taking of depositions of witnesses for the
purpose of discovery.
(f) At the request of any party, the arbitrators shall make and provide to the
parties written findings of fact and conclusions of law.
12.3 BINDING CHARACTER. Any decision rendered by the arbitration panel pursuant
to this Article XII shall be final and binding on the parties hereto, and
judgment thereon may be entered by any state or federal court of competent
jurisdiction.
12.4 EXCLUSIVITY. Arbitration shall be the exclusive method available for
resolution of claims, disputes and controversies described in Section 12.1
hereof, and the Partnership and its Partners stipulate that the provisions
hereof shall be a complete defense to any suit, action, or proceeding in any
court or before any administrative or arbitration tribunal with respect to any
such claim, controversy or dispute. The provisions of this Article XII shall
survive the dissolution of the Partnership.
12.5 NO ALTERATION OF AGREEMENT. Nothing contained herein shall be deemed to
give the arbitrators any authority, power or right to alter, change, amend,
modify, add to, or subtract from any of the provisions of this Partnership
Agreement.
<PAGE>
ARTICLE XIII
General Provisions
13.1 NOTICES. All notices, offers or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and may be personally
served, telecopied or sent by United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy or three business
days after deposit in United States mail, registered or certified, postage
prepaid, and properly addressed, by or to the appropriate party. For purposes of
this Section 13.1, the addresses of the parties hereto shall be as set forth in
attached Exhibit A. The address of any Limited Partner may be changed by a
notice in writing given to the General Partner or the Special Limited Partner in
accordance with the provisions hereof, and the address of the General Partner
and the Special Limited Partner may be changed by a notice in writing given to
each of the Limited Partners in accordance with the provisions hereof.
13.2 SUCCESSORS. This Agreement and all the terms and provisions hereof shall be
binding upon and shall inure to the benefit of all Partners, and their legal
representatives, heirs, successors and permitted assigns, except as expressly
herein otherwise provided.
13.3 EFFECT AND INTERPRETATION. This Agreement shall be governed by and
construed in conformity with the laws of the State of California.
13.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
13.5 PARTNERS NOT AGENTS. Except as specifically provided herein, nothing
contained herein shall be construed to constitute any Partner the agent of
another Partner, or in any manner to limit the Partners in the carrying on of
their own respective businesses or activities.
13.6 ENTIRE UNDERSTANDING; ETC. This Agreement constitutes the entire agreement
and understanding among the Partners and supersedes any prior understandings
and/or written or oral agreements among them respecting the subject matter
within.
13.7 AMENDMENTS. The General Partner is hereby authorized, without the consent
of the Limited Partners, to amend this Agreement, including, without limitation,
Exhibit A attached hereto to reflect (i) the admission of any substituted
Limited Partner or Additional Limited Partner into the Partnership or the
withdrawal of any Limited Partner from the Partnership, or (ii) any adjustment
to the Percentage Interests, Partnership Units or Capital Accounts of the
Partners in connection with any of the actions described in clause (i) above,
Section 4.3, or elsewhere in this Agreement. Except as provided in the previous
sentence, this Agreement may not be amended, and no provision benefiting the
General Partner or the Special Limited Partner may be waived, except by a
written instrument signed by the General Partner and the Special Limited Partner
(and Essex to the extent provided in Section 13.16) and (except as provided in
Article IV and Article IX), and, if the Limited Partners (other than the Special
Limited Partner) collectively own forty percent (40%) or more of the Partnership
<PAGE>
Units, a Majority-In-Interest of the Limited Partners, except that this
Agreement may not be amended to alter the priority of distributions or to
decrease any Limited Partner's Percentage Interest (except pursuant to a
provision of this Agreement other than this Section 13.7) without the consent of
all of the affected Limited Partners (regardless of the size of their collective
Partnership Unit ownership).
13.8 SEVERABILITY. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those to which it is
held invalid by such court, shall not be affected thereby.
13.9 TRUST PROVISION. This Agreement, to the extent executed by the trustee of a
trust, is executed by such trustee solely as trustee and not in a separate
capacity. Nothing herein contained shall create any liability on, or require the
performance of any covenant by, any such trustee individually, nor shall
anything contained herein subject the individual personal property of any
trustee to any liability.
13.10 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the
masculine, feminine and neuter, and all defined terms shall include the singular
and plural thereof whatever the context and facts require such construction. The
headings, titles and subtitles herein are inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof. Any
references in this Agreement to "including" shall be deemed to mean "including
without limitation".
13.11 ASSURANCES. Each of the Partners shall hereafter execute and deliver such
further instruments and do such further acts and things as may be required or
useful to carry out the intent and purpose of this Agreement and as are not
inconsistent with the terms hereof.
13.12 TAX CONSEQUENCES. Each Partner acknowledges and agrees that he or she has
relied fully upon the advice of its own legal counsel and/or accountant in
determining the tax consequences of this Agreement and the transactions
contemplated hereby and not upon any representations or advice by the General
Partner or by any other Partner.
13.13 SECURITIES REPRESENTATIONS. Each Limited Partner hereby represents and
warrants to the Partnership and the General Partner that
(a) such Limited Partner understands the risks of, and other considerations
relating to accepting the Partnership Units in connection with its contribution
of property to the Partnership.
(b) such Limited Partner is an "accredited investor" as defined in Rule 501
under the Securities Act, and by reason of its business and financial
experience, together with the business and financial experience of those
persons, if any, retained by it to represent or advise it with respect to the
transactions contemplated by this Agreement, (a) has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type, and it is capable of evaluating the merits
<PAGE>
and risks of an investment in the Partnership and of making an informed
investment decision, (b) is capable of protecting its own interest or has
engaged representatives or advisors to assist it in protecting its interest, and
(c) is capable of bearing the economic risk of such investment.
(c) such Limited Partner understands that an investment in the Partnership
involves substantial risks. Each Limited Partner has been given the opportunity
to make a thorough investigation of the proposed activities of the Partnership.
Each Limited Partner has been afforded the opportunity to obtain any information
deemed necessary by such Limited Partner. Each Limited Partner confirms that all
documents, records, and book pertaining to its investment in the Partnership and
requested by such Limited Partner have been made available or delivered to such
Limited Partner. Each Limited Partner has had an opportunity to ask questions of
and receive answers from the Partnership, or from a person or persons acting on
the Partnership's behalf, concerning the terms and conditions of the
transactions contemplated by this Agreement and its acquisition of Partnership
Units. Each Limited Partner has relied upon, and is making its investment
decisions, solely upon such information as has been provided to such Limited
Partner in writing by the Partnership.
(d) The Partnership Units issued or to be issued to each Limited Partner by the
Partnership will be held or acquired by such Limited Partner for its own account
for investment only and not with a view to, or with any intention of, a
distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Limited Partner's
right (subject to the terms of this Agreement) at all times to sell or otherwise
dispose of all or any part of its Partnership Units under an exemption from such
registration available under the Securities Act and applicable state securities
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Each Limited Partner was not formed for the specific
purpose of acquiring an interest in the Partnership.
Each Limited Partner agrees and acknowledges that (i) the Partnership Units
issued or to be issued to such Limited Partner have not been registered under
the Securities Act or state securities laws by reason of a specific exemption or
exemptions from registration under the Securities Act and applicable state
securities laws and, if such Partnership Units are represented by certificates,
such certificates will bear a legend to such effect; (ii) the Partnership's
reliance on such exemptions is predicated in part on the accuracy and
completeness of the representations, warranties and covenants of such Limited
Partner contained herein; (iii) such Partnership Units, therefore, cannot be
resold unless registered under the Securities Act and applicable state
securities laws, or unless an exemption from registration is available; (iv)
there is no public market for such Partnership Units; (v) notwithstanding
anything to the contrary set forth in this Agreement, Partnership Units issued
to such Limited Partner may not be Transferred unless the General Partner
determines that the Transfer of the same is a valid private placement under
applicable federal and state securities laws; and (vi) the Partnership has no
obligation or intention to register such Partnership Units for resale under the
Securities Act or any state securities laws or to take any action that would
make available any exemption from the registration requirements of such laws.
Each Limited Partner hereby acknowledges that because of the restrictions on
Transfer of such Partnership Units to be issued hereunder, such Limited Partner
<PAGE>
may have to bear the economic risk of the investment commitment evidenced by
this Agreement for an indefinite period of time.
13.14 ORIGINAL GENERAL PARTNER REPRESENTATIONS. Each of the Current General
Partners, hereby, jointly and severally, represents and warrants to the General
Partner, the Special Limited Partner and the Partnership, as of the date hereof,
as follows:
(a) There is no litigation pending or, after due and diligent inquiry, to the
best of such Current General Partner's knowledge, threatened, (i) against the
Partnership, or (ii) any of the Current General Partners relating to the
operation or management of the Partnership or any of the Partnership's current
or prior assets.
(b) The Partnership is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of California. This Agreement
will not violate any provision of any agreement or judicial or administrative
order to which the Partnership or its current or prior assets are subject. The
Partnership and its operations are (and have at all times in the past been) in
compliance with all applicable laws.
(c) There are no outstanding (i) liabilities, debts, obligations or
responsibilities of the Partnership (including, without limitation, debts owed
by the Partnership to any of the Partners or any other Person), or (ii) written
or oral agreements to which the Partnership is subject or its assets bound,
which have not been disclosed to the General Partner, in writing, prior to the
date hereof.
(d) None of the Current General Partners is or has been the subject of any
Bankruptcy.
13.15 POWER OF ATTORNEY. Each Limited Partner and each Assignee hereby
irrevocably constitutes and appoints the General Partner, any Liquidating
Trustee, and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, coupled with an interest, with full power
and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments, supplements or restatements thereof) that the General Partner or the
Liquidating Trustee deems appropriate or necessary to form, qualify or continue
the existence or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of California and in all other
jurisdictions in which the Partnership may conduct business or own property; (b)
all instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all conveyances and other instruments or
<PAGE>
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the distribution or exchange of assets of the
Partnership pursuant to the terms of this Agreement; (e) all instruments
relating to the dissolution, liquidation or winding up of the Partnership or the
admission, withdrawal, removal or substitution of any Partner or any of the
other events described in, Article VIII, Article IX or Section 13.7 hereof or
the Capital Contribution of any Partner; and (f) all certificates, documents and
other instruments relating to the determination of the rights, preferences and
privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents, approvals,
waivers, certificates and other instruments appropriate or necessary, in the
sole and absolute discretion of the General Partner, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole and absolute discretion of
the General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with this Article XIII hereof or as
may be otherwise expressly provided for in this Agreement.
The foregoing power of attorney is hereby declared to be irrevocable and a
special power coupled with an interest, in recognition of the fact that each of
the Limited Partners and Assignees will be relying upon the power of the General
Partner to act as contemplated by this Agreement in any filing or other action
by it on behalf of the Partnership, and it shall survive and not be affected by
the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of
all or any portion of such Limited Partner's or Assignee's Partnership Units or
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner or Assignee hereby waives any and all defenses that
may be available to contest, negate or disaffirm the action of the General
Partner, taken in good faith under such power of attorney. Each Limited Partner
or Assignee shall execute and deliver to the General Partner or the Liquidating
Trustee, within fifteen (15) days after receipt of the General Partner's or the
Liquidating Trustee's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidating
Trustee, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
13.16 THIRD PARTY BENEFICIARY. Essex is and is hereby deemed a third party
beneficiary of this Agreement to the extent of the option granted to Essex
pursuant to Section 11.1(b) hereof and the other rights granted to Essex
hereunder, and Essex shall have the right to directly enforce such option and
all other rights provided to Essex pursuant to this Agreement. Neither Section
7.13 (nor the definition of "REIT Requirements"), Section 9.4 nor Section 11.1
(nor the definition of "Charter") shall be modified in any manner without
Essex's prior written consent in Essex's sole discretion.
<PAGE>
13.17 COSTS OF AGREEMENT. All costs incurred in connection with the preparation
and execution of this Agreement shall be paid by the Partnership.
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby entered into among the
undersigned Partners as of the date first written above.
GENERAL PARTNER:
ESSEX MANAGEMENT CORPORATION,
a California corporation
By: ________________________________________________
Name:_______________________________________________
Its: _______________________________________________
SPECIAL LIMITED
PARTNER:
ESSEX PORTFOLIO, L.P., a
California limited partnership
By: ESSEX PROPERTY TRUST, INC., a
Maryland corporation
By: __________________________________________
Name: _________________________________________
Its: __________________________________________
<PAGE>
LIMITED PARTNERS:
NOTICE: BY EXECUTING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION IN
ARTICLE XII (THE "ARBITRATION PROVISION") DECIDED BY NEUTRAL ARBITRATION AS
PROVIDED BY SUCH ARBITRATION PROVISION AND BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL EXCEPT AS SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. BY EXECUTING
THIS AGREEMENT YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL,
UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THE ARBITRATION PROVISION,
YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE. YOUR AGREEMENT TO THE ARBITRATION PROVISION IS VOLUNTARY.
THE UNDERSIGNED HAS READ AND UNDERSTANDS THE FOREGOING AND AGREES TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION PROVISION TO
NEUTRAL ARBITRATION.
/s/ George M. Marcus /s/ Donald V. Baptist
George M. Marcus Donald V. Baptist
/s/ James Fuqua /s/ Bernard Lopez
James Fuqua Bernard Lopez
/s/ Lloyd Harper /s/ Williams Revocable
Lloyd Harper Williams Revocable Trust
/s/ J.F. & A.E. O'Mara Trust /s/ Ann M. Barry Trust
J.F. & A.E. O'Mara Trust Ann M. Barry Trust
/s/ FBO Berghorn Trust /s/ George B. Prozan
FBO Berghorn Trust George B. Prozan
/s/ Sylvia J. Prozan /s/ Jack Kundin
Sylvia J. Prozan Jack Kundin
/s/ Edwin E. Murphy /s/ John Mihalov
Edwin E. Murphy John Mihalov
/s/ Harold Collard /s/ David White
Harold Collard David White
/s/ Colleen White /s/ Mayo Family Revocable
Colleen White Mayo Family Revocable Trust
/s/ May Li Fair /s/ Fayanna Petzoldt
May Li Fair Fayanna Petzoldt
/s/ Ronald Iverson /s/ Barry Needman
Ronald Iverson Barry Needman
/s/ Philip E. Gahr /s/ Jean C. Baptist
Philip E. Gahr Jean C. Baptist
/s/ Anne C. Prozan /s/ C&R Burnett Living
Anne C. Prozan C&R Burnett Living Trust
Rene Marasigan, M.D. and
Ramona Marasigan 4/86 Trust /s/ Craig Zimmerman
Rene Marasigan, M.D. and Craig Zimmerman
Ramona Marasigan 4/86 Trust
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western-Riviera, a California Limited Partnership Agreement
between Essex Management Corporation, Essex Portfolio, L.P. and the Limited
Partners listed on the signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit A: Partners and Addresses
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western-Riviera, a California Limited Partnership Agreement
between Essex Management Corporation, Essex Portfolio, L.P. and the Limited
Partners listed on the signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit B: Examples Regarding Adjustment Factor
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western-Riviera, a California Limited Partnership Agreement
between Essex Management Corporation, Essex Portfolio, L.P. and the Limited
Partners listed on the signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit C: Notice of Redemption
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western-Riviera, a California Limited Partnership Agreement
between Essex Management Corporation, Essex Portfolio, L.P. and the Limited
Partners listed on the signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit E: Allocations
<PAGE>
FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN-RIVIERA INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
---------------------------
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO HEREIN HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, UNLESS IT HAS BEEN CONFIRMED
TO YOU IN WRITING, WITH ANY STATE REGULATORY AGENCY. THESE LIMITED PARTNERSHIP
INTERESTS MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS PARTNERSHIP
AGREEMENT, MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH LIMITED PARTNERSHIP INTERESTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE REGULATIONS PROMULGATED PURSUANT THERETO AND ANY APPLICABLE STATE LAW
(UNLESS EXEMPT THEREFROM), AND WITHOUT COMPLIANCE WITH THE REQUIREMENTS SET
FORTH IN THIS PARTNERSHIP AGREEMENT.
NO STATE OR FEDERAL SECURITY COMMISSIONERS OR STATE OR FEDERAL REGULATORY
AGENCIES HAVE PASSED UPON THE VALUE OF THE SECURITIES, NOR HAVE THEY APPROVED OR
DISAPPROVED THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
* * * * * * * * * * * * *
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS; ETC.....................................................1
1.1 Definitions...............................................................1
1.2 Exhibit, Etc.............................................................16
ARTICLE II ORGANIZATION.......................................................16
2.1 Continuation of Partnership...............................................16
2.2 Name.....................................................................16
2.3 Character of the Business................................................16
2.4 Partnership Only for Purposes Specified..................................17
2.5 Location of the Principal Place of Business..............................17
2.6 Agent for Service of Process.............................................17
2.7 Admission of New General Partner; Removal of Existing General Partners...17
2.8 Certificates of Ownership................................................17
ARTICLE III TERM..............................................................18
3.1 Commencement.............................................................18
3.2 Termination..............................................................18
ARTICLE IV CONTRIBUTIONS TO CAPITAL...........................................18
4.1 General Partner and Special Limited Partner Capital Contributions........18
4.2 Limited Partner Capital Contributions....................................18
4.3 Additional Funds.........................................................18
4.4 Contributions of Property................................................19
4.5 No Third Party Beneficiary...............................................20
4.6 No Interest; No Return...................................................20
ARTICLE V CONCURRENT TRANSACTIONS.............................................20
5.1 Concurrent Transactions..................................................20
ARTICLE VI ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS...................20
6.1 Allocations..............................................................20
6.2 Distributions............................................................20
6.3 Withholding..............................................................21
6.4 Books of Account.........................................................21
6.5 Reports..................................................................21
6.6 [Intentionally Omitted]..................................................22
6.7 Tax Elections and Returns................................................22
6.8 Tax Matters Partner......................................................22
ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER............23
7.1 Expenditures by Partnership..............................................23
7.2 Powers and Duties of General Partner.....................................23
7.3 Major Decisions..........................................................26
7.4 Actions with Respect to Certain Documents................................26
7.5 Other Business of General Partner and Special Limited Partner............27
7.6 Contracts With Affiliates................................................27
7.7 Proscriptions............................................................27
7.8 Additional Partners......................................................28
7.9 Title Holder.............................................................28
7.10 Compensation of the General Partner.....................................28
<PAGE>
7.11 Waiver and Indemnification..............................................28
7.12 Contracts With Controlled Entities......................................29
7.13 Operation in Accordance with REIT Requirements..........................29
ARTICLE VIII DISSOLUTION, LIQUIDATION AND WINDING-UP..........................30
8.1 Liquidating Events.......................................................30
8.2 Accounting...............................................................30
8.3 Distribution on Dissolution..............................................31
8.4 Timing Requirements......................................................31
8.5 Sale of Partnership Assets...............................................31
8.6 Distributions in Kind....................................................32
8.7 Documentation of Liquidation.............................................32
8.8 Liability of the Liquidating Trustee.....................................32
ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS..................................32
9.1 General Partner and Special Limited Partner Transfers....................32
9.2 Transfers by Limited Partners............................................33
9.3 Issuance of Additional Partnership Interests and Admittance of Additional
Partners.................................................................34
9.4 Restrictions on Transfer.................................................34
ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS......................35
10.1 No Participation in Management..........................................35
10.2 Bankruptcy of a Limited Partner and Certain Other Events................35
10.3 No Withdrawal...........................................................35
10.4 Duties and Conflicts....................................................36
ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNERS................................36
11.1 Grant of Rights.........................................................36
11.2 Partnership Right to Call Limited Partner Interest......................40
11.3 Other Redemptions.......................................................41
ARTICLE XII ARBITRATION OF DISPUTES...........................................41
12.1 Arbitration.............................................................41
12.2 Procedures..............................................................42
12.3 Binding Character.......................................................43
12.4 Exclusivity.............................................................43
12.5 No Alteration of Agreement..............................................43
ARTICLE XIII GENERAL PROVISIONS...............................................44
13.1 Notices.................................................................44
13.2 Successors..............................................................44
13.3 Effect and Interpretation...............................................44
13.4 Counterparts............................................................44
13.5 Partners Not Agents.....................................................44
13.6 Entire Understanding; Etc...............................................44
13.7 Amendments..............................................................44
13.8 Severability............................................................45
13.9 Trust Provision.........................................................45
13.10 Pronouns and Headings..................................................45
13.11 Assurances.............................................................45
13.12 Tax Consequences.......................................................45
13.13 Securities Representations.............................................45
13.14 Original General Partner Representations...............................47
<PAGE>
13.15 Power of Attorney......................................................47
13.16 Third Party Beneficiary................................................48
13.17 Costs of Agreement.....................................................49
EXHIBITS
A Partners and Addresses
B Examples Regarding Adjustment Factor
C Notice of Redemption
D Intentionally Omitted
E Allocations
<PAGE>
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN-RIVIERA INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
------------------
<PAGE>
FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN SAN JOSE III INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
THIS FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made
and entered into as of the 1st day of January, 1997, by and among the
undersigned parties.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Third Amended and Restated Agreement
of Limited Partnership entered into as of March 6, 1985 (the "Original
Agreement"), the parties to the Original Agreement continued Western San Jose
III Investors, a California limited partnership (the "Partnership"), pursuant to
the Uniform Limited Partnership Act of California, subject to the terms and
conditions of the Original Agreement; and
WHEREAS, the parties, hereto, constituting all of the partners in the
Partnership, hereby desire to amend, restate and supersede the Original
Agreement in its entirety, pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby amend, restate and supersede the Original
Agreement, in its entirety, to provide as follows:
ARTICLE I
Definitions; Etc.
1.1 DEFINITIONS. Except as otherwise herein expressly provided, the following
terms and phrases shall have the meanings set forth below:
"ACCOUNTANTS" shall mean the firm or firms of
independent certified public accountants selected by the
General Partner on behalf of the Partnership.
"ACQUISITION COST" shall have the meaning set forth in
Section 4.1 hereof.
"ACT" shall mean the California Revised Limited
Partnership Act, California Corporations Code Sections
15611, et seq., as the same may hereafter be amended from
time to time.
"ADDITIONAL INTERESTS" shall have the meaning set forth
in Section 9.3 hereof.
"ADDITIONAL PARTNER" shall have the meaning set forth
in Section 9.3 hereof.
<PAGE>
"ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with
respect to any Limited Partner, the deficit balance, if any,
in such Partner's Capital Account as of the end of any
relevant fiscal year and after giving effect to the
following adjustments:
(a) credit to such Capital Account any amounts which such Partner is obligated
or treated as obligated to restore with respect to any deficit balance in such
Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or
is deemed to be obligated to restore with respect to any deficit balance
pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"ADJUSTMENT DATE" shall have the meaning set forth in
Section 4.3(a)(ii) hereof.
"ADJUSTMENT FACTOR" means 1.0; provided, however, that
in the event that:
(a) Essex (as hereinafter defined) (i) declares or pays a dividend on the
outstanding REIT Shares (as hereinafter defined) in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii)
splits or subdivides its outstanding REIT Shares or (iii) effects a reverse
stock split or otherwise combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying
the Adjustment Factor previously in effect by a fraction, (1) the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has occurred as of such time) and (2)
the denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or combination;
(b) Essex distributes any rights, options or warrants to all holders of its REIT
Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or
other securities or rights convertible into, exchangeable for or exercisable for
REIT Shares) at a price per share less than the Value of a REIT Share on the
record date for such distribution (each a "Distributed Right"), then the
Adjustment Factor shall be adjusted by multiplying the Adjustment Factor
previously in effect by a fraction, (i) the numerator of which shall be the
number of REIT Shares issued and outstanding on the record date plus the maximum
number of REIT Shares purchasable under such Distributed Rights, and (ii) the
denominator of which shall be the number of REIT Shares issued and outstanding
on the record date plus a fraction, (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights, and (2) the
<PAGE>
denominator of which is the Value of a REIT Share as of the record date;
provided, however, that, if any such Distributed Rights expire or become no
longer exercisable, then the Adjustment Factor shall be adjusted, effective
retroactive to the date of distribution of the Distributed Rights, to reflect a
reduced maximum number of REIT Shares or any change in the minimum purchase
price for the purposes of the above fractions; or
(c) Essex shall, by dividend or otherwise, distribute to all holders of
outstanding REIT Shares evidences of its indebtedness or assets (including
securities, but excluding any dividend or distribution referred to in subsection
(a) above), which evidences of indebtedness or assets relate to assets not
received by Essex pursuant to a pro rata distribution by the Partnership, then
the Adjustment Factor shall be adjusted to equal the amount determined by
multiplying the Adjustment Factor in effect immediately prior to the close of
business on the date fixed for determination of shareholders entitled to receive
such distribution by a fraction, (i) the numerator shall be the Value on the
date fixed for such determination and (ii) the denominator shall be the Value on
the dated fixed for such determination less the then fair market value (as
determined by Essex, whose determination shall be conclusive) of the portion of
the evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event; provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment which
results in an increase (but not a decrease) to the Adjustment Factor applicable
to the Partnership Units held by such Limited Partner, and, thereafter, such
adjustment will not be effective as to such Partnership Units. For illustrative
purposes only, examples of adjustments to the Adjustment Factor are set forth on
Exhibit B attached hereto.
"ADMINISTRATIVE EXPENSES" shall mean (i) all
administrative and operating costs and expenses incurred by
the Partnership, and (ii) those administrative costs and
expenses of the General Partner and the Special Limited
Partner, including salaries paid to officers of the General
Partner and the Special Limited Partner, and accounting and
legal expenses undertaken by the General Partner and the
Special Limited Partner on behalf or for the benefit of the
Partnership.
"AFFILIATE" shall mean, with respect to any Partner (or
as to any other person the affiliates of whom are relevant
for purposes of any of the provisions of this Agreement),
(i) any member of the Immediate Family of such Partner; (ii)
any trustee or beneficiary of a Partner; (iii) any legal
representative, successor, or assignee of any Person
referred to in the preceding clauses (i) and (ii); (iv) any
trustee for the benefit of any Person referred to in the
preceding clauses (i) through (iii); or (v) any Entity which
directly or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with,
any Person referred to in the preceding clauses (i) through
(iv).
"AGREEMENT" shall mean this Fourth Amended and Restated
Agreement of Limited Partnership, as originally executed and
as amended, modified, supplemented or restated from time to
time, as the context requires.
"APPLICABLE PERCENTAGE" has the meaning set forth in
Section 11.1(b) hereof.
<PAGE>
"ARBITRATION RULES" shall have the meaning set forth in
Section 12.1 hereof.
"ASSIGNEE" shall mean a Person to whom one or more
Partnership Units have been Transferred in a manner
permitted under this Agreement, but who has not become a
Substituted Limited Partner.
"AVAILABLE CASH" shall mean, with respect to any fiscal
period of the Partnership, the excess, if any, of "Receipts"
over "Expenditures." For purposes hereof, the term
"Receipts" means the sum of all cash receipts of the
Partnership from all sources for such period, (x) including
(i) Net Sale Proceeds and Net Financing Proceeds and (ii)
any amounts held as reserves as of the last day of such
period which the General Partner reasonably deems to be in
excess of necessary reserves as determined below, and (y)
excluding Capital Contributions. The term "Expenditures"
means the sum of (a) all cash expenses of the Partnership
for such period, (b) the amount of all payments of principal
and interest on account of any indebtedness of the
Partnership including payments of principal and interest on
account of Partner Loans, or amounts due on such
indebtedness during such period, (c) any amount distributed
or paid in redemption of Partnership Units pursuant to
Article XI hereof, including, without limitation, any Cash
Amount paid, and (d) such additional cash reserves as of the
last day of such period as the General Partner deems
necessary for any capital or operating expenditure permitted
hereunder, but excluding all amounts payable under the
clauses (a), (b), (c) and (d) above with the proceeds of
Capital Contributions, as determined by the General Partner.
"BANKRUPTCY" shall mean, with respect to any Partner,
(i) the commencement by such Partner of any proceeding
seeking relief under any provision or chapter of the federal
Bankruptcy Code or any other federal or state law relating
to insolvency, bankruptcy or reorganization, (ii) an
adjudication that such Partner is insolvent or bankrupt;
(iii) the entry of an order for relief under the federal
Bankruptcy Code with respect to such Partner, (iv) the
filing of any such petition or the commencement of any such
case or proceeding against such Partner, unless such
petition and the case or proceeding initiated thereby are
dismissed within ninety (90) days from the date of such
filing, (v) the filing of an answer by such Partner
admitting the allegations of any such petition, (vi) the
appointment of a trustee, receiver or custodian for all or
substantially all of the assets of such Partner unless such
appointment is vacated or dismissed within ninety (90) days
from the date of such appointment but not less than five (5)
days before the proposed sale of any assets of such Partner,
(vii) the insolvency of such Partner or the execution by
such Partner of a general assignment for the benefit of
creditors, (viii) the failure of such Partner to pay its
debts as they mature, (ix) the levy, attachment, execution
or other seizure of all or substantially all of the assets
of such Partner where such seizure is not discharged within
thirty (30) days thereafter, or (x) the admission by such
Partner in writing of its inability to pay its debts as they
mature or that it is generally not paying its debts as they
become due.
"CAPITAL ACCOUNT" shall mean, with respect to any
Partner, the separate "book" account which the Partnership
shall establish and maintain for such Partner in accordance
with Section 704(b) of the Code and Section
1.704-1(b)(2)(iv) of the Regulations and such other
provisions of Section 1.704-1(b) of the Regulations that
must be complied with in order for the Capital Accounts to
be determined in accordance with the provisions of said
<PAGE>
Regulations. In furtherance of the foregoing, the Capital
Accounts shall be maintained in compliance with Section
1.704-1(b)(2)(iv) of the Regulations; and the provisions
hereof shall be interpreted and applied in a manner
consistent therewith. In the event that any Partnership
Interest is transferred in accordance with the terms of this
Agreement, the Capital Account, at the time of the transfer,
of the transferor attributable to the transferred interest
shall carry over to the transferee.
"CAPITAL CONTRIBUTION" shall mean, with respect to any
Partner, the amount of money and the initial Gross Asset
Value of any property other than money contributed by such
Partner to the Partnership pursuant to the terms of this
Agreement (net of liabilities secured by such property that
the Partnership is considered to assume or take subject to
under Section 752 of the Code). Gross Asset Value shall be
calculated as provided herein.
"CASH AMOUNT" means (1) the lesser of (A) an amount of
cash equal to the product of (i) the product of (a) the
Value of a REIT Share and (b) the REIT Shares Amount
determined as of the applicable Valuation Date, and (ii)
0.98, or (B) in the case of a Declination followed by a
Public Offering Funding, the Public Offering Funding Amount,
plus (2) all accrued but unpaid distributions, if any, with
respect to the Tendered Units, pursuant to Section 6.2(b).
"CERTIFICATE" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the
office of the California Secretary of State, as the same has
been amended and may be amended from time to time in
accordance with the terms of the Original Agreement, this
Agreement and the Act.
"CHARTER" means the Articles of Amendment and
Restatement of Essex filed with the Maryland State
Department of Assessments and Taxation on July 5, 1995, as
amended, supplemented or restated from time to time.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"CONSENT OF THE LIMITED PARTNERS" means the written
consent of a Majority-In-Interest of the Limited Partners,
which Consent shall be obtained prior to the taking of any
action for which it is required by this Agreement and may be
given or withheld by a Majority-In-Interest of the Limited
Partners, unless otherwise expressly provided herein, in
their sole and absolute discretion.
"CONTRIBUTED FUNDS" shall have the meaning set forth in
Section 4.3(a)(ii) hereof.
"CONTRIBUTED PROPERTY" shall have the meaning set forth
in Section 4.1 hereof.
"CONTROL" shall mean the ability, whether by the direct
or indirect ownership of shares or other equity interests,
by contract or otherwise, to elect a majority of the
directors of a corporation, to select the managing partner
of a partnership, or otherwise to select, or have the power
to remove and then select, a majority of those persons
exercising governing authority over an Entity. In the case
<PAGE>
of a limited partnership, the sole general partner, all of
the general partners to the extent each has equal management
control and authority, or the managing general partner or
managing general partners thereof shall be deemed to have
control of such partnership and, in the case of a trust, any
trustee thereof or any Person having the right to select any
such trustee shall be deemed to have control of such trust.
"CONTROLLED ENTITY" shall mean, with respect to any
Limited Partner or Person, any Entity which directly or
indirectly Controls, is Controlled by, or is under common
Control with, such Limited Partner or Person.
"CURRENT GENERAL PARTNERS" shall have the meaning set
forth in Section 2.7 hereof.
"CUT-OFF DATE" means the tenth (10th) business day
after the General Partner's receipt of a Notice of
Redemption.
"DECLINATION" has the meaning set forth in Section
11.1(d) hereof.
"DEMAND NOTICE" shall have the meaning set forth in
Section 12.2 hereof.
"DEPRECIATION" shall mean, with respect to any asset of
the Partnership for any fiscal year or other period, the
depreciation, depletion or amortization, as the case may be,
allowed or allowable for Federal income tax purposes in
respect of such asset for such fiscal year or other period;
provided, however, that if there is a difference between the
Gross Asset Value and the adjusted tax basis of such asset,
Depreciation shall mean "book depreciation, depletion or
amortization" as determined under Section
1.704-1(b)(2)(iv)(g)(3) of the Regulations.
"DISTRIBUTED RIGHT" has the meaning set forth in the
definition of "Adjustment Factor."
"ENTITY" shall mean any general partnership, limited
partnership, limited liability partnership, limited
liability company, corporation, joint venture, trust,
business trust, cooperative or association.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time (or any
corresponding provisions of succeeding laws).
"ESSEX" shall mean Essex Property Trust, Inc., a
Maryland corporation, the general partner of the Special
Limited Partner.
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC
promulgated thereunder.
"EXPENDITURES" shall have the meaning set forth in the
definition of Available Cash.
<PAGE>
"FISCAL YEAR" shall mean the fiscal year of the
Partnership, which shall be the calendar year.
"FUNDING DATE" shall mean the date on which (i) the
General Partner or the Special Limited Partner makes a
Partner Loan, or (ii) the Partnership receives Contributed
Funds pursuant to Section 4.3(a)(ii) hereof.
"FUNDING LOAN PROCEEDS" shall mean the net cash
proceeds received by the General Partner or the Special
Limited Partner, as applicable, in connection with any
Funding Loan, after deduction of all costs and expenses
incurred by the General Partner or the Special Limited
Partner, as applicable, in connection with such Funding
Loan.
"FUNDING LOAN(S)" shall mean any borrowing or
refinancing of borrowings by or on behalf of the General
Partner or the Special Limited Partner, as applicable, from
any Person (including, without limitation, the General
Partner and the Special Limited Partner) for the purpose of
advancing the Funding Loan Proceeds to the Partnership as a
loan pursuant to Section 4.3(a)(i) hereof.
"GENERAL PARTNER" shall mean Essex Management
Corporation, a California corporation, its duly admitted
successors and assigns and any other Person who is a general
partner of the Partnership at the time of reference thereto.
"GROSS ASSET VALUE" shall mean, with respect to any
asset of the Partnership, such asset's adjusted basis for
Federal income tax purposes, except as follows:
(a) the Gross Asset Value of any asset contributed to the Partnership by a
Partner shall be the gross fair market value of such asset as determined by the
General Partner, in its reasonable discretion, provided that the General
Partner's determination of the gross fair market value of any asset pursuant to
this paragraph (a) shall be deemed reasonable unless contested by the
contributing Partner (i) within sixty (60) days after such determination, with
respect to contributions by existing Partners, or (ii) prior to the contributing
Partner's execution of any document admitting such Partner as a Partner in the
Partnership, with respect to new Partners;
(b) if the General Partner reasonably determines that an adjustment is necessary
or appropriate to reflect the relative economic interests of the Partners, the
Gross Asset Values of all Partnership assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the General
Partner, as of the following times:
(i) a Capital Contribution (other than a de minimis Capital Contribution) to the
Partnership by the General Partner or a new or existing Limited Partner as
consideration for a Partnership Interest;
(ii) the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for the redemption of a
Partnership Interest;
<PAGE>
(iii) the liquidation of the Partnership within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations; and
(iv) at such other times as the General Partner shall reasonably determine
necessary or advisable in order to comply with Regulations Sections 1.704-1(b)
and 1.704-2.
(c) the Gross Asset Values of Partnership assets distributed to any Partner
shall be the gross fair market values of such assets (taking Section 7701(g) of
the Code into account) as determined by the General Partner, in its reasonable
discretion, as of the date of distribution, provided that the General Partner's
determination of the gross fair market value of any asset pursuant to this
paragraph (c) shall be deemed reasonable unless contested within sixty (60) days
after such distribution; and
(d) the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Section 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts pursuant
to Section 1.704-1(b)(2)(iv)(m) of the Regulations (see attached Exhibit E);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this paragraph to the extent that the General Partner reasonably determines that
an adjustment pursuant to paragraph (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partners' Capital Accounts; as for
the manner in which such adjustments are allocated to the Capital Accounts, see
paragraph (c) of the definition of Net Income and Net Loss in the case of
adjustment by Depreciation, and paragraph (e) of said definition in all other
cases.
"IMMEDIATE FAMILY MEMBER" shall mean, with respect to
any Person that is an individual, such Person's spouse,
parents, parents-in-law, aunts, uncles, descendants,
nephews, nieces, brothers, sisters, brothers-in-law,
sisters-in-law and children-in-law, provided that the
General Partner has been (a) notified of such individual and
(b) provided with any and all documentation reasonably
requested by the General Partner to verify that such
individual is an Immediate Family Member.
"LIEN" shall mean any liens, security interests,
mortgages, deeds of trust, charges, claims, encumbrances,
pledges, options, rights of first offer or first refusal and
any other rights or interests of others of any kind or
nature, actual or contingent, or other similar encumbrances
of any nature whatsoever.
"LIMITED PARTNERS" shall mean the Special Limited
Partner and those Persons listed under the heading "Limited
Partners" on the signature page hereto in their respective
capacities as limited partners of the Partnership or any
Person who, at the time of reference thereto, is a limited
partner of the Partnership (including, without limitation,
<PAGE>
all Additional Partners and Substituted Limited Partners);
provided, however, that "Limited Partners" does not include
any Assignee or any unpermitted transferee of a Limited
Partner's Partnership Units.
"LIQUIDATING EVENT" shall have the meaning set forth in
Section 8.1 hereof.
"LIQUIDATING TRUSTEE" shall mean such individual or
Entity as is selected as the Liquidating Trustee hereunder
by the General Partner (or, in the event that there is no
remaining General Partner, an individual or Entity elected
by a Majority-in-Interest of the Limited Partners), which
individual or Entity may include an Affiliate of the General
Partner, provided such Liquidating Trustee agrees in writing
to be bound by the terms of this Agreement. The Liquidating
Trustee shall be empowered to give and receive notices,
reports and payments in connection with the dissolution,
liquidation and/or winding-up of the Partnership and shall
hold and exercise such other rights and powers as are
necessary or required to permit all parties to deal with the
Liquidating Trustee in connection with the dissolution,
liquidation and/or winding-up of the Partnership.
"MAJOR DECISIONS" shall have the meaning set forth in
Section 7.3 hereof.
"MAJORITY-IN-INTEREST OF THE LIMITED PARTNERS" shall
mean Limited Partner(s) (other than the Special Limited
Partner) who hold in the aggregate more than fifty percent
(50%) of the aggregate Partnership Units of all Limited
Partners (other than the Special Limited Partner).
"MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT"
shall mean "partner nonrecourse debt minimum gain" as
determined in accordance with Regulation Section
1.704-2(i)(2).
"NET FINANCING PROCEEDS" shall mean the cash proceeds
received by the Partnership in connection with any borrowing
or refinancing of borrowing by or on behalf of the
Partnership (whether or not secured), after deduction of all
costs and expenses incurred by the Partnership in connection
with such borrowing, and after deduction of that portion of
such proceeds used to repay any other indebtedness of the
Partnership, or any interest or premium thereon.
"NET INCOME OR NET LOSS" shall mean, for each fiscal
year or other applicable period, an amount equal to the
Partnership's net income or loss for such year or period as
determined for federal income tax purposes by the
Accountants, determined in accordance with Section 703(a) of
the Code (for this purpose, all items of income, gain, loss
or deduction required to be stated separately pursuant to
Section 703(a) of the Code shall be included in taxable
income or loss), with the following adjustments: (a) by
including as an item of gross income any tax-exempt income
received by the Partnership; (b) by treating as a deductible
expense any expenditure of the Partnership described in
Section 705(a)(2)(B) of the Code (including amounts paid or
incurred to organize the Partnership (unless an election is
made pursuant to Code Section 709(b)) or to promote the sale
of interests in the Partnership and by treating deductions
for any losses incurred in connection with the sale or
exchange of Partnership property disallowed pursuant to
Section 267(a)(1) or Section 707(b) of the Code as
<PAGE>
expenditures described in Section 705(a)(2)(B) of the Code);
(c) in lieu of depreciation, depletion, amortization, and
other recovery deductions taken into account in computing
total income or loss, there shall be taken into account
Depreciation; (d) gain or loss resulting from any
disposition of Partnership property with respect to which
gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of
such property rather than its adjusted tax basis; and (e) in
the event of an adjustment of the Gross Asset Value of any
Partnership asset which requires that the Capital Accounts
of the Partnership be adjusted pursuant to Regulation
Section 1.704-1(b)(2)(v)(e), (f) and (m), the amount of such
adjustment is to be taken into account as additional Net
Income or Net Loss pursuant to attached Exhibit E.
"NET SALE PROCEEDS" means the cash proceeds received by
the Partnership in connection with a sale of any asset by or
on behalf of the Partnership after deduction of any costs or
expenses incurred by the Partnership, or payable
specifically out of the proceeds of such sale (including,
without limitation, any repayment of any indebtedness
required to be repaid as a result of such sale or which the
General Partner elects to repay out of the proceeds of such
sale, together with accrued interest and premium, if any,
thereon and any sales commissions or other costs and
expenses due and payable to any Person in connection with a
sale, including to a Partner or its Affiliates).
"NONRECOURSE DEDUCTIONS" shall have the meaning set
forth in Sections 1.704-2(b)(1) and (c) of the Regulations.
"NONRECOURSE LIABILITIES" shall have the meaning set
forth in Section 1.704-2(b)(3) of the Regulations.
"NOTICE OF REDEMPTION" means the Notice of Redemption
substantially in the form of Exhibit C attached to this
Agreement.
"ORIGINAL AGREEMENT" means that certain Third Amended
and Restated Agreement of Limited Partnership of the
Partnership entered into as of March 6, 1985.
"PARTNER LOAN" shall have the meaning set forth in
Section 4.3(a)(i) hereof.
"PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning
set forth in Section 1.704-2(i)(2) of the Regulations.
"PARTNERS" shall mean the General Partner, the Special
Limited Partner and the other Limited Partners.
"PARTNERSHIP" means the limited partnership formed
pursuant to the Original Agreement, as the same is amended,
restated and superseded hereby and as hereby constituted, as
such limited partnership may from time to time in the future
be constituted.
"PARTNERSHIP INTEREST" shall mean the ownership
interest of a Partner in the Partnership from time to time,
including each Partner's Percentage Interest and such
<PAGE>
Partner's Capital Account. Wherever in this Agreement
reference is made to a particular Partner's Partnership
Interest, it shall be deemed to refer to such Partner's
Percentage Interest and shall include the proportionate
amount of such Partner's other interests in the Partnership
which are attributable to or based upon the Partner's
Partnership Interest.
"PARTNERSHIP MINIMUM GAIN" shall have the meaning set
forth in Section 1.704-2(b)(2) of the Regulations.
"PARTNERSHIP RECORD DATE" shall mean the record date
established by the General Partner for the distribution of
Available Cash pursuant to Section 6.2 hereof, which record
date shall generally be the same as the record date
established by the General Partner for a distribution to its
shareholders of some or all of its portion of such
distribution.
"PARTNERSHIP UNIT" shall mean a fractional, undivided
share of the Partnership Interests of all Partners issued
pursuant to the terms of this Agreement. The number of
Partnership Units held by the Partners shall be as indicated
on attached Exhibit A, as the same may be modified from time
to time.
"PERCENTAGE INTEREST" shall mean, with respect to any
Partner, the undivided percentage ownership interest of such
Partner in the Partnership, which interest shall be
determined by dividing the number of Partnership Units owned
by such Partner by the total number of Partnership Units
outstanding.
"PERSON" shall mean any individual or Entity.
"PREFERRED RETURN PER UNIT" means
(a) as to a Limited Partner (other than the Special Limited Partner, except with
respect to any Partnership Units contributed to the Special Limited Partner by
Essex) or its Assignee (including, without limitation, Essex following the
acquisition of Tendered Units pursuant to Section 11.1(b) hereof), the amount
provided on Exhibit A with respect to each Partnership Unit held by such Limited
Partner; or
(b) in the case of each additional Partnership Unit issued in exchange for
additional Capital Contributions as provided in Section 4.3, the amount provided
on Exhibit A with respect to the Partner to whom such Partnership Unit is
issued.
The Preferred Return Per Unit, being determined with regard to the Partnership's
income, shall not constitute a "guaranteed payment" under Code Section 707(c).
"PRIMARY OFFERING NOTICE" has the meaning set forth in
Section 11.1(e)(iii) hereof.
"PROPERTY" OR "PROPERTIES" shall mean any real property
in which the Partnership, directly or indirectly, acquires
any ownership leasehold or other interest.
"PUBLIC OFFERING FUNDING" has the meaning set forth in
Section 11.1(d)(ii) hereof.
<PAGE>
"PUBLIC OFFERING FUNDING AMOUNT" means the dollar
amount equal to (i) the product of (x) the number of
Registrable Shares sold in a Public Offering Funding and (y)
the public offering price per share of such Registrable
Shares in such Public Offering Funding, less (ii) the
aggregate underwriting discounts, and commissions and other
expenses incurred by Essex in such Public Offering Funding.
"QUALIFIED INDIVIDUAL" shall have the meaning set forth
in Section 12.2(b) hereof.
"QUALIFYING PARTY" means (a) a Limited Partner (other
than the Special Limited Partner, an Additional Partner or a
Substituted Limited Partner), (b) an Additional Partner or a
Substituted Limited Partner (unless the terms of such
Additional Partner's or such Substituted Limited Partner's
admission to the Partnership otherwise provide), or (c) an
Immediate Family Member of a Qualifying Party, or a lending
institution as the pledgee of a pledge of Partnership
Interests, who is the transferee in a Transfer permitted by
this Agreement.
"REDEMPTION" has the meaning set forth in Section
11.1(a) hereof.
"REGISTRABLE SHARES" has the meaning set forth in
Section 11.1(d)(ii) hereof.
"REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement dated as of even date herewith
by and among Essex and, among others, the Limited Partners
(other than the Special Limited Partner).
"REGULATIONS" shall mean the final, temporary or
proposed Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time
(including corresponding provisions of succeeding
regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set
forth in attached Exhibit E.
"REIT" shall mean a real estate investment trust as
defined in Section 856 of the Code.
"REIT REQUIREMENTS" shall have the meaning set forth in
Section 6.2 hereof.
"REIT SHARE" shall mean one share of the common stock,
par value $.0001 per share, of Essex Property Trust, Inc.
"REIT SHARES AMOUNT" means a number of REIT Shares
equal to the product of (a) the number of Tendered Units,
(b) the Adjustment Factor and (c) the applicable Specific
Adjustment Factor, if any, taking into account any
applicable Specific Adjustment Limitations, if any;
provided, however, that, in the event that Essex issues to
all holders of REIT Shares as of a certain record date
rights, options, warrants or convertible or exchangeable
securities entitling Essex's shareholders to subscribe for
or purchase REIT Shares, or any other securities or property
(collectively, the "Rights"), with the record date for such
Rights issuance falling within the period starting on the
date of the Notice of Redemption and ending on the day
<PAGE>
immediately preceding the Specified Redemption Date, which
Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also
include such Rights that a holder of that number of REIT
Shares would be entitled to receive, expressed, where
relevant hereunder, in a number of REIT Shares determined by
the General Partner in good faith.
"RELATED PARTY" shall mean, with respect to any Person,
any other Person whose ownership of shares of Essex's
capital stock would be attributed to the first such Person
under Code Section 544 (as modified by Code Section
856(h)(1)(B)).
"REQUESTING PARTY" shall have the meaning set forth in
Section 12.2(a) hereof.
"REQUIRED FUNDS" shall have the meaning set forth in
Section 4.3 hereof.
"RESPONDING PARTY" shall have the meaning set forth in
Section 12.2(b) hereof.
"RIGHTS" shall have the meaning set forth in the
definition of "REIT Shares Amount."
"SEC" shall mean the United States Securities and
Exchange Commission.
"SECTION 704(C) TAX ITEMS" shall have the meaning set
forth in attached Exhibit E.
"SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
"SINGLE FUNDING NOTICE" has the meaning set forth in
Section 11.1(d)(iii) hereof.
"SIX-MONTH PERIOD" shall mean a 180-day period (or, as
to a particular Qualifying Party, such shorter period as the
General Partner may, in its sole and absolute discretion,
agree to in writing) ending on the 180th day after (i) the
date hereof, with respect to Limited Partners of the
Partnership as of the date hereof (other than the Special
Limited Partner), and (ii) with respect to Persons becoming
Qualifying Parties subsequent to the date hereof, either (x)
the admission of such Qualifying Party as a Limited Partner
in the Partnership or (y) the Transfer of Partnership Units
to such Qualifying Party, and on each 180th day thereafter
(or, in the case of a period shorter than 180 days, such
other period as may be agreed to by the General Partner in
writing).
"SPECIAL LIMITED PARTNER" shall mean Essex Portfolio,
L.P., a California limited partnership, its duly admitted
successors and assigns.
"SPECIFIC ADJUSTMENT FACTOR" means, as to a Limited
Partner or its Assignee, the amount specified as such on
Exhibit A with respect to such Limited Partner; provided,
however, that, if no such amount is specified on Exhibit A,
the Specific Adjustment Factor shall be 1.0. The Specific
Adjustment Factor need not be the same for each Limited
Partner and Assignee.
<PAGE>
"SPECIFIC ADJUSTMENT LIMITATIONS" means, as to a
Limited Partner or its Assignee, the limitations and
restrictions, if any, specified as such on Exhibit A with
respect to such Limited Partner. The Specific Adjustment
Limitations need not be the same for each Limited Partner
and Assignee.
"SPECIFIED REDEMPTION DATE" means the later of (a) the
eleventh (11th) business day after the receipt by the
General Partner of a Notice of Redemption (or in the case of
a purchase by Essex pursuant to Section 11.1(b) hereof, the
thirtieth (30th) day after such receipt), or (b) in the case
of a Declination followed by a Public Offering Funding, the
business day next following the date of the closing of the
Public Offering Funding; provided, however, that the
Specified Redemption Date, as well as the closing of a
Redemption, or an acquisition of Tendered Units by Essex
pursuant to Section 11.1(b) hereof, on any Specified
Redemption Date, may be deferred, in the General Partner's
sole and absolute discretion, for such time (but in any
event not more than one hundred eighty (180) days in the
aggregate) as may reasonably be required to effect, as
applicable, (i) any necessary funding arrangements, (ii)
compliance with the Securities Act or other law (including,
but not limited to, (a) state "blue sky" or other securities
laws and (b) the expiration or termination of the applicable
waiting period, if any, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended), (iii)
compliance with any and all requirements set forth in the
Charter relating to such transaction, and (iv) satisfaction
or waiver of other commercially reasonable and customary
closing conditions and requirements for a transaction of
such nature.
"SUBSTITUTED LIMITED PARTNER" shall mean a "substituted
limited partner" as such term is defined in Section 15519 of
the Act.
"TAX ITEMS" shall have the meaning set forth in
attached Exhibit E.
"TENDERED UNITS" has the meaning set forth in Section
11.1(a) hereof.
"TENDERING PARTY" has the meaning set forth in Section
11.1(a) hereof.
"THIRD ARBITRATOR" shall have the meaning set forth in
Section 12.2 hereof.
"TRADING DAY" shall mean a day on which the principal
national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of
business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, shall mean
any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"TRANSFER," when used with respect to a Partnership
Unit or all or any portion of a Partnership Interest, means
any sale, assignment, bequest, conveyance, devise, gift
(outright or in trust), pledge, encumbrance, hypothecation,
mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation
of law; provided, however, that, when the term is used in
Article IX hereof, Transfer does not include (a) any
Redemption of Partnership Units by the Partnership, or
<PAGE>
acquisition of Tendered Units from the Limited Partners by
Essex, pursuant to Section 11.1 hereof or (b) any redemption
of Partnership Units pursuant to Section 11.2 or Section
11.3 hereof. The terms "Transferred" and "Transferring" have
correlative meanings.
"UNAUDITED FINANCIAL STATEMENTS" shall mean unaudited
financial statements (balance sheet, statement of income,
statement of partners' equity and statement of cash flows)
prepared with respect to the Partnership's operations.
"UNITHOLDER" means the General Partner or any other
holder of Partnership Units.
"VALUATION DATE" means (a) in the case of a tender of
Partnership Units for Redemption, two (2) business days
after the date of receipt by the General Partner of a Notice
of Redemption, (b) for the purposes of the Registration
Rights Agreement, the date of delivery of a request under
Section 2(a) thereof, or (c) in any other case, the date
specified in this Agreement.
"VALUE" means, on any Valuation Date with respect to
one (1) REIT Share, the market price of such REIT Share on
such Valuation Date (or if such Valuation Date is not a
Trading Day, the immediately preceding Trading Day). The
market price for any such Valuation Date shall be:
(1) if the REIT Shares are listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system,
(2) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System, the last reported
sale price on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, as reported by a reliable
quotation source designated by the General Partner, or
(3) if the REIT Shares are not listed or admitted to trading on any securities
exchange or The Nasdaq Stock Market's National Market System and no such last
reported sale price or closing bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or if there shall
be no bid and asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
that a holder of REIT Shares would be entitled to receive, then the Value of
such Rights shall be determined by the General Partner acting in good faith on
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
<PAGE>
1.2 EXHIBIT, ETC.References to "Exhibit" or to a "Schedule" are, unless
otherwise specified, to one of the Exhibits or Schedules attached to this
Agreement, and references to an "Article" or a "Section" are, unless otherwise
specified, to one of the Articles or Sections of this Agreement. Each Exhibit
and Schedule attached hereto and referred to herein is hereby incorporated
herein by reference.
ARTICLE II
Organization
2.1 CONTINUATION OF PARTNERSHIP. The parties hereto do hereby continue the
Partnership, provided that, from and after the date hereof, the Partnership
shall be subject to the provisions of the Act, and all other pertinent laws of
the State of California, subject to the terms and conditions hereinafter set
forth. The Partners agree that the rights and liabilities of the Partners shall
be as provided in the Act except as otherwise herein expressly provided.
Promptly upon the execution and delivery hereof, the General Partner shall
execute an amendment to the Certificate and file it with the Office of the
Secretary of State of the State of California. A certified copy of the amendment
to the Certificate shall be filed for record in each county in which the
Partnership shall own real property or an interest therein, and the General
Partner shall cause such other notice, instrument, document or certificate as
may be required by applicable law, and which may be necessary to enable the
Partnership to conduct its business and to own the Properties under the
Partnership name, to be filed or recorded in all appropriate public offices. The
General Partner shall execute and file with the Office of the Secretary of State
of the State of California any further amendments to the Certificate required by
law. A certified copy of each such amendment shall be filed by the General
Partner for record in each county in which a copy of the Certificate has been
filed for record.
2.2 NAME. The business of the Partnership shall be conducted under the name of
"Western San Jose III Investors, a California limited partnership", or such
other name as the General Partner may select, and all transactions of the
Partnership, to the extent permitted by applicable law, shall be carried on and
completed in such name.
2.3 CHARACTER OF THE BUSINESS. The purpose of the Partnership shall be to
acquire, hold, own, develop, construct, improve, maintain, operate, manage,
sell, provide seller financing, lease, transfer, encumber, convey, exchange,
lend money, and otherwise dispose of or deal with Properties and ownership
interests therein; to acquire, hold, own, develop, construct, improve, maintain,
operate, manage, sell, provide seller financing, lease, transfer, encumber,
convey, exchange, lend money, and otherwise dispose of or deal with real and
personal property of all kinds, whether owned by the Partnership or otherwise;
and to undertake such other activities as may be necessary, advisable, desirable
or convenient to the business of the Partnership, and to engage in such other
ancillary activities as shall be necessary or desirable to effectuate the
foregoing purposes. The Partnership shall have all powers necessary or desirable
to accomplish the purposes enumerated. In connection with the foregoing, but
subject to all of the terms, covenants, conditions and limitations contained in
this Agreement and any other agreement entered into by the Partnership, the
Partnership shall have full power and authority, directly or indirectly, to
enter into, perform and carry out contracts of any kind, to borrow money and to
<PAGE>
issue evidences of indebtedness, whether or not secured by mortgage, trust deed,
pledge or other lien, and, directly or indirectly, to acquire and construct
additional Properties necessary or useful in connection with its business, and
to lend money secured by additional Properties and other real and personal
property.
2.4 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED. The Partnership shall be a limited
partnership only for the purposes specified in Section 2.3 hereof, and this
Agreement shall not be deemed to create a company, venture or partnership
between or among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 2.3 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any indebtedness or obligation of another Partner, nor
shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
2.5 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the principal
place of business of the Partnership shall be at 777 California Avenue, Palo
Alto, California 94304, or such other location as shall be selected from time to
time by the General Partner in its sole discretion.
2.6 AGENT FOR SERVICE OF PROCESS. The Partnership hereby appoints Jordan Ritter,
Esq., whose address is 777 California Avenue, Palo Alto, California 94304, as
its agent for service of process. Such agent may be changed from time to time by
the General Partner in its sole discretion by filing an amendment to the
Certificate.
2.7 ADMISSION OF NEW GENERAL PARTNER; REMOVAL OF EXISTING GENERAL PARTNERS.
Effective the date hereof, the General Partner is hereby admitted as a general
partner of the Partnership. Immediately thereafter, the general partners of the
Partnership pursuant to the Original Agreement, George M. Marcus, Donald V.
Baptist and James Fuqua (collectively, the "Current General Partners"), are
hereby converted to limited partners and their interests in the partnership are
hereby converted to Limited Partner Partnership Interests. Effective immediately
thereafter, the sole general partner of the Partnership shall be the General
Partner.
2.8 CERTIFICATES OF OWNERSHIP. In the sole discretion of the General Partner,
each Partner's Partnership Units may be evidenced by one or more registered
certificates of ownership, which certificates, if issued, shall be executed by
the General Partner. Such certificates shall contain a legend evidencing the
restrictions on transfer of the Partnership Interests, which legend shall be
substantially similar to the legend contained on the cover page of this
Agreement.
ARTICLE III
Term
3.1 COMMENCEMENT. The Partnership commenced on December 30, 1971.
3.2 TERMINATION. The Partnership shall continue until December 31, 2097, unless
it is dissolved and wound up sooner pursuant to the provisions of Article VIII
hereof or otherwise as provided by law.
ARTICLE IV
Contributions to Capital
4.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of
the General Partner and the Special Limited Partner has contributed to the
Partnership, as its initial contribution to the capital of the Partnership, the
sum of Twenty-One Thousand Six Hundred Fifty Eight and No/100 Dollars
($21,658.00). The gross fair market value of any property in the future
contributed by the General Partner or the Special Limited Partner to the
Partnership ("Contributed Property"), other than money, shall be the Acquisition
Cost of such Contributed Property. For purposes hereof, the "Acquisition Cost"
of Contributed Property shall be the amount of such consideration, as reasonably
determined by the General Partner plus, in either case, any costs and expenses
incurred by the General Partner or the Special Limited Partner, as applicable,
in connection with such acquisition or contribution; provided, however, that if
the Contributed Property secures liabilities that the General Partner, the
Special Limited Partner or the Partnership assumes or takes subject to and the
consideration is not net of such liabilities, the Acquisition Cost shall be
equal to such consideration less the amount of such liabilities, and provided
further that if the General Partner or the Special Limited Partner, as
applicable, has assumed such liabilities, the Partnership shall assume such
liabilities of the General Partner or the Special Limited Partner, as
applicable, concurrently with the contribution of such property to the
Partnership or, if impossible, shall obligate itself to the General Partner or
the Special Limited Partner, as applicable, in an amount and on terms equal to
such liabilities.
4.2 LIMITED PARTNER CAPITAL CONTRIBUTIONS. Each of the Limited Partners (other
than the Special Limited Partner) has contributed the cash or other assets in
the amount set forth opposite such Limited Partner's name on Exhibit A.
4.3 ADDITIONAL FUNDS.
(a) If the Partnership requires funds ("Required Funds") for any proper
Partnership purpose in excess of any other funds anticipated by the General
Partner to be available to the Partnership (including through borrowings and
prior Capital Contributions), the General Partner or the Special Limited
Partner, as applicable, shall on the Funding Date, either:
(i) to the extent the General Partner or the Special Limited Partner borrows all
or any portion of the Required Funds by entering into a Funding Loan, lend (the
<PAGE>
"Partner Loan") to the Partnership the Funding Loan Proceeds on the same terms
and conditions, including the effective interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with the Funding Loan; or
(ii) the General Partner on behalf of the Partnership may, in its sole
discretion, raise all or any portion of the Required Funds by making additional
Capital Contributions and/or accepting additional Capital Contributions from any
other Partners and/or other Persons in the amount of the Required Funds not
loaned to the Partnership as General Partner Loans ("Contributed Funds")
(hereinafter, each Funding Date on which the General Partner or such other
Person so contributes Contributed Funds pursuant to this subparagraph (ii) is
referred to as an "Adjustment Date"). In the event the General Partner, the
Special Limited Partner, one or more of the other Limited Partners or other
Persons advances Required Funds to the Partnership as Contributed Funds pursuant
to this subparagraph (ii), the General Partner shall either (a) in the case of
Partners (including the General Partner and the Special Limited Partner),
increase such Partner's Partnership Units or (b) in the case of any other
Person, admit such Person as an Additional Partner (in accordance with Section
9.3 hereof). Subject to the terms of this Section 4.3 and to the definition of
"Gross Asset Value," the General Partner shall determine in good faith the
amount, terms and conditions of such additional Capital Contributions; provided,
however, that, in the case of an additional Capital Contribution by the General
Partner or the Special Limited Partner, the Partnership shall issue to the
General Partner or the Special Limited Partner, as applicable, the number of
Partnership Units derived by dividing (1) the amount of the additional Capital
Contribution (net of any liabilities assumed or taken subject to by the
Partnership), by (2) the Value determined as of the date of such Capital
Contribution. On the Adjustment Date with respect to any Contributed Funds, the
Partnership Interests of the non-contributing Partners shall be equitably
reduced.
(b) No Limited Partner (other than the Special Limited Partner) shall have any
right under this Agreement to lend funds to the Partnership or to make
additional capital contributions to the Partnership without the consent of the
General Partner, in the General Partner's sole discretion.
(c) Notwithstanding anything contained herein to the contrary, the liability of
the Limited Partners shall be limited to the aggregate amount of any Capital
Contributions made by the Limited Partners pursuant to this Agreement. Except to
the extent that additional Capital Contributions are unanimously approved by the
Partners, the Limited Partners shall have no personal liability to contribute or
lend money to, or in respect of, the liabilities or the obligations of the
Partnership.
4.4 CONTRIBUTIONS OF PROPERTY. If at any time or from time to time the General
Partner or the Special Limited Partner, as applicable, contributes to the
Partnership any property other than money pursuant to the terms of this
Agreement, the General Partner or the Special Limited Partner, as applicable,
shall be deemed to have contributed to the Partnership as Contributed Funds
pursuant to Section 4.3(a)(ii) hereof, including, for Capital Account purposes,
an amount equal to the Acquisition Cost of such property as determined pursuant
<PAGE>
to Section 4.1 hereof, and the Percentage Interests of the Partners shall be
redetermined in the manner provided in Section 4.3(a)(ii) hereof as of the date
of such contribution.
4.5 NO THIRD PARTY BENEFICIARY. No creditor or other third party having dealings
with the Partnership shall have the right to enforce the right or obligation of
any Partner to make Capital Contributions or loans or to pursue any other right
or remedy hereunder or at law or in equity, it being understood and agreed that
the provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns. None of the rights or obligations of the Partners herein set forth to
make Capital Contributions or loans to the Partnership shall be deemed an asset
of the Partnership for any purpose by any creditor or other third party, nor may
such rights or obligations be sold, transferred or assigned by the Partnership
or pledged or encumbered by the Partnership to secure any debt or other
obligation of the Partnership or of any of the Partners.
4.6 NO INTEREST; NO RETURN. No Partner shall be entitled to interest on its
Capital Contribution or on such Partner's Capital Account. Except as provided
herein or by law, no Partner shall have any right to demand or receive the
return of its Capital Contribution from the Partnership.
ARTICLE V
Concurrent Transactions
5.1 CONCURRENT TRANSACTIONS. Concurrently with the execution of this Agreement,
the following events shall occur: the Partnership, the Limited Partners and/or
the General Partner shall execute and deliver (and/or cause to be executed and
delivered) such further instruments and undertake such further acts as may be
necessary or desirable to carry out the intent and purposes of this Agreement
and as are not inconsistent with the terms hereof.
ARTICLE VI
Allocations and Other Tax and Accounting Matters
6.1 ALLOCATIONS. The Net Income, Net Loss and/or other Partnership items shall
be allocated pursuant to the provisions of attached Exhibit E.
6.2 DISTRIBUTIONS. The General Partner shall cause the Partnership to distribute
all or a portion of Available Cash, as the General Partner in its sole
discretion may determine, to the Unitholders from time to time as determined by
the General Partner, but in any event not less frequently than quarterly, as
follows:
(a) First, to the General Partner, one percent (1%) of the Available Cash
available for distribution;
(b) Second, to each Unitholder, pari passu, an amount equal to the sum of (i)
the product of (1) the Preferred Return Per Unit for such Unitholder (or its
predecessor) for such quarter (or for such other period) and (2) the number of
<PAGE>
Partnership Units held by such Unitholder as of the Partnership Record Date and
(ii) any unpaid amounts previously distributable to such Unitholder (or its
predecessor) under this Section 6.2(b); provided, however, that the amount
distributable pursuant to clause (i) to any Additional Partner admitted to the
Partnership in the quarter immediately preceding and ending with such
Partnership Record Date shall be prorated based on the number of days that such
Additional Partner was a Unitholder during such quarter; and
(c) Third, the balance, (i) ninety-nine percent (99%) to the Special Limited
Partner and (ii) one percent (1%) to the Unitholders (including, without
limitation, the General Partner, and the Special Limited Partner) in proportion
to their Partnership Units as of the Partnership Record Date.
The General Partner in its sole and absolute discretion may distribute to the
Unitholders Available Cash in accordance with the foregoing priorities on a more
frequent basis and provide for an appropriate record date. The General Partner
shall take such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with Essex's qualification as a REIT, to cause the
Partnership to distribute sufficient amounts to enable Essex, as the general
partner of the Special Limited Partner, to pay shareholder dividends that will
(a) satisfy the requirements for Essex's continuing to qualify as a REIT under
the Code and Regulations (the "REIT Requirements") and (b) avoid any federal
income or excise tax liability of Essex.
6.3 WITHHOLDING. The General Partner may withhold taxes from any allocation or
distribution to any Partner to the extent required by the Code or any other
applicable law. For purposes of this Agreement, any taxes so withheld by the
Partnership shall be deemed to be a distribution or payment to such Partner,
reduce the amount otherwise distributable or allocable to such Partner pursuant
to this Agreement and reduce the Capital Account of such Partner.
6.4 BOOKS OF ACCOUNT. At all times during the continuance of the Partnership,
the General Partner shall maintain or cause to be maintained full, true,
complete and correct books of account in accordance with generally accepted
accounting principles wherein shall be entered particulars of all monies, goods
or effects belonging to or owing to or by the Partnership, or paid, received,
sold or purchased in the course of the Partnership's business, and all of such
other transactions, matters and things relating to the business of the
Partnership as are usually entered in books of account kept by persons engaged
in a business of a like kind and character. In addition, the Partnership shall
keep all records as required to be kept pursuant to the Act. The books and
records of account shall be kept at the principal office of the Partnership, and
each Partner shall at all reasonable times have access to such books and records
and the right to inspect the same.
6.5 REPORTS. The General Partner shall cause to be submitted to the Limited
Partners promptly upon preparation of the same and in no event later than April
1 of each year, copies of Unaudited Financial Statements prepared for the
Partnership, together with the reports thereon, and all supplementary schedules
and information. The Partnership shall also cause to be prepared such reports
and/or information as are necessary for Essex to determine its qualification as
a REIT and its compliance with REIT Requirements.
<PAGE>
6.6 [Intentionally Omitted].
6.7 TAX ELECTIONS AND RETURNS. All elections required or permitted to be made by
the Partnership under any applicable tax law shall be made by the General
Partner in its sole discretion; provided, however, the General Partner shall
file an election on behalf of the Partnership pursuant to Section 754 of the
Code to adjust the basis of the Partnership property in the case of a transfer
of a Partnership Interest, including transfers made in connection with the
exercise of rights under Article XI hereof, made in accordance with the
provisions of the Agreement. The General Partner shall cause the Accountants to
prepare and file all state and federal tax returns on a timely basis. The
General Partner shall cause the Accountants to prepare and submit to the Limited
Partners on or before April 1 of each year for review all federal and state
income tax returns of the Partnership. If a Majority-in-Interest of the Limited
Partners determines that any modifications to the tax returns of the Partnership
should be considered, such Limited Partners shall, within thirty (30) days
following receipt of such tax returns from the Accountants or the General
Partner, indicate to the Accountants the suggested revisions to the tax returns,
which returns shall be resubmitted to the Limited Partners for their review (but
not approval). The Limited Partners shall complete their review of the
resubmitted returns within ten (10) days after receipt thereof from the
Accountants or the General Partner. The General Partner shall consult in good
faith with the Limited Partners regarding any proposed modifications to the tax
returns of the Partnership. A statement of the allocation of Net Income or Loss
of the Partnership shown on the annual income tax returns prepared by the
Accountants shall be transmitted and delivered to the Limited Partners within
ten (10) days of the receipt thereof by the Partnership. The General Partner
shall be responsible for preparing and filing all federal and state tax returns
for the Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law.
6.8 TAX MATTERS PARTNER. The General Partner is hereby designated as the Tax
Matters Partner within the meaning of Section 6231(a)(7) of the Code for the
Partnership; provided, however, (i) in exercising its authority as Tax Matters
Partner it shall be limited by the provisions of this Agreement affecting tax
aspects of the Partnership; (ii) the General Partner shall consult in good faith
with the Limited Partners regarding the filing of a Code Section 6227(b)
administrative adjustment request with respect to the Partnership or a Property
before filing such request, it being understood, however, that the provisions
hereof shall not be construed to limit the ability of any Partner, including the
General Partner, to file an administrative adjustment request on its own behalf
pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult
in good faith with the Limited Partners regarding the filing of a petition for
judicial review of an administrative adjustment request under Section 6228 of
the Code, or a petition for judicial review of a final partnership
administrative judgment under Section 6226 of the Code relating to the
Partnership before filing such petition; (iv) the General Partner shall give
prompt notice to the Limited Partners of the receipt of any written notice that
the Internal Revenue Service or any state or local taxing authority intends to
examine Partnership income tax returns for any year, receipt of written notice
of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, receipt of written
notice of the final Partnership administrative adjustment relating to the
<PAGE>
Partnership pursuant to Section 6223 of the Code, and receipt of any request
from the Internal Revenue Service for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Partnership; and
(v) the General Partner shall promptly notify the Limited Partners if the
General Partner does not intend to file for judicial review with respect to the
Partnership.
ARTICLE VII
Rights, Duties and Restrictions of the General Partner
7.1 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby authorized to pay
compensation for accounting, administrative, legal, technical, management and
other services rendered to the Partnership. All of the aforesaid expenditures
shall be made on behalf of the Partnership, and the General Partner shall be
entitled to reimbursement by the Partnership for any expenditures incurred by it
on behalf of the Partnership which shall be made other than out of the funds of
the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
7.2 POWERS AND DUTIES OF GENERAL PARTNER. The General Partner shall be
responsible for the management of the Partnership's business and affairs.
Subject solely to the limitations contained in Section 7.3 and Section 7.7
hereof, the General Partner shall have, and is hereby granted, full and complete
power, authority and discretion to take such action for and on behalf of the
Partnership and in its name as the General Partner shall, in its sole and
absolute discretion, deem necessary or appropriate to carry out the purposes for
which the Partnership was organized. Without limiting the generality of the
foregoing, the General Partner shall have the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase, lease, exchange
or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise
options to purchase, options to sell or conversion rights, assign, transfer,
convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, develop,
repair, maintain, manage, insure, lease for any term and otherwise deal with any
and all property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the purposes of the Partnership;
(b) To acquire, directly or indirectly, interests in real estate or entities
owning real estate of any kind and of any type, and any and all kinds of
interests therein (whether through direct ownership, partnerships, security
interests or any other type of interests), and to determine the manner in which
title thereto is to be held; to manage, insure against loss, protect and
subdivide any of the real estate, interests therein or parts thereof; to
improve, develop or redevelop any such real estate; to participate in the
ownership and development of any property; to dedicate for public use, to vacate
any subdivisions or parts thereof, to re-subdivide, to contract to sell or
exchange, to grant options to purchase, lease or exchange, to sell or exchange
on any terms; to convey, to mortgage or receive mortgages, pledge or otherwise
encumber said property, or any part thereof; to lease said property or any part
thereof from time to time, upon any terms and for any period of time, and to
renew or extend leases, to amend, change or modify the terms and provisions or
any leases and to grant options to lease and options to renew leases and options
<PAGE>
to purchase; to partition or to exchange said real property, or any part
thereof, for other real or personal property; to grant easements or charges of
any kind; to release, convey or assign any right, title or interest in or about
or easement appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on said
premises; to insure any Person having an interest in or responsibility for the
care, management or repair of such property; to direct the trustee of any land
trust to mortgage, lease, convey or contract to convey the real estate held in
such land trust or to execute and deliver deeds, mortgages, notes, and any and
all documents pertaining to the property subject to such land trust or in any
matter regarding such trust; to execute assignments of all or any part of the
beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from employment or engagement
Persons to the extent deemed necessary by the General Partner for the operation
and management of the Partnership business, including but not limited to,
contractors, subcontractors, engineers, architects, surveyors, mechanics,
consultants, accountants, attorneys, insurance brokers, real estate brokers and
others;
(d) To negotiate and enter into contracts on behalf of the Partnership
(including, without limitation, right of first opportunity arrangements and
other conflict avoidance agreements) that the General Partner considers useful
or necessary to the conduct of the Partnership's operations or implementation of
the General Partner's powers under this Agreement;
(e) To borrow money, procure loans and advances from any Person for Partnership
purposes, and to apply for and secure, from any Person, credit or
accommodations; to contract liabilities and obligations, direct or contingent
and of every kind and nature with or without security; and to repay, discharge,
settle, adjust, compromise, or liquidate any such loan, advance, credit,
obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale
and leaseback arrangements or otherwise give as security or as additional or
substitute security, or for sale or other disposition any and all Partnership
property, tangible or intangible, including, but not limited to, real estate and
beneficial interests in land trusts, and to make substitutions thereof, and to
receive any proceeds thereof upon the release or surrender thereof (such right,
power and authority to include, without limitation, the right, power and
authority to encumber Partnership property to secure the debts and obligations
of the General Partner and/or Affiliates of the General Partner, including,
without limitation, the Special Limited Partner); to sign, execute and deliver
any and all assignments, deeds and other contracts and instruments in writing;
to authorize, give, make, procure, accept and receive moneys, payments,
property, notices, demands, vouchers, receipts, releases, compromises and
adjustments; to waive notices, demands, protests and authorize and execute
waivers of every kind and nature; to enter into, make, execute, deliver and
receive written agreements, undertakings and instruments of every kind and
nature; to give oral instructions and make oral agreements; and generally to do
any and all other acts and things incidental to any of the foregoing or with
reference to any dealings or transactions which any attorney may deem necessary,
proper or advisable;
<PAGE>
(g) To acquire and enter into any contract of insurance which the General
Partner deems necessary or appropriate for the protection of the Partnership,
for the conservation of the Partnership's assets or for any purpose convenient
or beneficial to the Partnership;
(h) To conduct any and all banking transactions on behalf of the Partnership; to
adjust and settle checking, savings, and other accounts with such institutions
as the General Partner shall deem appropriate; to draw, sign, execute, accept,
endorse, guarantee, deliver, receive and pay any checks, drafts, bills of
exchange, acceptances, notes, obligations, undertakings and other instruments
for or relating to the payment of money in, into, or from any account in the
Partnership's name; to execute, procure, consent to and authorize extensions and
renewals of the same; to make deposits and withdraw the same and to negotiate or
discount commercial paper, acceptances, negotiable instruments, bills of
exchange and dollar drafts;
(i) To demand, sue for, receive, and otherwise take steps to collect or recover
all debts, rents, proceeds, interest, dividends, goods, chattels, income from
property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any accounts,
debts, claims, disputes and matters which may arise between the Partnership and
any other Person and to grant an extension of time for the payment or
satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking of all action
deemed necessary or appropriate by the General Partner to cause any approved
loans to be closed;
(k) To take all reasonable measures necessary to insure compliance by the
Partnership with applicable arrangements, and other contractual obligations and
arrangements entered into by the Partnership from time to time in accordance
with the provisions of this Agreement, including periodic reports as required to
lenders and using all due diligence to insure that the Partnership is in
compliance with its contractual obligations;
(l) To maintain the Partnership's books and records;
(m) To prepare and deliver, or cause to be prepared and delivered by the
Partnership's Accountants, all financial and other reports with respect to the
operations of the Partnership, and preparation and filing of all federal and
state tax returns and reports;
(n) To prepare and deliver all financial, regulatory, tax and other filings or
reports to governmental or other agencies having jurisdiction over the
Partnership; and
(o) To do all other actions of a partner in a partnership without limited
partners, recognizing that the Limited Partners shall have only the right and
authority to participate in the affairs of the Partnership to the extent
specifically set forth in this Agreement.
<PAGE>
Except as otherwise provided herein, to the extent the duties of the General
Partner require expenditures of funds to be paid to third parties, the General
Partner shall not have any obligations hereunder except to the extent that
Partnership funds are reasonably available to it for the performance of such
duties, and nothing herein contained shall be deemed to require the General
Partner, in its capacity as such, to expend its individual funds for payment to
third parties or to undertake any individual liability or obligation on behalf
of the Partnership. Each of the Limited Partners agrees that the General Partner
is authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not in itself constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
7.3 MAJOR DECISIONS. The General Partner shall not, without the prior Consent of
the Limited Partners, on behalf of the Partnership, undertake any of the
following actions (the "Major Decisions"):
(a) Amend, modify or terminate this Agreement other than in accordance with the
provisions of Article IV, Article VIII, Article IX, Section 13.7 and the
definitions of the terms "Gross Asset Value" and "Partnership Units."
(b) Make a general assignment for the benefit of creditors or appoint or
acquiesce in the appointment of a custodian, receiver or trustee for all or any
part of the assets of the Partnership.
(c) Take title to any personal or real property, other than in the name of the
Partnership or pursuant to Section 7.9 hereof.
(d) Institute any proceeding for Bankruptcy on behalf of the Partnership.
(e) Dissolve the Partnership, except as otherwise set forth in this Partnership
Agreement.
Notwithstanding the foregoing, none of the actions described in Section 7.3
shall be a Major Decision if the Limited Partners (other than the Special
Limited Partner) collectively own less than forty percent (40%) of the
Partnership Units at the time that such action is undertaken.
7.4 ACTIONS WITH RESPECT TO CERTAIN DOCUMENTS. Notwithstanding the provisions of
Section 7.3 hereof to the contrary, whenever the consent, agreement,
authorization or approval of the Partnership is required under any agreement to
which the Limited Partners and/or their Controlled Entities are parties in
interest other than in their capacities as Limited Partners of the Partnership,
the Consent of the Limited Partners shall not be required.
7.5 OTHER BUSINESS OF GENERAL PARTNER AND SPECIAL LIMITED PARTNER.
Notwithstanding anything to the contrary set forth in this Agreement, the
General Partner and the Special Limited Partner may engage independently or with
others (including, without limitation, Affiliates of the General Partner and the
Special Limited Partner) in other business ventures of every nature and
description, including, without limitation, the ownership of other properties
and the making or management of other investments. In furtherance of any such
venture, the General Partner and the Special Limited Partner may serve as a
general or limited partner in any partnership, a shareholder in any corporation,
a joint venturer in any joint venture, a member and/or manager in any limited
liability company, or an equity or other participant in any other business
venture. Nothing in this Agreement shall be deemed to prohibit the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner from dealing, or otherwise engaging in business
with, Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property and receiving compensation therefor, not
involving any rebate or reciprocal arrangement that would have the effect of
circumventing any restriction set forth herein upon dealings with the General
Partner or the Special Limited Partner or any Affiliate of the General Partner
or the Special Limited Partner. Neither the Partnership nor any Partner shall
have any right by virtue of this Agreement or the Partnership relationship
created hereby in or to such other ventures or activities or to the income or
proceeds derived therefrom, and, to the fullest extent permitted by the Act, the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful or improper.
7.6 CONTRACTS WITH AFFILIATES.
(a) Without limiting the provisions of Section 7.5 above, the Partnership may
lend or contribute funds or other assets to its Affiliates or other Persons in
which it has (or proposes to have) an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Affiliates or any other
Person.
(b) Without limiting the provisions of Section 7.5 above, the Partnership may
transfer assets to other Entities in which it is or thereby becomes a
participant upon such terms and subject to applicable law as the General
Partner, in its sole and absolute discretion, believes to be advisable.
7.7 PROSCRIPTIONS. The General Partner shall not have the authority to:
(a) Do any act in contravention of this Agreement or which would make it
impossible to carry on the ordinary business of the Partnership;
(b) Possess any Partnership property or assign rights in specific Partnership
property for other than Partnership purposes; or
(c) Do any act in contravention of applicable law.
Nothing herein contained shall impose any obligation on any Person or firm doing
business with the Partnership to inquire as to whether or not the General
Partner has properly exercised its authority in executing any contract, lease,
mortgage, deed or other instrument on behalf of the Partnership, and any such
third Person shall be fully protected in relying upon such authority.
7.8 ADDITIONAL PARTNERS. Additional Partners may be admitted to the Partnership
only as provided in Section 9.3 hereof.
7.9 TITLE HOLDER. To the extent allowable under applicable law, title to all or
any part of the properties of the Partnership may be held in the name of the
Partnership or any other individual, corporation, partnership, trust or
otherwise, the beneficial interest in which shall at all times be vested in the
Partnership. Any such title holder shall perform any and all of its respective
functions to the extent and upon such terms and conditions as may be determined
from time to time by the General Partner.
7.10 COMPENSATION OF THE GENERAL PARTNER. The General Partner shall not be
entitled to any compensation for services rendered to the Partnership solely in
its capacity as General Partner, except with respect to reimbursement for those
costs and expenses constituting Administrative Expenses.
7.11 WAIVER AND INDEMNIFICATION.
(a) Neither the General Partner, the Special Limited Partner nor any Person
acting on their behalf, pursuant hereto, shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for any
acts or omissions performed or omitted to be performed by them within the scope
of the authority conferred upon the General Partner or the Special Limited
Partner by this Agreement and the Act, provided that the General Partner's, the
Special Limited Partner's or such other Person's conduct or omission to act was
taken in good faith and in the belief that such conduct or omission was in the
best interests of the Partnership and, provided further, that the General
Partner, the Special Limited Partner or such other Person shall not be guilty of
fraud, misconduct, bad faith, or gross negligence. The Partnership shall, and
hereby does, agree to indemnify, defend, protect and hold harmless the General
Partner, the Special Limited Partner and their Affiliates and any individual or
Entity acting on their behalf from and against any loss, damage, cost, expense,
claim or liability, including, but not limited to, reasonable attorneys' fees,
court costs and expenses, incurred by them by reason of any acts or omissions
performed or omitted to be performed by them in connection with the business and
affairs of the Partnership as described herein, subject to the standards set
forth above; provided, however, no Partner shall have any personal liability
with respect to the foregoing indemnification, any such indemnification to be
satisfied solely out of the assets of the Partnership.
(b) Any Person entitled to indemnification under this Agreement shall be
entitled to receive, upon application therefor, the costs reasonably incurred
defending any proceeding against such Person; provided, however, that such
advances shall be repaid to the Partnership, without interest, if such Person is
found by a court of competent jurisdiction upon entry of a final judgment not to
be entitled to such indemnification. All rights of the indemnitee hereunder
<PAGE>
shall survive the dissolution of the Partnership. The indemnification rights
contained in this Agreement shall be cumulative of, and in addition to, any and
all rights, remedies and recourse to which the person seeking indemnification
shall be entitled, whether at law or in equity. Indemnification pursuant to this
Agreement shall be made solely and entirely from the assets of the Partnership,
and no Partner shall be liable therefor.
7.12 CONTRACTS WITH CONTROLLED ENTITIES. The General Partner and the Special
Limited Partner may contract with any of their Controlled Entities for the
provision of property management, asset management, brokerage or similar
services or any other services customarily rendered by the Controlled Entities;
provided that all such contracts or agreements shall be for compensation and on
terms and conditions substantially similar to other such contracts or agreements
available from similarly qualified third parties.
7.13 OPERATION IN ACCORDANCE WITH REIT REQUIREMENTS. Essex, the sole general
partner of the Special Limited Partner, is a REIT and is subject to the
provisions of Section 856 through and including 860 of the Code. The Partners
acknowledge and agree that the Partnership shall be operated in a manner that
will enable Essex to (a) satisfy the REIT Requirements and (b) eliminate the
imposition of any federal income or excise tax liability. Notwithstanding
anything to the contrary set forth in this Agreement, the Partnership shall
avoid taking any action that would result in Essex ceasing to satisfy the REIT
Requirements or would result in the imposition of any federal income or excise
tax liability on Essex. Without limiting the foregoing, so long as Essex owns,
directly or indirectly, any interest in the Partnership, then notwithstanding
any other provision of this Agreement:
(i) leases or subleases of any of the Partnership's real estate assets shall
provide for rents which qualify as "rents from real property" within the meaning
of Section 856(d) of the Code with respect to Essex;
(ii) the Partnership shall not furnish or render services to tenants or other
persons that are not usually or customarily rendered in connection with the
rental of real property in order that the rents received by the partnership with
respect to its real estate assets qualify as "rents from real property" within
the meaning of Section 856(d) of the Code with respect to Essex;
(iii) the Partnership shall not own, directly or indirectly or by attribution
(in accordance with the attribution rules referred to in Section 856(d) of the
Code), in the aggregate more than 1% of all classes of stock or more than 1% of
the voting power (or, with respect to any such person which is not a
corporation, an interest of 1% or more in the assets or net profits of such
person) of a lessee or sublessee of all or any part of the real estate assets of
the Partnership, except in each case with the specific written approval of
Essex;
(iv) the Partnership shall not own, directly or indirectly or by attribution,
more than 10% of the outstanding voting securities of any issuer;
(v) the Partnership shall not engage in any prohibited transactions within the
meaning of Section 857(b)(6) of the Code; and
<PAGE>
(vi) the determination as to whether the Partnership has operated in the manner
prescribed in this Section 7.13 shall be made without regard to any action or
inaction of the General Partner with respect to distributions and the timing
thereof.
ARTICLE VIII
Dissolution, Liquidation and Winding-Up
8.1 LIQUIDATING EVENTS. The Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following (each, a "Liquidating
Event"):
(a) The dissolution, termination, retirement or Bankruptcy of the General
Partner unless the Partnership is continued as provided in Section 9.1 hereof;
(b) The election to dissolve the Partnership made in writing by the General
Partner with the Consent of the Limited Partners, provided that the Consent of
the Limited Partners shall not be required if the Limited Partners (other than
the Special Limited Partner) collectively own less than forty percent (40%) of
the Partnership Units at the time of such election;
(c) The sale or other disposition of all or substantially all the assets of the
Partnership, other than in connection with a "like kind" exchange, pursuant to
Section 1031 of the Code (or any similar transaction), unless the General
Partner, with the Consent of the Limited Partners, elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership), provided that the
Consent of the Limited Partners shall not be required if the Limited Partners
(other than the Special Limited Partner) collectively own less than forty
percent (40%) of the Partnership Units at the time of such sale or disposition;
(d) Dissolution required by operation of law; or
(e) The expiration of its term as provided in Section 3.2.
8.2 ACCOUNTING. In the event of a Liquidating Event, a proper accounting (which
shall be certified) shall be made of the Capital Account of each Partner and of
the Net Profits or Net Losses of the Partnership from the date of the last
previous accounting to the date of dissolution. Financial statements presenting
such accounting shall be prepared at the direction of the Liquidating Trustee.
8.3 DISTRIBUTION ON DISSOLUTION. In the event of a Liquidating Event, the assets
of the Partnership shall be liquidated for distribution in the following rank
and order:
(a) First, to the payment and discharge of all of the Partnership's debt and
liabilities to creditors of the Partnership (other than Partners) in the order
of priority as provided by law;
(b) Second, to the establishment of reserves as provided by the General Partner
to provide for contingent liabilities, if any;
(c) Third, to the payment of debts of the Partnership to Partners, if any, in
the order of priority provided by law; and
<PAGE>
(d) The balance, if any, to the Partners in accordance with the positive
balances in their Capital Accounts after giving effect to all contributions,
distributions (pursuant to Section 6.2) and allocations for all periods,
including the period in which such distribution occurs (other than those
adjustments made pursuant to this Section 8.3(d) and Section 8.4 hereof).
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (b) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with Section 6.2.
8.4 TIMING REQUIREMENTS. In the event that the Partnership is "liquidated"
within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and
all distributions to the Partners pursuant to Section 8.3(d) hereof shall be
made no later than the later to occur of (i) the last day of the taxable year of
the Partnership in which such liquidation occurs or (ii) ninety (90) days after
the date of such liquidation.
8.5 SALE OF PARTNERSHIP ASSETS. In the event of the liquidation of the
Partnership in accordance with the terms of this Agreement, the Liquidating
Trustee may, with the Consent of the Limited Partners, sell Partnership property
if the Liquidating Trustee has in good faith solicited bids from unrelated third
parties and obtained independent appraisals before making any such sale;
provided, however, all sales, leases, encumbrances or transfers of Partnership
assets shall be made by the Liquidating Trustee with the prior Consent of the
Limited Partners and solely on an "arm's-length" basis, at the best price and on
the best terms and conditions as the General Partner in good faith believes are
reasonably available at the time and under the circumstances and on a
non-recourse basis to the Limited Partners. Notwithstanding the foregoing, the
Consent of the Limited Partners shall not be required under the preceding
sentence if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time that the Liquidating Trustee undertakes such action. The liquidation of the
Partnership shall not be deemed finally terminated until the Partnership shall
have received cash payments in full with respect to obligations such as notes,
installment sale contracts or other similar receivables received by the
Partnership in connection with the sale of Partnership assets and all
obligations of the Partnership have been satisfied or assumed by the General
Partner. The Liquidating Trustee shall continue to act to enforce all of the
rights of the Partnership pursuant to any such obligations until paid in full.
8.6 DISTRIBUTIONS IN KIND. Notwithstanding the provisions of Section 8.3 hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidating Trustee determines that an immediate sale of part or
<PAGE>
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) and/or distribute to the Partners in lieu of cash as
tenants in common and in accordance with the provisions of Section 8.3 hereof,
undivided interests in such Partnership assets as the Liquidating Trustee deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good-faith judgment of the Liquidating Trustee, such distributions in
kind are in the best interest of the Partners and shall be subject to such
conditions relating to the disposition and management of such properties as the
Liquidating Trustee deems reasonable and equitable and to any agreements
governing the operation of such properties at such time. The Liquidating Trustee
shall determine the fair market value of any property distributed in kind using
such reasonable method of valuation as it may adopt.
8.7 DOCUMENTATION OF LIQUIDATION. Upon the completion of the dissolution and
liquidation of the Partnership, the Partnership shall terminate and the
Liquidating Trustee shall have the authority to execute and record any and all
documents or instruments required to effect the dissolution, liquidation and
termination of the Partnership.
8.8 LIABILITY OF THE LIQUIDATING TRUSTEE. The Partnership hereby indemnifies,
defends, protects and holds harmless the Liquidating Trustee from and against
any and all claims, demands, losses, liabilities, costs (including, without
limitation, reasonable attorneys' fees and costs), damages and causes of action
of any nature whatsoever arising out of or incidental to the Liquidating
Trustee's taking of any action authorized under or within the scope of this
Agreement; provided, however, that the Liquidating Trustee shall not be entitled
to indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arose out of:
(a) A matter entirely unrelated to the Liquidating Trustee's action or conduct
pursuant to the provisions of this Agreement; or
(b) The proven misconduct or gross negligence of the Liquidating Trustee.
ARTICLE IX
Transfer of Partnership Interests
9.1 GENERAL PARTNER AND SPECIAL LIMITED PARTNER TRANSFERS. Except as provided in
the next sentence, neither the General Partner nor the Special Limited Partner
shall withdraw from the Partnership or Transfer all or any portion of their
interests in the Partnership without the Consent of the Limited Partners,
provided that the Consent of the Limited Partners shall not be required if the
Limited Partners (other than the Special Limited Partner) collectively own less
than forty percent (40%) of the Partnership Units at the time of such Transfer.
Notwithstanding the foregoing, the General Partner and/or the Special Limited
Partner may (i) engage in any merger, consolidation or other combination with or
into another Person regardless of whether Essex or another REIT continues to be
the general partner of the Special Limited Partner, (ii) sell all or
substantially all of their assets, or (iii) effect any reclassification or
<PAGE>
recapitalization, all without the approval of the Limited Partners. Upon any
Transfer of all of the General Partner's or the Special Limited Partner's
Partnership Interest in accordance with the provisions of this Section 9.1, the
transferee General Partner or Special Limited Partner, as applicable, shall
become vested with the powers and rights of the transferor General Partner or
Special Limited Partner, as applicable, and shall be liable for all obligations
and responsible for all duties of the General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership Interest so
acquired. It is a condition to any Transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor General Partner or Special Limited Partner, as
applicable, under this Agreement with respect to such transferred Partnership
Interest, and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor General
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor General Partner or Special Limited Partner, as
applicable, of its obligations under this Agreement without the Consent of the
Limited Partners, provided that the Consent of the Limited Partners shall not be
required if the Limited Partners (other than the Special Limited Partner)
collectively own less than forty percent (40%) of the Partnership Units at the
time of such Transfer. In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or dissolves,
terminates or upon the Bankruptcy of the General Partner, a Majority-In-Interest
of the Limited Partners may elect to continue the Partnership business by
selecting a substitute general partner.
9.2 TRANSFERS BY LIMITED PARTNERS.
(a) No Limited Partner (other than the Special Limited Partner) shall have the
right to Transfer to any Person all or any portion of its Partnership Interest,
without the General Partner's written consent, in the General Partner's sole
discretion. Any purported Transfer, in violation of this Section 9.2, shall be
void, ab initio.
(b) It is a condition to any Transfer otherwise permitted under this Section 9.2
that the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Upon such Transfer and upon obtaining the General Partner's
written consent, in the General Partner's sole discretion, the transferee shall
be admitted as a Substituted Limited Partner and shall succeed to all of the
rights, including rights with respect to the Rights, of the transferor Limited
Partner under this Agreement in the place and stead of such transferor Limited
<PAGE>
Partner; provided, however, that notwithstanding the foregoing, any transferee
of any transferred Partnership Interest shall be subject to any and all
ownership limitations contained in the Charter which may, among other things,
limit or restrict such transferee's ability to exercise all or portions of the
rights set forth in Article XI. Any transferee, whether or not admitted as a
Substituted Limited Partner, shall acquire such Partnership Interest subject to
the obligations of the transferor hereunder. Unless admitted as a Substituted
Limited Partner, no transferee, whether by a voluntary transfer, by operation of
law or otherwise, shall have rights hereunder (including, without limitation,
pursuant to Article XI, unless such transferee, is a Qualifying Party), other
than to receive such portion of the distributions made by the Partnership as are
allocable to the Percentage Interest transferred.
9.3 ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS AND ADMITTANCE OF ADDITIONAL
PARTNERS. At any time after the date hereof without the consent of any Partner,
but subject to the provisions of Section 9.4 hereof, the General Partner may,
upon its determination that the issuance of additional Partnership Interests
("Additional Interests") is in the best interests of the Partnership, cause the
Partnership (i) to issue Additional Interests to any Limited Partner or any
other Person (such other person being referred to as an "Additional Partner") in
exchange for the contribution by such Limited Partner or Person of cash and/or
property desirable to further the purposes of the Partnership under Section 2.3
hereof and (ii) in the case of such contribution by an Additional Partner, to
admit such person as a limited partner in the Partnership. In the event that an
Additional Interest is issued by the Partnership pursuant to this Section 9.3:
(a) the Percentage Interest of the Additional Partner that is issued the
Additional Interest and the reduction of the Percentage Interests of the other
Partner shall be determined by the General Partner in the same manner as that
provided in subsection 4.3(a)(ii) hereof with respect to Contributed Funds.
The General Partner shall be authorized on behalf of each of the Partners to
amend this Agreement to reflect the admission of any Additional Partner or any
increase in the Percentage Interests of any Partner and the corresponding
reduction of the Percentage Interests of the other Partners in accordance with
the provisions of this Section 9.3, and the General Partner shall promptly
deliver a copy of such amendment to each Limited Partner. Notwithstanding
anything contained herein to the contrary, without the consent of the General
Partner, in its sole and absolute discretion, an Additional Partner that
acquires an Additional Interest pursuant to this Section 9.3 shall not acquire
any interest in, and may not exercise or otherwise participate in, any rights
pursuant to Article XI.
9.4 RESTRICTIONS ON TRANSFER. In addition to any other restrictions on transfer
herein contained, in no event may any Transfer of a Partnership Interest by any
Partner be made (i) to any Person that lacks the legal right, power or capacity
to own a Partnership Interest; (ii) in violation of any provision of any
mortgage or trust deed (or the note or bond secured thereby) constituting a Lien
against a Property or any part thereof, or other instrument, document or
agreement to which the Partnership, the General Partner, the Special Limited
Partner or any Affiliate of either of them is a party or otherwise bound; (iii)
in violation of applicable law, including, without limitation, any applicable
federal securities law or state securities "Blue Sky" law (including investment
suitability standards); (iv) of any component portion of a Partnership Interest,
such as the Capital Account, or rights to Available Cash, separate and apart
from all other components of a Partnership Interest; (v) in the event such
transfer would cause Essex to cease to comply with the REIT Requirements or
result in a violation of Section 7.13 hereof; (vi) if such transfer would cause
a termination of the Partnership for federal income tax purposes; (vii) if such
<PAGE>
transfer would, in the opinion of counsel to the Partnership, cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes; (viii) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title 1 of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (ix) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.3-101; (x) if such
transfer may not be effected without registration of such Partnership Interest
under the Securities Act; or (xi) if such transfer would violate any provision
of the Charter. As a condition to any Transfer, the General Partner may, in its
sole and absolute discretion, require the proposed transferee to deliver to the
General Partner an opinion of counsel and such other certifications, affidavits
and/or undertakings, in form and content reasonably acceptable to the General
Partner, to satisfy the General Partner that the proposed Transfer will not
violate any of the provisions of this Section 9.4. Any purported transfer in
violation of this Section 9.4 shall be void ab initio.
ARTICLE X
Rights and Obligations of the Limited Partners
10.1 NO PARTICIPATION IN MANAGEMENT. Except as expressly permitted hereunder,
the Limited Partners shall not take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership and shall have no rights,
powers or authority, except as specifically provided herein.
10.2 BANKRUPTCY OF A LIMITED PARTNER AND CERTAIN OTHER EVENTS. The Bankruptcy,
death, incompetency, legal incapacity, withdrawal or retirement of any Limited
Partner shall not cause a dissolution of the Partnership, but the rights of such
Limited Partner to share in the Net Profits or Losses of the Partnership and to
receive distributions of Partnership funds shall, on the happening of such
event, devolve on its successors or assigns, subject to the terms and conditions
of this Agreement, and the Partnership shall continue as a limited partnership.
However, in no event shall such assignee(s) become a Substituted Limited
Partner, except in accordance with Article IX hereof.
10.3 NO WITHDRAWAL. Notwithstanding anything to the contrary provided in Section
10.2 above, no Limited Partner may withdraw or retire from the Partnership
without the prior written consent of the General Partner, in its sole and
absolute discretion, other than as expressly provided in this Agreement.
10.4 DUTIES AND CONFLICTS. The General Partner recognizes that the Limited
Partners and their Affiliates have or may have other business interests,
activities and investments, some of which may be in conflict or competition with
the business of the Partnership, and that, subject to the provisions of any
agreements entered into by any Limited Partner or its Affiliate with the General
Partner, the Partnership or any of their Affiliates, such persons are entitled
to carry on such other business interests, activities and investments. Subject
to the immediately preceding sentence, the Limited Partners and their Affiliates
may engage in or possess an interest in any other business or venture of any
<PAGE>
kind, independently or with others, on their own behalf or on behalf of other
entities with which they are affiliated or associated, and such persons may
engage in any activities, whether or not competitive with the Partnership,
without any obligation to offer any interest in such activities to the
Partnership or to any Partner. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such activities, or the
income or profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper.
ARTICLE XI
Grant of Rights to Limited Partners
11.1 GRANT OF RIGHTS.
(a) Subject to Section 11.1(b) below and the other provisions of this Section
11.1, a Qualifying Party, but no other Person, shall have the right (subject to
the terms and conditions set forth herein) to require the Partnership to redeem
all or a portion of the Partnership Units held by such Qualifying Party (such
Partnership Units being hereafter called "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Qualifying Party when exercising the Redemption right
(the "Tendering Party"). The Partnership's obligation to effect a Redemption,
however, shall not arise or be binding against the Partnership until and unless
there has been a Declination. Regardless of the binding or non-binding nature of
a pending Redemption, a Tendering Party shall have no right to receive
distributions with respect to any Tendered Units (other than the Cash Amount)
paid after delivery of the Notice of Redemption, whether or not the Partnership
Record Date for such distribution precedes or coincides with such delivery of
the Notice of Redemption. In the event of a Redemption, the Cash Amount shall be
delivered as a good check payable to the Tendering Party or, in the General
Partner's sole and discretion, in immediately available funds.
(b) (i) Subject to Section 11.1(b)(ii) below, notwithstanding the provisions of
Section 11.1(a) hereof, on or before the close of business on the Cutoff Date,
Essex shall, in its sole and absolute discretion but subject to the Ownership
Limit (as defined in the Charter) and any transfer restrictions or other
limitations of the Charter and subject to the written consent of the General
Partner in its sole discretion, have the option (and Essex is hereby granted
such an option) to acquire some or all (such amount, expressed as a percentage,
being referred to as the "Applicable Percentage") of the Tendered Units from the
Tendering Party in exchange for REIT Shares. If Essex exercises such option, on
the Specified Redemption Date the Tendering Party shall sell such number of the
Tendered Units to Essex in exchange for a number of REIT Shares equal to the
product of the REIT Shares Amount and the Applicable Percentage (expressed as a
decimal), provided, however, that in lieu of any fractional REIT Share resulting
from such calculation, the General Partner or Special Limited Partner may
contribute to the Partnership the Cash Amount attributable to such fractional
REIT Share. The Tendering Party shall submit such information, investment
letters, representations, undertakings, legal opinions, certifications and/or
affidavits as Essex may reasonably require to comply with the Securities Act,
<PAGE>
the Code and the Charter (including, without limitation, the Ownership Limit).
In the event of a purchase of the Tendered Units pursuant to this Section
11.1(b), the Tendering Party shall no longer have the right to cause the
Partnership to effect a Redemption of such Tendered Units, and, upon notice to
the Tendering Party by Essex, given on or before the close of business on the
Cut-Off Date, that Essex has exercised its option to acquire some or all of the
Tendered Units pursuant to this Section 11.1(b), the obligation of the
Partnership to effect a Redemption of the Tendered Units as to which Essex's
notice relates shall immediately and automatically terminate and be of no
further force or effect. The product of the Applicable Percentage and the REIT
Shares Amount shall be delivered by Essex as duly authorized, validly issued,
fully paid and nonassessable REIT Shares and, if applicable, Rights, free of any
pledge, lien, encumbrance or restriction, other than the Ownership Limit and
other restrictions provided in the Charter, the bylaws of Essex, the Securities
Act and relevant state securities or "blue sky" laws. Neither any Tendering
Party whose Tendered Units are acquired by Essex pursuant to this Section
11.1(b), any other Partner, any Assignee nor any other interested Person shall
have any right to require or cause Essex to register, qualify or list any REIT
Shares owned or held by such Person, whether or not such REIT Shares are issued
pursuant to this Section 11.1(b), with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between Essex and any such Person. REIT Shares issued
upon an acquisition of the Tendered Units by Essex pursuant to this Section
11.1(b) may contain such legends regarding restrictions under the Securities Act
and applicable state securities laws as Essex in good faith determines to be
necessary or advisable in order to ensure compliance with such laws.
(ii) Notwithstanding anything to the contrary set forth in Section 11.1(b)(i)
above, Essex may not exercise its option set forth in Section 11.1(b)(i) above
in any calendar year unless and until the Partnership shall have received
Notices of Redemption for Tendered Units (including, without limitation, Notices
of Redemption with respect to all completed Redemptions) during such calendar
year in the aggregate Cash Amount (or, if, as of the date of calculation, any
applicable Cash Amount is not yet determined pursuant to the terms of this
Agreement, the estimated Cash Amount as determined by the General Partner in its
reasonable judgment) in excess of $500,000. At such time as such $500,000
minimum is exceeded pursuant to the previous sentence during such calendar year,
Essex may exercise its option set forth in Section 11.1(b)(i) above with respect
to (x) all pending Redemptions, and (y) all Notices of Redemption received by
the Partnership during the remainder of such calendar year.
(iii) If Essex exercises its option pursuant to Section 11.1(b)(i) above, on the
Specified Redemption Date, the Partnership shall pay to the Tendering Party all
accrued but unpaid distributions, if any, with respect to the Tendered Units
pursuant to Section 6.2(b).
(c) Notwithstanding the provisions of Sections 11.1(a) and 11.1(b) hereof, no
Tendering Party shall have any rights under this Agreement that would otherwise
be prohibited under the Charter. To the extent that any attempted Redemption or
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof
would be in violation of this Section 11.1(c), it shall be null and void ab
<PAGE>
initio, and, in the case of a proposed purchase by Essex pursuant to Section
11.1(b) hereof, the Tendering Party shall not acquire any rights or economic
interests in REIT Shares otherwise issuable by Essex under Section 11.1(b)
hereof.
(d) In the event that, following receipt of a Notice of Redemption, Essex is not
permitted to exercise its option pursuant to Section 11.1(b)(ii), or Essex
declines or fails to exercise its option pursuant to Section 11.1(b)(i) hereof
(a "Declination"):
(i) The General Partner shall give notice of such Declination to the Tendering
Party on or before the close of business on the Cut-Off Date. The failure of the
General Partner to give notice of such Declination by the close of business on
the Cut-Off Date shall itself constitute a Declination.
(ii) The Partnership may elect to raise funds for the payment of the Cash Amount
either (a) by requiring that the Special Limited Partner contribute such funds
to the Partnership from (1) the proceeds of a registered public offering (a
"Public Offering Funding") by Essex of a number of REIT Shares ("Registrable
Shares") equal to the REIT Shares Amount with respect to the Tendered Units,
which proceeds are contributed by Essex to the Special Limited Partner, or (2)
any other source, or (b) from any other sources (including, but not limited to,
the sale of any Property or other assets of the Partnership and the incurrence
of Partnership debt) available to the Partnership.
(iii) Upon the General Partner's receipt of the Notice of Redemption and the
General Partner giving notice of its Declination, the General Partner, at its
election, may give notice (a "Single Funding Notice") to all Qualifying Parties
then holding a Partnership Interest (or an interest therein) and having
Redemption rights pursuant to this Section 11.1 and require that, due to (x) a
pending or anticipated public underwritten offering of Essex's securities or (y)
any other Essex activity, all such Qualifying Parties elect whether or not to
effect a Redemption of their Partnership Units. In the event that any such
Qualifying Party elects to effect such a Redemption, it shall give notice
thereof and of the number of Partnership Units to be made subject thereto in
writing to the General Partner within ten (10) business days after receipt of
the Single Funding Notice, and such Qualifying Party shall be treated as a
Tendering Party for all purposes of this Section 11.1. In the event that a
Qualifying Party does not so elect, it shall be deemed to have waived its right
to effect a Redemption for the current Six-month Period.
(e) Notwithstanding anything herein to the contrary (but subject to Section
11.1(c) hereof), with respect to any Redemption (or any tender of Partnership
Units for Redemption if the Tendered Units are acquired by Essex pursuant to
Section 11.1(b) hereof) pursuant to this Section 11.1:
(i) Subject to the Ownership Limit, no Tendering Party may effect a Redemption,
(a) to the extent that the aggregate Partnership Units of the Limited Partners
(other than the General Partner or the Special Limited Partner) would be
reduced, as a result of the Redemption (or the acquisition of the Tendered Units
by Essex pursuant to Section 11.1(b) hereof), to less than one percent (1%) of
<PAGE>
all Partnership Units outstanding immediately prior to delivery of the Notice of
Redemption, where the Redemption would consist of less than all the Partnership
Units held by Partners, other than the General Partner and the Special Limited
Partner, (b) for less than one thousand (1,000) Partnership Units or, if such
Tendering Party holds (as a Limited Partner or, economically, as an Assignee)
less than one thousand (1,000) Partnership Units, all of the Partnership Units
held by such Tendering Party, or (c) for less than all of such Tendering Party's
Partnership Units if, after giving effect to the requested Redemption, such
Tendering Party would continue to hold less than one thousand (1,000)
Partnership Units.
(ii) Each Tendering Party (a) may effect a Redemption only once in each
Six-month Period (unless the restriction contained in this Section 11.1(e)(ii)
is waived by the General Partner in its sole and absolute discretion) and (b)
may not effect a Redemption during the period after the Partnership Record Date
with respect to a distribution hereunder and before the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such Partnership distribution.
(iii) Notwithstanding anything herein to the contrary, with respect to any
Redemption or acquisition of Tendered Units by Essex pursuant to Section 11.1(b)
hereof, in the event that the General Partner gives notice to all Limited
Partners (but excluding the Special Limited Partner and any Assignees) then
owning Partnership Interests (a "Primary Offering Notice") that Essex desires to
effect an offering (whether or not underwritten and whether or not a public or
private placement) of REIT Shares or other securities of Essex, commencement of
the actions denoted in Section 11.1(d) hereof as to a Public Offering Funding
with respect to any Notice of Redemption thereafter received, whether or not the
Tendering Party is a Limited Partner, may be delayed, at the option of the
General Partner until the earlier of (a) the completion of the offering or (b)
ninety (90) days following the giving of the Primary Offering Notice.
(iv) Without the consent of the General Partner (which may be given or withheld
in its sole and absolute discretion), no Tendering Party may effect a Redemption
within ninety (90) days following the closing of any prior Public Offering
Funding.
(v) The consummation of such Redemption (or an acquisition of Tendered Units by
Essex pursuant to Section 11.1(b) hereof, as the case may be) shall be subject
to the expiration or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(vi) The Tendering Party shall continue to hold all Partnership Units subject to
any Redemption, and be treated as a Limited Partner or an Assignee, as
applicable, with respect such Partnership Units for all purposes of this
Agreement, until such Partnership Units are either paid for by the Partnership
pursuant to Section 11.1(a) hereof or transferred to Essex and paid for by the
issuance of the REIT Shares, pursuant to Section 11.1(b) hereof, on the
Specified Redemption Date. Until a Specified Redemption Date and an acquisition
of the Tendered Units by Essex pursuant to Section 11.1(b) hereof, the Tendering
<PAGE>
Party shall have no rights as a shareholder of Essex with respect to the REIT
Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 11.1(e), all Partnership Units beneficially owned by a Related Party of
a Tendering Party shall be considered to be owned or held by such Tendering
Party.
(f) In connection with an exercise of Redemption rights pursuant to this Section
11.1, the Tendering Party shall submit the following to the General Partner, in
addition to the Notice of Redemption:
(i) A written affidavit, dated the same date as, and accompanying, the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as determined
for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such
Tendering Party and (ii) any Related Party and (b) representing that, after
giving effect to the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof, neither the Tendering Party nor any Related
Party will own REIT Shares in excess of any ownership limitations set forth in
the Charter;
(ii) A written representation that neither the Tendering Party nor any Related
Party has any intention to acquire any additional REIT Shares prior to the
closing of the Redemption or an acquisition of the Tendered Units by Essex
pursuant to Section 11.1(b) hereof on the Specified Redemption Date; and
(iii) An undertaking to certify, at and as a condition to the closing of (i) the
Redemption or (ii) the acquisition of the Tendered Units by Essex pursuant to
Section 11.1(b) hereof on the Specified Redemption Date, that either (a) the
actual and constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit required by
Section 11.1(f)(i) or (b) after giving effect to the Redemption or an
acquisition of the Tendered Units by Essex pursuant to Section 11.1(b) hereof,
neither the Tendering Party nor any Related Party shall own REIT Shares in
violation of the Ownership Limit.
11.2 PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTEREST. Notwithstanding any
other provision of this Agreement, on and after the date on which the aggregate
Partnership Units of the Limited Partners (other than the Special Limited
Partner) constitute less than twenty-five percent (25%) of the aggregate
Partnership Units of all Partners, the Partnership shall have the right, but not
the obligation, from time to time and at any time to redeem any and all
outstanding Partnership Interests of the Limited Partners (other than the
Special Limited Partner) by treating any Limited Partner (other than the Special
Limited Partner) as a Tendering Party who has delivered a Notice of Redemption
pursuant to Section 11.1 hereof for the amount of Partnership Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 11.2. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 11.2 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 11.2, (a) any Limited Partner (whether or not otherwise
<PAGE>
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 11.1(c), 11.1(e)(i), 11.1(e)(ii), and 11.1.(e)(iv) hereof
shall not apply, but the remainder of Section 11.1 hereof (including, without
limitation, the rights of the General Partner under Section 11.1(b) hereof)
shall apply with such adjustments as shall be necessary in the circumstances.
Notwithstanding the foregoing, the Partnership shall have no rights pursuant to
this Section 11.2 prior to January 1, 2016.
11.3 OTHER REDEMPTIONS. Notwithstanding the provisions of Section 11.1 hereof,
nothing in this Agreement shall preclude the redemption of any Partnership
Interest of a Limited Partner or Partnership Units by the Partnership upon such
terms and conditions as may be negotiated between the Limited Partner or
Assignee holding such Limited Partner's Partnership Interest or Partnership
Units, on the one hand, and the General Partner, on the other hand, in their
sole and absolute discretion. Such a redemption may include, without limitation,
the payment of cash by the Partnership to the Limited Partner or Assignee, in a
lump sum or in installments, or the distribution in kind of Partnership assets
to such Limited Partner or Assignee (which assets may be encumbered), including
assets to be designated by the Limited Partner or Assignee and acquired (with or
without debt financing) by the Partnership. Upon any such redemption, the
Partnership Units and Partnership Interest redeemed shall be cancelled and
Exhibit A shall be amended as appropriate to reflect such redemption. In
effecting any such redemption by negotiated agreement, none of the Partnership,
the General Partner, the Limited Partner and the Assignee, as the case may be,
shall incur any liability to any other Unitholder or have any duty to offer the
same or similar terms for redemption of any other Partnership Interest or
Partnership Units.
ARTICLE XII
Arbitration of Disputes
12.1 ARBITRATION. Notwithstanding anything to the contrary contained in this
Agreement, all claims, disputes and controversies between the parties hereto
(including, without limitation, any claims, disputes and controversies between
the Partnership and any one or more of the Partners and any claims, disputes and
controversies between any one or more Partners) arising out of or in connection
with this Agreement or the Partnership created hereby, relating to the validity,
construction, performance, breach, enforcement or termination thereof, or
otherwise, shall be resolved by binding arbitration in San Francisco,
California, in accordance with California Civil Procedure Code Sections 1280 et
seq. (other than Section 1283.05), this Article XII and, to the extent not
inconsistent with this Article XII (other than the reference in this Article to
Sections of the California Civil Procedure Code), the Expedited Procedures and
Commercial Arbitration Rules of the American Arbitration Association (the
"Arbitration Rules").
12.2 PROCEDURES. Any arbitration called for by this Article XII shall be
conducted in accordance with the following procedures:
<PAGE>
(a) The Partnership or any Partner (the "Requesting Party") may demand
arbitration pursuant to Section 12.1 hereof at any time by giving written notice
of such demand (the "Demand Notice") to all other Partners and (if the
Requesting Party is not the Partnership) to the Partnership which Demand Notice
shall describe in reasonable detail the nature of the claim, dispute or
controversy.
(b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting
Party, on the one hand, and each of the other Partners and/or the Partnership
against whom the claim has been made or with respect to which a dispute has
arisen (collectively, the "Responding Party"), on the other hand, shall select
and designate in writing to the other party one reputable, disinterested
individual (a "Qualified Individual") willing to act as an arbitrator of the
claim, dispute or controversy in question. Each of the Requesting Party and the
Responding Party shall use its best efforts to select a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof), having
at least ten (10) years experience in real estate partnership matters, having no
affiliation with any of the parties as its respective Qualified Individual.
Within fifteen (15) days after the foregoing selections have been made, the
arbitrators so selected shall jointly select a present or former partner of a
"Big 6" accounting firm (or a "Big 8" predecessor thereof) having no affiliation
with any of the parties as the third Qualified Individual willing to act as an
arbitrator of the claim, dispute or controversy in question (the "Third
Arbitrator"). In the event that the two arbitrators initially selected are
unable to agree on the Third Arbitrator within the second fifteen (15) day
period referred to above, then, on the application of either party, the American
Arbitration Association shall promptly select and appoint a present or former
partner of a "Big 6" accounting firm (or a "Big 8" predecessor thereof) having
no affiliation with any of the parties as the Qualified Individual to act as the
Third Arbitrator in accordance with the terms of the Arbitration Rules. The
three arbitrators selected pursuant to this subsection (b) shall constitute the
arbitration panel for the arbitration in question.
(c) The presentations of the parties hereto in the arbitration proceeding shall
be commenced and completed within sixty (60) days after the selection of the
arbitration panel pursuant to subsection (b) above, and the arbitration panel
shall render its decision in writing within thirty (30) days after the
completion of such presentations. Any decision concurred in by any two (2) of
the arbitrators shall constitute the decision of the arbitration panel, and
unanimity shall not be required. If a decision concurred in by at least two (2)
of the arbitrators is not rendered within such thirty (30) day period, then each
of the parties shall select a new Qualified Individual willing to act as an
arbitrator and a new arbitration proceeding shall commence in accordance with
this Article XII.
(d) The arbitration panel shall have the discretion to include in its decision a
direction that all or part of the attorneys' fees and costs of any party or
parties and/or the costs of such arbitration be paid by any other party or
parties. On the application of a party before or after the initial decision of
the arbitration panel, and proof of its attorneys' fees and costs, the
arbitration panel shall order the other party to make any payments directed
pursuant to the preceding sentence.
<PAGE>
(e) The Third Arbitrator shall have the right in its discretion to authorize the
obtaining of discovery, including the taking of depositions of witnesses for the
purpose of discovery.
(F) At the request of any party, the arbitrators shall make and provide to the
parties written findings of fact and conclusions of law.
12.3 BINDING CHARACTER. Any decision rendered by the arbitration panel pursuant
to this Article XII shall be final and binding on the parties hereto, and
judgment thereon may be entered by any state or federal court of competent
jurisdiction.
12.4 EXCLUSIVITY. Arbitration shall be the exclusive method available for
resolution of claims, disputes and controversies described in Section 12.1
hereof, and the Partnership and its Partners stipulate that the provisions
hereof shall be a complete defense to any suit, action, or proceeding in any
court or before any administrative or arbitration tribunal with respect to any
such claim, controversy or dispute. The provisions of this Article XII shall
survive the dissolution of the Partnership.
12.5 NO ALTERATION OF AGREEMENT. Nothing contained herein shall be deemed to
give the arbitrators any authority, power or right to alter, change, amend,
modify, add to, or subtract from any of the provisions of this Partnership
Agreement.
<PAGE>
ARTICLE XIII
General Provisions
13.1 NOTICES. All notices, offers or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and may be personally
served, telecopied or sent by United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy or three business
days after deposit in United States mail, registered or certified, postage
prepaid, and properly addressed, by or to the appropriate party. For purposes of
this Section 13.1, the addresses of the parties hereto shall be as set forth in
attached Exhibit A. The address of any Limited Partner may be changed by a
notice in writing given to the General Partner or the Special Limited Partner in
accordance with the provisions hereof, and the address of the General Partner
and the Special Limited Partner may be changed by a notice in writing given to
each of the Limited Partners in accordance with the provisions hereof.
13.2 Successors. This Agreement and all the terms and provisions hereof shall be
binding upon and shall inure to the benefit of all Partners, and their legal
representatives, heirs, successors and permitted assigns, except as expressly
herein otherwise provided.
13.3 EFFECT AND INTERPRETATION. This Agreement shall be governed by and
construed in conformity with the laws of the State of California.
13.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument.
13.5 PARTNERS NOT AGENTS. Except as specifically provided herein, nothing
contained herein shall be construed to constitute any Partner the agent of
another Partner, or in any manner to limit the Partners in the carrying on of
their own respective businesses or activities.
13.6 ENTIRE UNDERSTANDING; ETC. This Agreement constitutes the entire agreement
and understanding among the Partners and supersedes any prior understandings
and/or written or oral agreements among them respecting the subject matter
within.
13.7 AMENDMENTS. The General Partner is hereby authorized, without the consent
of the Limited Partners, to amend this Agreement, including, without limitation,
Exhibit A attached hereto to reflect (i) the admission of any substituted
Limited Partner or Additional Limited Partner into the Partnership or the
withdrawal of any Limited Partner from the Partnership, or (ii) any adjustment
to the Percentage Interests, Partnership Units or Capital Accounts of the
Partners in connection with any of the actions described in clause (i) above,
Section 4.3, or elsewhere in this Agreement. Except as provided in the previous
sentence, this Agreement may not be amended, and no provision benefiting the
General Partner or the Special Limited Partner may be waived, except by a
written instrument signed by the General Partner and the Special Limited Partner
(and Essex to the extent provided in Section 13.16) and (except as provided in
Article IV and Article IX), if the Limited Partners (other than the Special
Limited Partner) collectively own forty percent (40%) or more of the Partnership
Units, a Majority-In-Interest of the Limited Partners, except that this
<PAGE>
Agreement may not be amended to alter the priority of distributions or to
decrease any Limited Partner's Percentage Interest (except pursuant to a
provision of this Agreement other than this Section 13.7) without the consent of
all of the affected Limited Partners (regardless of the size of their collective
Partnership Unit ownership).
13.8 SEVERABILITY. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those to which it is
held invalid by such court, shall not be affected thereby.
13.9 TRUST PROVISION. This Agreement, to the extent executed by the trustee of a
trust, is executed by such trustee solely as trustee and not in a separate
capacity. Nothing herein contained shall create any liability on, or require the
performance of any covenant by, any such trustee individually, nor shall
anything contained herein subject the individual personal property of any
trustee to any liability.
13.10 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the
masculine, feminine and neuter, and all defined terms shall include the singular
and plural thereof whatever the context and facts require such construction. The
headings, titles and subtitles herein are inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof. Any
references in this Agreement to "including" shall be deemed to mean "including
without limitation".
13.11 ASSURANCES. Each of the Partners shall hereafter execute and deliver such
further instruments and do such further acts and things as may be required or
useful to carry out the intent and purpose of this Agreement and as are not
inconsistent with the terms hereof.
13.12 TAX CONSEQUENCES. Each Partner acknowledges and agrees that he or she has
relied fully upon the advice of its own legal counsel and/or accountant in
determining the tax consequences of this Agreement and the transactions
contemplated hereby and not upon any representations or advice by the General
Partner or by any other Partner.
13.13 SECURITIES REPRESENTATIONS. Each Limited Partner hereby represents and
warrants to the Partnership and the General Partner that
(a) such Limited Partner understands the risks of, and other considerations
relating to accepting the Partnership Units in connection with its contribution
of property to the Partnership.
(b) such Limited Partner is an "accredited investor" as defined in Rule 501
under the Securities Act, and by reason of its business and financial
experience, together with the business and financial experience of those
persons, if any, retained by it to represent or advise it with respect to the
transactions contemplated by this Agreement, (a) has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type, and it is capable of evaluating the merits
<PAGE>
and risks of an investment in the Partnership and of making an informed
investment decision, (b) is capable of protecting its own interest or has
engaged representatives or advisors to assist it in protecting its interest, and
(c) is capable of bearing the economic risk of such investment.
(c) such Limited Partner understands that an investment in the Partnership
involves substantial risks. Each Limited Partner has been given the opportunity
to make a thorough investigation of the proposed activities of the Partnership.
Each Limited Partner has been afforded the opportunity to obtain any information
deemed necessary by such Limited Partner. Each Limited Partner confirms that all
documents, records, and book pertaining to its investment in the Partnership and
requested by such Limited Partner have been made available or delivered to such
Limited Partner. Each Limited Partner has had an opportunity to ask questions of
and receive answers from the Partnership, or from a person or persons acting on
the Partnership's behalf, concerning the terms and conditions of the
transactions contemplated by this Agreement and its acquisition of Partnership
Units. Each Limited Partner has relied upon, and is making its investment
decisions, solely upon such information as has been provided to such Limited
Partner in writing by the Partnership.
(d) The Partnership Units issued or to be issued to each Limited Partner by the
Partnership will be held or acquired by such Limited Partner for its own account
for investment only and not with a view to, or with any intention of, a
distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to such Limited Partner's
right (subject to the terms of this Agreement) at all times to sell or otherwise
dispose of all or any part of its Partnership Units under an exemption from such
registration available under the Securities Act and applicable state securities
laws, and subject, nevertheless, to the disposition of its assets being at all
times within its control. Each Limited Partner was not formed for the specific
purpose of acquiring an interest in the Partnership.
Each Limited Partner agrees and acknowledges that (i) the Partnership Units
issued or to be issued to such Limited Partner have not been registered under
the Securities Act or state securities laws by reason of a specific exemption or
exemptions from registration under the Securities Act and applicable state
securities laws and, if such Partnership Units are represented by certificates,
such certificates will bear a legend to such effect; (ii) the Partnership's
reliance on such exemptions is predicated in part on the accuracy and
completeness of the representations, warranties and covenants of such Limited
Partner contained herein; (iii) such Partnership Units, therefore, cannot be
resold unless registered under the Securities Act and applicable state
securities laws, or unless an exemption from registration is available; (iv)
there is no public market for such Partnership Units; (v) notwithstanding
anything to the contrary set forth in this Agreement, Partnership Units issued
to such Limited Partner may not be Transferred unless the General Partner
determines that the Transfer of the same is a valid private placement under
applicable federal and state securities laws; and (vi) the Partnership has no
obligation or intention to register such Partnership Units for resale under the
Securities Act or any state securities laws or to take any action that would
make available any exemption from the registration requirements of such laws.
Each Limited Partner hereby acknowledges that because of the restrictions on
Transfer of such Partnership Units to be issued hereunder, such Limited Partner
<PAGE>
may have to bear the economic risk of the investment commitment evidenced by
this Agreement for an indefinite period of time.
13.14 ORIGINAL GENERAL PARTNER REPRESENTATIONS. Each of the Current General
Partners, hereby, jointly and severally, represents and warrants to the General
Partner, the Special Limited Partner and the Partnership, as of the date hereof,
as follows:
(a) There is no litigation pending or, after due and diligent inquiry, to the
best of such Current General Partner's knowledge, threatened, (i) against the
Partnership, or (ii) any of the Current General Partners relating to the
operation or management of the Partnership or any of the Partnership's current
or prior assets.
(b) The Partnership is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of California. This Agreement
will not violate any provision of any agreement or judicial or administrative
order to which the Partnership or its current or prior assets are subject. The
Partnership and its operations are (and have at all times in the past been) in
compliance with all applicable laws.
(c) There are no outstanding (i) liabilities, debts, obligations or
responsibilities of the Partnership (including, without limitation, debts owed
by the Partnership to any of the Partners or any other Person), or (ii) written
or oral agreements to which the Partnership is subject or its assets bound,
which have not been disclosed to the General Partner, in writing, prior to the
date hereof.
(d) None of the Current General Partners is or has been the subject of any
Bankruptcy.
13.15 POWER OF ATTORNEY. Each Limited Partner and each Assignee hereby
irrevocably constitutes and appoints the General Partner, any Liquidating
Trustee, and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, coupled with an interest, with full power
and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments, supplements or restatements thereof) that the General Partner or the
Liquidating Trustee deems appropriate or necessary to form, qualify or continue
the existence or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of California and in all other
jurisdictions in which the Partnership may conduct business or own property; (b)
all instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all conveyances and other instruments or
<PAGE>
documents that the General Partner or the Liquidating Trustee deems appropriate
or necessary to reflect the distribution or exchange of assets of the
Partnership pursuant to the terms of this Agreement; (e) all instruments
relating to the dissolution, liquidation or winding up of the Partnership or the
admission, withdrawal, removal or substitution of any Partner or any of the
other events described in, Article VIII, Article IX or Section 13.7 hereof or
the Capital Contribution of any Partner; and (f) all certificates, documents and
other instruments relating to the determination of the rights, preferences and
privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents, approvals,
waivers, certificates and other instruments appropriate or necessary, in the
sole and absolute discretion of the General Partner, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole and absolute discretion of
the General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with this Article XIII hereof or as
may be otherwise expressly provided for in this Agreement.
The foregoing power of attorney is hereby declared to be irrevocable and a
special power coupled with an interest, in recognition of the fact that each of
the Limited Partners and Assignees will be relying upon the power of the General
Partner to act as contemplated by this Agreement in any filing or other action
by it on behalf of the Partnership, and it shall survive and not be affected by
the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of
all or any portion of such Limited Partner's or Assignee's Partnership Units or
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner or Assignee hereby waives any and all defenses that
may be available to contest, negate or disaffirm the action of the General
Partner, taken in good faith under such power of attorney. Each Limited Partner
or Assignee shall execute and deliver to the General Partner or the Liquidating
Trustee, within fifteen (15) days after receipt of the General Partner's or the
Liquidating Trustee's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidating
Trustee, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
13.16 THIRD PARTY BENEFICIARY. Essex is and is hereby deemed a third party
beneficiary of this Agreement to the extent of the option granted to Essex
pursuant to Section 11.1(b) hereof and the other rights granted to Essex
hereunder, and Essex shall have the right to directly enforce such option and
all other rights provided to Essex pursuant to this Agreement. Neither Section
7.13 (nor the definition of "REIT Requirements"), Section 9.4 nor Section 11.1
(nor the definition of "Charter") shall be modified in any manner without
Essex's prior written consent in Essex's sole discretion.
<PAGE>
13.17 COSTS OF AGREEMENT. All costs incurred in connection with the preparation
and execution of this Agreement shall be paid by the Partnership.
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby entered into among the undersigned
Partners as of the date first written above.
GENERAL PARTNER:
ESSEX MANAGEMENT CORPORATION,
a California corporation
By: ________________________________________________
Name:_______________________________________________
Its: _______________________________________________
SPECIAL LIMITED
PARTNER:
ESSEX PORTFOLIO, L.P., a
California limited partnership
By: ESSEX PROPERTY TRUST, INC., a
Maryland corporation
By: __________________________________________
Name: _________________________________________
Its: __________________________________________
<PAGE>
LIMITED PARTNERS:
NOTICE: BY EXECUTING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION IN
ARTICLE XII (THE "ARBITRATION PROVISION") DECIDED BY NEUTRAL ARBITRATION AS
PROVIDED BY SUCH ARBITRATION PROVISION AND BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL EXCEPT AS SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. BY EXECUTING
THIS AGREEMENT YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL,
UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ARBITRATION PROVISION. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THE ARBITRATION PROVISION,
YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE. YOUR AGREEMENT TO THE ARBITRATION PROVISION IS VOLUNTARY.
THE UNDERSIGNED HAS READ AND UNDERSTANDS THE FOREGOING AND AGREES TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION PROVISION TO
NEUTRAL ARBITRATION.
/s/ Ann M. Barry Trust /s/ C&R Burnett Living Trust
Ann M. Barry Trust C&R Burnett Living Trust
/s/ Kalman Cseuz /s/ Hansen Revocable Trust
Kalman Cseuz Hansen Revocable Trust
/s/ Jack Hoover /s/ Jean Jensen
Jack Hoover Jean Jensen
/s/ The Edmond R. Joseph Family Trust /s/ George M. Marcus
The Edmond R. Joseph Family Trust George M. Marcus
/s/ Donald V. Baptist /s/ James Fuqua
Donald V. Baptist James Fuqua
/s/ Jean C. Baptist /s/ Craig Zimmerman
Jean C. Baptist Craig Zimmerman
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western San Jose III Investors, a California Limited Partnership
Agreement Between Essex Management Corporation, Essex Portfolio, L.P. and the
limited partners listed on signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit A: Partners and Addresses
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western San Jose III Investors, a California Limited Partnership
Agreement Between Essex Management Corporation, Essex Portfolio, L.P. and the
limited partners listed on signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit B: Examples Regarding Adjustment Factor
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western San Jose III Investors, a California Limited Partnership
Agreement Between Essex Management Corporation, Essex Portfolio, L.P. and the
limited partners listed on signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit C: Notice of Redemption
<PAGE>
The following exhibit to this Fourth Amended and Restated Agreement of Limited
Partnership of Western San Jose III Investors, a California Limited Partnership
Agreement Between Essex Management Corporation, Essex Portfolio, L.P. and the
limited partners listed on signature page thereto has been omitted. Such exhibit
will be submitted to the Securities and Exchange Commission upon request.
Exhibit E: Allocations
<PAGE>
FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN SAN JOSE III INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
____________________________
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO HEREIN HAVE NOT BEE REGISTERED
UNDER THE SECURITIES ACTO FO 1933, AS AMENDED, OR, UNLESS IT HAS BEEN CONFIRMED
TO YOU IN WRITING, WITH ANY STATE REGULATORY AGENCY. THES LIMITED PARTNERSHIP
INTERESTS MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS PARTNERSHIP
AGREEMENT, MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHER WISE
TRANSFERRED OR OFFERED TO BE SO TRANSFERRED SECURITIES ACT OF 1933, AS AMENDED,
AND THE REGULATIONS PROMULGATED PURSUANT THERETO AN ANY APPLICABLE STATE LAW
(UNLESS EXEMPT THEREFROM), AND WITHOUT COMPLIANCE WITH THE REQUIREMENTS SET
FORTH IN THIS PARTNERSHIP AGREEMENT.
NO STATE OF FEDERAL SECURITY COMMISSIONERS OR STATE OR FEDERAL REGULATORY
AGENCIES HAVE PASSED UPON THE VALUE OF THE SECURITIES, NOR HAVE THEY APPROVED
OR DISAPPROVED THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
**********************
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; ETC.....................................................1
1.1 Definitions...............................................................1
1.2 Exhibit, Etc.............................................................16
ARTICLE II ORGANIZATION.......................................................16
2.1 Continuation of Partnership...............................................16
2.2 Name.....................................................................16
2.3 Character of the Business................................................16
2.4 Partnership Only for Purposes Specified..................................17
2.5 Location of the Principal Place of Business..............................17
2.6 Agent for Service of Process.............................................17
2.7 Admission of New General Partner; Removal of Existing General Partners...17
2.8 Certificates of Ownership................................................17
ARTICLE III TERM..............................................................18
3.1 Commencement.............................................................18
3.2 Termination..............................................................18
ARTICLE IV CONTRIBUTIONS TO CAPITAL...........................................18
4.1 General Partner and Special Limited Partner Capital Contributions........18
4.2 Limited Partner Capital Contributions....................................18
4.3 Additional Funds.........................................................18
4.4 Contributions of Property................................................19
4.5 No Third Party Beneficiary...............................................20
4.6 No Interest; No Return...................................................20
ARTICLE V CONCURRENT TRANSACTIONS.............................................20
5.1 Concurrent Transactions..................................................20
ARTICLE VI ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS...................20
6.1 Allocations..............................................................20
6.2 Distributions............................................................20
6.3 Withholding..............................................................21
6.4 Books of Account.........................................................21
6.5 Reports..................................................................21
6.6 [Intentionally Omitted]..................................................22
6.7 Tax Elections and Returns................................................22
6.8 Tax Matters Partner......................................................22
ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER............23
7.1 Expenditures by Partnership..............................................23
7.2 Powers and Duties of General Partner.....................................23
7.3 Major Decisions..........................................................26
7.4 Actions with Respect to Certain Documents................................26
7.5 Other Business of General Partner and Special Limited Partner............27
7.6 Contracts With Affiliates................................................27
7.7 Proscriptions............................................................27
7.8 Additional Partners......................................................28
7.9 Title Holder.............................................................28
7.10 Compensation of the General Partner.....................................28
<PAGE>
7.11 Waiver and Indemnification..............................................28
7.12 Contracts With Controlled Entities......................................29
7.13 Operation in Accordance with REIT Requirements..........................29
ARTICLE VIII DISSOLUTION, LIQUIDATION AND WINDING-UP..........................30
8.1 Liquidating Events.......................................................30
8.2 Accounting...............................................................30
8.3 Distribution on Dissolution..............................................30
8.4 Timing Requirements......................................................31
8.5 Sale of Partnership Assets...............................................31
8.6 Distributions in Kind....................................................31
8.7 Documentation of Liquidation.............................................32
8.8 Liability of the Liquidating Trustee.....................................32
ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS..................................32
9.1 General Partner and Special Limited Partner Transfers....................32
9.2 Transfers by Limited Partners............................................33
9.3 Issuance of Additional Partnership Interests and Admittance of Additional
Partners.................................................................34
9.4 Restrictions on Transfer.................................................34
ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS......................35
10.1 No Participation in Management..........................................35
10.2 Bankruptcy of a Limited Partner and Certain Other Events................35
10.3 No Withdrawal...........................................................35
10.4 Duties and Conflicts....................................................35
ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNERS................................36
11.1 Grant of Rights.........................................................36
11.2 Partnership Right to Call Limited Partner Interest......................40
11.3 Other Redemptions.......................................................41
ARTICLE XII ARBITRATION OF DISPUTES...........................................41
12.1 Arbitration.............................................................41
12.2 Procedures..............................................................41
12.3 Binding Character.......................................................43
12.4 Exclusivity.............................................................43
12.5 No Alteration of Agreement..............................................43
ARTICLE XIII GENERAL PROVISIONS...............................................44
13.1 Notices.................................................................44
13.2 Successors..............................................................44
13.3 Effect and Interpretation...............................................44
13.4 Counterparts............................................................44
13.5 Partners Not Agents.....................................................44
13.6 Entire Understanding; Etc...............................................44
13.7 Amendments..............................................................44
13.8 Severability............................................................45
13.9 Trust Provision.........................................................45
13.10 Pronouns and Headings..................................................45
13.11 Assurances.............................................................45
13.12 Tax Consequences.......................................................45
13.13 Securities Representations.............................................45
13.14 Original General Partner Representations...............................47
<PAGE>
13.15 Power of Attorney......................................................47
13.16 Third Party Beneficiary................................................48
13.17 Costs of Agreement.....................................................49
EXHIBITS
A Partners and Addresses
B Examples Regarding Adjustment Factor
C Notice of Redemption
E Allocations
<PAGE>
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WESTERN SAN JOSE III INVESTORS,
A CALIFORNIA LIMITED PARTNERSHIP
______________________
<PAGE>
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
this 1st day of January, 1997, by and among Essex Property Trust, Inc., a
Maryland corporation (the "Company"), and the investors executing this document
(each an "Investor" and collectively the "Investors").
RECITALS
1. Essex Management Corporation, Essex Portfolio, L.P. ("Essex Portfolio")
and a portion of the Investors are parties to the Second Amended and Restated
Agreement of Limited Partnership of Western-Highridge Investors, a California
limited partnership.
2. Essex Management Corporation, Essex Portfolio and a portion of the
Investors are parties to the Fourth Amended and Restated Agreement of Limited
Partnership of Western-Riviera Investors, a California limited partnership.
3. Essex Management Corporation, Essex Portfolio and a portion of the
Investors are parties to the Fourth Amended and Restated Agreement of Limited
Partnership of Western San Jose III Investors, a California limited partnership.
4. Essex Management Corporation, Essex Portfolio and a portion of the
Investors are parties to the Fourth Amended and Restated Agreement of Limited
Partnership of Western Palo Alto II Investors, a California limited partnership.
5. Essex Management Corporation, Essex Portfolio and the remaining portion
of the Investors are parties to the Second Amended and Restated Agreement of
Limited Partnership of Irvington Square Associates, a California limited
partnership (collectively the "Partnership Agreements").
6. Pursuant to the Partnership Agreements, the Investors will receive
rights to convert their Partnership Units (as defined in the Partnership
Agreements) in Western-Highridge Investors, a California limited partnership,
Western-Riviera Investors, a California limited partnership, Western San Jose
III Investors, a California limited partnership, Western Palo Alto II Investors,
a California limited partnership and Irvington Square Associates, a California
limited partnership, respectively, into shares of Common Stock, par value $.0001
per share (the "Common Stock"), of the Company. All capitalized terms used
herein, but not defined, shall have the meanings ascribed to such terms in the
Partnership Agreements.
7. The Company is the general partner in Essex Portfolio.
8. In consideration for the Investors' obligations under the Partnership
Agreements, the Company has agreed to provide the Investors with certain
registration rights.
<PAGE>
NOW THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
AGREEMENT
1. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement;
(b) The term "Registrable Securities" means: (i) the Common Stock
issued upon the purchase by the Company of the Partnership Units held
by Qualifying Parties (the "Conversion Shares") pursuant to Section
11.1(b) of the Partnership Agreements; and (ii) any other Common Stock
issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of such Partnership Units or Conversion
Shares; provided, however, that shares of Common Stock or other
securities shall not be treated as Registrable Securities (A) if they
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 (B) if in the opinion of counsel to the
Company they 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 are removed
from the consummation of such sale;
(c) The term "Holder" means any holder of outstanding Registrable
Securities who is (i) an Investor; or (ii) any person to which the
registration rights provided for in this Agreement shall have been
properly assigned in accordance with Section 10 hereof;
(d) The term "Initiating Holders" means any Holder or Holders making a
request for registration pursuant to the provisions of Section 2
hereof;
(e) 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; and
(f) The term "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
2. Requested Registration.
(a) Requested Registration. From and after the issuance of Registrable
Securities by the Company, in the event that the Company shall receive
from one or more of the Holders a written request for it to effect any
registration, qualification or compliance with respect to such
Registrable Securities, the Company will:
<PAGE>
(i) within ten (10) days of the receipt by the Company of such
notice, give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) use its commercially reasonable efforts to promptly file and
diligently effect all such registrations, qualifications and
compliances (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 exemptive 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 all of such Holders' Registrable
Securities (or such portion thereof as are specified in such request),
together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a
written notice delivered to the Company within twenty (20) days after
receipt of such written notice from the Company; provided that with
respect to any registration, qualification or compliance requested
pursuant to this Section 2, the Company may in its sole discretion
file a registration statement under Rule 415 of the Securities Act (or
under a rule substantially equivalent to Rule 415 as now in effect)
for an offering of the Investors' Registrable Securities on a
continuous or delayed basis in the future (a "Shelf Registration
Statement") and provided further 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) In any 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;
(B) If the Company has already effected one registration for a Holder
or Holders pursuant to this Section;
(C) If at the time of the request to register Registrable Securities
the Company gives notice within thirty (30) days of such request that
it is engaged or has fixed plans to engage within sixty (60) days of
the time of the request in a registered underwritten public offering;
(D) If the Company is not eligible to file a registration statement on
Form S-3 (or a substantially similar equivalent registration form
under the Securities Act subsequently adopted by the Commission that
permits inclusion of or incorporation by reference to other documents
filed by the Company with the Commission)
(E) If; the intended method of disposition of the Holders' Registrable
Securities involves an underwritten offering; or
(F) If a Suspension Event (as defined in Section 8) has occurred and
such event or its effect is continuing.
<PAGE>
Subject to the foregoing, the Company may register the Registrable
Securities requested to be registered pursuant to this Section 2 by
means of any applicable registration statement form available from
time to time, including without limitation a Shelf Registration
Statement, as the Company may deem desirable and appropriate, in its
sole discretion.
(b) Delay of Registration. If the Company shall furnish to the
Initiating Holders 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 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; provided that the filing of the registration statement may
also be delayed pursuant to Section 8 below.
3. Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to Sections 2,
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 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 or the fees and disbursements of any counsel
retained by the Holders.
4. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Agreement, the Company will keep each Holder participating therein
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 3 above) the Company
will:
(a) If the registration statement is other than a Shelf
Registration Statement, prepare and file with the Commission a
registration statement with respect to such securities and use its
best efforts to cause such registration, qualification or compliance
to become and remain effective for a period of 180 days or until the
Holder or Holders have completed the distribution described in such
registration statement, whichever shall first occur;
(b) If the registration statement is a Shelf Registration
Statement, prepare and file with the Commission a Shelf Registration
Statement and use its best efforts to keep the Shelf Registration
Statement continuously effective until one year after the date the
Shelf Registration Statement is first declared effective or until the
Holders have sold all the Registrable Securities covered by the Shelf
Registration Statement, whichever shall first occur;
<PAGE>
(c) furnish to the Holders participating in such registration
such number of copies of the registration statement, preliminary
prospectus, final prospectus and other documents incident thereto as
such Holders from time to time may reasonably request;
(d) prepare and file with the Commission (and promptly notify the
participating Holders of such event) such amendments and supplements
to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(e) subject to Section 2(a)(ii)(A), 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 participating Holders may reasonably request, in
a writing received by the Company at least ten (10) days prior to the
original filing of such registration statement;
(f) enter into a written underwriting agreement in customary form
and substance reasonably satisfactory to the Company, the Holders 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; and
(g) notify each Holder of Registrable Securities covered by such
registration statement, 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.
5. Indemnification.
(a) The Company hereby indemnifies, defends, protects and holds
harmless each Holder, each of its officers and directors, if any, and
each person controlling the Holder, if any, with respect to which
registration, qualification or compliance has been effected pursuant
to this Agreement, against all claims, losses, damages, costs,
expenses and liabilities whatsoever (or actions in respect thereof)
arising out of or based on (i) any untrue statement, (or alleged
untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other similar document
(including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance,
or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
under which they were made or (ii) any violation by the Company of the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any state securities law or of any rule or
regulation promulgated under the Securities Act, the Exchange Act or
any state securities law applicable to the Company and relating to
action or inaction required of the Company in connection with any such
<PAGE>
registration, qualification or compliance, and will reimburse the
Holder, each of its officers and directors, if any, and each person
controlling the Holder, if any, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided, however, that
(x) the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or action arises out of or is
based on any untrue statement (or alleged untrue statement) or
omission (or alleged omission) based upon written information
furnished to the Company by an instrument duly executed by the Holder
and stated to be specifically for use therein or furnished by the
Holder to the Company in response to a request by the Company stating
specifically that such information will be used by the Company
therein, and (y) in the event an underwritten public offering is
involved, such indemnity agreement shall not inure to the benefit of
the Holder, insofar as it relates to any such untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in
the preliminary prospectus or prospectus but eliminated or remedied in
the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the amended prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities
Act or in any subsequent amended prospectus filed with the Commission
prior to the written confirmation of the sale of the Registrable
Securities at issue (collectively, the "Final Prospectus"), if a copy
of the Final Prospectus was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Securities Act.
(b) The Holders hereby agree if Registrable Securities held by or
issuable to such Holders are included in the securities to which such
registration, qualification or compliance is being effected, to
indemnify, defend, protect and hold harmless the Company, each of its
directors and officers, each underwriter, if any, of the Company's
securities covered by such registration statement, and each person who
controls the Company within the meaning of the Securities Act against
all claims, losses, damages, costs, expenses and liabilities
whatsoever (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering
circular or other similar document (including any related registration
statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein 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,
and will reimburse the Company, such directors, officers, persons or
underwriters for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss,
damage, costs, expense, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by any Holder
and stated to be specifically for use therein or furnished by any
Holder to the Company in response to a request by the Company stating
specifically that such information will be used by the Company
therein, provided, however, that the foregoing indemnity agreement is
subject to the condition that, in the event an underwritten public
offering is involved, such indemnity agreement shall not inure to the
benefit of the Company or any underwriter insofar as it relates to any
such untrue statements (or alleged untrue statements) or omission (or
alleged omission) made in the preliminary prospectus or prospectus but
<PAGE>
eliminated or remedied in the Final Prospectus, if a copy of the Final
Prospectus was not furnished to the person or entity asserting the
loss, liability, claim or damage at or prior to the time such action
is required by the Securities Act.
(c) Each party entitled to indemnification under this Section 5
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom. The Indemnifying Party shall, subject to the reasonable
approval of the Indemnified Party, select the counsel who shall
conduct the defense of such claim or litigation. The failure of any
Indemnified Party to give notice as provided herein shall relieve the
Indemnifying Party of its obligations under this Agreement only to the
extent that such failure to give notice shall materially prejudice the
Indemnifying Party in the defense of any such claim or any such
litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that
attributes any liability to the Indemnified Party, unless the
settlement includes as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. If any such
Indemnified Party shall have been advised by counsel chosen by it that
there may be one or more legal defenses available to such Indemnified
Party that are different from or additional to those available to the
Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party
and will reimburse such Indemnified Party and any person controlling
such Indemnified Party for the reasonable fees and expenses of any
counsel retained by the Indemnified Party, it being understood that
the Indemnifying Party shall not, in connection with any one action or
separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate
firm of attorneys for each Indemnified Party or controlling person
(and all other Indemnified Parties and controlling persons which may
be represented without material conflict by one counsel), which firm
shall be designated in writing by the Indemnified Party (or
Indemnified Parties, if more than one Indemnified Party is to be
represented by such counsel) to the Indemnifying Party. The
Indemnifying Party shall not be subject to any liability for any
settlement made without its consent, which shall not be unreasonably
withheld.
(d) If the indemnification provided for in this Section 5 from
the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party
and Indemnified Parties in connection with the actions which resulted
in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of
such Indemnifying Party and Indemnified Parties shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made
<PAGE>
by, or relates to information supplied by, such Indemnifying Party or
Indemnified Parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
6. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders and the distribution
proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
7. Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the Commission which
may permit the sale of Registrable Securities to the public without
registration, the Company agrees to:
(a) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Securities Exchange Act; and
(b) furnish to any Holder, so long as such Holder 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 Securities
Exchange Act (at any time after it has become subject to such
reporting requirements), 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 such Holder may reasonably request in availing
itself of any rule or regulation of the Commission permitting the
Holder to sell any such securities without registration.
8. Suspension of Registration Statement.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to use its
best efforts to cause any registration statement and any filings with
any state securities commission to become effective or to amend or
supplement such registration statement shall be suspended (and, if the
registration statement has become effective, each Holder agrees that
it will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement) in the event and during such
period as circumstances exist (including, without limitation (i) an
underwritten offering by the Company if the Company is advised by the
<PAGE>
underwriters that sale of the shares under the registration statement
would have a material adverse effect on the Company's offering or (ii)
pending negotiations relating to, or consummation of, a transaction,
or the occurrence of an event or the existence of facts and
circumstances that would require additional disclosure of material
information by the Company in the registration statement or such
filing, as to which the Company has a bona fide business purpose for
preserving confidentiality or which renders the Company unable to
comply with Commission requirements) (such circumstances being
hereinafter referred to as a "Suspension Event") that would make it
impractical or unadvisable in the Company's good faith judgment, to
cause the registration statement or such filings to become effective
or to amend or supplement the registration statement (or, if the
registration statement has become effective, to permit dispositions of
Registrable Securities under the registration statement), but such
suspension shall continue only for so long as such event or its effect
is continuing. The Company shall notify such Holder of the existence
and, in the case of circumstances referred to in clause (i) of this
Section 8(a), of the nature of any Suspension Event. If so directed by
the Company, each Holder will deliver to the Company all copies, other
than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Shares that was current at the
time of receipt of such notice.
(b) Each Holder of Registrable Shares agrees, if requested by the
Company in the case of a non-underwritten offering or if requested by
the managing underwriter or underwriters in an underwritten offering,
not to effect any public sale or distribution of any of the securities
of the Company of any class included in any registration statement,
including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act (except as part of such underwritten registration),
during the 15-day period prior to, and during the 60-day period
beginning on, the date of effectiveness of each underwritten offering
made pursuant to such registration statement, to the extent timely
notified in writing by the Company or the managing underwriters.
9. Black-Out Period. Following the effectiveness of any registration
statement pursuant to this Agreement and the filing with any state
securities commissions, the Holders agree that they will not effect
any sales of the Registrable Shares pursuant to the registration
statement or any such filings at any time after they have received
notice from the Company to suspend sales as a result of the occurrence
or existence of any Suspension Event so that the Company may correct
or update the registration statement or such filing. The Holder may
recommence effecting sales of the Registrable Securities pursuant to
the registration statement or such filings following further notice to
such effect from the Company, which notice shall be given by the
Company not later than five (5) days after the conclusion of any
Suspension Event.
10. Transfer of Registration Rights. Except as otherwise provided
herein, the rights to cause the Company to register securities granted
by the Company under Section 2 may be assigned or otherwise conveyed
to a transferee or assignee of Registrable Securities, who shall be
considered a "Holder" for purposes of this Agreement; provided that
(i) such transfer is in accordance with the restrictions on the
<PAGE>
transfer of Partnership Units by an Investor set forth in Article IX
of the Partnership Agreements as if the shares of Common Stock
transferred were considered to be Partnership Units, (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 he were an party hereto, and (iv) the Company
is given written notice by such Holder 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.
11. Limitations on Subsequent Registration Rights. The registration
rights granted herein are subject and subordinate to (i) the
registration rights granted pursuant to that certain Investors Rights
Agreement dated as of June 13, 1994, by and among the Company and the
Investors (as defined in such Investors Rights Agreement)), and (ii)
the registration rights granted pursuant to that certain Registration
Rights Agreement, dated June 20, 1996, by and between the Company and
the Investor (as defined in such Registration Rights Agreement).
12. 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. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely
within California.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
16. Notices. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing and
shall be deemed effectively given upon personal delivery to the party
to be notified or three (3) days after deposit with the United States
Postal Service, by registered or certified mail, return receipt
requested, postage prepaid and addressed to the party to be notified
at the address indicated for such party on Exhibit A attached hereto,
or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
17. 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
Investors holding at least fifty percent (50%) of the aggregate of the
outstanding Registrable Securities and the Partnership Interests that
<PAGE>
are convertible into Registrable Securities (which, for the purposes
of this Section, are to be counted as if all such interests were
converted into shares of Common Stock). Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and the
Company. Notwithstanding the foregoing, any Investor may waive the
effectiveness or application of any provision of this Agreement as to
itself, without affecting such effectiveness or application as to any
other Investor.
18. 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.
19. 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.
20. Attorneys' Fees. If any action at 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
<PAGE>
COMPANY: ESSEX PROPERTY TRUST, INC.,
a Maryland corporation
By: ________________________________________________
Its: _______________________________________________
<PAGE>
INVESTORS:
/s/ Ann M. Barry Trust /s/ C&R Burnett Living Trust
Ann M. Barry Trust C&R Burnett Living Trust
/s/ Kalman Cseuz /s/ Hansen Revocable Trust
Kalman Cseuz Hansen Revocable Trust
/s/ Jack Hoover /s/ Jean Jensen
Jack Hoover Jean Jensen
/s/ The Edmond R. Joseph Family Trust /s/ George M. Marcus
The Edmond R. Joseph Family Trust George M. Marcus
/s/ Donald V. Baptist /s/ James Fuqua
Donald V. Baptist James Fuqua
/s/ Jean C. Baptist /s/ Edwin E. Murphy
Jean C. Baptist Edwin E. Murphy
/s/ Richard Lawson /s/ Susan Lawson
Richard Lawson Susan Lawson
/s/ G.B. 1992 Family Partnership /s/ Tillmanns Family Trust
G.B. 1992 Family Partnership Tillmanns Family Trust
/s/ Sally Tillmanns /s/ Rosser Revocable Trust
Sally Tillmanns Rosser Revocable Trust
/s/ Meltzer Family Partnership /s/ Harvard Holmes Trust
Meltzer Family Partnership Harvard Holmes Trust
/s/ Michael Lamarche /s/ Gaylord Mossing
Michael Lamarche Gaylord Mossing
/s/ Carmita Mossing /s/ Robert Mindelzun
Carmita Mossing Robert Mindelzun
/s/ Naomi Mindelzun /s/ Kent Jonas
Naomi Mindelzun Kent Jonas
<PAGE>
/s/ Joan Graff /s/ Tom Fierravanti
Joan Graff Tom Fierravanti
/s/ Karen Fierravanti /s/ Robert Hawke
Karen Fierravanti Robert Hawke
/s/Flemming & Diane Nielsen Trust /s/ Delores Hawke
Flemming & Diane Nielsen Trust Delores Hawke
/s/ Gilbert Winter /s/ Irene Winter
Gilbert Winter Irene Winter
/s/ Anmol Mahal, M.D. /s/ Dennis Kinoshita
Anmol Mahal, M.D. Dennis Kinoshita
/s/ Sylvia Prozan /s/ Hanover Property Company
Sylvia Prozan Hanover Property Company
/s/ FBO Berghorn Trust /s/ Robert D. Junge Trust
FBO Berghorn Trust Robert D. Junge Trust
/s/ Richard Prentice /s/ Williams Revocable Trust
Richard Prentice Williams Revocable Trust
/s/ Mayo Family Revocable Trust /s/ Bernard Lopez
Mayo Family Revocable Trust Bernard Lopez
/s/ Lloyd Harper /s/ J.F.&A.E. O'Mara Trust
Lloyd Harper J.F.&A.E. O'Mara Trust
/s/ George B. Prozan /s/ Sylvia J. Prozan
George B. Prozan Sylvia J. Prozan
/s/ Jack Kundin /s/ John Mihalov
Jack Kundin John Mihalov
/s/ Harold Collard /s/ David White
Harold Collard David White
/s/ Colleen White /s/ May Li Fair
Colleen White May Li Fair
/s/ Fayanna Petzoldt /s/ Ronald Iverson
Fayanna Petzoldt Ronald Iverson
<PAGE>
/s/ Barry Needman /s/ Philip E. Gahr
Barry Needman Philip E. Gahr
/s/ Anne C. Prozan /s/ Craig Zimmerman
Anne C. Prozan Craig Zimmerman
/s/ Rene Marasigan, M.D. and Ramona Marasigan 4/86 Trust
Rene Marasigan, M.D. and Ramona Marasigan 4/86 Trust
/s/ Oscar E. Espinas, M.D. Inc. Profit Sharing Plan Trust
Oscar E. Espinas, M.D. Inc. Profit Sharing Plan Trust
<PAGE>
The following exhibit to this Registration Rights Agreement between Essex
Management Corporation, Essex Portfolio, L.P. and the Limited Partners on the
signature page listed thereto has been omitted. Such exhibit will be submitted
to the Securities and Exchange Commission upon request.
Exhibit A: Addresses of Partners
<PAGE>
ESSEX PROPERTY TRUST, INC.
1994 STOCK INCENTIVE PLAN
(amended and restated as of April 3, 1997 and previously
known as the 1994 Employee Stock Incentive Plan)
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants and to promote the success of the Company's
business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the
Exchange Act. All references to "Affiliates" in any Award Agreement
issued prior to the date of adoption by the Board of this April 3,
1997 amendment and restatement of the Plan shall be deemed to refer to
Parents and Subsidiaries.
(c) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable
provisions of federal securities laws, state corporate and securities
laws, the Code, the rules of any applicable stock exchange or national
market system, and the rules of any foreign jurisdiction applicable to
Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Performance Unit, Performance
Share, or other right or benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including
any amendments thereto.
(f) "Board" means the Board of Directors of the Company.
(g) "Change in Control" means a change in ownership or control of
the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by
the Company or by a Company-sponsored employee benefit plan or by
a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of securities possessing more than twenty percent (20%) of the
total combined voting power of the Company's outstanding
securities, or
<PAGE>
(ii) a change in the composition of the Board over a
calendar year or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or
more contested elections for Board membership, to be comprised of
individuals who are Continuing Directors.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means any committee appointed by the Board to
administer the Plan. All references to the "Committee" in any Award
Agreement shall be deemed to refer to the Administrator.
(j) "Common Stock" means the common stock of the Company.
(k) "Company" means Essex Property Trust, Inc., a Maryland
corporation.
(l) "Consultant" means any person who is engaged by the Company
or any Related Entity to render consulting or advisory services as an
independent contractor and is compensated for such services.
(m) "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least a
calendar year or (ii) have been Board members for less than a calendar
year and were elected or nominated for election as Board members by at
least a majority of the Board members described in clause (i) who were
still in office at the time such election or nomination was approved
by the Board.
(n) "Continuous Status as an Employee, Director or Consultant"
means that the provision of services to the Company or a Related
Entity in any capacity of Employee, Director or Consultant, is not
interrupted or terminated. Continuous Status as an Employee, Director
or Consultant shall not be considered interrupted in the case of (i)
any approved leave of absence or (ii) transfers between locations of
the Company or among the Company, any Related Entity, or any successor
in any capacity of Employee, Director or Consultant. An approved leave
of absence shall include sick leave, military leave, or any other
authorized personal leave. For purposes of Incentive Stock Options, no
such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
(o) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal
purpose of which is to change the state in which the Company is
incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the
capital stock of the Company's subsidiary corporations) in
connection with the complete liquidation or dissolution of the
Company; or
<PAGE>
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or
persons different from those who held such securities immediately
prior to such merger.
(p) "Covered Employee" means an Employee who is a "covered
employee" under Section 162(m)(3) of the Code.
(q) "Director" means a member of the Board.
(r) "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to
Common Stock.
(s) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(t) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(u) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share
for the last market trading day prior to the time of the
determination (or, if no closing price was reported on that date,
on the last trading date on which a closing price was reported)
on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National
Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the
average of the closing bid and asked prices of a Share on the
Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date,
on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source
as the Administrator deems reliable; or
(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market
Value thereof shall be determined by the Administrator in good
faith.
(v) "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.
(w) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the
Code.
(x) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
<PAGE>
(y) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(z) "Option" means a stock option granted pursuant to the Plan.
(aa) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(bb) "Performance - Based Compensation" means compensation
qualifying as "performance-based compensation" under Section 162(m) of
the Code.
(cc) "Performance Shares" means Shares or an award denominated in
Shares which may be earned in whole or in part upon attainment of
performance criteria established by the Administrator.
(dd) "Performance Units" means an award which may be earned in
whole or in part upon attainment of performance criteria established
by the Administrator and which may be settled for cash, Shares or
other securities or a combination of cash, Shares or other securities
as established by the Administrator.
(ee) "Plan" means this 1994 Stock Incentive Plan, as amended and
restated. All references to the "1994 Employee Stock Incentive Plan"
in any Award Agreement shall be deemed to refer to the Plan.
(ff) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other
entity in which the Company, a Parent or a Subsidiary holds an
ownership interest, directly or indirectly, and including but not
limited to Summerhill Development and Marcus & Millichap Real Estate
Investment Brokerage Company.
(gg) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such
restrictions on transfer, rights of first refusal, repurchase
provisions, forfeiture provisions, and other terms and conditions as
established by the Administrator.
(hh) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
(ii) "SAR" means a stock appreciation right entitling the Grantee
to Shares or cash compensation, as established by the Administrator,
measured by appreciation in the value of Common Stock.
(jj) "Share" means a share of the Common Stock.
(kk) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
<PAGE>
(ll) "Subsidiary Disposition" means the disposition by the
Company of its equity holdings in any subsidiary corporation effected
by a merger or consolidation involving that subsidiary corporation,
the sale of all or substantially all of the assets of that subsidiary
corporation or the Company's sale or distribution of substantially all
of the outstanding capital stock of such subsidiary corporation.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is eight hundred seventy-five
thousand four hundred (875,400) Shares. The Shares to be issued
pursuant to Awards may be authorized, but unissued, or reacquired
Common Stock.
(b) If an Award expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Award
exchange program, or if any unissued Shares are retained by the
Company upon exercise of an Award in order to satisfy the exercise
price for such Award or any withholding taxes due with respect to such
Award, such unissued or retained Shares shall become available for
future grant or sale under the Plan (unless the Plan has terminated).
Shares that actually have been issued under the Plan pursuant to an
Award shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if unvested Shares
are forfeited, or repurchased by the Company at their original
purchase price, such Shares shall become available for future grant
under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and Officers.
With respect to grants of Awards to Directors or Employees who
are also Officers or Directors of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by
the Board, which Committee shall be constituted in such a manner
as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once
appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board.
(ii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Awards to Employees or
Consultants who are neither Directors nor Officers of the
Company, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. The
Board may authorize one or more Officers to grant such Awards and
may limit such authority as the Board determines from time to
time.
(iii) Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Awards to any Covered
Employee intended to qualify as Performance-Based Compensation
shall be made only by a Committee (or subcommittee of a
<PAGE>
Committee) which is comprised solely of two or more Directors
eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards
granted to Covered Employees, references to the "Administrator"
or to a "Committee" shall be deemed to be references to such
Committee or subcommittee.
(iv) Administration Errors. In the event an Award is granted
in a manner inconsistent with the provisions of this subsection
(a), such Award shall be presumptively valid as of its grant date
to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the
Board, the Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to
whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted
hereunder;
(iv) to approve forms of Award Agreement for use under the
Plan;
(v) to determine the terms and conditions of any Award
granted hereunder;
(vi) to amend the terms of any outstanding Award granted
under the Plan, including a reduction in the exercise price (or
base amount on which appreciation is measured) of any Award to
reflect a reduction in the Fair Market Value of the Common Stock
since the grant date of the Award, provided that any amendment
that would adversely affect the Grantee's rights under an
outstanding Award shall not be made without the Grantee's written
consent;
(vii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan;
(viii)to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford Grantees favorable treatment under
such laws; provided, however, that no Award shall be granted
under any such additional terms, conditions, rules or procedures
with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
<PAGE>
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be
conclusive and binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be
granted to Employees, Directors and Consultants. Incentive Stock
Options may be granted only to Employees of the Company, a Parent or a
Subsidiary. An Employee, Director or Consultant who has been granted
an Award may, if otherwise eligible, be granted additional Awards.
Awards may be granted to such Employees, Directors or Consultants who
are residing in foreign jurisdictions as the Administrator may
determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or
Consultant that is not inconsistent with the provisions of the Plan
and that by its terms involves or might involve the issuance of (i)
Shares, (ii) an Option, a SAR or similar right with an exercise or
conversion privilege at a fixed or variable price related to the
Common Stock and/or the passage of time, the occurrence of one or more
events, or the satisfaction of performance criteria or other
conditions, or (iii) any other security with the value derived from
the value of the Common Stock or other securities issued by a Related
Entity. Such awards include, without limitation, Options, SARs, sales
or bonuses of Restricted Stock, Dividend Equivalent Rights,
Performance Units or Performance Shares, and an Award may consist of
one such security or benefit, or two or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be
designated as either an Incentive Stock Option or a Non-Qualified
Stock Option. However, notwithstanding such designation, to the extent
that the aggregate Fair Market Value of Shares subject to Options
designated as Incentive Stock Options which become exercisable for the
first time by a Grantee during any calendar year (under all plans of
the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options, to the extent of the Shares covered thereby in excess of the
foregoing limitation, shall be treated as Non-Qualified Stock Options.
For this purpose, Incentive Stock Options shall be taken into account
in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect
to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of
each Award including, but not limited to, the Award vesting schedule,
repurchase provisions, rights of first refusal, forfeiture provisions,
form of payment (cash, Shares, or other consideration) upon settlement
of the Award, payment contingencies, and satisfaction of any
performance criteria. The performance criteria established by the
Administrator may be based on any one of, or combination of, increase
in share price, earnings per share, total stockholder return, return
on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the
Administrator. Partial achievement of the specified criteria may
<PAGE>
result in a payment or vesting corresponding to the degree of
achievement as specified in the Award Agreement.
(d) Deferral of Award Payment. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the
opportunity to elect to defer receipt of consideration upon exercise
of an Award, satisfaction of performance criteria, or other event that
absent the election would entitle the Grantee to payment or receipt of
Shares or other consideration under an Award. The Administrator may
establish the election procedures, the timing of such elections, the
mechanisms for payments of, and accrual of interest or other earnings,
if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such
deferral program.
(e) Award Exchange Programs. The Administrator may establish one
or more programs under the Plan to permit selected Grantees to
exchange an Award under the Plan for one or more other types of Awards
under the Plan on such terms and conditions as determined by the
Administrator from time to time.
(f) Separate Programs. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing
particular forms of Awards to one or more classes of Grantees on such
terms and conditions as determined by the Administrator from time to
time.
(g) Individual Option and SAR Limit. The maximum number of Shares
with respect to which Options and SARs may be granted to any Employee
in any calendar year shall be one hundred thousand (100,000) Shares.
The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization pursuant to
Section 10, below. To the extent required by Section 162(m) of the
Code or the regulations thereunder, in applying the foregoing
limitation with respect to an Employee, if any Option or SAR is
canceled, the canceled Option or SAR shall continue to count against
the maximum number of Shares with respect to which Options and SARs
may be granted to the Employee. For this purpose, the repricing of an
Option (or in the case of a SAR, the base amount on which the stock
appreciation is calculated is reduced to reflect a reduction in the
Fair Market Value of the Common Stock) shall be treated as the
cancellation of the existing Option or SAR and the grant of a new
Option or SAR.
(h) Early Exercise. The Award may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior
to full vesting of the Award. Any unvested Shares received pursuant to
such exercise may be subject to a repurchase right in favor of the
Company or to any other restriction the Administrator determines to be
appropriate.
(i) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term
of an Incentive Stock Option shall be no more than ten (10) years
from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the
<PAGE>
Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company
or any Parent or Subsidiary, the term of the Incentive Stock
Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Grantee,
only by the Grantee; provided, however, that the Grantee may designate
a beneficiary of the Grantee's Incentive Stock Option in the event of
the Grantee's death on a beneficiary designation form provided by the
Administrator. Other Awards shall be transferable to the extent
provided in the Award Agreement.
(k) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the
determination to grant such Award, or such other date as is determined
by the Administrator. Notice of the grant determination shall be given
to each Employee, Director or Consultant to whom an Award is so
granted within a reasonable time after the date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
(a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be not less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be
not less than one hundred percent (100%) of the Fair Market Value
per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than one hundred percent (100%) of
the Fair Market Value per Share on the date of grant unless otherwise
determined by the Administrator.
(iii) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase price, if
any, shall be not less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(iv) In the case of other Awards, such price as is determined by
the Administrator.
<PAGE>
(b) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator
(and, in the case of an Incentive Stock Option, shall be determined at the
time of grant). In addition to any other types of consideration the
Administrator may determine, the Administrator is authorized to accept as
consideration for Shares issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise
of the Award) which have a Fair Market Value on the date of surrender
or attestation equal to the aggregate exercise price of the Shares as
to which said Award shall be exercised (but only to the extent that
such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the
exercise price unless otherwise determined by the Administrator);
(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Award and
delivery to the Company of the sale or loan proceeds required to pay
the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign,
federal, state, or local income and employment tax withholding obligations,
including, without limitation, obligations incident to the receipt of
Shares or the disqualifying disposition of Shares received on exercise of
an Incentive Stock Option. Upon exercise of an Award, the Company shall
withhold or collect from Grantee an amount sufficient to satisfy such tax
obligations.
(d) Reload Options. In the event the exercise price or tax withholding
of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator
may issue the Grantee an additional Option, with terms identical to the
Award Agreement under which the Option was exercised, but at an exercise
price as determined by the Administrator in accordance with the Plan.
<PAGE>
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator
under the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and
full payment for the Shares with respect to which the Award is
exercised has been received by the Company. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with
respect to Shares subject to an Award, notwithstanding the exercise of
an Option or other Award. The Company shall issue (or cause to be
issued) such stock certificate promptly upon exercise of the Award. No
adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued,
except as provided in the Award Agreement or Section 10, below.
(b) Exercise of Award Following Termination of Employment, Director or
Consulting Relationship.
(i) An Award may not be exercised after the termination date of
such Award set forth in the Award Agreement and may be exercised
following the termination of a Grantee's Continuous Status as an
Employee, Director or Consultant only to the extent provided in the
Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an
Award following the termination of the Grantee's Continuous Status as
an Employee, Director or Consultant for a specified period, the Award
shall terminate to the extent not exercised on the last day of the
specified period or the last day of the original term of the Award,
whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the
extent not exercised within the time permitted by law for the exercise
of Incentive Stock Options following the termination of a Grantee's
Continuous Status as an Employee, Director or Consultant shall convert
automatically to a Non-Qualified Stock Option and thereafter shall be
exercisable as such to the extent exercisable by its terms for the
period specified in the Award Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and
communicate to the Grantee at the time that such offer is made.
<PAGE>
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required by any Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by
each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted
or which have been returned to the Plan, as well as the price per share of
Common Stock covered by each such outstanding Award, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other similar event resulting in an increase or decrease in the
number of issued shares of Common Stock. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason hereof shall be made with respect to, the number or
price of Shares subject to an Award.
11. Corporate Transactions/Changes in Control/Subsidiary Dispositions.
(a) In the event of a Corporate Transaction, each Award which is at
the time outstanding under the Plan automatically shall become fully vested
and exercisable and be released from any restrictions on transfer and
repurchase or forfeiture rights, immediately prior to the specified
effective date of such Corporate Transaction, for all of the Shares at the
time represented by such Award. Effective upon the consummation of the
Corporate Transaction, all outstanding Awards under the Plan shall
terminate unless assumed by the successor company or its Parent.
(b) In the event of a Change in Control (other than a Change in
Control which also is a Corporate Transaction), each Award which is at the
time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any restrictions on transfer and
repurchase or forfeiture rights, immediately prior to the specified
effective date of such Change in Control, for all of the Shares at the time
represented by such Award. Each such Award shall remain so exercisable
until the expiration or sooner termination of the applicable Award term.
(c) In the event of a Subsidiary Disposition, each Award with respect
to those Grantees who are at the time engaged primarily in Continuous
<PAGE>
Status as an Employee or Consultant with the subsidiary corporation
involved in such Subsidiary Disposition which is at the time outstanding
under the Plan automatically shall become fully vested and exercisable and
be released from any restrictions on transfer and repurchase or forfeiture
rights, immediately prior to the specified effective date of such
Subsidiary Disposition, for all of the Shares at the time represented by
such Award Each such Award shall remain so exercisable until the expiration
or sooner termination of the Award term.
(d) Notwithstanding the foregoing, the Administrator, in its
discretion, may prevent the acceleration of vesting and release from any
restrictions on transfer and repurchase or forfeiture rights of any
outstanding Award with respect to any Corporate Transaction, Change in
Control or Subsidiary Disposition.
(e) The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction, Change in Control or
Subsidiary Disposition shall remain exercisable as an Incentive Stock
Option under the Code only to the extent the $100,000 dollar limitation of
Section 422(d) of the Code is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated excess portion of such Option shall
be exercisable as a Non-Qualified Stock Option.
12. Term of Plan. The Plan shall terminate on March 16, 2004 unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Awards already granted, and such Awards shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated,
unless mutually agreed otherwise between the Grantee and the Administrator,
which agreement must be in writing and signed by the Grantee and the
Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
<PAGE>
the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
15. No Effect on Terms of Employment. The Plan shall not confer upon any
Grantee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his
or her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
16. Stockholder Approval. On April 3, 1997, the Board adopted and approved
an amendment and restatement of the Plan to reflect the amendments
promulgated by the Securities and Exchange Commission to Rule 16b-3
applicable to the Plan, to increase the maximum aggregate number of Shares
that may be issued pursuant to Awards, to permit the grant of Dividend
Equivalent Rights, SARs, Performance Units and Performance Shares, to
permit Awards to be granted to Directors, Consultants and Employees of
Related Entities, to address the rules or laws of foreign jurisdictions
applicable to Awards granted to residents therein, to permit Awards to
include an early exercise provision, to rename the Plan, to provide for
accelerated vesting and release of any restrictions on transfer and
repurchase or forfeiture rights with respect to Awards held by Grantees who
are Employees or Consultants of a subsidiary corporation of the Company
that is the subject of a Subsidiary Disposition, and to authorize the
establishment under the Plan of separate programs for the grant of
particular forms of Awards to one or more classes of Grantees, and programs
to permit selected Grantees to elect to defer the receipt of consideration
payable under an Award (collectively, the "Amendments"), subject to
stockholder approval of the Amendments. Awards may be granted in reliance
on the increase in the aggregate number of Shares available for issuance
under the Plan, but no Award issued in reliance on such increase shall
become exercisable unless and until the Amendments shall have been approved
by the Company's stockholders. If such stockholder approval is not
obtained, then the Awards previously granted in reliance on the Amendments
s hall terminate. None of the other Amendments shall be given effect until
they shall have been approved by the Company's stockholders.
<PAGE>
ESSEX PROPERTY TRUST, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter ended June 30, Year ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
PRIMARY:
Net income $ 6,254 $ 3,159 $ 11,122 $ 3,102
Less:
Dividends on 8.75% Convertible Preferred Stock, Series 491 0 929 0
1996A
--------- ========== ============ ==============
Net income applicable to common stockholders $ 5,763 $ 3,159 $ 10,193 $ 3,102
========= ========== ============ ==============
Weighted average shares outstanding 13,538,186 6,275,000 12,571,764 6,275,000
Weighted average shares of dilutive stock options using
average stock price under the treasury stock method 190,608 0 193,153 0
=========== ========== ============ ==============
Weighted average shares used in net income per share 13,728,794 6,275,000 12,764,917 6,275,000
calculation
=========== ========== ============ ==============
Net income per share $ 0.42 $ 0.51 $ 0.80 $ 0.50
=========== ========== ============ ==============
FULLY DILUTED:
Adjusted shares - primary, from above 13,728,794 - 12,764,917 -
Weighted average shares issuable upon conversion of the
8.75% Convertible Preferred Stock, Series 1996A 1,014,757 - 964,799 -
Additional weighted average shares of dilutive stock options
using end of period stock price under the treasury stock
method 25,845 - 25,748 -
----------- ========== ============ ==============
Weighted average number of common shares - assuming full 14,769,396 N/A 13,755,464 N/A
dilution
=========== ========== ============ ==============
Earnings per common share - assuming full dilution $ 0.42(1) N/A(2) $ 0.80(1) N/A(2)
=========== ========== ============ ==============
</TABLE>
(1) For June 1997, the 8.75% Convertible Preferred Stock, Series 1996A were
antidilutive and accordingly, the results of the primary earnings per share
is reported for earnings per common share - assuming full dilution.
(2) The 8.75% Convertible Preferred Stock, Series 1996A was issued in July,
1996 and June, 1997.
<PAGE>
ESSEX PROPERTY TRUST, INC.
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
(in thousands, except ratios)
<TABLE>
<CAPTION>
Essex Partners
Essex Property Trust, Inc. Properties
------------------------------------------------------------------ ---------------
Period of Period of
6 months ended Year ended Year ended June 13, 1994 January 1,
1994
June 30, December 31, December 31, to December 31, to June 12,
1997 1996 1995 1994 1994
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income before provision for income taxes,
extraordinary items and minority
interest $ 13,064 $ 14,970 $ 14,244 $ 4,397 $ 332
Interest expense
6,230 11,442 10,928 4,304 5,924
Amortization of deferred financing
costs 255 639 1,355 773 96
Capitalized interest
225 115 92 - -
--------------- --------------- --------------- --------------- ---------------
TOTAL EARNINGS $ 19,774 $ 27,166 $ 26,619 $ 9,474 $ 6,352
--------------- --------------- --------------- --------------- ---------------
FIXED CHARGES:
Interest expense $ 6,230 $ 11,442 $ 10,928 $ 4,304 $ 5,924
Convertible preferred stock
dividends 929 635 - - -
Amortization of deferred financing
costs 255 639 1,355 773 96
Capitalized interest
225 115 92 - -
--------------- --------------- --------------- --------------- ---------------
TOTAL FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS $ 7,639 $ 12,831 $ 12,375 $ 5,077 $ 6,020
--------------- --------------- --------------- --------------- ---------------
RATIO OF EARNINGS TO FIXED CHARGES
(EXCLUDING PREFERRED STOCK DIVIDENDS) 2.95 2.23 2.15 1.87 1.06
=============== =============== =============== =============== ===============
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED DIVIDENDS 2.59 2.12 2.15 1.87 1.06
=============== =============== =============== =============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Essex
Property Trust, Inc. year ended report for the three months ended June 30, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 19,827
<SECURITIES> 0
<RECEIVABLES> 19,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,000
<PP&E> 532,109
<DEPRECIATION> 52,942
<TOTAL-ASSETS> 531,355
<CURRENT-LIABILITIES> 24,764
<BONDS> 179,932
<COMMON> 1
0
1
<OTHER-SE> 300,404
<TOTAL-LIABILITY-AND-EQUITY> 531,355
<SALES> 0
<TOTAL-REVENUES> 19,580
<CGS> 0
<TOTAL-COSTS> 9,143
<OTHER-EXPENSES> 1,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,867
<INCOME-PRETAX> 7,321
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,321
<DISCONTINUED> 0
<EXTRAORDINARY> 104
<CHANGES> 0
<NET-INCOME> 6254
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
