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 September 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:
15,109,508 shares of Common Stock
as of October 31, 1997
<PAGE>
INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 4
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1997 and 1996 6
Condensed Consolidated Statements of Stockholders' Equity for the
nine months ended September 30, 1997 and the year ended December
31, 1996 7
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 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 15
PART II: OTHER INFORMATION
- --------------------------
Item 5: Other Information 21
Item 6: Exhibits and Reports on Form 8-K 22
Signatures 23
<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 limited 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 reflects
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)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------
----------- ----------
<S> <C> <C>
Real estate:
Rental properties:
Land and land improvements $ 141,232 $ 90,557
Buildings and improvements 425,179 303,252
--------- ---------
566,411 393,809
Less accumulated depreciation (53,916) (47,631)
--------- ---------
512,495 346,178
Investments 2,627 8,537
Real estate under development 22,663 0
--------- ---------
537,785 354,715
Cash and cash equivalents-unrestricted 18,781 42,705
Restricted Cash 5,662 4,194
Notes and other related party receivables 14,063 2,362
Notes and other receivables 8,086 5,293
Prepaid expenses and other assets 9,333 3,745
Deferred charges, net 4,080 4,160
--------- ---------
$ 597,790 $ 417,174
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 187,926 $ 153,205
Lines of credit 0 0
Accounts payable and accrued liabilities 19,657 7,346
Dividends payable 8,509 6,286
Other liabilities 3,542 2,249
--------- ---------
Total liabilities 219,634 169,086
Minority interest 28,377 25,281
Stockholders' equity:
8.75% Convertible Preferred Stock, Series 1996A: $.0001
par value, 1,600,000 authorized, 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, 15,104,866 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 0 0
Additional paid-in capital 380,563 256,106
Accumulated deficit (30,786) (33,301)
--------- ---------
Total stockholders' equity 349,779 222,807
--------- ---------
$ 597,790 $ 417,174
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
Three months ended
-----------------------------
September 30, September 30,
1997 1996
------------- ------------
<S> <C> <C>
Revenues:
Rental $ 20,887 $ 12,119
Interest and other income 1,088 704
------------ -----------
21,975 12,823
------------ -----------
Expenses:
Property operating expenses
Maintenance and repairs 1,678 1,113
Real estate taxes 1,571 924
Utilities 1,369 791
Administrative 1,493 713
Advertising 309 161
Insurance 224 190
Depreciation and amortization 3,555 2,276
------------ -----------
10,199 6,168
------------ -----------
Interest 3,118 2,828
Amortization of deferred financing costs 128 103
General and administrative 631 416
Loss from hedge termination 0 3
------------ -----------
Total expenses 14,076 9,518
------------ -----------
Net income before gain on sales of real estate,
minority interests and extraordinary item .. 7,899 3,305
Gain on sales of real estate 4,713 71
------------ -----------
Net income before minority interests and
extraordinary item 12,612 3,376
Minority interests (1,645) (672)
------------ -----------
Income before extraordinary item 10,967 2,704
Extraordinary item:
Loss on early extinguishment of debt 0 (472)
------------ -----------
Net income $ 10,967 $ 2,232
============ ===========
Per share data:
Primary:
Net income per share from operations before
extraordinary item $ 0.71 $ 0.33
Extraordinary item - debt extinguishment 0.00 (0.06)
------------ -----------
Net income per share $ 0.71 $ 0.27
============ ===========
Weighted average number of shares used in net
income per share calculation 14,133,355 7,611,139
============ ===========
Fully diluted: (1)
Net income per share from operations before
extraordinary item $ 0.69
Extraordinary item - debt extinguishment 0.00
-----------
Net income per share $ 0.69
===========
Weighted average number of shares used in net
income per share calculation 15,987,280
===========
Dividend per share $ 0.450 $ 0.435
============ ===========
</TABLE>
(1)For 1996, the 8.75% Convertible Preferred Stock, Series 1996A was
antidilutive and accordingly, the results of the primary earnings per
share are reported for earnings per commons share - assuming full
dilution.
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)
<TABLE>
<CAPTION>
Nine months ended
--------------------------------
September 30, September 30,
1997 1996
-------------- -------------
<S> ........................................... <C> <C>
Revenues:
Rental .................................... $ 56,596 $ 34,123
Interest and other income ................. 3,510 2,008
------------ ------------
60,106 36,131
------------ ------------
Expenses:
Property operating expenses
Maintenance and repairs ................ 4,765 3,218
Real estate taxes ...................... 4,473 2,693
Utilities .............................. 3,649 2,276
Administrative ......................... 3,845 1,967
Advertising ............................ 861 451
Insurance .............................. 688 482
Depreciation and amortization .......... 9,863 6,513
------------ ------------
28,144 17,600
------------ ------------
Interest .................................. 9,348 8,738
Amortization of deferred financing costs .. 383 529
General and administrative ................ 1,682 1,279
Loss from hedge termination ............... 0 42
------------ ------------
Total expenses ......................... 39,557 28,188
------------ ------------
Net income before gain on sales of real
estate,
minority interests and extraordinary 20,549 7,943
item
Gain on sales of real estate .............. 5,127 2,480
------------ ------------
Net income before minority interests and
extraordinary item .................. 25,676 10,423
Minority interests ........................ (3,483) (1,772)
------------ ------------
Income before extraordinary item ....... 22,193 8,651
Extraordinary item:
Loss on early extinguishment of debt ... (104) (3,317)
------------ ------------
Net income ......................... $ 22,089 $ 5,334
============ ============
Per share data:
Primary:
Net income per share from operations
before
extraordinary item ............... $ 1.54 $ 1.26
Extraordinary item - debt ............. (0.01) (0.50)
extinguishment
------------ ------------
Net income per share ............... $ 1.53 $ 0.76
============ ============
Weighted average number of shares
outstanding
during the period ..................... 13,230,385 6,720,380
============ ============
Fully diluted: (1)
Net income per share from operations
before
extraordinary item .............. $ 1.53
Extraordinary item - debt ............. (0.01)
extinguishment
------------
Net income per share ............... $ 1.52
============
Weighted average number of shares
outstanding
during the period ..................... 14,525,128
============
Dividend per share ........................ $ 1.320 $ 1.285
============ ============
</TABLE>
(1)For 1996, the 8.75% Convertible Preferred Stock, Series 1996A was
antidilutive and accordingly, the results of the primary earnings per share
are reported for earnings per common share - assuming full dilution.
See accompanying notes to the unaudited financial statements.
<PAGE>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Stockholders' Equity
For the nine months ended September
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 common
stock offerings ............ -- -- 5,313 -- 126,464 -- 126,464
Net proceeds from options .... -- -- 4 -- 68 -- 68
exercised
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 preferred
stock offering ............. 800 -- -- -- 20,000 -- 20,000
Net proceeds from common stock
offerings .................... -- -- 3,495 -- 104,119 -- 104,119
Net proceeds from options .... -- -- 18 -- 338 -- 338
exercised
Net income ................... -- -- -- -- -- 22,089 22,089
Dividends declared ........... -- -- -- -- -- (19,574) (19,574)
--------- --------- --------- ---- --------- --------- ---------
Balances at September 30, 1997 $ 1,600 $ 1 $ 15,105 $ 1 $ 380,563 $ (30,786) $ 349,779
========= ========= ========= ==== ========= ========= =========
</TABLE>
See accompanying notes to the unaudited financial statements
<PAGE>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
-----------------------
September 30, September 30,
1997 1996
---------- ---------
<S> ................................................................... <C> <C>
Net cash provided by operating activities ............................ $ 30,839 $ 16,844
--------- ---------
Cash flows from investing activities:
Additions to rental properties ................................... (122,667) (72,640)
Dispositions of rental properties ................................ 15,470 13,327
Additions to notes receivable .................................... (785) 0
Additions to real estate under development ....................... (22,663) 0
Investments in corporations and joint ventures ................... 371 425
--------- ---------
Net cash used in investing activities ....................... (130,274) (58,888)
--------- ---------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit ......................................... 75,055 64,383
Repayment of mortgage and other notes payable
and lines of credit ......................................... (89,471) (82,231)
Additions to restricted cash ..................................... (1,468) 0
Additions to deferred charges .................................... (413) (979)
Additions to notes and other related party
receivables/payables ........................................ (23,277) (4,636)
Repayment of notes and other related party
receivables/payables ........................................ 11,576 6,097
Decrease in offering related accounts payable .................... (789) 0
Net proceeds from convertible preferred stock sale ............... 20,000 18,025
Net proceeds from common stock offerings ......................... 104,119 54,005
Net proceeds from stock options exercised ........................ 338 0
Distributions to minority interest/partners ...................... (2,785) (2,364)
Dividends paid ................................................... (17,374) (8,001)
--------- ---------
Net cash provided by financing activities ................... 75,511 44,299
--------- ---------
Net (decrease) increase in cash and cash equivalents .................. (23,924) 2,255
Cash and cash equivalents at beginning of period ...................... 42,705 3,983
--------- ---------
Cash and cash equivalents at end of period ............................ $ 18,781 $ 6,238
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest net of amount capitalized ............ $ 8,741 $ 8,830
========= =========
Supplemental disclosure of non-cash investing and Financing activities:
Mortgage notes payable assumed in connection
with purchase of real estate ...................... $ 49,137 $ 0
========= =========
Dividends payable ...................................... $ 8,509 $ 4,834
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended
September 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 89.0% and 82.6% general partnership
interest in it as of September 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 September 10, 1997, the Company completed a public offering of
1,300,000 shares of Common Stock for a net price of $31.00 per share. In
addition, on September 19, 1997, the underwriter, Lehman Brothers,
exercised its "over-allotment" option and Essex sold an additional 195,000
shares at $31.00 per share (such public offering of 1,495,000 shares is
referred to herein as the "September 1997 Offering"). The 1,495,000 shares
are newly issued and registered under a shelf registration previously filed
by the Company. The net proceeds were used to pay off lines of credit and
to fund the acquisition and development of additional multifamily
properties.
(B) ACQUISITIONS
----------------
(i) On July 16, 1997, the Company acquired The Village Apartments, a 122
unit apartment community located in Oxnard, California, for a contract
price of $7,720. The community features a swimming pool, spa, tennis courts
and a clubhouse.
(ii) On August 6, 1997, the Company acquired a 65% interest in a
partnership owning an additional 193 units located in Camarillo, California
and adjacent to the 371 unit Camarillo Oaks property which the Company has
owned since 1996. The Company anticipates purchasing the remaining 35%
interest by the end of the year. The total price, at 100%, will be $12,000.
The Company has assumed $8,915 in fixed rate tax exempt bonds at an average
7.69% interest rate. The bonds mature in October 2026. The Company paid $46
to assume these bonds. The community features a swimming pool and jacuzzi.
(iii) On August 6, 1997, the Company acquired Park Place Apartments and
Windsor Court Apartments adding 118 units to the Company's portfolio. These
properties are located in Los Angeles, California and were purchased
together at an aggregate contract price of $10,994. These communities each
feature a swimming pool and jacuzzi.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(iv) On September 17, 1997, the Company purchased Windsor Terrace
Apartments, a 104 unit apartment community located in Pasadena, California,
for a contract price of $7,104. This community features a swimming pool and
spa.
These acquisitions were funded with proceeds from the Company's September
1997 Offering.
(C) DEVELOPMENT
---------------
(i) On September 19, 1997, the Company broke ground on the Fountain Court
development, located in Seattle, Washington, consisting of the construction
of a 320 unit multifamily community. The Company has funded $4,000 in
equity, representing a 49% ownership interest in this venture. A $22,500
construction loan commitment has been obtained. Essex's partner in this
joint venture is a local Seattle developer. In accordance with the terms of
the agreement, in the year 2000 the Company is to purchase its partners'
51% interest, resulting in a total estimated cost for Fountain Court of
$31,350. The community will feature a health club, spa, indoor lap pool,
exercise room and entertainment center. The Company broke ground on this
project in August 1997.
(ii) On September 26, 1997, the Company purchased a 2.5 acre site located
in Marina Del Rey, California, on which it intends to build a multifamily
property of up to 188 units. The total estimated cost for the community is
$28,800. This community will feature a swimming pool, spa, fitness center,
entertainment center and business center and commanding views of the marina
and waterfront. The Company expects to break ground on the project in May
1998.
(iii) On September 26, 1997 the Company purchased a 14.8 acre site located
in La Habra, California. The Company plans to develop Hillsborough Park
Apartments, a 235 unit multifamily community, on this site. The total
estimated cost is $19,400. This community will feature a swimming pool,
spa, tennis courts, exercise room and a security perimeter. The Company
expects to break ground on the project in March 1998.
(iv) On August 1, 1997, the Company entered into a partnership which has
acquired a 15 acre site located in Issaquah, Washington. The partnership is
developing a 245 unit multifamily community on this site. The Company has
funded $3,500 in equity, representing a 45% ownership interest in this
venture. The Company will receive a 12% return on this invested equity and
will manage the property upon completion. The total estimated cost is
$25,300. The Company has the option to purchase the property within five
years of completion. The Company broke ground on this project in August
1997.
(D) DISPOSITIONS
----------------
(i) On September 11, 1997, the Company sold Countrywood Apartments located
in Fremont, California, for a gross sales price of $9,500 resulting in a
gain of $3,344.
(ii) On September 22, 1997, the Company sold Riviera Square, a retail
shopping center located in Eugene, Oregon, for a gross sales price of
$3,086 resulting in a gain of $1,369.
The Company expects to use the proceeds of these sales to provide funding
for acquisitions of multifamily properties in the fourth quarter.
(E) DEBT RELATED TRANSACTIONS
-----------------------------
The Company has executed agreements on two unsecured lines of credit for an
aggregate amount of $50,000, of which, each line has an expiration period
of 90 days.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(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 nine months ended September 30,
1997 totaled $140 and $699, 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
$175 and $518 for the three and nine months ended September 30, 1997,
respectively, and $169 and $509 for the three and nine months ended
September 30, 1996, respectively.
Other income for the three and nine months ended September 30, 1997
includes interest income of $442 and $1,954, 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 nine months ended September 30, 1997 the Company earned $0
and $29, respectively, of dividend income from EMC. In addition, Essex
earned management fee income of $137 and $320 for the three and nine months
ended September 30, 1997, respectively, from Anchor Village, Highridge,
Pathways and Camarillo Oaks.
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 nine months ended September 30, 1997 were $19 and $76,
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 September 30, 1997 and
December 31, 1996 consist of the following:
September 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 -
Notes receivable from Highridge, secured,
bearing interest at 9%, due September 2006 2,750 -
Other related party receivables, substantially
due on demand 937 918
--- ---
$ 14,063 $ 2,362
======== =======
Other related party receivables consist primarily of accrued interest income on
related party notes receivables and loans to officers.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
During the three and nine months ended September 30, 1997, the Company paid
brokerage commissions totaling $376 and $590, respectively, to M&M in
connection with the disposition of real estate. These commissions were
considered in the calculation of the gain on sale in the accompanying
condensed consolidated statement of operations.
(4) NEW ACCOUNTING PRONOUNCEMENTS:
- --- ------------------------------
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 September 30, 1997, the effect
on earnings per share data would have been immaterial.
The FASB issued SFAS No. 129, "Disclosure of Information about Capital
Structure," SFAS No. 130, "Reporting Comprehensive Income," and "SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information."
These statements, which are effective for periods beginning after December
15, 1997, expand or modify disclosures and , accordingly, will have no
impact on the Company's reported financial position, results of operations
or cash flows.
(5) PRO FORMA FINANCIAL INFORMATION
- --- -------------------------------
Between January 1, 1997 and August 25, 1997, Essex directly acquired
thirteen multifamily properties at an aggregate contract price of $121,026.
In addition, on October 1, 1997, Essex purchased a multifamily property at
a contract price of $30,400. During this period the Company disposed of two
retail properties for proceeds of $3,567. Further details regarding these
property transactions are included in Essex's Form 8-K filed August 29,
1997.
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. Net
proceeds from the sale were $58,125.
On June 20, 1997, Essex completed the second phase of the Tiger/Westbrook
transaction with the sale of an additional $20,000 of its convertible
preferred stock to Tiger/Westbrook. Gross proceeds from the sale were
$20,000.
The following unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1997, are presented as
if the property and equity transactions stated above occurred on January 1,
1997.
<PAGE>
ESSEX PROPERTY TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
(Dollars in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (1)
---------------------------------
ACQUISITION DISPOSITION
HISTORICAL PROPERTIES PROPERTIES PRO FORMA
--------- ------------- ------------- ------------
<S> ............................................ <C> <C> <C> <C>
REVENUES
Rental ....................................... $ 56,596 $ 9,047 $ 225 $ 65,418
Interest and other income .................... 3,510 75 0 3,585
--------- ------------ ------------ ------------
60,106 9,122 225 69,003
EXPENSES
Property operating expenses
Maintenance and repairs .................... 4,765 926 38 5,653
Real estate taxes .......................... 4,473 779 16 5,236
Utilities .................................. 3,649 702 22 4,328
Administrative ............................. 3,845 664 0 4,508
Advertising ................................ 861 78 0 939
Insurance .................................. 688 135 2 821
Depreciation and amortization .............. 9,863 1,763 0 11,626
--------- ------------ ------------ ------------
28,144 5,045 78 33,111
Interest ..................................... 9,348 2,764 0 12,112
Amortization of deferred financing ........... 383 9 0 392
costs
General and administrative ................... 1,682 0 0 1,682
Loss from hedge termination .................. 0 0 0 0
--------- ------------ ------------ ------------
Total expenses ............................. 39,557 7,818 78 47,297
--------- ------------ ------------ ------------
Income before gain on sales of real estate,
minority interest and extraordinary .......... 20,549 1,304 147 21,706
item
Gain on sales of real estate ................... 5,127 0 414 4,713
---------- ------------- ------------ -----------
Income before minority interest and
extraordinary item ........................... 25,676 1,304 561 26,419
Minority interest .............................. (3,483) (120) (18) (3,585)
---------- ------------ ------------ -----------
Income before extraordinary item ............... 22,193 1,184 543 22,834
Extraordinary item ............................. (104) 0 0 (104)
---------- ------------ ------------ -----------
Net Income ..................................... $ 22,089 $ 1,184 $ 543 $ 22,730
========== ============ ============ ===========
Net income per share from operations
before extraordinary item .................. $ 1.54 $ 1.46
Extraordinary item - debt .................... (0.01) (0.01)
extinguishment ---------- -----------
Net income per share ........................... $ 1.53 $ 1.45
========== ===========
Weighted average number of shares
outstanding during the period ................ 13,230,385 13,909,761
=========== ===========
Fully diluted:
Net income per share from operations
before extraordinary item .................. $ 1.53 $ 1.45
Extraordinary item - debt .................... (0.01) (0.01)
extinguishment ----------- -----------
Net income per share ........................... $ 1.52 $ 1.44
=========== ===========
Weighted average number of shares
outstanding during the period ................ 14,525,128 15,817,075
=========== ===========
SUPPLEMENTAL INFORMATION - FUNDS FROM OPERATIONS
Income before minority interest .............. $ 25,572 $ 1,304 $ 561 $ 26,315
Adjustements
Depreciation and amortization .............. 9,863 1,763 0 11,626
Adjustment for unconsolidated .............. 690 0 0 690
joint ventures
Non-recurring items, including gain on
sales of real estate, loss from hedge
termination and extraordinary item ......... (5,023) 0 (414) (4,609)
Minority interests ......................... (441) (120) (18) (543)
----------- ------------ ------------ -----------
Funds from operations ...................... $ 30,661 $ 2,947 $ 129 $ 33,479
=========== ============ ============ ===========
</TABLE>
See accompanying notes to Pro Forma financial statements
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(1) - PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
- ---------------------------------------------------------------------------
The pro forma condensed consolidated statement of operations for the nine months
ended September 30, 1997 include the following pro forma adjustments:
For Wilshire Promenade Apartments, acquired on January 3, 1997, pro forma
adjustment was made by (i) extrapolating the actual operating income received by
the Company for January 3, 1997 through September 30, 1997 to reflect nine
months of operations and (ii) including such extrapolated amount in the
statement of operations.
For Tara Village Apartments, acquired on January 28, 1997, pro forma adjustment
was made by (i) extrapolating the actual operating income received by the
Company for January 28, 1997 through September 30, 1997 to reflect nine months
of operations and (ii) including such extrapolated amount in the statement of
operations.
For Foothill and Twin Creeks Apartments, acquired on February 27, 1997, pro
forma adjustment was made by (i) extrapolating the actual operating income
received by the Company for February 27, 1997 through September 30, 1997 to
reflect nine months of operations and (ii) including such extrapolated amount in
the statement of operations.
For Cedar Mill and Wichita Towne Center Shopping Centers, the pro forma
adjustment reflects the elimination of the actual results of operations.
For Kings Road, Casa del Mar, Evergreen Heights, Villa Scandia, The Bluffs II,
The Village Apartments, additional 193 units at Camarillo Oaks, Park Place,
Windsor Court and Huntington Breakers, pro forma adjustments incorporated into
the nine months ended September 30, 1997 is based on their respective internal
operating budgets as reduced by their respective actual operating income through
September 30, 1997, as extrapolated for the nine month period.
<PAGE>
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
September 30, 1997 and 1996 and for the three and nine months ended September
30, 1997 and 1996.
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 September 30, 1997 and 1996, owned an 89.0% and 82.6% general
partnership interest in the Operating Partnership, respectively. The Company has
elected to be treated 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 future results,
performance or achievements expressed or implied by such forward-looking
statements.
GENERAL BACKGROUND
Essex's revenues are generated primarily from multifamily residential, retail
and commercial property operations, which accounted for 96% of its revenues for
the nine months ended September 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 dividends
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 thirty-two multifamily residential
properties, of which twenty-two are located in California, nine are located in
Washington and one is located in Oregon. In aggregate, these acquisitions
consist of a total of 5,872 units and had a total capitalized cost of
approximately $390.5 million. As part of its active portfolio management
strategy, the Company has sold, since its IPO, five multifamily residential
<PAGE>
properties in Northern California consisting of a total of 579 units and three
of its retail centers in Oregon at an aggregate gross sales price of
approximately $43.0 million resulting in a net aggregate gain of approximately
$14.1 million.
Average financial occupancy rates (which refers to the percentage resulting from
dividing actual rents by total possible rents as determined by valuing occupied
units at contractual rates and vacant units at market rents) of the Company's
multifamily properties on a same-property basis decreased to 97.1% for the three
months ended September 30, 1997, from 97.3%, for the three months ended
September 30, 1996. The regional breakdown of such financial occupancy for the
three months ended September 30, 1997 and 1996 is as follows:
September 30, September 30,
1997 1996
---- ----
Northern California 97.8% 98.5%
Seattle Metropolitan 96.0% 95.7%
Southern California 96.5% 95.9%
The Company's retail and commercial properties were 97% occupied (based on
square footage) as of September 30, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE THREE MONTHS
- --------------------------------------------------------------------------------
ENDED SEPTEMBER 30, 1996.
- -------------------------
TOTAL REVENUES increased by $9,152,000 or 71.4% to $21,975,000 in the third
quarter of 1997 from $12,823,000 in the third 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
September 30, 1997 and 1996 ("Quarterly Same Store Properties").
Three Months Ended
SEPTEMBER 30, Dollar Percentage
1997 1996 Change Change
---- ---- ------ ------
(dollars in thousands)
Number of
Rental income Properties
Same Store Properties
Northern California 8 $5,320 $4,694 $ 626 13.4%
Seattle Metropolitan 9 3,880 3,628 252 7.0
Southern California 2 1,242 1,189 53 4.5
Retail and commercial 4 988 970 18 1.8
- --- --- -- ---
Total Quarterly Same
Store Properties 23 11,430 10,481 949 9.1%
Properties acquired/
disposed of subsequent
to January 1, 1996 9,457 1,638 7,819 477.3%
----- ----- ----- ------
Total rental income 20,887 12,119 8,768 72.3
Other income 1,088 704 384 54.5
----- --- --- ----
Total revenues $21,975 $12,823 $9,152 71.4%
======= ======= ====== ====
As set forth in the above table, $7,819,000 of the $9,152,000 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-five
multifamily properties (the "Acquisition Properties"), and disposed of three
multifamily properties and three retail shopping centers (the "Disposition
Properties").
<PAGE>
Of the increase in total revenues, $949,000 is attributable to increases in
rental income from the Quarterly Same Store Properties. Rental income from the
Quarterly Same Store Properties increased by approximately 9.1% to $11,430,000
in the third quarter of 1997 from $10,481,000 in the third quarter of 1996. The
majority of this increase was attributable to the eight multifamily Quarterly
Same Store Properties located in Northern California, the rental income of which
increased by $626,000 or 13.4% to $5,320,000 in the third quarter of 1997 from
$4,694,000 in the third quarter of 1996. This $626,000 increase is primarily
attributable to rental rate increases as offset by a decrease in financial
occupancy to 97.8% in the third quarter of 1997 from 98.5% in the third quarter
of 1996. The nine multifamily residential properties located in the Seattle
metropolitan area, was the next largest region contributing to this Quarterly
Same Store Properties rental income increase. The rental income of these
properties increased by $252,000 or 7.0% to $3,880,000 in the third quarter of
1997 from $3,628,000 in the third quarter of 1996. The $252,000 increase is
primarily attributable to rental rate increases and an increase in financial
occupancy to 96.0% for the three months ended September 30, 1997, from 95.7% for
the three months ended September 30, 1996.
The increase in total revenue also reflected an increase of $384,000
attributable to other income. The most significant component was an increase in
interest income of $229,000 which was largely due to an increase in notes
receivable.
Total Expenses increased by $4,558,000 or approximately 47.9% to $14,076,000 in
the third quarter of 1997 from $9,518,000 in the third quarter of 1996. Interest
expense increased by $290,000 or 10.3% to $3,118,000 in the third quarter of
1997 from $2,828,000 in the third quarter 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 $2,752,000 or
70.7% to $6,644,000 in the third quarter of 1997 from $3,892,000 in the third
quarter of 1996. Of such increase, $2,717,000 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 $215,000 in the third quarter
of 1997 from the amount for the third quarter of 1996. This increase is largely
due to additional staffing requirements resulting from the growth of Essex.
Net income increased by $8,735,000 to $10,967,000 in the third quarter of 1997
from $2,232,000 in the third quarter of 1996. The increase in net income was
primarily a result of the net contribution of the Acquisition Properties, the
increase in net operating income from the Quarterly Same Store Properties, and
an increase in the gain on the sales of real estate of $4,642,000 to $4,713,000
in the third quarter of 1997 from $71,000 in the third quarter of 1996.
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996.
- -------------------
TOTAL REVENUES increased by $23,975,000 or 66.4% to $60,106,000 in the first
nine months of 1997 from $36,131,000 in the first nine 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 nine months
ended September 30, 1997 and 1996 ("Same Store Properties").
Nine Months Ended
September 30, Dollar Percentage
Number of 1997 1996 Change Change
---- ---- ------ ------
Rental income Properties (dollars in thousands)
- ------------- ----------
Same Store Properties
Northern California 7 $14,150 $12,380 $1,770 14.3%
Seattle Metropolitan 9 11,526 10,768 758 7.0
Southern California 2 3,623 3,557 66 1.9
Retail and commercial 4 2,960 2,962 (2) (0.1)
- ----- ----- -- ----
Total Same Store Properties 22 32,259 29,667 2,592 8.7%
Properties acquired/disposed of
subsequent to January 1, 1996 24,337 4,456 19,881 446.2%
------ ----- ------ -----
Total rental income 56,596 34,123 22,473 65.9
Other income 3,510 2,008 1,502 74.8
----- ----- ----- ----
Total revenues $60,106 $36,131 $23,975 66.4%
======= ======= ======= ====
As set forth in the above table, $19,881,000 of the $23,975,000 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-five
Acquisition Properties, and disposed of three multifamily properties and three
retail shopping centers.
Of the increase in total revenues, $2,592,000 is attributable to increases in
rental income from the Same Store Properties. Rental income from the Same Store
Properties increased by approximately 8.7% to $32,259,000 in the first nine
months of 1997 from $29,667,000 in the first nine months of 1996. The majority
of this increase was attributable to the seven multifamily Same Store Properties
located in Northern California, the rental income of which increased by
$1,770,000 or 14.3% to $14,150,000 in the first nine months of 1997 from
$12,380,000 in the first nine months of 1996. This $1,770,000 increase is
primarily attributable to rental rate increases as offset by a decrease in
financial occupancy to 97.4% for the first nine months of 1997, from 98.4% for
the first nine months of 1996. The nine multifamily residential properties
located in Seattle metropolitan area was the next largest region contributing to
this Same Store Properties rental income increase. The rental income of these
properties increased by $758,000 or 7.0% to $11,526,000 in the first nine months
of 1997 from $10,768,000 in the first nine months of 1996. This $758,000
increase is attributable to rental rate increases and an increase in financial
occupancy to 96.7% for the first nine months of 1997, from 95.5% for the first
nine months of 1996.
The increase in total revenue also reflected an increase of $1,502,000
attributable to other income. The most significant component was an increase in
interest income of $1,223,000 which was largely due to an increase in notes
receivable.
TOTAL EXPENSES increased by $11,369,000 or approximately 40.3% to $39,557,000 in
the first nine months of 1997 from $28,188,000 in the first nine months of 1996.
Interest expense increased by $610,000 or
<PAGE>
7.0% to $9,348,000 in the first nine months of 1997 from $8,738,000 in the first
nine 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 $7,194,000 or 64.9% to $18,281,000 in the first nine
months of 1997 from $11,087,000 in the first nine months of 1996. Of such
increase, $6,884,000 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 $403,000 in the first nine months of 1997 from the amount for the first nine
months of 1996. This increase is largely due to additional staffing requirements
resulting from the growth of Essex.
Net income increased by $16,755,000 to $22,089,000 in the first nine months of
1997 from $5,334,000 in the first nine 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 and an increase in the gain on sales of real estate of $2,647,000 to
$5,127,000 in the third quarter of 1997 from $2,480,000 in the third quarter of
1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, Essex had $18,781,000 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 $75,110,000. At September 30, 1997 Essex had no outstanding
balance on its lines of credit.
Essex's total cash balances decreased $22,456,000 from $46,899,000 as of
December 31, 1996 to $24,443,000 as of September 30, 1997. This decrease was
primarily a result of $130,274,000 of cash used in investing activities, which
was offset by $30,839,000 of cash provided by operating activities, and
$76,979,000 of cash provided by financing activities. Of the $130,274,000 net
cash used in investing activities, $122,667,000 was used to purchase and upgrade
rental properties, and $22,663,000 was used to fund real estate under
development as offset by $15,470,000 of proceeds received from the disposition
of one multifamily residential and three retail properties. The $75,511,000 net
cash provided by financing activities was primarily a result of $75,055,000 of
proceeds from lines of credit and other notes payable, $104,119,000 net proceeds
from the common stock offerings, $20,000,000 net proceeds from convertible
preferred stock sale and $11,576,000 repayment of notes receivable as offset by
$89,471,000 of repayments of mortgages, other notes payable and lines of credit,
$23,277,000 issued in notes and other related party receivables and $20,159,000
of dividends/distributions paid.
As of September 30, 1997, Essex's outstanding indebtedness under mortgages and
line of credit consisted of $145,106,000 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.
<PAGE>
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.
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.
On September 10, 1997, the Company completed a public offering of 1,300,000
shares of its Common Stock at a net price of $31.00 per share. On September 19,
1997, the underwriters, Lehman Brothers, exercised the "over-allotment" option
and Essex sold an additional 195,000 shares in the offering at $31.00 per share.
The net proceeds were used to pay off lines of credit balances and to fund
acquisition and development of additional multifamily properties. After
completion of this sale, Essex has the capacity pursuant to its shelf
registration statement to issue up to approximately $95,369,250 of equity
securities.
The Company expects to 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, ("Funds from
Operations"), an appropriate measure of performance of an equity REIT.
Generally, Funds from Operations adjusts the net income of equity REITs for
non-cash charges such as depreciation and amortization and non-recurring gains
or losses. Management generally considers Funds from Operations to be a useful
financial performance measurement of an equity REIT because, together with net
income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Funds from Operations does
not represent net income or cash flows from operations as defined by GAAP and
does not necessarily indicate that cash flows will be sufficient to fund cash
needs. It should not be considered as an alternative to net income as an
indicator of the REIT'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.
<PAGE>
The following table sets forth Essex's calculation of Funds from Operations for
the quarters ended September 30, 1997 and 1996.
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
Net Income before minority interest
and extraordinary item $ 12,612,000 $ 3,376,000
Adjustments:
Depreciation & amortization 3,555,000 2,276,000
Adjustment for unconsolidated
joint ventures 242,000 130,000
Non-recurring items, including
gain on sales of real estate and
loss from hedge termination (4,713,000) (68,000)
Minority interests (161,000) (144,000)
-------- --------
Funds from Operations $ 11,535,000 $ 5,570,000
============== =============
Weighted average number
shares outstanding-fully diluted (1) 17,860,753 9,878,075
============== =============
(1) Assumes conversion of all outstanding shares of Convertible Preferred Stock
and Operating Partnership interests 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.
PART II OTHER INFORMATION
- ------- -----------------
ITEM 5: OTHER INFORMATION
The agreement of limited partnership for Essex's Operating Partnership has been
amended and restated effective September 30, 1997. This agreement was amended
primarily to (i) express ownership interests in the Operating Partnership in
terms of units, which are exchangeable on a one-for-one basis into shares of
Common Stock, and (ii) provide a preferred distribution stream from the
Operating Partnership that mirrors the preferred dividends for the Company's
outstanding Convertible Preferred Stock. The amended and restated agreement has
been filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS PAGE
----------- ----
10.1 First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. 24
10.2 Ninth Modification Agreement to the Amended and
Restated Revolving Loan Agreement 85
11.1 Statement regarding Computation of Earnings per Share 91
12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges 92
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only) 93
B. REPORTS ON FORM 8-K
- ----------------------
On August 29, 1997, Essex filed a Current Report on Form 8-K, regarding its 1997
acquisitions and 1997 dispositions.
On September 9, 1997, Essex filed a Current Report on Form 8-K, regarding its
sale of 1,495,000 shares of Common Stock to Lehman Brothers.
<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)
NOVEMBER 12, 1997
-----------------
Date
<PAGE>
Exhibit 10.1
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ESSEX PORTFOLIO, L.P.
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
PAGE
ARTICLE I - DEFINITIONS, ETC................................................ 30
1.1 Definitions............................................................. 30
Accountants................................................................. 30
Acquisition Cost............................................................ 30
Acquisition Project......................................................... 30
Act......................................................................... 31
Additional Limited Partner.................................................. 31
Additional Units............................................................ 31
Adjusted Capital Account Deficit............................................ 31
Administrative Expenses..................................................... 31
Affiliate................................................................... 31
Agreement................................................................... 31
Arbitration Rules........................................................... 31
Articles Supplementary...................................................... 31
Assignee.................................................................... 31
Audited Financial Statements................................................ 32
Available Cash.............................................................. 32
Bankruptcy.................................................................. 32
Beneficially Own............................................................ 32
Capital Account............................................................. 32
Capital Contribution........................................................ 32
Cash Amount................................................................. 32
Certificate................................................................. 33
Closing Price............................................................... 33
Code........................................................................ 33
Common Stock................................................................ 33
Common Stock Amount......................................................... 33
Common Tenancies............................................................ 33
Completion of the Offering.................................................. 33
Consent of the Limited Partners............................................. 33
Contributed Interests....................................................... 33
Contributed Property........................................................ 34
Contribution Agreement...................................................... 34
Contribution Date........................................................... 34
Control..................................................................... 34
Controlled Entity........................................................... 34
Conversion Factor........................................................... 34
Current Per Share Market Price.............................................. 34
Demand Notice............................................................... 34
Departed Persons............................................................ 34
Department.................................................................. 34
Depreciation................................................................ 34
Development Project......................................................... 34
Entity...................................................................... 35
ERISA....................................................................... 35
EWIP........................................................................ 35
Excluded Properties......................................................... 35
Exercise Notice............................................................. 35
Exercising Partner.......................................................... 35
Existing Partnerships....................................................... 35
Existing Properties......................................................... 35
General Partner............................................................. 35
Gross Asset Value........................................................... 35
<PAGE>
Gross Offering Proceeds..................................................... 36
Hart-Scott Act.............................................................. 36
Headquarters Building....................................................... 36
Immediate Family............................................................ 36
Initial Offering Expenses................................................... 36
Initial Price of the Common Stock........................................... 36
Insider Limited Partners.................................................... 36
Investment Entities......................................................... 36
Lien........................................................................ 36
Limited Partner Representative.............................................. 36
Limited Partners............................................................ 37
Liquidating Event........................................................... 37
Liquidating Trustee......................................................... 37
M&M......................................................................... 37
M&M Option Agreement........................................................ 37
M&M REIBC................................................................... 37
Major Decisions............................................................. 37
Majority-In-Interest of Limited Partners.................................... 37
Minimum Gain Attributable to Partner Nonrecourse Debt....................... 37
Net Financing Proceeds...................................................... 37
Net Income or Net Loss...................................................... 37
Net Sale Proceeds........................................................... 38
New Securities.............................................................. 38
Non-Insider Limited Partners................................................ 38
Nonrecourse Deductions...................................................... 38
Nonrecourse Liabilities..................................................... 38
Oak Pointe Common Tenancy................................................... 38
Offering.................................................................... 38
Officer..................................................................... 38
Option...................................................................... 38
Original Agreement.......................................................... 38
Ownership Limit............................................................. 38
Partner Nonrecourse Deductions.............................................. 38
Partners.................................................................... 38
Partnership................................................................. 38
Partnership Interest........................................................ 39
Partnership Minimum Gain.................................................... 39
Partnership Unit............................................................ 39
Pathways Common Tenancy..................................................... 39
Percentage Interest......................................................... 39
Person...................................................................... 39
Plumtree Property........................................................... 39
Preferred Interest.......................................................... 39
Preferred Stock............................................................. 39
Property or Properties...................................................... 39
Property Manager............................................................ 39
Prospectus.................................................................. 39
Purchase Price.............................................................. 39
Qualified Individual........................................................ 39
Redemption Distribution..................................................... 39
Registration Statement...................................................... 39
Regulations................................................................. 39
Regulatory Allocations...................................................... 39
REIT........................................................................ 40
REIT Expenses............................................................... 40
REIT Requirements........................................................... 40
Requesting Party............................................................ 40
<PAGE>
Responding Party............................................................ 40
Restricted Period........................................................... 40
Rights...................................................................... 40
SEC......................................................................... 40
Securities Act.............................................................. 40
Series A Preferred Stock.................................................... 40
Stock Incentive Plans....................................................... 40
Substituted Limited Partner................................................. 40
Tax Items................................................................... 40
Termination Transaction..................................................... 40
Third Arbitrator............................................................ 40
Trading Day................................................................. 40
Transaction Expense......................................................... 40
Transfer.................................................................... 41
Underwriters................................................................ 41
Underwriting Agreement...................................................... 41
Washington Partnership Interests............................................ 41
Washington Partnerships..................................................... 41
Wharfside Property.......................................................... 41
1.2 Exhibit,Etc........................................................ 41
ARTICLE II - ORGANIZATION................................................... 41
2.1 Continuation of the Partnership.................................... 41
2.2 Name............................................................... 41
2.3 Character of the Business.......................................... 41
2.4 Location of the Principal Place of Business........................ 42
2.5 Agent for Service of Process....................................... 42
2.6 Certificates of Ownership.......................................... 42
ARTICLE III - TERMS......................................................... 42
3.1 Commencement....................................................... 42
3.2 Termination........................................................ 42
ARTICLE IV - CONTRIBUTIONS TO CAPITAL....................................... 42
4.1 General Partner Capital Contribution............................... 42
4.2 Limited Partner Capital Contributions.............................. 42
4.3 Issuance's of Additional Partnership Interests..................... 42
4.4 Options............................................................ 44
4.5 Contribution of Proceeds of Issuance of Shares of Common Stock..... 44
4.6 Admission of Additional Limited Partners........................... 44
4.7 No Third Party Beneficiary......................................... 45
4.8 No Interest; No Return............................................. 45
ARTICLE V -[INTENTIONALLY OMITTED].......................................... 45
ARTICLE VI - ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS............... 46
6.1 Allocations........................................................ 46
6.2 Distributions...................................................... 46
6.3 Withholding........................................................ 46
6.4 Books of Account................................................... 47
6.5 Reports............................................................ 47
6.6 Audits............................................................. 47
6.7 Tax Elections and Returns.......................................... 47
6.8 Tax Matters Partner................................................ 47
ARTICLE VII - RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER........ 48
7.1 Expenditures by Partnership........................................ 48
7.2 Powers and Duties of General Partner............................... 48
<PAGE>
7.3 Major Decisions.................................................... 50
7.4 Actions with Respect to Certain Documents.......................... 51
7.5 General Partner Participation...................................... 51
7.6 Proscriptions...................................................... 51
7.7 Additional Limited Partners........................................ 51
7.8 Title Holder....................................................... 51
7.9 Compensation of the General Partner................................ 52
7.10 Waiver and Indemnification......................................... 52
7.11 Contracts With Controlled Entities................................. 52
7.12 Operation in Accordance with REIT Requirements..................... 52
7.13 Exceptions to REIT Restrictions.................................... 53
ARTICLE VIII -DISSOLUTION, LIQUIDATION AND WINDING-UP....................... 53
8.1 Liquidating Events................................................. 53
8.2 Accounting......................................................... 53
8.3 Distribution on Dissolution........................................ 53
8.4 Timing Requirements................................................ 54
8.5 Sale of Partnership Assets......................................... 54
8.6 Distributions in Kind.............................................. 54
8.7 Documentation...................................................... 55
8.8 Liability of the Liquidating Trustee............................... 55
ARTICLE IX - TRANSFER OF PARTNERSHIP INTERESTS.............................. 55
9.1 General Partner Transfer........................................... 55
9.2 Transfers by Limited Partners...................................... 55
9.3 Restrictions on Transfer........................................... 56
ARTICLE X -RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS................... 57
10.1 No Participation in Management..................................... 57
10.2 Bankruptcy of a Limited Partner and Certain Other Events........... 57
10.3 No Withdrawal...................................................... 57
10.4 Duties and Conflicts............................................... 57
10.5 Acquisition Projects............................................... 57
10.6 Development Projects............................................... 58
10.7 Acquisition/Development Projects - Further Assurances.............. 58
10.8 Conversion Upon Death.............................................. 58
ARTICLE XI - GRANT OF RIGHTS TO LIMITED PARTNERS............................ 59
11.1 Grant of Rights.................................................... 59
11.2 Terms of Rights.................................................... 59
ARTICLE XII - ARBITRATION OF DISPUTES....................................... 59
12.1 Arbitration........................................................ 59
12.2 Procedures......................................................... 59
12.3 Binding Character.................................................. 60
12.4 Exclusivity........................................................ 60
12.5 No Alteration of Agreement......................................... 60
12.6 Acknowledgment..................................................... 60
ARTICLE XIII - GENERAL PROVISIONS........................................... 61
13.1 Notices............................................................ 61
13.2 Successors......................................................... 61
13.3 Effect and Interpretation.......................................... 61
13.4 Counterparts....................................................... 61
13.5 Partners Not Agents................................................ 61
13.6 Entire Understanding; Etc.......................................... 62
13.7 Amendments......................................................... 62
13.8 Severability....................................................... 62
13.9 Trust Provision.................................................... 62
<PAGE>
13.10 Pronouns and Headings.............................................. 62
13.11 Assurances......................................................... 62
13.12 Tax Consequences................................................... 62
13.13 Securities Representations......................................... 62
13.14 Power of Attorney.................................................. 63
EXHIBITS
EXHIBIT A - PARTNERSHIP UNITS 67
EXHIBIT B - [INTENTIONALLY OMITTED] 68
EXHIBIT C - [INTENTIONALLY OMITTED] 69
EXHIBIT D - [INTENTIONALLY OMITTED] 70
EXHIBIT E - ALLOCATIONS 71
EXHIBIT F - [INTENTIONALLY OMITTED] 74
EXHIBIT G - [INTENTIONALLY OMITTED] 75
EXHIBIT H - [INTENTIONALLY OMITTED] 76
EXHIBIT I - RIGHTS TERMS 77
EXHIBIT J - [INTENTIONALLY OMITTED] 81
EXHIBIT M - [INTENTIONALLY OMITTED] 82
SCHEDULES
SCHEDULE 1 - EXERCISE NOTICE 83
SCHEDULE 2 - ELECTION NOTICE 84
<PAGE>
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ESSEX PORTFOLIO, L.P.
THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
originally dated April 30, 1997 is to be made and entered into as of the
30th day of September, 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 of
ESX Partners, L.P., entered into as of March 15, 1994, as amended by that
certain First Amendment to Agreement of Limited Partnership dated as of
April 15, 1994 (such Agreement of Limited Partnership, as so amended, the
"Original Agreement"), the parties to the Original Agreement formed Essex
Portfolio, L.P., a California limited Partnership (the "Partnership"),
originally known as ESX Partners, L.P.; 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 (except solely with
respect to certain Exhibits and Schedules attached thereto and specifically
incorporated herein) 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 to audit the books and records of the Partnership and to
prepare statements and reports in connection therewith.
Acquisition Cost - Shall mean (i) in the case of Contributed Property
acquired by the General Partner in exchange for shares of Common
Stock, the Current Per Share Market Price as of the closing date on
which the General Partner acquired such Contributed Property
multiplied by the number of shares of Common Stock issued in the
acquisition, or (ii) in the case of Contributed Property acquired by
the General Partner for consideration other than Common Stock, the
amount of such consideration plus, in either case, any costs and
expenses incurred by the General Partner in connection with such
acquisition or contribution; provided, however, that in the event the
Acquisition Cost of Contributed Property is financed by any borrowings
by the General Partner, the Partnership shall assume any such
obligations of the General Partner concurrently with the contribution
of such property to the Partnership or, if impossible, shall obligate
itself to the General Partner in an amount and on terms equal to such
obligations, and the Acquisition Cost shall be reduced by the amount
of such obligations.
Acquisition Project - shall mean any real property on which retail or
multifamily residential uses are conducted, including construction and
improvement activities undertaken with respect thereto and off-site
improvements, on-site improvements, structures, buildings and/or
related parking and other facilities; provided, however, that the term
"Acquisition Project" shall not include the Excluded Properties.
<PAGE>
Act - shall mean the California Revised Limited Partnership Act,
California Corporations Code Sections 15611-15723, as the same may
hereafter be amended from time to time.
Additional Limited Partner - shall have the meaning set forth in
Section 4.3 (a) hereof.
Additional Units - shall have the meaning set forth in Section 4.3 (a)
hereof.
Adjusted Capital Account Deficit - shall mean, with respect to any
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:
1. 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
2. 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.
Administrative Expenses - shall mean (i) all administrative and
operating costs and expenses incurred by the Partnership and EWIP or
any other Investment Entity, (ii) those administrative costs and
expenses of the General Partner, including salaries paid to officers
of the General Partner, and accounting and legal expenses undertaken
by the General Partner on behalf or for the benefit of the
Partnership, and (iii) to the extent not included in clause (ii)
above, REIT Expenses, provided that Administrative Expenses shall not
include Initial offering Expenses or costs and expenses incurred
subsequent to the Completion of the Offering relating to any offer or
registration of securities by the General Partner and all statements,
reports, fees and expenses incidental thereto, including underwriting
discounts and selling commissions applicable to any such offer of
securities.
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 hereafter amended,
modified, supplemented or restated from time to time, as the context
requires.
Arbitration Rules - shall have the meaning set forth in Section 12.1
hereof.
Articles Supplementary - shall mean (i) those certain Articles
Supplementary executed by the General Partner and filed with the
Department on July 1, 1996, as the same may be amended, modified,
supplemented or replaced, and pursuant to which shares of the Series A
Preferred Stock were and in the future may be issued, and (ii) any
other Articles Supplementary or similar document executed by the
General Partner and filed with the Department, pursuant to which any
shares of Preferred Stock may in the future be issued, as the same may
be amended, modified, supplemented or replaced.
Assignee - shall mean a Person to whom one or more Partnership Units
have been transferred, but who has not become a Substituted Limited
Partner.
<PAGE>
Audited Financial Statements - shall mean financial statements
(balance sheet, statement of income, statement of partners' equity and
statement of cash flows) prepared in accordance with generally
accepted accounting principles and accompanied by an independent
auditor's report.
Available Cash - shall mean, with respect to any fiscal period of the
Partnership, the excess, if any, of "Receipts" or "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
General Partner Loans, or amounts due on such indebtedness during such
period, and (c) 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) and (c) above with the proceeds of
Capital Contributions.
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 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.
Beneficially Own - shall have the meaning set forth in attached
Exhibit I.
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 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 manager consistent
therewith. In the event that a 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 to the Partnership with respect to the
Partnership Interest held by such Partner (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 - shall mean the amount of cash equal to the product of
the Closing Price (calculated, in the case of the exercise of Rights,
on the date on which the Exercise Notice if delivered to the General
Partner) multiplied by the Common Stock Amount.
<PAGE>
Certificate - shall mean the Certificate of Limited Partnership
establishing the Partnership, as filed with the office of the
California Secretary of State, as it may be amended from time to time
in accordance with the terms of this Agreement and the Act.
Closing Price - on any date shall mean the last sale price, regular
way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the Common Stock is not listed or admitted
to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on
which the Common Stocks listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System or, if such system is no longer in
use, the principal other automated quotations system that may then be
in use or, if the Common Stock is not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock as such
person is selected from time to time by the Board of Directors of the
General Partner. In the event that the Common Stock Amount includes
additional rights that a holder of shares of Common Stock would be
entitled to receive and if the value of such additional rights is not
included in the Closing Price, then the value of such additional
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, and such amount shall be added
to the Closing Price.
Code - shall mean the Internal Revenue Code of 1986, as amended.
Common Stock - shall mean the shares of the Common Stock, par value
$.0001 per share, of Essex Property Trust, Inc.
Common Stock Amount - shall mean the number of shares of Common Stock
equal to the product of the number of Partnership Units offered for
conversion by an exercising Partner, multiplied by the Conversion
Factor; provided, however, that in the event the General Partner
issues to all holders of Common Stock rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase additional Common Stock, or any other
securities or property of the General Partner, the value of which is
not included in the first sentence of the definition of Closing Price
of the shares of Common Stock (collectively, "additional rights"),
then the Common Stock Amount shall also include such additional rights
that a holder of that number of shares of Common Stock would be
entitled to receive.
Common Tenancies - shall mean, collectively, the Pathways Common
Tenancy and the Oak Pointe Common Tenancy.
Completion of the Offering - shall mean the closing of the sale of
Common Stock in the Offering, which was completed on June 13, 1994.
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 Interests - shall mean, with respect to each Limited
Partner, the undivided ownership interest in the Existing Properties
contributed to the Partnership by such Limited Partner; the undivided
ownership interests in the assets of the Existing Partnerships that
are tenants-in-Common in the Common Tenancies; and the Partnership
interests in the Washington Partnerships contributed to the
Partnership by such Limited Partner, all as set forth opposite such
Limited Partner's name on Exhibit B attached to the Original
Agreement; provided that the term Contributed Interest shall not
include the Plumtree Property or the Wharfside Property.
<PAGE>
Contributed Property - shall have the meaning set forth in the
definition of Gross Asset Value.
Contribution Agreement - shall mean that certain Contribution
Agreement entered into as of March 15, 1994 between the Partnership
and the original Partners in the Partnership.
Contribution Date - shall have the meaning set forth in Section 4.3(a)
hereof.
Control - shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interest, 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 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.
Conversion Factor - shall mean 1.0, provided that in the event that
the General Partner (i) pays a dividend on its outstanding shares of
Common Stock in shares of Common Stock or makes a distribution to all
holders of its outstanding Common Stock in shares of Common Stock,
(ii) subdivides its outstanding shares of Common Stock, or (iii)
combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, the Conversion Factor shall be adjusted by
multiplying the Conversion Factor by a fraction, the number at or of
which shall be the number of shares of Common Stock issued and
outstanding on the record date for such dividend, distribution,
subdivision or combination (assuming for such purposes that such
dividend, distribution, subdivision or combination occurred as of such
time), and the denominator of which shall be the actual number of
shares of Common Stock (determined without the above assumption)
issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the
Conversion Factor shall become effective immediately after the record
date for such event in the case of a dividend or distribution or the
effective date in the case of a subdivision or combination.
Current Per Share Market Price - on any date shall mean the average of
the Closing Price for the five (5) consecutive Trading Days ending on
such date.
Demand Notice - shall have the meaning set forth in Section 12.2
hereof.
Departed Persons - shall mean those persons listed on Exhibit J
attached to the Original Agreement.
Department - shall mean the Maryland State Department of Assessments
and Taxation.
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's, depletion or
amortization" as determined under Section 1.704-1(b)(2)(iv)(g)(3) of
the Regulations.
Development Project - shall mean any vacant land intended for
development for retail or multifamily residential uses; provided,
however, that the term "Development Project" shall not include the
Excluded Properties.
<PAGE>
Entity - shall mean any General Partnership, limited Partnership,
limited liability company, limited liability Partnership, 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
seceding laws).
EWIP - shall mean Essex Washington Interest Partners, a California
General Partnership, the sole Partners of which shall be the General
Partner and the Partnership.
Excluded Properties - shall mean those certain real properties listed
on Exhibit H attached to the Original Agreement.
Exercise Notice - shall have the meaning set forth in affected Exhibit
I.
Exercising Partner - shall have the meaning set forth in attached
Exhibit I.
Existing Partnerships - shall mean those seventeen (17) Partnerships
listed on Exhibit C attached to the Original Agreement.
Existing Properties - shall mean those certain 12 multifamily
residential properties and 6 commercial properties owned entirely by
the Existing Partnerships immediately prior to the Completion of the
Offering, the ground lessee's interest in that certain Property
Commonly known as 777 California Avenue, Palo Alto, California, and an
approximate 69.3% tenancy-in-Common interest in that certain property
Commonly known as the Pathways Apartments, Long Beach, California.
General Partner - shall mean Essex Property Trust, Inc., a Maryland
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:
1. the initial Gross Asset Value of (i) in the case of the assets
contributed by each Limited Partner to the Partnership as of the
Completion of the Offering, the value of such assets at the time
of such contribution as was established pursuant to the Original
Agreement, and (ii) in the case of any other asset thereafter
contributed by a Partner (other than money) ("Contributed
Property"), the fair market value of such Contributed Property as
reasonably determined by the General Partner using such
reasonable method of valuation as the General Partner may adopt;
provided, however, that the fair market value of any Contributed
Property contributed by the General Partner shall be the
Acquisition Cost of such Contributed Property;
2. if the General Partner reasonably determines that an
adjustment is necessary or appropriate to reflect the relative
economic interest 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:
a) 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
Partnership Units;
b) the distribution by the Partnership to a Partner of more
than a de minimis amount of Partnership Property as
consideration for the redemption of Partnership Units; and
c) the liquidation of the Partnership within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the Regulations;
<PAGE>
3. 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 reasonably
determined by the General Partner as of the date of distribution;
and
4. 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.
Gross Offering Proceeds - shall mean the amount equal to the product
of the Initial Price of the Common Stock multiplied by the number of
shares of Common Stock outstanding as of the Completion of the
Offering.
Hart-Scott Act - shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
Headquarters Building - shall mean that certain multi-tenant office
building Commonly known as 777 California Avenue, Palo Alto,
California, and any other building that serves as the successor
corporate headquarters of the General Partner.
Immediate Family - shall mean, with respect to any Person, such
Person's spouse, parent, parents-in-law, descendants, nephews, nieces,
brothers, sister, brothers-in-law, sisters-in-law and children-in-law.
Initial Offering Expenses - shall mean (i) costs and expenses incurred
prior to, at or substantially concurrent with the Completion of the
Offering relating to the formation of the General Partner, including
taxes, fees and assessments associated therewith, and (ii) costs and
expenses incurred prior to, at or substantially concurrent with the
completion of the Offering relating to any offer or registration of
securities by the General Partner and all statements, reports, fees
and expenses incidental thereto, including underwriting discounts and
selling commissions applicable to any such offer of securities.
Initial Price of the Common Stock - shall mean the initial public
offering price of the Common Stock.
Insider Limited Partners - shall mean those certain Limited Partners
identified on Schedule 4 attached to the Original Agreement.
Investment Entities - shall have the meaning set forth in Section 7.5
hereof.
Lien - shall mean any liens, security interest, mortgages, deeds of
trust, charges, claims, encumbrances, pledges, options, rights of
first offer or first refusal and any other rights or interest of
others of any kind or nature, actual or contingent, or other similar
encumbrances of any nature whatsoever.
Limited Partner Representative - shall mean the Limited Partner that
is selected by a Majority-in-Interest of the Limited Partners from
time to time to act as the Limited Partner Representative hereunder.
The initial Limited Partner Representative shall be Keith R. Guericke.
All obligations of the General Partner or the Partnership set forth
herein to deliver documents and other items to the Limited Partners
shall be deemed satisfied if such documents and other items are
delivered to the Limited Partner Representative.
<PAGE>
Limited Partners - shall mean those Persons listed under the heading
"Limited Partners" on the signature page hereto in their respective
capacities as limited partners of the Partnership, their permitted
successors or assigns as a limited partner hereof, or any Person who,
at the time of reference thereto, is a limited partner of the
Partnership.
Liquidating Event - shall have the meaning set forth in Section 8.1
hereof.
Liquidating Trustee - shall mean such Person as is selected as the
Liquidating Trustee hereunder by the General Partner, which Person 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.
M&M - shall mean The Marcus & Millichap Company, a California
corporation.
M&M Option Agreement - shall mean that certain agreement entered into
between M&M, M&M REIBC and the General Partner pursuant to which M&M
obtained at the Completing of the Offering certain options to purchase
Common Stock and M&M REIBC provides certain transaction and trend
information to the General Partner.
M&M REIBC - shall mean Marcus & Millichap Real Estate Investment
Brokerage Company, a California corporation.
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) who hold in the aggregate more than fifty percent (50%) of
the Percentage Interests then allocable to an held by the Limited
Partners, as a class.
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 or 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 deduction 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 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
<PAGE>
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).
New Securities - shall have the meaning set forth in Section 4.3(c).
Non-Insider Limited Partner - shall mean all of the Limited Partners
other than the Insider Limited Partners.
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.
Oak Pointe Common Tenancy - shall mean the owner of that certain
improved real property located in Pacifica, California, and commonly
known as Oak Pointe Apartments.
Offering - shall have the meaning set forth in the Registration
Statement.
Officer - of the General Partner shall mean each person who holds the
position of President, Chief Executive Officer, any Vice President,
Treasurer, Chief Financial Officer or Corporate Secretary and who is
also a Limited Partner, except that, as to any Person that is not the
holder of any of the foregoing positions as of the Completion of the
Offering, the General Partner may determine in its discretion upon the
bestowing of such a position on such Person that such Person shall not
be deemed an Officer for the purposes of this Agreement.
Option - shall mean an option to purchase Common Stock granted under
any Stock Incentive Plan or under the M&M Option Agreement.
Original Agreement - shall mean that certain Agreement of Limited
Partnership of the Partnership dated as of March 15, 1994, as amended
by that certain First Amendment to Agreement of Limited Partnership
dated as of April 15, 1994.
Ownership Limit - shall have the meaning set forth in attached Exhibit
I.
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 and the Limited Partners,
their duly admitted successors or assigns or any Person who is a
Partner of the Partnership at the time of reference thereto.
Partnership - shall mean the limited partnership formed pursuant to
the Original Agreement and hereby constituted, as such limited
partnership may from time to time be constituted.
<PAGE>
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 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. A Partnership Interest may be
expressed as a number of Partnership Units.
Partnership Minimum Gain - shall have the meaning set forth in Section
1.704-2(b)(2) of the Regulations.
Partnership Unit - shall mean a fractional, undivided share of the
Partnership Interest of all Partners issued pursuant to the terms of
this Agreement. As of the date of this Agreement there shall be
considered to be 15,458,266 Partnership Units outstanding with each
Partnership Unit representing an approximate .00001% Percentage
Interest in the Partnership. The allocation of Partnership Units to
each Partner as of the date hereof is as set forth on attached Exhibit
A.
Pathways Common Tenancy - shall mean the owner of that certain
improved real property located in Long Beach, California, and commonly
known as Pathways Apartments.
Percentage Interest - shall mean, with respect to any Partner, the
undivided percentage ownership interest of such Partner in the
Partnership, as determined by dividing the number of Partnership Units
owned by such Partner by the total number of Partnership Units then
outstanding.
Person - shall mean any individual or Entity.
Plumtree Property - shall mean that certain improved real property
located in Santa Clara, California, and Commonly known as the Plumtree
Apartments.
Preferred Interest - shall mean the interest in the Partnership
received by the General Partner in exchange for additional Capital
Contributions made by the General Partner in connection with the
issuance of shares of Preferred Stock, as and when issued, which
Preferred Interest includes and shall include the right to receive
preferential distributions and certain other rights as set forth in
this Agreement.
Preferred Stock - shall mean the Series A Preferred Stock and any
other Preferred Stock of the General Partner as described in the
applicable Articles Supplementary.
Property or Properties - shall mean any real property in which the
Partnership, directly or indirectly, acquires ownership of a fee or
leasehold interest.
Property Manager - shall mean Essex Management Corporation, a
California corporation.
Prospectus - shall have the meaning set forth in the Underwriting
Agreement.
Purchase Price - shall mean the consideration payable for the Offered
Interests (as defined on Exhibit I attached hereto) pursuant to
paragraph 6 of Exhibit I attached hereto.
Qualified Individual - shall have the meaning set forth in Section
12.2 hereof.
Redemption Distribution - shall have the meaning set forth in Section
6.2(c) hereof.
Registration Statement - shall have the meaning set forth in the
Underwriting Agreement.
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.
<PAGE>
REIT - shall mean a real estate investment trust as defined in Section
856 of the Code.
REIT Expenses - shall mean (i) costs and expenses incurred subsequent
to the Completion of the Offering relating to the formation and
continuity of existence of the General Partner and its subsidiaries
(which subsidiaries shall, for purposes of this definition, be
included within the definition of General Partner), including taxes,
fees and assessments associated therewith, and any and all costs,
expenses or fees payable to any director or trustee of the General
Partner or such subsidiaries, (ii) costs and expenses associated with
the preparation and filing of any periodic reports by the General
Partner under federal, state or local laws or regulations, including
filings with the SEC, (iii) costs and expenses associated with
compliance by the General Partner with laws, rules and regulations
promulgated by any regulatory body, including the SEC, and (iv) all
other operating or administrative costs of the General Partner
incurred in the ordinary course of its business on behalf of the
Partnership.
REIT Requirements - shall have the meaning set forth in Section 6.2
hereof.
Requesting Party - shall have the meaning set forth in Section 12.2
hereof.
Responding Party - shall have the meaning set forth in Section 12.2
hereof.
Restricted Period - shall mean, with respect to Keith R. Guericke, the
period of time during which Keith R. Guericke is president or chief
executive officer of the General Partner or such longer period
specified in an employment or non-competition agreement between Keith
R. Guericke and the General Partner; and shall mean, with respect to
George M. Marcus, the period during which George M. Marcus is chairman
of the board of directors of the General Partner or such longer period
specified in a non-competition agreement between George M. Marcus and
the General Partner.
Rights - shall have the meaning set forth in Section 11.1 hereof.
SEC - shall mean the United State Securities and Exchange Commission.
Securities Act - shall mean the Securities Act of 1933, as amended.
Series A Preferred Stock - shall mean the Preferred Stock of the
General Partner described in Article FIRST of the Articles
Supplementary filed with the Department on July 1, 1994.
Stock Incentive Plans - shall have the meaning set forth in the
Prospectus, along with any other employee or non-employee stock
incentive, phantom unit or option plans adopted by the Company, and
any amendments or amendment and restatements thereof.
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.
Termination Transaction - shall have the meaning set forth in Section
9.1 (b) 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.
Transaction Expense - shall have the meaning set forth in attached
Exhibit I.
<PAGE>
Transfer - as a noun, shall mean any sale, assignment, conveyance,
pledge, hypothecation, gift, encumbrance or other transfer (including
any transfer by operating of law or by merger or consolidation), and,
as a verb, shall mean to sell, assign (including by operating of law
or by merger or consolidation), convey, pledge, hypothecate, give,
encumber or otherwise transfer.
Underwriters - shall have the meaning set forth in the Registration
Statement.
Underwriting Agreement - shall mean that certain Purchase Agreement
dated June 6, 1994, among the General Partner, the Partnership and the
representative of the several underwriters named in Schedule I
thereto.
Washington Partnership Interests - shall mean a one percent (1%)
limited partnership interest in each of the Washington Partnerships
contributed to EWIP by the Partnership.
Washington Partnerships - shall mean those two (2) Existing
Partnerships listed on Exhibit G attached to the Original Agreement.
Wharfside Property - shall mean that certain improved real property
located in Seattle, Washington, and commonly known as Wharfside Pointe
Apartments.
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 any "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 the Partnership. The parties hereto do hereby continue
the Partnership, 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. The General
Partner executed the Certificate and filed it with the Office of the Secretary
of State of the State of California in connection with the formation of the
Partnership. 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 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 Essex Portfolio, L.P. 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 Business. The purpose of the Partnership shall be to
acquire, hold, own, develop, redevelop, construct, finance, 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, redevelop,
construct, finance, 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; to be a Partner in and to
exercise all of the powers of a Partner in other partnerships; subject to
compliance with the REIT Requirements, to be a member in and to exercise all of
the powers of a member in a limited liability company; to be a shareholder in a
corporation, including, without limitation, the Property Manager (provided that
the Partnership shall not have more than a ten percent (10%) voting interest in
<PAGE>
the Property Manager or any other corporation structured similarly thereto); 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 through its
interest in EWIP, any of the other Investment Entities, the Washington
Partnerships, the Property Manager or the Pathways Common Tenancy, 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, an to
lend money secured by additional Properties and other real and personal
property.
2.4 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.
2.5 Agent for Service of Process. The Partnership hereby appoints Jordan
Ritter, Esq., whose address is 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 Certificates of Ownership. Each Partner's Partnership Units shall be
evidenced by one or more registered certificates of ownership, which
certificates shall be executed by the General Partner. Such certificates shall
contain a legend evidencing the restrictions on transfer of the Partnership
Units, 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 business as a limited
Partnership upon the filing of the Certificate of Limited Partnership with the
Secretary of State of the state of California, on March 15, 1994.
3.2 Termination. The Partnership shall continue until December 31, 2054,
unless it is dissolved and wound up sooner pursuant to the provisions of Section
5.1 or Article VIII hereof or otherwise as provided by law.
ARTICLE IV
CONTRIBUTIONS TO CAPITAL
4.1 General Partner Capital Contribution. Concurrent with the completion of
the Offering, the General Partner contributed to the Partnership as its initial
contribution to the capital of the Partnership an amount equal to the difference
between the Gross Offering Proceeds and the Initial Offering Expenses.
Subsequent to the Completion of the Offering, as of the date hereof, the General
Partner has contributed as additional Capital Contributions (a) an amount equal
to the net proceeds from the issuance's of shares of Series A Preferred Stock,
and (b) the net proceeds from public, underwritten offerings of Common Stock
completed subsequent to the Offering.
4.2 Limited Partner Capital Contributions. Prior to or concurrent with the
completion of the Offering, each Limited Partner contributed, or caused to be
contributed, as its initial Capital Contribution to the capital of the
Partnership, all of such Limited Partner's right, title and interest in the
Purchase Contracts, the Contributed Interests and the Plumtree Property.
4.3 Issuance's of Additional Partnership Interests.
<PAGE>
(a) Without the consent of any Limited Partner, but subject to the
terms of Section 9.3 below, the General Partner may from time to time,
upon its determination that the issuance of additional Partnership
Units ("Additional Units") is in the best interests of the Partnership
and upon not less than fifteen (15) days' prior written notice to the
Limited Partner Representative (provided that prior notice shall not
be required if the Limited Partners collectively own less than five
percent (5%) of the Partnership Units at the time of such issuance),
cause the Partnership to issue to the Partners (including the General
Partner) or other Persons Additional Units or other Partnership
Interests in one or more classes, or one or more series of any of such
classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties as
the General Partner shall determine, including, without limitation,
rights, powers and duties as the General Partner shall determine,
including, without limitation, rights, powers and duties senior to the
Limited Partner's Partnership Interests, and, if necessary, admit any
such other Person as an additional Limited Partner ("Additional
Limited Partner") (in accordance with Section 4.6 hereof), in exchange
for the Capital Contribution by such Partner or Person of cash and/or
property. Without limiting the provisions of this Article IV, the
General Partner is expressly authorized to cause the Partnership to
issue Additional Units for less than fair market value, so long as the
General Partner concludes in good faith that such issuance is in the
best interests of the Partnership. In the event that Additional Units
are issued by the Partnership pursuant to this Section 4.3(a):
(i) the Percentage Interest of the Person to whom the Additional
Units are being issued shall be equal to a fraction, the number
at or of which is equal to the number of Partnership Units issued
to such Person as of the date of contribution to the Partnership
(the "Contribution Date") and the denominator of which is equal
to the total number of issued and outstanding Partnership Units
on the Contribution Date (including the Partnership Units issued
to such Person); and
(ii) the Percentage Interests of each Partner other than the
Person to whom Additional Units are being issued shall be
adjusted, as of the Contribution Date, such that the Percentage
Interest of each such Partner shall be equal to a fraction, the
numerator of which is equal to the number of Partnership Units
owned by such Partner and the denominator of which is the total
number of Partnership units specified in the denominator of the
fraction described in subparagraph (i) of this Section 4.3(a).
As soon as reasonably practicable following the issuance of
Additional Units, the General Partner shall provide written
notice to each of the Limited Partners informing the Limited
Partners of the number of Additional Units issued and the
identity of the issuee.
(b) The General Partner may not cause the Partnership to issue
Additional Units or other Partnership Interests to itself unless
either:
(i) (A) the Additional Units or additional Partnership Interests
are issued in connection with an issuance of shares of the
capital stock of the General Partner (including shares of Common
Stock issued by the General Partner to the Partnership to satisfy
the Partnerships redemption obligations under Article XI hereof),
which shares have designations, preferences and other rights, all
such that the economic interests are substantially similar to the
designations, preferences and other rights of the Additional
Units or additional Partnership Interests issued to the General
Partner in accordance with Section 4.3(a) hereof, and (B) except
for shares of Common Stock issued by the General Partner to the
Partnership to satisfy the Partnership's redemption obligation
under Article XI hereof, the General Partner shall make a Capital
Contribution to the Partnership in an amount equal to the net
proceeds raised in connection with the issuance of such shares of
the General Partner; or
(ii) the Additional units or Additional Partnership Interest are
issued to all Partners PRO RATA in accordance with their
respective Percentage Interests.
(c) After the date hereof, the General Partner shall not issue any
additional shares of Common Stock (other than shares of Common Stock
issued pursuant to Article XI hereof), rights, options, warrants or
convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (collectively, "New
Securities") other than to all holders of the shares of Common Stock
unless (i) the General Partner shall cause the Partnership to issue to
<PAGE>
the General Partner Partnership Interests or rights, options warrants
or other rights, all such that the economic interests are
substantially similar to those of the New Securities, and (ii) the
General Partner contributes the proceeds, if any (subject to actual or
deemed reimbursement of any expenses, including underwriting discount
commission or fees by the Partnership to the General Partner pursuant
to Section 7.1 hereof) from the issuance of such New Securities and
from the exercise of rights contained in such New Securities to the
Partnership. Without limiting the foregoing, the General Partner is
expressly authorized to issue New Securities for less than fair market
value (so long as the General Partner concludes in good faith that
such issuance is in the best interests of the Partnership) and to
cause the Partnership to issue to the General Partner corresponding
Partnership Interests.
(d) 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 Options. If at any time or from time to time Options granted in
connection with either any Stock Incentive Plan or the M&M Option Agreement are
exercised in accordance with the terms of such Stock Incentive Plans or the M&M
Option Agreement or Common Stock is issued pursuant to any stock purchase plan,
dividend reinvestment plan or open enrollment plan adopted by the General
Partner (as the case may be):
(a) the General Partner shall, on or about the last business day of
each calendar year, contribute to the capital of the Partnership an
amount equal to the exercise price paid during such year to the
General Partner by such exercising party in connection with the
exercise of the Option or the purchase price of the Common Stock
issued pursuant to such stock purchase plan or dividend reinvestment
plan;
(b) the General Partner shall be issued Additional Units equal to the
number of shares of Common Stock delivered by the General Partner to
such exercising party or purchaser;
(c) the General Partner shall be deemed to have made an additional
Capital Contribution, in an amount equal to the Current Per Share
Market Price (as of the Trading Date immediately preceding the date on
which the exercise price or purchase price (as the case may be) is
contributed to the capital of the Partnership) multiplied by the
number of shares of Common Stock delivered by the General Partner to
such exercising party or purchaser; and;
(d) the Percentage Interest of the Partners shall be adjusted in the
manner set forth in Section 4.3(a) above.
4.5 Contribution of Proceeds of Issuance of Shares of Common Stock. In
connection with the issuance of shares of Common Stock pursuant to Section 4.3
hereof, the General Partner shall make a Capital Contribution to the Partnership
of the proceeds raised in connection with such issuance, provided that if the
proceeds actually received by the General Partner are less than the gross
proceeds of such issuance as a result of any underwriter's discount, commission
or fee or other expenses paid or incurred in connection with such issuance,
provided that if the proceeds actually received by the General Partner are less
that the gross proceeds of such issuance as a result of any underwriter's
discount, commission or fee or other expenses paid or incurred in connection
with such issuance, then the General Partner shall be deemed to have made a
Capital Contribution to the Partnership in the amount of the gross proceeds of
such issuance and the Partnership shall be deemed simultaneously to have
reimbursed the General Partner pursuant to Section 7.1 hereof for the amount of
such underwriter's discount, commission or fee or other expenses. A redemption
of a Partnership Unit, whether by the Partnership or the General Partner, shall
not constitute an issuance of shares of Common Stock for purposes of this
Section 4.5.
4.6 Admission of Additional Limited Partners.
(a) After the date hereof, a Person who makes a Capital Contribution
to the Partnership in accordance with this Agreement shall be admitted
to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) a written agreement in form
<PAGE>
satisfactory to the General Partner accepting all of the terms and
conditions of this Agreement and (ii) such other documents or
instruments as may be required in the discretion of the General
Partner in order to effect such Person's admission as an Additional
Limited Partner.
(b) No Person shall be admitted as an Additional Limited Partner
without the consent of the General Partner, which consent may be given
or withheld in the General Partner's sole and absolute discretion for
any or no reason. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such
person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
(c) If an Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Fiscal Year, then Net Income,
Net Losses, each item thereof and all other items allocable among
Partners and Assignees for such Fiscal Year shall be allocated among
such Additional Limited Partner and all other Partners and Assignees
by taking into account their varying interests during the Fiscal year
in accordance with Section 706(d) of the Code, using any permissible
method selected by the General Partner. Solely for purposes of making
such allocations, each of such items for the calendar month in which
an admission of any Additional Limited Partner occurs shall be
allocated among all Partners and Assignees including such Additional
Limited Partner.
(d) The General Partner shall be authorized on behalf of each of the
Partners to amend this Agreement to reflect the admission of any
Additional Limited 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 provision of
Section 4.3 hereof and this section 4.6, and the General Partner shall
as soon as practicable thereafter deliver a copy of such amendment to
each Limited Partner. Notwithstanding anything contained herein to the
contrary, an Additional Limited Partner that acquires Additional Units
pursuant to Section 4.3 hereof and this Section 4.6 shall not acquire
any interest in, and may not exercise or otherwise participate in, any
Rights pursuant to Article XI and attached Exhibit I. At the sole
election of the General Partner, such Additional Limited Partner may
be provided with conversion rights similar to the Rights (with such
modifications to the same as the General Partner shall require),
provided that any such rights shall provide that, upon the exercise of
any such rights by such Additional Limited Partner, at the option of
the General Partner, the Partnership may redeem for the Cash Amount
any Partnership Units for which conversion is requested (provided
that, for such purposes, the Cash Amount shall be determined based on
the average of the Closing Prices for the ten (10) trading days
immediately prior to the date on which such rights are exercised by
such Additional Limited Partner). The General Partner shall notify the
Limited Partners of such acquisition of Rights as soon as reasonably
practicable after the occurrence thereof.
4.7 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 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 Partners and their respective successors and
assigns. None of the rights or obligations of the Partners herein set forth to
make Capital Contributions 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.
4.8 No Interest; No Return. No Partner shall be entitled 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
[INTENTIONALLY OMITTED]
<PAGE>
ARTICLE VI
ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS
6.1 Allocations. 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 to the Partners from time to time
as determined by the General Partner, but in any event not less frequently than
quarterly in such amounts as the General Partner shall determine; provided,
however, that notwithstanding the foregoing, the General Partner shall
determine; provided, however, that notwithstanding the foregoing, the General
Partner shall use its best efforts to cause the Partnership to distribute
sufficient amounts to enable the General Partner to pay shareholder dividends
that will (1) satisfy the requirements for qualifying as a REIT under the Code
and Regulations ("REIT Requirements"), and (2) avoid any federal income or
excise tax liability of the General Partner; and provided further, that all such
distribution shall be made in accordance with the provisions of this Section
6.2.
(a) Distributions shall be made in accordance with the following order
of priority:
(i) First, to the General Partner, on account of the Preferred
Interest, until the total amount of distributions made pursuant
to this subparagraph (i) equal the total amount of accrued but
unpaid dividends (if any) on the Series A Preferred Stock (or any
other Preferred Stock) as of the date of such distribution; and
(ii) Next, to the Partners, PRO RATA in accordance with the
Partners' then Percentage Interests.
Neither the Partnership nor the Limited Partners shall have any
obligation to see that any funds distributed to the General
Partner pursuant to subparagraph (a)(i) of this Section 6.2 are
in turn used by the General Partner to pay dividends on the
Series A Preferred Stock (or any other Preferred Stock) or that
any funds distributed to the General Partner pursuant to
subparagraph (a)(ii) of this Section 6.2 are in turn used by the
General Partner to pay dividends on the Common Stock or for any
other purpose.
(b) Upon the receipt by the General Partner of each Exercise Notice
pursuant to which one or more Limited Partners exercise Rights in
accordance with the provisions of article XI hereof, the General
Partner shall, unless the General Partner is required or elects only
to issue Common Stock to such exercising Limited Partners , cause the
Partnership to distribute to the Partners all or a portion of
Available Cash, which distribution shall be made prior to the closing
of the purchase and sale of the offered Interest specified in such
Exercise Notice, and which distribution shall be made in accordance
with subparagraph (a) of this section 6.2 Notwithstanding the
foregoing, the General Partner shall have the right in its sole
discretion to delay the actual distribution of Available Cash to the
Partners required by this Section 6.2(b) until the next scheduled
distribution of Available Cash.
(c) Notwithstanding the foregoing, the General Partner may, in its
sole discretion, at any time when any Series A Preferred Stock (or
other Preferred Stock) outstanding, make a special distribution to
itself, alone, on account of the Preferred Interest, for the sole
purpose of, and in an amount no greater than such amount as will be
used by the General Partner for, redemption of all or any portion of
the outstanding Series A Preferred Stock (or other Preferred
Stock)(any such distribution shall be referred to as a "Redemption
Distribution"). There shall be no adjustment of the Percentage
Interests of the Partners on account of any Redemption Distribution.
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.
<PAGE>
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
moneys, 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 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 receipt of the same from the Accountants and in no event
later than April 1 of each year, copies of Audited Financial Statements prepared
on a consolidated basis for the Partnership, EWIP and any of the other
Investment Entities, the Washington Partnerships, and the Property Manager as
well as any other Entities that the General Partner deems appropriate to
consolidate with the foregoing, together with the reports thereon, and all
supplementary schedules and information, prepared by the Accountants. The
Partnership shall also cause to be prepared such reports and/or information as
are necessary for the General Partner to determine its qualifications as a REIT
and its compliance with REIT Requirements.
6.6 Audits. Not less frequently than annually, the books and records of the
Partnership shall be audited by the Accountants.
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, if requested by a transferee, 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, made in
accordance with the provisions of this Agreement. The General Partner shall
cause the Accountants to prepare and file all state and federal 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 and copies of
the tax returns of the Washington Partnerships, EWIP and other Investment
Entities, as well as, to the extent appropriate, all other Entities in which the
Partnership or any of the foregoing has an equity interest, all within the
period of time prescribed by law.
6.8 Tax Matters Partner. The General Partner has been designated and shall
continue to be 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
<PAGE>
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 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. Except
as otherwise herein expressly provided, and subject to the limitations contained
in Section 7.3 hereof with respect to Major Decisions and the limitations set
forth in Sections 9.1(a) and 9.1(b) hereof, the General Partner has and shall
have full a complete power, authority and discretion to take such action for an
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. Except as otherwise expressly
provided herein, and subject to Section 7.3 hereof, 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 or sell or conversion
rights, assign, transfer, convey, deliver, endorse, exchange, pledge,
mortgage, abandon, improve, repair, maintain, 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, interest 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 interest or any other type of interest), 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 to
purchase; to partition or to exchange said property, or any part
thereof, for other real or personal property; to grant easement
appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on
any real property in which the Partnership owns an interest; 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
any land trust in which the Partnership owns a beneficial interest:
(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 a management of the Partnership
<PAGE>
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
that the General Partner considers useful or necessary to the conduct
of the Partnership's operations or implementation of the General
Partner's power under this Agreement;
(e) To enter into, make, amend, perform and carry out or cancel and
rescind, contracts and other obligations, including, without
limitation, guarantees and indemnity agreements, for any purpose
pertaining to the business of the Partnership, the Washington
Partnership, EWIP, any other Investment Entities and the Property
Manager as well as any other Entity in which the Partnership or any of
the other foregoing Entities has an equity interest; and to loan money
to, borrow money from and engage in transactions with Affiliates of
the Partnership or any other Person;
(f) 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;
(g) 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 interest in land trust,
and to make substitutions thereof, and to receive any proceeds thereof
upon the release or surrender thereof; 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 the General Partner may deem necessary,
proper or advisable to effect or accomplish any of the foregoing;
(h) 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;
(i) To conduct any and all banking transactions on behalf of the
Partnership; to adjust and settle checking, saving, 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 renewals of any of the
foregoing; to make deposits into and withdrawals from the
Partnership's bank accounts and to negotiate or discount commercial
paper, acceptances, negotiable instruments, bills of exchange and
dollar drafts;
(j) To demand, sue for, receive, and otherwise take steps to collect
or receiver 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 proceeding
sin 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;
(k) 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;
<PAGE>
(l) 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 be submitted to lenders and using all
due diligence to insure that the Partnership is in compliance with its
contractual obligations;
(m) To maintain the Partnership's books and records;
(n) 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;
(o) Subject to compliance with the REIT Requirements, to prepare and
deliver all financial, regulatory, tax and other filings or reports to
governmental or other agencies having jurisdiction over the
Partnership; and
(p) To act in any state or nation in which the Partnership may
lawfully act, for itself or as principal, agent or representative for
any Person with respect to any business of the Partnership;
(q) To become a Partner or member in , and perform the obligations of
a Partner or member of, any General or Limited Partnership or limited
liability company;
(r) To apply for, register, obtain, purchase or otherwise acquire
trademarks, trade names, labels and designs relating to or useful in
connection with any business of the Partnership, and to use, exercise,
develop and license the use of any of the foregoing;
(s) To do all acts which are necessary, customary or appropriate for
the protection and preservation of the Partnership's assets, including
the establishment of reserves; and
(t) 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 the 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 thereunder
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 it individual funds for payment to third parities on
behalf of the Partnership 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 regulations. 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) Terminate this Agreement or, except as expressly provided
otherwise herein, amend or modify this Agreement.
(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.
<PAGE>
(c) Take title to any personal or real property, other than in the
name of the Partnership or pursuant to Section 7.8 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, the action described in Section 7.3(a)
shall not be a Major Decision if the Limited Partners collectively own
less than five percent (5%) of the Partnership Units at the time that
such action is undertaken and the actions described in Sections
7.3(b), (d) and (e) shall not be Major Decisions if the Limited
Partners collectively own less than five percent (5%) of the
Partnership Units at the time that such action is undertaken.
7.4 Actions with Respect to Certain Documents. Notwithstanding the
provisions 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 General Partner Participation. The General Partner agrees that all
business activities of the General Partner, including activities pertaining to
the acquisition, development and ownership of Properties, shall be conducted
through the Partnership (except that the General Partner shall be permitted to
possess an ownership interest in EWIP or some other Entity (collectively, the
"Investment Entities") so long as the Partnership's interest in any property,
Partnership, limited liability company or other Entity in which the Investment
Entity has an ownership interest is at least 99 times the Investment Entity's
interest). Without the Consent of the Limited Partners, the General Partner
shall not, directly or indirectly, participate in or otherwise acquire any
interest in any real or personal property unless the Partnership participates
in, or otherwise acquires an interest in, such real or personal property at
least to the extent of 99 times such proposed participation by the Investment
Entity, provided that the Consent of the Limited Partners shall not be required
if the Limited Partners collectively own less than five percent (5%) of the
Partnership Units at the time that the General Partner undertakes such action.
The General Partner agrees that all borrowing for the purpose of making
distributions to it Stockholders will be incurred by the Partnership and the
proceeds of such indebtedness will be induced as Net Financing Proceeds
thereunder (provided that the foregoing shall not prohibit the General Partner
from guaranteeing or co-signing an obligation of any of the foregoing Entities).
7.6 Proscriptions. The General Partner shall not have the authority to:
(a) Do any act in contravention of the 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.
7.7 Additional Limited Partners. Additional Limited Partners may be
admitted to the Partnership only as provided in this Agreement.
7.8 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 Person, the beneficial interest in which shall at
all times be vested in the Partnership. Any such title holder shall perform any
<PAGE>
and all of its respective functions to the extent and upon such term and
conditions as may be determined from time to time by the General Partner,
consistent with the business purpose of the Partnership.
7.9 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.
7.10 Waiver and Indemnification.
(a) Neither the General Partner nor an Person acting on its 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 by this
agreement and the Act, provided that the General 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 or
such other Person shall not be guilty of fraud, misconduct, bad faith,
or gross negligence. The Partnership shall, and hereby does, indemnify
and hold harmless the General Partner and its Affiliates and any
individual or Entity acting on their behalf from any loss, damage,
claim or liability, including, but not limited to, reasonable
attorneys' fees 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 indemnity
hereunder shall survive the dissolution of the Partnership; provided,
however, that a claim for indemnification under this Agreement must be
made by or on behalf of the Person seeking indemnification prior to
the time the Partnership is liquidated hereunder. The
indemnification's 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.
7.11 Contracts With Controlled Entities. The General Partner may contract
with any 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.
7.12 Operation in Accordance with REIT Requirements. The General Partner is
a REIT and is subject to the provisions of section 856 through and including 860
of the Code. The Partners have agreed that it is their intent that the
Partnership be operated in a manner that will enable the General Partner to (a)
satisfy the REIT Requirements and (b) avoid the imposition of any federal income
or excise tax liability. The General Partner shall use its best efforts to cause
the Partnership to avoid taking any action that would result in the General
Partner ceasing to satisfy the REIT Requirements or would result in the
imposition of any federal income or excise tax liability on the General Partner.
So long as the General Partner owns, directly or indirectly any interest in the
Partnership, then notwithstanding any other provision of the Agreement, and
except as expressly permitted by Section 7.13 hereof:
(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 the
General Partner;
<PAGE>
(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 the General Partner;
(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
subleases of all or any part of the real estate assets of the
Partnership, except in each case with the specific written approval of
the General Partner.
(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 Coed; and
(vi) the determination as to whether the Partnership has operated in
the manner prescribed in the Section 7.12 shall be made without regard
to any action or inaction of the General Partner with respect to
distributions and the timing thereof.
7.13 Exceptions to REIT Restrictions. Notwithstanding anything to the
contrary in Section 7.12 hereof, rents from the Headquarters Building
attributable to related entities need not qualify as "rents from real property"
within the meaning of section 856(d) of the Code, but only to the extent that
such rents, when aggregated with all other items of the Partnership's gross
income that do not constitute "qualifying" income for purposes of Section
856(c)(2), do not exceed four percent (4%) of the Partnership's gross income for
any taxable year.
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 collectively own less than five percent (5%) 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 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 collectively own less than five percent (5%) of the
Partnership Units at the time of such sale 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 Liquidation 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 include a report of a certified public
accountant selected by 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 or all of the Partnership's
debt and liabilities to creditors of the Partnership (other than
Partners) in 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;
(d) The balance, if any, to the Partners in accordance with the
positive balances in their Capital Accounts after giving effect to all
contributions, distribution 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
the above provisions.
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 collectively own less than five percent (5%) of
the Partnership Units at the time that the Liquidating Trustee undertakes such
action, The liquidation of the Partnership shall not be deemed finally completed
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 Distribution 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 of 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 interest 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
<PAGE>
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 operating 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 Liquidating Trustee shall be
indemnified and held harmless by the Partnership from and against any and all
claims, demands, liabilities, 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 the Agreement; or
(b) The proven misconduct of gross negligence of the Liquidating
Trustee.
ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS
9.1 General Partner Transfer. The General Partner shall not, withdraw from
the Partnership and shall not transfer all or any portion of its interest 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
collectively own less than five percent (5%) of the Partnership Units at the
time of such Transfer. Upon any Transfer of all of the General Partner's
Partnership Interest in accordance with the provisions of this Section 9.1, the
transferee General Partner shall become vested with the Powers and rights of the
transferor General Partner, 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 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 or other Entity by operation of law) shall relieve the transferor
General Partner 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 collectively own less than five percent
(5%) of the Partnership Units at the time of such Transfer. In the event the
General Partner withdraws from the Partnership, in violation of the 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) Each Limited Partner shall, subject to the provisions of Section
9.2(b) and Section 9.3 hereof, have the right to Transfer (or convert
to Common Stock and thereafter sell such Common Stock) to any Person
all or any portion of its Partnership Interest, whether or not in
connection with the exercise of such Limited Partner's Rights.
(b) (i) It is a condition to any Transfer (other than pursuant to
Section 9.2(b)(ii) below) 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
<PAGE>
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 or other Entity 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, the transferee shall
be deemed to be an Assignee with respect to such Partnership Interest,
but shall not become or be admitted to the Partnership as a
Substituted Limited Partner without the Consent of the General
Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion for any or no reason. An
Assignee shall be entitled as a result of such Transfer only to
receive the economic benefits of the Partnership Interest to which the
transferor Limited Partner would otherwise be entitled, along with
such transferor Limited Partner's rights with respect to the Rights
(although any transferee of any transferred Partnership Interest shall
be subject to any and all ownership limitations contained in the
corporate charter of the General Partner as the same may be amended
from time to time which may limit or restrict such transferee's
ability to exercise the Rights), and such Assignee shall have no right
(a) to participate in the management of the Partnership or to vote on
any matter requiring the consent or approval of the Limited Partners,
(b) to demand or receive any account of the Partnership's business, or
(c) to inspect the Partnership's books and records, unless and until
such Assignee is admitted to the Partnership as a Substituted Limited
Partner. A transferee of a Partnership Interest may become a
Substituted Limited Partner only upon the satisfaction of the
following conditions: (A) filing with the Partnership of a duly
executed and acknowledged written instrument of assignment in a form
approved by the General Partner specifying the Partnership Interest
being assigned and setting forth the intention of the transferor
Limited Partner that such transferee succeeds to the assignor's
interest as a Limited Partner; (b) execution and acknowledgment by the
transferor Limited Partner and such transferee of any other
instruments required in the discretion of the General Partner,
including the acceptance and adoption by such transferee of the
provisions of this Agreement; (C) obtaining the written consent of the
General Partner as provided above; and (D) payment of transfer fee to
the Partnership, sufficient to cover the reasonable expenses of the
substitution, if any. Any transferee, whether or not admitted as a
Substituted Limited Partner, shall take subject to the obligations of
the transferor Limited Partner hereunder.
(ii) Notwithstanding any provision of this Agreement to the
contrary (including, without limitation, Section 4.6 hereof),
each Limited Partner shall have the right, without the consent of
the General Partner, to pledge or otherwise encumber all or any
portion of its Partnership Units, subject to any applicable
securities laws, to any recognized financial institution with
assets in excess of $100,000,000. Any such financial institution
(or any other purchaser at a foreclosure sale) shall upon
foreclosure of any such pledged or encumbered Partnership Units
be (A) recognized as an Assignee under this Agreement, (B) deemed
to be a Substituted Limited Partner under this Agreement, and (C)
deemed to be and have all of the rights, if any, of the pledging
Limited Partner for all purposes of any registration rights
agreement relating to the pledged or encumbered Partnership
Units. The General Partner shall execute such documents in
connection with any such pledges as such financial institution
may reasonably require acknowledging the rights of such financial
institution hereunder and the obligations of the Partnership and
the General Partner hereunder.
9.3 Restriction on Transfer. In addition to any other restrictions of
Transfer herein contained, in no event may any Transfer of a Partnership
Interest by any Partner be made and in no event shall Additional Units be issued
(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, EWIP or any other Investment Entity, the Property
Manager, the Pathways Common Tenancy, or any Washington Partnership is a party
or otherwise bound; (iii) in violation of applicable law, including, without
limitation, any applicable 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 the General Partner to cease to comply with the REIT Requirements or
result in a violation of Section 7.12 hereof; (vi) 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
<PAGE>
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; (xi) if such
transfer would violate any provision of the General Partner's Articles of
Incorporation, as such may be amended from time to time; or (xii) to a lender to
the Partnership or any Person who is related (within the meaning of Section
1.7542-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a "nonrecourse liability" (within the meaning of Section
1.752-1(a)(2) of the Regulations) without the consent of the General Partner, in
its sole and absolute discretion, unless the Partnership's basis for tax
purposes would not be reduced as a result of such Transfer.
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 (subject to Section 10.8 below), 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, 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 Sections
10.5 and 10.6 hereof, such persons are entitles to carry on such other business
interests, activities and investments; provided that each Limited Partner that
is an Officer of the General Partner shall devote substantially all of his time
and attention to the business and affairs of the Partnership (and its affiliated
entities), except that such Limited Partners may devote such time and attention
to the Excluded Properties and the Partnerships that own the Excluded Properties
as such Limited Partners shall reasonably determine is necessary for them to
fulfill their fiduciary duties to the Partnerships that own the Excluded
Properties and the constituent Partners therein. Subject to the immediately
preceding sentence and the provisions of Sections 10.5 and 10.6 hereof, 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. Except as otherwise
provided in Sections 10.5 and 10.6 hereof, 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.
10.5 Acquisition Projects. Notwithstanding anything contained in Section
10.4 hereof to the contrary, Keith R. Guericke shall not, during the Restricted
Period, acquire, directly or indirectly, a Controlling general partner interest
or a 25% or greater equity interest in any Acquisition Project other than
through his ownership interest in the Partnership or the General Partner without
the prior written consent of the Independent Directors (as defined in the
Prospectus), which consent shall not be unreasonably withheld so long as (i)
such Acquisitions Project will not be competitive with any Property, (ii) such
<PAGE>
Acquisition Project will not require any substantial time commitment from any
Limited Partner or a material time commitment of the Limited Partners in the
aggregate, and (iii) Keith R. Guericke has first notified the General Partner of
the opportunity to acquire an equity ownership interest in such Acquisition
Project and the General Partner has informed such Limited Partner that the
Partnership does not desire to acquire such interest.
10.6 Development Projects. Notwithstanding anything contained in Section
10.4 hereof to the contrary, Keith R. Guericke shall not, during the Restricted
Period, directly or indirectly, acquire, hold, own, develop, construct, improve,
maintain, operate, sell, lease, transfer, encumber, convey or otherwise deal
with any Development Project other than through his interest in the Partnership
or the General Partner, provided that the foregoing shall not prohibit Keith R.
Guericke from owning a limited Partner or a non-Controlling interest in an
entity that undertakes any of the preceding activities (provided that such
interest is a less than a 25% equity interest). During such Restricted Period,
any such Limited Partner may notify the General Partner of any opportunities
available to the Partnership to acquire an interest in any Development Project
to the extent such person believes such opportunities may be appropriate for
consideration by the Partnership.
10.7 Acquisition/Development Projects - Further Assurances. Notwithstanding
anything to the contrary contained in Section 10.4 hereof, during the Restricted
Period, neither George M. Marcus nor any Entity that is an Affiliate of George
M. Marcus shall engage in the development, finance or acquisition of multifamily
residential properties or in any other activity or action in violation of that
certain Non-Competition Agreement dated June 13, 1994 by and between the General
Partner and George M. Marcus, as amended. George M. Marcus and Keith R. Guericke
acknowledge and agree that the restrictions contained in this Section 10.7 and
in Sections 10.5 and 10.6 hereof relating to Acquisition Projects, Development
Projects and other properties shall severally continue to remain effective with
respect to each of them for the applicable periods specified in this Section
10.7 or in Sections 10.5 and 10.6, notwithstanding any Transfer or conversion of
any such Limited Partner's entire Partnership Interest, such Limited Partner
shall execute and deliver to the General Partner such instruments or documents
as the General Partner may reasonably request confirming such transferor's
obligations to continue to be bound by the provisions of this Section 10.7 and
Sections 10.5 and 10.6 hereof.
10.8 Conversion Upon Death. So long as Code Section 1014 or a successor
provision remains in effect and provides for the "step-up" in basis of an asset
upon death, as determined by the Partnership's counsel, upon the death of a
Limited Partner, all of such Limited Partner's Partnership Units shall, without
the taking of any action by the General Partner or any heir, representative,
administrator or executor of or for such Limited Partner, automatically convert
as of the date of such death into shares of Common Stock in the amount of the
Common Stock Amount; provided that the General Partner, in its sole and absolute
discretion, shall have the option, instead of issuing the Common Stock Amount to
the estate of the descendent Limited Partner, of paying to such estate the Cash
Amount or any combination of cash and Common Stock equal to the Cash Amount. In
determining the Cash Amount, the Closing Price shall be calculated as of the
date of death. Any "cash" owed may be paid in the form of cash, cashier's or
certified check or by wire transfer of immediately available funds. The General
Partner shall notify the executor, administrator, legal representative or
personal representative of the decedent Limited Partner's estate of the General
Partner's election to issue the Common Stock Amount, to pay the Cash Amount or
to deliver a combinations thereof within a reasonable period of time after the
General Partner becomes aware of such death. In the event that any Liens exist
or arise with respect to the decedent Limited Partner's Partnership Units, the
Common Stock Amount or the Cash Amount, as the case may be, shall be reduced by
an amount necessary to discharge such Liens, as determined by the General
Partner in good faith, and the General Partner is expressly authorized to apply
such portion of the consideration as may be necessary to satisfy any
indebtedness in full and to discharge such Lien in full. In the event any state
or local property transfer tax is payable as a result of the transfer of the
descendent Limited Partner's Partnership Units to the General Partner (or its
designee), the decedent Limited Partner's estate shall assume and pay such
transfer tax. If the General Partner elects to pay a portion of the
consideration owing in cash because the issuance of the Common Stock Amount
would cause the Person legally entitled to receive such Common Stock, together
with such Person's Affiliates, to Beneficially Own in the aggregate shares of
Common Stock in excess of the Ownership Limit, and, if as a result thereof the
General Partner elects to raise such cash through a public offering of its
securities, borrowings or otherwise, the Cash Amount shall be reduced by the
Transaction Expenses allocable to the amounts required to pay the Cash Amount
<PAGE>
hereunder; provided, however, notwithstanding the foregoing, the Cash Amount
shall not be reduced hereunder by an amount exceeding 5% of the Cash Amount
computed without regard to the adjustment for Transaction Expenses.
ARTICLE XI
GRANT OF RIGHTS TO LIMITED PARTNERS
11.1 Grant of Rights. The General Partner does hereby grant to the current
Limited Partners and the Limited Partners do hereby accept the right, but not
the obligations (hereinafter such right sometimes referred to as the "Rights"),
to convert a portion of their Partnership Units into shares of Common Stock and
to sell the remainder (or any part thereof) of their Partnership Units to the
General Partner (or its designee), at any time (whether in one or more
instances) prior to the thirtieth (30th) anniversary of the date on which the
Completion of the Offering occurred, on the terms and subject to the conditions
and restrictions contained in attached Exhibit I, upon delivery to the General
Partner of an Exercise Notice substantially in the form of attached Schedule 1,
which notice shall specify the Partnership Units to be sold by such Limited
Partner. Once delivered, the Exercise Notice shall be irrevocable, subject to
payment by the General Partner of the Purchase Price in respect of such
Partnership Units in accordance with the terms hereof. Notwithstanding anything
contained herein to the contrary, and Additional Limited Partner that acquires
Additional Units pursuant to Sections 4.3 and 4.6 hereof shall not acquire any
interest in, and may not exercise or otherwise participate in, any Rights
pursuant to this Article XI and attached Exhibit I, unless the General Partner
approves in writing prior to the admission of such Additional Limited Partner
the acquisition of Rights by such Additional Limited Partner.
11.2 Terms of Rights. The terms and provisions applicable to the Rights
shall be as set forth in attached Exhibit I.
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
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 XIV and, to the extent not
inconsistent with this Article XIV (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 XIV 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 giving of a Demand Notice, the
Requesting Party, on the other 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 no affiliation with any of the parities as its respective
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
<PAGE>
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 (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.
(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 parities written finding of fact and conclusions
of law.
12.3 Binding Character. Any decision rendered by the arbitration panel
pursuant to the 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 XIV shall
survive the dissolution of the Partnership.
12.5 No Alternation 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.
12.6 Acknowledgment. PURSUANT TO SECTION 12.6 OF THE ORIGINAL AGREEMENT,
EACH OF THE PARTNERS AGREED TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL
ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND ACKNOWLEDGED THAT SUCH PARTNER WAS
GIVING UP ANY RIGHTS THAT SUCH PARTNER MIGHT POSSESS TO HAVE THE DISPUTE
LITIGATED IN A COURT OR JURY TRIAL EXCEPT AS SPECIFICALLY INCLUDED IN SUCH
"ARBITRATION OF DISPUTES" PROVISION. EACH PARTNER, BY HAVING EXECUTED THE
ORIGINAL AGREEMENT OR BY EXECUTING THIS AGREEMENT OR ANY AMENDMENT HERETO,
ACKNOWLEDGED OR ACKNOWLEDGES, AS THE CASE MAY BE, GIVING UP SUCH PARTNER'S
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THIS "ARBITRATION OF DISPUTES" PROVISION. IF ANY PARTNER REFUSES TO
SUBMIT TO ARBITRATION AFTER HAVING AGREED TO THIS PROVISION, SUCH PARTNER MAY BE
COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. EACH PARTNER, BY HAVING EXECUTED THE ORIGINAL AGREEMENT OR BY
EXECUTING THIS AGREEMENT OR ANY AMENDMENT HERETO, ACKNOWLEDGED OR ACKNOWLEDGES,
AS THE CASE MAY BE, THAT ITS AGREEMENT TO THIS ARBITRATION PROVISION WAS OR IS
VOLUNTARY.
<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 in
writing and may 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
Partners shall be as set forth in Exhibit M attached hereto, as such Exhibit may
be modified from time to time. The address of any Limited Partner may be changed
by a notice in writing given to the General Partner in accordance with the
provisions hereof.
13.2 Successors. This Agreement and all the terms and provisions hereof
shall be binding upon and shall insure 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
understanding and/or written or oral agreements among them respecting the
subject matter within.
13.7 Amendments.
(a) This Agreement may not be amended, and no provision benefiting the
General Partner may be waived, except by a written instrument signed
by the General Partner (and approved on behalf of the General Partner
by at least a majority of its directors who are not Affiliates of any
of the Limited Partners) and, if the Limited Partners collectively own
five percent (5%) or more of the Partnership Units, a
Majority-In-Interest of the Limited Partners, provided that no
amendment of this Agreement may be made without the consent of all of
the affected Limited Partners if such amendment (i) provides for any
Limited Partner to receive any distribution other than pari passu with
all other Limited Partners, based on their respective Percentage
Interest, (ii) decreases any Limited Partner's Percentage Interest but
does not decrease all Limited Partners' respective Percentage Interest
on a proportionate bases, (iii) converts any Limited Partner's
interest in the Partnership into a General Partnership interest, (iv)
modifies the limited liability of any Limited Partner in a manner
adverse to such Limited Partner, or (v) alters or modifies the Rights
set forth in Article XI in a manner adverse to such Partner.
(b) Notwithstanding anything to the contrary provided in Section 13.7
(a) above, the General Partner shall have the power, without the
consent of any Limited Partner, to amend this Agreement as may be
required to facilitate or implement any of the following:
(i) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the Limited
Partners;
(ii) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
<PAGE>
(iii) to set forth the rights, powers and duties of the holders
of any additional Partnership Units issued pursuant to Section
4.3(a) hereof;
(iv) to reflect any change that does not adversely affect the
Limited Partners in any material respect, to cure any ambiguity,
to correct or supplement any defective provision in this
Agreement, or to make other changes with respect to matters
arising under this Agreement that will not be inconsistent with
any other provision of this Agreement;
(v) to reflect in Section 6.2 and Exhibit E attached hereto the
relative distribution and allocation preferences and priorities
among two (2) or more classes of Preferred Stock, if applicable;
and (vi) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulations
of a federal or state agency or contained in federal or state
law.
The General Partner shall provide notice to the Limited Partners
when any action under this Section 13.7(b) is taken.
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 contact 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 acknowledged in the Original Agreement
that he or she has relied fully upon the advice of its own legal counsel and/or
accountant in determining the tax consequences of the Original Agreement and the
transaction contemplated thereby and not upon any representations or advice by
the General Partner or by any other Partner. Each Additional Limited Partner, by
agreeing to be bound by the terms of this Agreement, shall be deemed to have
acknowledged that it 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 thereby and not upon any representations or advice by
the General Partner or by any other Partner.
<PAGE>
13.13 Securities Representations. Each Limited Partner hereby represents
and warrants to the Partnership and the General Partner that such Limited
Partner (i) has acquired its Partnership Interest for itself for investment
purposes only, and not with a view to any resale or distribution of such
Partnership Interest, (ii) has been advised and understands that such
Partnership Interest has not been and will not be registered under the
Securities Act or any applicable state securities laws and, therefore, cannot be
resold unless such Partnership Interest is registered under the Securities Act
and all applicable state securities laws, or unless exemptions from registration
are available, and (iii) has, either alone or with its "purchaser
representatives" as that term is defined in Rule 501(h) under the Securities
Act, such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its investment in the Partnership.
Each Limited Partner further acknowledges that the Partnership and the General
Partner have made available to such Limited Partner, at a reasonable time prior
to its acquisition of its Partnership Interest, the opportunity to ask questions
and receive answers concerning the terms and conditions of such acquisition and
to obtain any additional information which the Partnership and/or the General
Partner possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of the information furnished by the Partnership
and the General Partner in connection with such acquisition. Each Limited
Partner admitted to the Partnership after the date hereof, shall, by its
agreeing to be bound by the terms hereof, be deemed to have represented and
warranted to the Partnership and the General Partner that such Limited Partner
(i) acquired its Partnership Units for itself for investment purposes only, and
not with a view to any resale or distribution of such Partnership Units, (ii)
has been advised and understands that such Partnership Units have not been and
will not be registered under the Securities Act or any applicable state
securities laws and, therefore, cannot be resold unless such Partnership Units
are registered under the Securities Act and all applicable state securities
laws, or unless exemptions from registration are available, and (iii) has,
either alone or with its "purchaser representatives" as that term is defined in
Rule 501(h) under the Securities Act, such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
its investment in the Partnership, and that the Partnership and the General
Partner made available to such Limited Partner, at a reasonable time prior to
its acquisition of its Partnership Interest, the opportunity to ask questions
and receive answers concerning the terms and conditions of such acquisition and
to obtain any additional information which the Partnership and/or the General
Partner possessed or could acquire without unreasonable effort or expense that
is necessary to verify the accuracy of the information furnished by the
Partnership and the General Partner in connection with such acquisition.
13.14 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, 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 reelect the dissolution and liquidation of the
Partnership pursuant tot 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 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 Interest; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approval, 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.
<PAGE>
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 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 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.
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby entered into among the undersigned
Partners as of the date first written above.
General Partner:
/S/ ESSEX PROPERTY TRUST, INC. /S/ MICHAEL J. SCHALL
- ------------------------------ ---------------------
ESSEX PROPERTY TRUST, INC., GMMS PARTNER
/S/ GEORGE M. MARCUS /S/ RANDALL I. BARKAN
- -------------------- ---------------------
ESSEX PORTFOLIO MANAGEMENT COMPANY M&M PROJECTS, INC.
/S/ ROBERT ALDEN /S/ RANDALL I. BARKAN
- ---------------- ---------------------
ESSEX PROPERTY CORPORATION, SUMMERHILL HOMES
/S/ PAULA AMANDA /S/ ROBERT K. ARNOLD
- ---------------- --------------------
Paula Amanda Robert K. Arnold
/S/ MARGARET ARNOLD /S/ RANDALL I.BARKAN
- ------------------- --------------------
Margaret Arnold Randall I. Barkan
/S/ JOHN D. EUDY /S/ ROBBIN L. EUDY
- ---------------- ------------------
John D. Eudy Robbin L. Eudy
/S/ KENNETH FRANGADAKIS /S/ ANGELIKI FRANGADAKIS
- ----------------------- ------------------------
Kenneth Frangadakis Angeliki Frangadakis
/S/ GEORGE FRANGADAKIS /S/ KATHERINE FRANGADAKIS
- ---------------------- -------------------------
George Frangadakis Katherine Frangadakis
/S/ KENNETH FRANGADAKIS /S/ ANGELIKI FRANGADAKIS
- ----------------------- ------------------------
FRANGADAKIS FAMILY FRANGADAKIS FAMILY
REVOCABLE TRUST REVOCABLE TRUST
/S/ HARVEY E. GREEN /S/ MARGARET G.GREEN
- ------------------- --------------------
Harvey E. Green Margaret G. Green
/S/ KEITH R. GUERICKE /S/ THELMA GUERICKE
- --------------------- -------------------
Keith R. Guericke Thelma Guericke
/S/ GEORGE P. KATSOULIS /S/ NANCY KUKKOLA
- ----------------------- -----------------
George P. Katsoulis Nancy Kukkola
/S/ GERALD E. KELLY /S/ ANNETTE KELLY
- ------------------- -----------------
Gerald E. Kelly Annette Kelly
/S/ GEORGE M. MARCUS
- --------------------
George M. Marcus
<PAGE>
/S/ CHARLES E. MARTIN /S/ MILTON PAGONIS
- --------------------- ------------------
Charles E. Martin Milton Pagonis
/S/ WILLIAM A. MILLICHAP /S/ SHERRIE MILLICHAP
- ------------------------ ---------------------
William A. Millichap Sherrie Millichap
/S/ J. PETER OTTEN /S/ CHERIE OTTEN
- ------------------ ----------------
J. Peter Otten Cherie Otten
/S/ GARY PAGONIS FAMILY TRUST /S/ G. MICHAEL ROARK
- ----------------------------- --------------------
Gary Pagonis G. Michael Roark
/S/ MICHAEL SCHALL /S/ ANN SCHALL
- ------------------ --------------
Michael Schall Ann Schall
/S/ SWANSON SURVIVORS TRUST /S/ LINWOOD C. THOMPSON
- --------------------------- -----------------------
Swanson Survivors Trust Marcus & Millichap
/S/ THE WAY 1994 LIVING TRUST DTD, 11/2/94 /S/ GAY A. YAMAGIWA
- ------------------------------------------ -------------------
The Way 1994 Living Trust DTD, 11/2/94 Gay A. Yamagiwa
/S/ CRAIG K. ZIMMERMAN /S/ DAVID BERNSTEIN
- ---------------------- -------------------
Craig K. Zimmerman David Bernstein Revocable
Trust
/S/ HERBERT MEISTRICH /S/ J.A. SHAFRAN
- --------------------- ----------------
Herbert Meistrich J.A. Shafran
/S/ J. LAWRENCE SCHNADIG /S/ HARVEY FRIEDMAN
- ------------------------ -------------------
J. Lawrence Schnadig Harvey Friedman
<PAGE>
EXHIBIT A
PARTNERSHIP UNITS
GENERAL PARTNER: UNITS
Essex Property Trust, Inc. 15,104,866
LIMITED PARTNERS:
1. Essex Portfolio Management Company 15,941
2. Essex Property Corporation 9,909
3. GMMS Partners 43,414
4. M&M Projects, Inc. 128,138
5. SummerHill Homes 163,447
6. Paula Amanda 1,785
7. Robert and Margaret Arnold 2,242
8. Randall I. Barkan 2,564
9. John D. and Robbin Eudy 7,457
10. Kenneth and Angeliki Frangadakis 2,675
11. George and Katherine Frangadakis, Trustees
Frangadakis Family Revocable Trust 4,697
12. Kenneth and Angeliki Frangadakis, Trustees
Frangadakis Family Revocable Trust 24,334
13. Harvey and Margaret Green 16,735
14. Keith R. and Thelma Guericke 48,116
15. George P. Katsoulis 5,000
16. Gerald E. and Annette Kelly 5,643
17. Nancy Kukkola 11,637
18. David Bernstein 5,771
19. George M. Marcus 1,136,227
20. Charles E. Martin 1,785
21. William A. and Sherrie Millichap 73,099
22. J. Peter and Cherie Otten 9,447
23. Milton Pagonis 10,267
24. Gary Pagonis Family Trust 10,267
25. G. Michael Roark 54,740
26. Michael and Ann Schall 26,388
27. Swanson Survivors Trust 7,687
28. Marcus & Millichap 2,564
29. The Way 1994 Living Trust Dtd. 11/2/94 2,226
30. Gay A. Yamagiwa 10,720
31. Craig K. Zimmerman 15,849
32. Harvey Friedman 4,042
33. Herbert Meistrich 4,042
34. J. Lawrence Schnadig 1,729
35. J.A. Shafran 2,889
Total: 1,873,473
<PAGE>
EXHIBIT B
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT C
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT D
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT E
ALLOCATIONS
<PAGE>
1. ALLOCATION OF NET INCOME AND NET LOSS.
(a) Net Income. Except as otherwise provided herein, Net Income for
any fiscal year or other applicable period shall be allocated in the
following order and priority:
(1) First, to the Partners, until the cumulative Net Income
allocated pursuant to this subparagraph (a)(1) for the current
and all prior periods equals the cumulative Net Loss allocated
pursuant to subparagraph (b)(2) hereof for all prior periods,
among the Partners in the reverse order that such Net Loss was
allocated to the Partners pursuant to subparagraph (b)(2) hereof,
(and, in the event of a shift of a Partner's interest in the
Partnership, to the Partners in a manner that the most equitably
reflects the successors in interest to the Partners).
(2) Thereafter, the balance of the Net Income, if any, shall be
allocated to the Partners in accordance with their respective
Percentage Interests.
(b) Net Loss. Except as otherwise provided herein, Net Loss of the
Partnership for each fiscal year or other applicable period shall be
allocated as follows:
(1) To the Partners in accordance with their respective
Percentage Interests.
(2) Notwithstanding subparagraph (b)(1) hereof, to the extent any
Net Loss allocated to a Partner under subparagraph (b)(1) hereof
or this subparagraph (b)(2) would cause such Partner
(hereinafter, a "Restricted Partner") to have an Adjusted Capital
Account Deficit as of the end of the fiscal year to which such
Net Loss relates, such Net Loss shall not be allocated to such
Restricted Partner and instead shall be allocated to the other
Partner(s) (hereinafter, the "Permitted Partners) pro rata in
accordance with their relative Percentage Interests.
(c) Notwithstanding Sections 1(a) and (b) above, on any date on which
a any Series A Preferred Stock (or other Preferred Stock) is
outstanding, Net Income and Net Loss shall be allocated as follows:
(1) Net Income for any fiscal year or other applicable period
shall be allocated in the following order and priority:
(I) First, to the Partners, until the cumulative Net Income
allocated pursuant to this subparagraph (c)(1)(i) for the
current and all prior periods equals the cumulative Net Loss
allocated pursuant to subparagraphs (c)(2)(iii) and (iv)
hereof for all prior periods, among the Partners in the
reverse order that such Net Loss was allocated (and, in the
event of a shift of a Partner's interest in the Partnership,
to the Partners in a manner that most equitably reflects the
successors in interest to such Partners);
(ii) Second, to the General Partner, until the
cumulative Net Income allocated pursuant to this
subparagraph (c)(1)(ii) for the current and all prior
periods equals the cumulative Net Loss allocated pursuant to
subparagraph (c)(2)(ii) hereof for all prior periods;
(iii) Third, to the General Partner until the
cumulative amount of Net Income allocated pursuant to this
subparagraph (c)(1)(iii) equals the total amount of
dividends paid on the Series A Preferred Stock (or other
Preferred Stock) as of or prior to the date of such
allocation plus the total amount of accrued but unpaid
dividends on the Series A Preferred Stock (or other
Preferred Stock) as of such date;
(iv) Thereafter, the balance of the Net Income, if any,
shall be allocated to the Partners in accordance with their
respective Percentage Interests.
(2) Net Loss of the Partnership for each fiscal year or other
applicable period shall be allocated as follows:
<PAGE>
(I) First, to the Partners in accordance with their
respective Percentage Interests until the Capital Account
balances of the Limited Partners are reduced to zero (for
purpose of this calculation, such Partners' share of
Partnership Minimum Gain shall be added back to their
Capital Accounts);
(ii) Second, to the General Partner until its Capital
Account balance has been reduced to zero (for purpose of
this calculation, such Partner's share of Partnership
Minimum Gain shall be added back to its Capital Account);
(iii) Thereafter, to the Partners in accordance with
their then Percentage Interests;
(iv) Notwithstanding subparagraph (c)(2)(iii) hereof,
to the extent any Net Loss allocated to a Partner under
subparagraph (c)(2) would cause such Partner (hereinafter, a
"Restricted Partner") to have an Adjusted Capital Account
Deficit as of the end of the fiscal year to which such Net
Loss relates, such Net Loss shall not be allocated to such
Restricted Partner and instead shall be allocated to the
other Partner(s) (hereinafter, the "Permitted Partners") pro
rata in accordance with their relative Percentage Interests.
(d) Book-Up and Capital Account Adjustments. On any day on which Series A
Preferred Stock (or other Preferred Stock) is redeemed or converted into
Common Stock, the Partnership shall adjust the Gross Asset Values of all
Partnership assets to equal their respective gross fair market values and
shall allocate the amount of such adjustment as Net Income or Net Loss
pursuant to Section 1(c) hereof, provided, however, that if no Series A
Preferred Stock (or other Preferred Stock) is outstanding after such
redemption or conversion, such Net Income or Net Loss shall be allocated in
such a manner that after such allocation the Capital Accounts of the
Partners are in proportion to their Percentage Interests.
2. Special Allocations.
Notwithstanding any provisions of paragraph 1 of this Exhibit E, the
following special allocations shall be made in the following order:
(a) Minimum Gain Chargeback (Nonrecourse Liabilities). If there is a
net decrease in Partnership Minimum Gain for any Partnership fiscal
year (except as a result of conversion or refinancing of Partnership
indebtedness, certain capital contributions or revaluation of the
Partnership property as further outlined in Regulation Sections
1.704-2(d)(4), (f)(2) or (f)(3)), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to that Partner's
share of the net decrease in Partnership Minimum Gain. The items to be
so allocated shall be determined in accordance with Regulation Section
1.704-2(f). This paragraph (a) is intended to comply with the minimum
gain chargeback requirement in said section of the Regulations and
shall be interpreted consistently therewith. Allocations pursuant to
this paragraph (a) shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant hereto.
(b) Minimum Gain Attributable to Partner Nonrecourse Debt. If there is
a net decrease in Minimum Gain Attributable to Partner Nonrecourse
Debt during any fiscal year (other than due to the conversion,
refinancing or other change in the debt instrument causing it to
become partially or wholly nonrecourse, certain capital contributions,
or certain reevaluations of Partnership property as further outlined
in Regulation Section 1.704-2(I)(4), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to that Partner's
share of the net decrease in the Minimum Gain Attributable to Partner
Nonrecourse Debt. The items to be so allocated shall be determined in
accordance with Regulation Section 1.704-2(I)(4) and (j)(2). This
paragraph (b) is intended to comply with the minimum gain chargeback
requirement with respect to Partner Nonrecourse Debt contained in said
section of the Regulations and shall be interpreted consistently
therewith. Allocations pursuant to this paragraph (b) shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant hereto.
(c) Qualified Income Offset. In the event a Limited Partner
unexpectedly receives any adjustments, allocations or distribution
<PAGE>
described in Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6),
and such Limited Partner has an Adjusted Capital Account Deficit,
items of Partnership income and gain shall be specially allocated to
such Partner in an amount and manner sufficient to eliminate the
Adjusted Capital Account Deficit as quickly as possible. This
paragraph (c) is intended to constitute a "qualified income offset"
under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year
or other applicable period shall be allocated to the Partners in
accordance with their respective Percentage Interests.
(e) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for
any fiscal year or other applicable period shall be specially
allocated to the Partner that bears the economic risk or loss for the
debt (i.e., the Partner Nonrecourse Debt) in respect of which such
Partner Nonrecourse Deductions are attributable (as determined under
Regulation Section 1.704-2(b)(4) and (I)(1)).
(f) Curative Allocations. It is the intent of the Partnership that, to
the extent possible, the Capital Account balances of the Partners be
in proportion to the Partners' Percentage Interest. Thus, items of
"book" income, gain, loss, and deduction shall be allocated among the
Partners so that, to the extent possible, the resulting Partners'
Capital Account balances bear this relationship. This subparagraph (f)
is intended to minimize to the extent possible and to the extent
necessary any economic distortions which may result from application
of the Regulatory Allocations and shall be interpreted in a manner
consistent therewith. For purposes hereof, "Regulatory Allocations"
shall mean the allocations provided under paragraph 1(b)(2) and this
paragraph 29 save subparagraphs (d) and (f) hereof).
3. Tax Allocations.
(a) Generally. Subject to paragraphs (b) and (c) hereof, items of
income, gain, loss, deduction and credit to be allocated for income
tax purposes (collectively, "Tax Items") shall be allocated among the
Partners on the same basis as their respective book items.
(b) Section 1245/1250 Recapture. If any portion of gain from the sale
of property is treated as gain which is ordinary income by virtue of
the application of Code Section 1245 or 1250 ("Affected Gain"), then
(A) such Affected Gain shall be allocated among the Partners in the
same proportion that the depreciation and amortization deductions
giving rise to the Affected Gain were allocated and (B) other Tax
Items of gain of the same character that would have been recognized,
but for the application of Code Section 1245 and/or 1250, shall be
allocated away from those Partners who are allocated Affected Gain
pursuant to Clause (A) so that, to the extent possible, the other
Partners are allocated the same amount, an type, of capital gain that
would have been allocated to them had Code Section 1245 and/or 1250
not applied; provided, however, that the net amount of Tax Items
allocated to each Partner shall be the same as if this paragraph 3(a)
did not exist. For purposes hereof, in order to determine the
proportionate allocations of depreciation and amortization deductions
for each fiscal year or other applicable period, such deductions shall
be deemed allocated on the same basis as Net Income and Net Loss for
such respective period.
(c) Allocations Respecting Section 704(c) and Reevaluations. If any
Partnership property is subject to Code Section 704(c) or is reflected
in the Capital Accounts of the Partners and on the books of the
Partnership at a book value that differs from the adjusted tax basis
of such property, then the tax items with respect to such property
shall, in accordance with the requirements of Regulations Section
1.704-1(b)(4)(i), be shared among the Partners in a manner that takes
account of the variation between the adjusted tax basis of the
applicable property and its book value in the same manner as
variations between the adjusted tax basis and fair market value of
property contributed to the Partnership are taken into account in
determining the Partners' share of tax items under Code Section
7049c). The General Partner is authorized to choose any reasonable
method permitted by the Regulations pursuant to Code Section 704(c),
including the "remedial allocation" method, the "curative allocation"
method and the traditional method.
(d) Code Section 752 Specification. Pursuant to Regulations Section
1.752-3, the Partners' interest in Partnership profits for purposes of
determining the Partners' shares of excess nonrecourse liabilities
shall be their Percentage Interests.
<PAGE>
EXHIBIT F
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT G
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT H
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT I
RIGHTS TERMS
The Rights granted by the General Partner to the Limited Partners pursuant
to Section 11.1 hereof shall be subject to the following terms and conditions:
1. Definitions. The following terms and phrases shall, for purposes of
this Exhibit I and the Agreement, have the meanings set forth below:
Beneficially Own shall mean the ownership of Common Stock by a Person
who would be treated as an owner of such Shares of Common Stock either
directly or constructively through the application of Section 544 of
the Code, as modified by Section 856(h)(1)(B) of the Code.
Conversion Component Exercise Notice shall have the meaning set forth
in Paragraph 2(a) hereof.
Conversion Rights shall have the meaning set forth in Paragraph 2(a)
hereof.
Election Notice shall mean the written notice to be given by the
General Partner to the Exercising Partners in response to the receipt
by the General Partner of an Exercise Notice from such Exercising
Partners, the form of which Election Notice is attached hereto as
Schedule 2.
Exchange Act shall mean the Securities Exchange Act of 1934, as
amended, or any successor statute.
Exercise Notice shall mean and include a Conversion Component Exercise
Notice and/or a Sale Component Exercise Notice.
Exercising Partners shall have the meaning set forth in Paragraph 2
hereof.
Offered Units shall mean the Partnership Units of the Exercising
Partners identified in a Conversion Component Exercise Notice or a
Sale Component Exercise Notice which, pursuant to the exercise of
Conversion Rights or Sale Rights, can be acquired by the General
Partner under the terms hereof.
Sale Component Exercise Notice shall have the meaning set forth in
Paragraph 2(b) hereof.
Sale Rights shall have the meaning set forth in Paragraph 2(b) hereof.
2. Delivery of Exercise Notices. Any one or more Limited Partners
("Exercising Partners") may, subject to the limitations set forth
herein:
(a) deliver to the General Partner written notice (the
"Conversion Component Exercise Notice") pursuant to which such
Exercising Partners elect to exercise their Rights to convert
(the "Conversion Rights") all or any portion of their Partnership
Units into shares of Common Stock subject to the limitations
contained in Paragraph 4 below; and
(b) deliver to the General Partner written notice (the "Sale
Component Exercise Notice") pursuant to which such Exercising
Partners elect to exercise their Rights to sell (the "Sale
Rights") all or any portion of their Partnership Units to the
General Partner (or the General Partner's designee), subject to
the limitations contained in Paragraph 3 below.
3. Limitations on Delivery of Exercise Notices. The first Sale
Component Exercise Notice may not be exercised prior to the time that
Conversion Rights have been exercised to the fullest extent
permissible under Paragraph 4 below.
<PAGE>
4. Limitation on Exercise of Conversion Rights. Conversion Rights may
be exercised at any time and from time to time to the extent that,
upon exercise of the Conversion including shares of Common Stock to be
issued in connection with the exercise of such Conversion Rights, in
excess of the applicable Ownership Limit or existing Holder Limit, as
such terms are defined in the Articles of Incorporation of the General
Partner (the "Ownership Limit"). For purposes of computing the
Ownership Limit as of any date, the Limited Partner shall be deemed to
own all shares of Common stock issuable to the Limited Partner upon
the exercise of stock option granted on or before such date under the
Stock Incentive Plan. If a Conversion Component Exercise Notice is
delivered to the General partner but, as a result of the Ownership
Limit or as a result of restrictions contained in the Articles of
Incorporation of the General Partner, the Conversion Rights cannot be
exercised in full, the Conversion Component Exercise Notice shall be
deemed to be modified such that the Conversion Rights shall be
exercised only to the extent permitted under the Ownership Limit in
accord with the Articles of Incorporation of the General Partner; with
the remainder of such Conversion Rights being deemed to be Sale Rights
with the corresponding portion of the Conversion Component Exercise
Notice being deemed to be a Sale Component Exercise Notice.
5. Exercise of Sale Rights. Sale Rights may be exercised at any time
and from time to time, subject to the limitation contained in
Paragraph 3 hereof.
6. Computation of Consideration/Form of Payment. With respect to the
exercise of Conversion Rights, the consideration payable for the
Offered Interest shall be the issued by the General Partner of the
Common Stock Amount. With respect to the exercise of Sale Rights, the
consideration shall, in the sole and absolute discretion of the
General Partner, be paid in the form of (a) cash, cashier's or
certified check, or by wire transfer of immediately available funds to
the Exercising Partner's designated account in the amount of the Cash
Amount, or (b) by the issuance by the General Partner of the Common
Stock Amount, or (c) any combination of cash and Common Stock equal to
the Cash Amount.
7. Closing; Delivery of Election Notice. The Closing of the
acquisition of Offered Interest shall, unless otherwise mutually
agreed, be held at the principal offices of the General Partner, on
the following date(s):
(a) With respect to the exercise of Conversion Rights, the
closing shall occur on the date agreed to by the General Partner
and the Exercising Partners, which date shall in no event be on
the date which is the later of (I) ten (10) days after the date
of the Conversion Component Exercise Notice and (ii) the
expiration or termination of the waiting period applicable to
each Exercising Partner, if any, under the Hart-Scott Act; and
(b) With respect to the exercise of the Sale Rights, the General
Partner shall, within thirty (30) days after receipt by the
General partner of any Sale Component Exercise Notice which
Notice does not violate the provisions of Paragraph 3 hereof,
deliver to the Exercising Partners an Election Notice, which
Election Notice shall set forth the computation of the Cash
Amount and shall specify the form of the consideration (which
shall be in accordance with Paragraph 6 hereof) to be paid by the
General Partner to such Exercising Partners and the date, time
and location for completion of the purchase and sale of the
Offered Units, which date shall, to the extent required, in no
event be more than (I) ten (10) days after delivery by the
General Partner of the Election Notice for Offered Units with
respect to which the General Partner has elected to pay the
consideration by issuance of shares of its Common Stock or (ii)
sixty (60) days after the initial date of receipt by the General
Partner of the Sale Component Rights Notice for Offered Units
with respect to which the General Partner has elected to pay the
Cash Amount; provided, however, that such sixty (60) day period
may be extended for an additional period to the extent required
for the General Partner to cause additional shares of its Common
stock to be issued to provide financing to be used to acquire the
Offered Units. Notwithstanding the foregoing, the General partner
agrees to use its best efforts to cause the closing of the
acquisition of Offered Units hereunder to occur as quickly as
possible.
8. Adjustment to Purchase Price. If, with respect to the exercise of
Sale Rights, the General Partner elects to pay all or any portion of
the Purchase Price in cash and if as a result thereof the General
Partner elects to raise such cash through a public offering of its
securities, borrowings or otherwise, the Cash Amount shall be reduced
by an amount ("Transaction Expenses") equal to the expenses incurred
<PAGE>
by the General Partner in connection with such raising of funds
allocable to the amounts required to pay the Cash Amount hereunder;
provided, however, notwithstanding the foregoing, the Cash Amount
shall not be reduced hereunder by an amount exceeding 5% of the Cash
Amount computed without regard to the adjustment for Transaction
Expenses.
9. Closing Deliveries. At the closing of the purchase and sale of
Offered Units, payment of the consideration shall be accompanied by
proper instruments of transfer and assignment and by the delivery of
(I) representations and warranties of (A) the Exercising Partner with
respect to its due authority to sell all of the right, title and
interest in and to such Offered Interests to the General Partner and
with respect to the status of the Partnership Units being transferred,
free and clear of all Liens, and (B) the General Partner with respect
to due authority for the purchase of such Offered Units, and (ii) to
the extent that any shares of Common Stock are issued in payment of
the consideration or any portion thereof, (A) an opinion of counsel
for the General Partner, reasonably satisfactory to the Exercising
Partners, to the effect that such shares of Common Stock have been
duly authorized, are validly issued, fully-paid and non-assessable,
and (B) a stock certificate or certificates evidencing the Common
Stock to be issued and registered in the name of the Exercising
Partner or its designee.
10. Term of Rights. Unless sooner terminated, the rights of the
parties with respect to the Rights shall commence as of the date
hereof and lapse for all purposes and in all respects on the thirtieth
(30) anniversary of the date hereof; provided, however, that the
parties hereto shall continue to be bound by an Exercise Notice
delivered to the General Partner prior to such anniversary.
11. Convenants of the General Partner. To facilitate the General
Partner's ability to fully perform its obligations hereunder, the
General Partner covenants and agrees as follows:
(a) At all times during the pendency of the Rights, the General
Partner shall reserve for issuance such number of shares of
Common Stock as may be necessary to enable the General Partner to
issue such shares in exchange for all of the Partnership Units
held by Limited Partners which are from time to time outstanding.
(b) As long as the General Partner shall be obligated to file
periodic reports under the Exchange Act, the General Partner will
timely file such reports in such manner as shall enable any
recipient of Common Stock issued to Limited Partners hereunder in
reliance upon an exemption form registration under the Securities
Act to continue to be eligible to utilize Rule 144 promulgated by
the SEC pursuant to the Securities Act, or any successor rule or
regulation or statute thereunder, for the resale thereof.
(c) During the pendency of the Rights, the Limited Partners shall
receive in a timely manner all reports filed by the General
Partner with the SEC and all other communications transmitted
from time to time by the General partner to its stockholders
generally.
(d) Under no circumstances shall the General Partner declare any
stock dividend, stock split, stock distribution or the like,
unless fair and equitable arrangements are provided, to the
extent necessary, to fully adjust, and to avoid any dilution in,
the rights of Limited Partners under this Agreement.
(e) Notwithstanding the General Partner's determination as to the
form in which the consideration for the Offered Units shall be
payable, the General Partner shall be required to pay such
consideration by cashier's check or wire transfer of immediately
available funds to the extent that payment by issuance of Common
Stock would disqualify the General Partner from being
characterized as a REIT.
12. Limited Partner's Covenant. Each Limited Partner covenants and
agrees with the General Partner that all Offered Units tendered to the
General Partner in accordance with the exercise of Rights herein
provided shall be delivered to the General Partner free and clear of
all Liens, and should any Liens exist or arise with respect to such
Offered Units, the General Partner shall be under no obligation to
acquire the same unless, in connection with such acquisition, the
General Partner has elected to pay such portion of the consideration
therefor in the form of cash in circumstances where such cash will be
sufficient to cause such existing Lien to be discharged in full upon
application of all or a part of such consideration and the General
Partner is expressly authorized to apply such portion of the
consideration as may be necessary to satisfy any indebtedness in full
<PAGE>
and to discharge such Lien in full. Each Limited Partner further
agrees that, in the event any state or local property transfer tax is
payable as a result of the transfer of its Offered Units to the
General Partner (or its designee), such Limited Partner shall assume
and pay such transfer tax.
<PAGE>
EXHIBIT J
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT M
[INTENTIONALLY OMITTED]
<PAGE>
SCHEDULE 1
EXERCISE NOTICE
To: Essex Property Trust, Inc.
Reference is made to that certain First Amended and Restated Agreement
of Limited Partnership of Essex Portfolio, L.P. dated as of April 30, 1997 (the
"Partnership Agreement"), pursuant to which Essex Property Trust, Inc., a
Maryland corporation, and certain other persons, including the undersigned,
formed a California limited partnership currently known as Essex Portfolio, L.P.
(the "Partnership"). Capitalized terms used but not defined herein shall have
the meanings set forth in the Partnership Agreement. Pursuant to Article XI and
Paragraph 2 of EXHIBIT I to the Partnership Agreement, each of the undersigned,
being a limited partner of the Partnership (an "Exercising Partner"), hereby
elects to exercise its Conversion Rights and/or Sale Rights as to the number of
Partnership Units specified opposite its signature below:
Dated:____________________
EXERCISING PARTNER
------------------
Type of Rights Being Exercised (Conversion Rights OR SALE RIGHTS)
NUMBER OF PARTNERSHIP UNITS
Exercising Partners:
- ----------------------
- ----------------------
<PAGE>
SCHEDULE 2
ELECTION NOTICE
To: All Exercising Partners
Reference is made to that certain First Amended and Restated Agreement
of Limited Partnership of Essex Portfolio, L.P. dated as of April 30, 1997 (the
"Partnership Agreement"), pursuant to which the undersigned and certain other
persons, including the Exercising Partners, formed a California limited
partnership currently known as Essex Portfolio, L.P. (the "Partnership"). All
capitalized terms used but not defined herein shall have the meanings set forth
in the Partnership Agreement. Pursuant to subsection (b) of Paragraph 7 of
Exhibit I to the Partnership Agreement, the undersigned, being the general
partner of the Partnership, hereby notifies the Exercising Partners that (a) the
consideration for the Partnership Units as to which the Sale Rights are being or
are deemed to be exercised is $_________, the computation of which is set forth
on an attachment hereto; (b) $______ of the consideration is payable in cash and
the balance thereof is payable by issuance of ______ shares of Common Stock; and
(c) the closing of the purchase and sale of the Partnership Units as to which
the Sale Rights are being or are deemed to be exercised shall take place at the
offices of _______________ at _______a.m., local time, on _____________________.
Dated:_____________________
ESSEX PROPERTY TRUST, INC.,
a Maryland corporation
BY:__________________________
ITS:_________________________
<PAGE>
Exhibit 10.2
NINTH MODIFICATION AGREEMENT TO THE AMENDED
AND RESTATED REVOLVING LOAN AGREEMENT
This Ninth Modification Agreement to the Amended and Restated Revolving
Loan Agreement ("Agreement") is dated as of October 28, 1997, by Essex
Portfolio, L.P., a California limited partnership ("Borrower") and Bank of
America National Trust and Savings Association, a national banking association
("Bank").
Factual Background
A. Under an Amended and Restated Revolving Loan Agreement dated
February 12, 1996 (the "Loan Agreement"), Bank agreed to continue a
revolving loan (the "Loan") to Borrower. Capitalized terms used here
without definition have the meanings given to them in the Loan Agreement.
B. The amount of the line of credit (the "Commitment") under the Loan
is Thirty Eight Million Eight Hundred Twenty Thousand and No/100s Dollars
($38,820,000.00). The Commitment was initially secured by amongst other
things, a Deed of Trust with Assignment of Rents, Security Agreement and
Fixture Filing covering certain real property commonly known as Plumtree
Apartments ("The Plumtree Property"), 440 N. Winchester Blvd., Santa Clara,
California 95050, recorded June 13, 1994 as instrument #12534864 in the
official records of Santa Clara County, California ("Plumtree Deed of
Trust"), a Deed of Trust with Assignment of Rents, Security Agreement and
Fixture Filing covering certain real property commonly known as The Apple
Apartments ("The Apple Property"), 4141 Stevenson Blvd., Fremont,
California 94538, recorded December 20, 1996 as instrument #96323540 in the
official records of Alameda County, California, ("Apple Deed of Trust"), a
Deed of Trust with Assignment of Rents, Security Agreement and Fixture
Filing covering certain real property commonly known as the Countrywood
Apartments ("The Countrywood Property"), 4555 Thorton Avenue, Fremont,
California 94536, recorded December 20, 1996 as instrument #96323538 in the
official records of Alameda County, California, ("Countrywood Deed of
Trust"), a Leasehold Deed of Trust with Assignment of Rents, Security
Agreement and Fixture Filing covering certain real property commonly known
as 777 California Avenue ("777 California Property"), 777 California
Avenue, Palo Alto, California 94304, recorded January 6, 1997 as instrument
#13570213 in the official records of Santa Clara County, California ("777
California Deed of Trust"), a Line of Credit Deed of Trust with Assignment
of Rents, Security Agreement and Fixture Filing covering certain real
property commonly known as Witchita Town Center ("Wichita Town Center
Property"), 6130 SE King Road, Milwaukie, Oregon, to be recorded in the
official records of Clackamas County, Oregon ("Witchita Deed of Trust"), a
Line of Credit Deed of Trust with Assignment of Rents, Security agreement
and Fixture Filing covering certain real property commonly known as Canby
Center ("Canby Center Property"), 1051-1075 SW 1st Avenue, Canby, Oregon,
to be recorded in ;the official records of Clackamas County, Oregon ("Canby
Deed of Trust"), a Line of Credit Deed of Trust with Assignment of Rents,
Security Agreement and Fixture Filing covering certain real property
commonly known as Cedar Mill Plaza ("Cedar Mill Plaza Property"), NE
Cornell Road, Portland, Oregon, to be recorded in the official records of
Washington County, Oregon ("Cedar Mill Deed of Trust"), a Line of Credit
Deed of Trust with Assignment of Rents, Security Agreement and Fixture
Filing covering certain real property commonly known as Powell Villa Center
("Powell Villa Center Property"), 3506-3660 SE 122nd Avenue, Portland,
Oregon, to be recorded in the official records of Multnomah County, Oregon
("Powell Villa Deed of Trust"), a Line of Credit Deed of Trust with
Assignment of Rents, Security Agreement and Fixture Filing covering certain
real property commonly known as Riviera Shopping Center ("Riviera Shopping
Center Property"), 2019 River Road, Eugene, Oregon, to be recorded in the
official records of Lane County, Oregon ("Riviera Deed of Trust"), and a
Deed of Trust with Assignment of Rents, Security Agreement and Fixture
Filing covering certain real property commonly known as Garrison Square
("Garrison Square Property"), 7800-8086 East Mill Plain Blvd., Vancouver,
Washington, to be recorded in the official records of Clark County,
Washington ("Garrison Deed of Trust"), hereby collectively known as (the
"Line of Credit Deeds of Trust").
<PAGE>
C. In addition to the above stated Line of Credit Deeds of Trust, the
Commitment is also secured by the following deeds of trust in connection
with other loans executed by the Borrower as grantor for the benefit of
Bank: a) a Deed of Trust with Assignment of Rents, Security Agreement and
Fixture Filing dated May 1, 1995 covering certain real property commonly
known as Inglenook Apartments ("The Inglenook Property"), 14220 Juanita
Drive, N.E., Bothell, Washington, recorded on May 25, 1995 as Instrument
No. 9505250254 in the official records of King County, Washington
("Inglenook Deed of Trust"); and b) a Deed of Trust with Assignment of
Rents, Security Agreement and Fixture Filing dated November 1, 1995
covering certain real property commonly know as the Wandering Creek
Apartments ("The Wandering Creek Property"), 12910 SE 240th, Kent,
Washington, recorded on November 22, 1995 as Instrument No. 9511220164 in
the official records of King County, Washington ("Wandering Creek Deed of
Trust"). The Line of Credit Deeds of Trust, the Inglenook Deed of Trust and
the Wandering Creek Deed of Trust are hereby collectively known as "Deeds
of Trust".
D. As of the date hereof, three (3) of the properties, known as the
Cedar Mill Property, Witchita Property and The Countrywood Property have
been sold, and the Cedar Mill Deed of Trust, Witchita Deed of Trust and The
Countrywood Deed of Trust are hereby released.
E. To date, the Apple Deed of Trust, the Plumtree Deed of Trust, the
777 California Deed of Trust and the Garrison Deed of Trust have been
recorded in the office of the County Recorder of their respective counties.
As of the date hereof and until all of the Conditions Precedent outlined in
Section 4 of the Third Modification Agreement have been met, the current
amount disbursed under the Revolving Loan may not exceed Twenty Five
Million One Hundred Ten Thousand and No/100ths Dollars ($25,110,000.00).
F. In connection with the Loan, Borrower executed ten (10) Secured and
Unsecured Indemnity Agreements, three of which have been released for the
Cedar Mill Property, the Witchita Property and The Countrywood Property
("Borrower's Unsecured Indemnity"). Borrower's Unsecured Indemnity is a
Loan Document as defined below.
G. Essex Property Trust, Inc., a Maryland Corporation has guarantied
Borrower's obligations to Bank in accordance with a Second Amended and
Restated Payment Guaranty dated July 30, 1997.
H. The Loan Agreement was modified by that certain First Modification
Agreement to the Amended and Restated Revolving Loan Agreement dated as of
July 5, 1996 ("First Modification Agreement"), by that certain Second
Modification Agreement to the Amended and Restated Revolving Loan Agreement
dated as of October 2, 1996 ("Second Modification Agreement"), by that
certain Third Modification Agreement to the Amended and Restated Revolving
Loan Agreement dated as of December 16, 1996 ("Third Modification
Agreement"), by that certain Fourth Modification to the Amended and
Restated Revolving Loan Agreement dated January 13, 1997 ("Fourth
Modification Agreement"), by that certain Fifth Modification Agreement to
the Amended and Restated Revolving Loan Agreement dated March 10, 1997
("Fifth Modification Agreement"), by that certain Sixth Modification to the
Amended and Restated Revolving Loan Agreement dated May 17, 1997 ("Sixth
Modification Agreement"), by that certain Seventh Modification to the
Amended and Restated Revolving Loan Agreement dated June 30, 1997 ("Seventh
Modification Agreement") and by that certain Eighth Modification to the
Amended and Restated Revolving Loan Agreement dated July 30, 1997 ("Eighth
Modification Agreement"). The Loan Agreement, the First Modification
Agreement, the Second Modification Agreement, the Third Modification
Agreement, the Fourth Modification Agreement, the Fifth Modification
Agreement, the Sixth Modification Agreement, the Seventh Modification
Agreement and the Eighth Modification Agreement are hereby collectively
known as the Loan Agreement.
I. As used here, the term "Loan Documents" means the Amended and
Restated Loan Agreement, the Deeds of Trust, and any other documents
executed in connection with the Loan, including those which evidence,
guaranty, secure or modify the Loan, as any or all of them may have been
amended to date. This Agreement is a Loan Document.
J. There is currently a $16,525,000.00 outstanding principal balance
of the Loan as of October 15, 1997.
<PAGE>
K. The Plumtree Property, the Apple Property, the 777 California
Property, the Canby Center Property, the Powell Villa Center Property, the
Riviera Shopping Center Property and the Garrison Square Property, will
hereby collectively be known as (the "Properties").
AGREEMENT
Therefore, Borrower and Lender agree as follows:
1. Recitals. The recitals set forth above in the Factual Background
are true, accurate and correct.
2. Reaffirmation. Borrower hereby reaffirms all of the following:
Borrower reaffirms all of its obligations under the Loan
Documents, and Borrower acknowledges that it has no claims,
offsets or defenses with respect to the payment of sums due under
Loan Agreement or any other Loan Document.
3. Modification of Loan Documents. The Loan Agreement is hereby
amended as follows:
3.1 Availability Period. The Expiration Date as defined in
Section 1.2(a) of the Loan Agreement is hereby amended to read
December 2, 1997.
4. Conditions Precedent. Before this Agreement becomes effective and
any party becomes obligated under it, all of the following conditions
shall have been satisfied at Borrower's sole cost and expense in a
manner acceptable to Bank in the exercise of Bank's sole judgment.
a. Bank must receive fully executed originals of this Agreement
and any other documents which Bank may require or request in
accordance with this Agreement or the other Loan Documents.
b. Bank shall have received reimbursement, in immediately
available funds, of all costs and expenses, whenever, incurred by
Bank in connection with this Agreement, including charges for
title insurance (including endorsements), recording, filing and
escrow charges, fees for appraisal, architectural and engineering
review, construction services and environmental services,
mortgage taxes, and legal fees and expenses of Bank's counsel.
Such costs and expense may include the allocated costs for
services of Bank's counsel. Such costs and expenses may include
the allocated costs for services of Bank's in-house staffs, such
as legal, appraisal, construction services and environmental
services. Borrower acknowledges that the loan and documentation
fees payable in connection with this transaction do not include
the amounts payable by Borrower under this subsection. Such
expenses will be reasonable and customary.
c. Bank shall have received its documentation fee in the amount
of $250.00.
5. Borrower's Representations and Warranties. Borrower represents and
warrants to Bank as follows:
(a) Loan Documents. All representations and warranties made and
given by Borrower in the Loan Documents are true, accurate and
correct.
(b) No Default. No Event of Default has occurred and is
continuing, and no event has occurred and is continuing which,
with notice or the passage of time or both, would be an Event of
Default
(c) Properties. Borrower lawfully possesses and holds a fee
interest (except for the Leasehold Property) in all of the
Properties which are Land, and the Deeds of Trust are a first and
prior lien on Borrower's interest (except the Inglenook Deed of
Trust and the Wandering Creek Deed of Trust, which are second
liens on Borrower's interest). Borrower owns all of the
Improvements, and all of the Properties which are personal
property, free and clear of any reservations of title and
<PAGE>
conditional sales contracts, and also of any security interests
other than the Deeds of Trust, which are a first and prior lien
on such Properties (except the Inglenook Deed of Trust and the
Wandering Creek Deed of Trust, which are second liens on such
Property). There is no financing statement affecting any
Properties on file in any public office except (i) for financing
statements in favor of Bank and (ii) financing statements in
existence as of the date of the Deeds of Trust that were approved
by Bank.
(d) Borrowing Entity. Borrower is a limited partnership which is
duly organized and validly existing under the laws of the State
of California. There have been no changes in the organization,
composition, ownership structure or formation documents of
Borrower since the inception of the Loan with the exception of
Tiger/Westbrook Real Estate Fund, LP and Tiger/Westbrook Real
Estate Co-Investment Partnership, LP (collectively
"Tiger/Westbrook).
(e) General Partner. Essex Property Trust, Inc., a Maryland
corporation ("General Partner") is the sole general partner of
Borrower and owns at least 77.18% of the partnership interest in
Borrower. General Partner is a corporation which is duly
organized and validly existing under the laws of the State of
Maryland. There have been no changes in the organization,
composition, ownership structure or formation documents of
General Partner since the inception of the Loan with the
exception of the Tiger/Westbrook preferred equity offering, the
Guarantor's secondary common stock offering, the Guarantor's
third common stock offering, the Guarantor's fourth common stock
offering with Cohen & Steers Capital Management and the
Guarantor's fifth common stock offering.
6. Incorporation. This Agreement shall form a part of each Loan
Document, and all references to a given Loan Document shall mean that
document as hereby modified.
7. No Prejudice; Reservation of Rights. This Agreement shall not
prejudice any rights or remedies of Bank under the Loan Documents.
Bank reserves, without limitation, all rights which it has against any
indemnitor, guarantor, or endorser of the Commitment.
8. No Impairment. Except as specifically hereby amended, the Loan
Documents shall each remain unaffected by this Agreement and all such
documents shall remain in full force and effect.
9. Purpose and Effect of Bank's Approval. Bank's approval of any
matter in connection with the Loan shall be for the sole purpose of
protecting Bank's security and rights. No such approval shall result
in a waiver of any default of Borrower. In no event shall Bank's
approval be a representation of any kind with regard to the matter
being approved.
10. Disclosure to Title Company. Without notice to or the consent of
Borrower, Bank may disclose to any title insurance company which
insures any interest of Bank under the Deeds of Trust (whether as
primary insurer, coinsurer or reinsurer) any information, data or
material in Bank's possession relating to Borrower, the Loan, the
Improvements or the Property.
11. Integration. The Loan Documents, including this Agreement: (a)
integrate all the terms and conditions mentioned in or incidental to
the Loan Documents; (b) supersede all oral negotiations and prior and
other writings with respect to their subject matter; and (c) are
intended by the parties as the final expression of the agreement with
respect to the terms and conditions set forth in those documents and
as the terms, conditions and provisions of this Agreement and those of
any other agreement or instrument, including any of the other Loan
Documents, the terms, conditions and provisions of this Agreement
shall prevail.
12. Miscellaneous. This Agreement and any attached consents or
exhibits requiring signatures may be executed in counterparts, and all
counterparts shall constitute but one and the same document. If any
court of competent jurisdiction determines any provision of this
Agreement or any of the other Loan Documents to be invalid, illegal or
unenforceable, that portion shall be deemed severed from the rest,
which shall remain in full force and effect as thought the invalid,
illegal or unenforceable portion had never been a part of the Loan
Documents. This Agreement shall be governed by the laws of the State
of California, without regard to the choice of law rules of that
State. As used here, the word "include(s)" means "include(s), without
limitation," and the word "including" means "including, but not
limited to."
<PAGE>
ESSEX PORTFOLIO, L.P., a California BANK OF AMERICA
limited partnership NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: ESSEX PROPERTY TRUST, INC.,
a Maryland corporation, its
General Partner By: /S/ KRISTINE HACHIYA
------------------------
Kristine Hachiya
By: /S/ MICHAEL J. SCHALL Vice President
--------------------------
Name: Michael J. Schall
Title: Chief Financial Officer
<PAGE>
GUARANTOR'S CONSENT
ESSEX PROPERTY TRUST, INC., a Maryland corporation ("Guarantor")
hereby consents to the terms, conditions and provisions of the foregoing
Ninth Modification Agreement and the transactions contemplated by it.
Guarantor hereby reaffirms the full force and effectiveness of its Second
Amended and Restated Payment Guaranty dated July 30, 1997 ("Guaranty"). In
addition, Guarantor acknowledges that its obligations under the Guaranty
are separate and distinct from those of Borrower on the Loan.
Dated: October 28, 1997
Guarantor
By: ESSEX PROPERTY TRUST, INC.
a Maryland corporation
BY:/S/ MICHAEL J. SCHALL
------------------------
Name: Michael J. Schall
Title: CFO
<PAGE>
ESSEX PROPERTY TRUST, INC. Exhibit 11.1
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER NINE MONTHS ENDED
30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> ............................................................ <C> <C> <C> <C>
PRIMARY:
Net income ................................................. $ 10,967 $ 2,232 $ 22,089 $ 5,334
Less:
Dividends on 8.75% Convertible Preferred Stock, ......... 876 197 1,805 197
Series 1996A
=========== =========== =========== ===========
Net income applicable to common stockholders ............... $ 10,091 $ 2,035 $ 20,284 $ 5,137
=========== =========== =========== ===========
Weighted average shares outstanding ........................ 13,915,790 7,583,255 13,024,696 6,692,496
Weighted average shares of dilutive stock options using
average stock price under the treasury stock method ..... 217,565 27,884 205,689 27,884
=========== =========== =========== ===========
Weighted average shares used in net income per share ....... 14,133,355 7,611,139 13,230,385 6,720,380
calculation
=========== =========== =========== ===========
Net income per share ....................................... $ 0.71 $ 0.27 $ 1.53 $ 0.76
=========== =========== =========== ===========
FULLY DILUTED:
Adjusted shares - primary, from above ...................... 14,133,355 7,611,139 13,230,385 6,720,380
Weighted average shares issuable upon conversion of the
8.75% Convertible Preferred Stock, Series 1996A ......... 1,828,572 411,936 1,255,887 137,312
Additional weighted average shares of dilutive stock options
using end of period stock price under the treasury stock
method .................................................. 25,353 0 38,856 0
=========== =========== =========== ===========
Weighted average number of common shares - assuming ........ 15,987,280 8,023,075 14,525,128 6,857,692
full dilution
=========== =========== =========== ===========
Earnings per common share - assuming full dilution ......... $ 0.69 $ 0.27(1)$ 1.52 $ 0.76(1)
=========== =========== =========== ===========
</TABLE>
(1) For 1996, 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.
<PAGE>
ESSEX PROPERTY TRUST, INC. Exhibit 12.1
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
9 MONTHS ENDED YEAR ENDED YEAR ENDED JUNE 13, 1994 JANUARY 1, 1994
SEPTEMBER 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 .................................. $25,676 $14,970 $14,244 $ 4,397 $ 332
Interest expense
9,348 11,442 10,928 4,304 5,924
Amortization of deferred financing
costs ..................................... 383 639 1,355 773 96
------- ------- ------- ------- -------
TOTAL EARNINGS
$35,407 $27,051 $26,527 $ 9,474 $ 6,352
------- ------- ------- ------- -------
FIXED CHARGES:
Interest expense
$ 9,348 $11,442 $10,928 $ 4,304 $ 5,924
Convertible preferred stock
dividends ................................. 1,805 635 -- -- --
Amortization of deferred financing
costs ..................................... 383 639 1,355 773 96
Capitalized interest
470 115 92 -- --
------- ------- ------- ------- -------
TOTAL FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS
$12,006 $12,831 $12,375 $ 5,077 $ 6,020
------- ------- ------- ------- -------
RATIO OF EARNINGS TO FIXED CHARGES
(EXCLUDING PREFERRED STOCK .............. 3.47 2.22 2.14 1.87 1.06
DIVIDENDS)
======= ======= ======= ======= =======
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED DIVIDENDS ......... 2.95 2.11 2.14 1.87 1.06
======= ======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule containes summary financial information extracted from Essex
Property Trust, Inc. year ended report for the three months ended September
30, 1997
</LEGEND>
<CIK> 0000920522
<NAME> ESSEX PROPERTY TRUST, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 24,443
<SECURITIES> 0
<RECEIVABLES> 22,149
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,925
<PP&E> 597,790
<DEPRECIATION> 53,916
<TOTAL-ASSETS> 597,790
<CURRENT-LIABILITIES> 31,708
<BONDS> 187,926
0
1
<COMMON> 1
<OTHER-SE> 349,779
<TOTAL-LIABILITY-AND-EQUITY> 597,790
<SALES> 0
<TOTAL-REVENUES> 21,975
<CGS> 0
<TOTAL-COSTS> 10,199
<OTHER-EXPENSES> 2,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,118
<INCOME-PRETAX> 12,612
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,967
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.69
</TABLE>
