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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EVANS WITHYCOMBE RESIDENTIAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 86-0766008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
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6991 EAST CAMELBACK ROAD, SUITE A-200
SCOTTSDALE, ARIZONA 85251
(602) 840-1040
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
STEPHEN O. EVANS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
EVANS WITHYCOMBE RESIDENTIAL, INC.
6991 EAST CAMELBACK ROAD, SUITE A-200
SCOTTSDALE, ARIZONA 85251
(602) 840-1040
(Name, address, including zip code and telephone number, including area code, of
agent for service)
--------------------------
COPY TO:
KENNETH M. DORAN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA
90071-3197
(213) 229-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant Rule 462 (b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement from the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.................... 182,685 shares $21.625 $3,950,564 $1,198
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457(c) based upon the average of the high and
low prices of Common Stock on the New York Stock Exchange on December 10,
1996.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
182,685 SHARES
[LOGO]
EVANS WITHYCOMBE RESIDENTIAL, INC.
COMMON STOCK
--------------------------
Evans Withycombe Residential, Inc., a Maryland corporation (the "Company"),
is a developer, owner and manager of multifamily apartment communities in the
Southwest and operates as a self-administered and self-managed real estate
investment trust (a "REIT"). The Company conducts all of its operations through
Evans Withycombe Residential, L.P., a Delaware limited partnership (the
"Operating Partnership"), either directly or through subsidiaries. The Company
is the sole general partner and a limited partner of the Operating Partnership
and as of September 30, 1996, owned an approximately 79.3% interest therein.
This Prospectus relates to (i) the possible issuance by the Company of up to
182,685 shares (the "Exchange Shares") of Common Stock, par value $.01 per share
("Common Shares"), of the Company if, and to the extent that, holders of up to
182,685 units of limited partnership interest in the Operating Partnership
("Units") tender such Units to the Operating Partnership for redemption, and the
Company elects to issue Common Shares in exchange therefor, and (ii) the offer
and sale from time to time of up to 182,685 Common Shares that may be issued to
such persons (the "Selling Stockholders"). The Company is registering the offer
and sale by the Selling Stockholders of Exchange Shares, but the registration of
such shares does not necessarily mean that any of such shares will be offered or
sold by the holders thereof.
The Company's Common Shares are traded on the New York Stock Exchange (the
"NYSE") under the symbol "EWR." On December 10, 1996, the closing sale price of
the Common Shares as reported on the NYSE was $21 7/8 per share.
THE COMMON SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" LOCATED AT PAGE 4 HEREIN.
The Selling Stockholders may from time to time offer and sell the Exchange
Shares held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Exchange Shares to be made directly or
through agents.
The Company will not receive any proceeds from the issuance of the Exchange
Shares or the sale of such Exchange Shares by the Selling Stockholders but has
agreed to bear certain expenses of registration of the Exchange Shares under
Federal and state securities laws, other than commissions and discounts of
agents or broker-dealers and transfer taxes, if any. The Company will acquire
Units in the Operating Partnership in exchange for any Exchange Shares that the
Company may issue to holders of Units pursuant to this Prospectus.
The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of Exchange Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Exchange Shares may be deemed to be underwriting
commissions or discounts under the Securities Act.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December 13, 1996.
<PAGE>
AVAILABLE INFORMATION
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of the contract or other document filed as an exhibit to this
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission"), each statement being
qualified in all respects by such reference and the exhibits and schedules
hereto, which may be inspected without charge at the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. and copies of the
Registration Statement or any part thereof may be obtained from such office,
upon payment of the fees prescribed by the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with the
Commission by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 500 West
Madison Street, Room 1400, Chicago, Illinois 60606-2511 and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common
Shares are listed on the New York Stock Exchange (the "NYSE") and the reports,
proxy and information statements and other information filed by the Company with
the NYSE can also be inspected at the offices of the NYSE at 20 Broad Street,
New York, New York 10005. The Commission maintains a website that contains
reports, proxy and information statements and other information filed
electronically with the Commission at http:\\www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-13256)
pursuant to the Exchange Act are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1996, June 30, 1996 and September 30, 1996;
(3) the description of the Company's Common Shares contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
August 1, 1994;
(4) the Company's Proxy Statement relating to the Company's 1996 Annual
Meeting of Shareholders; and
(5) all other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the filing of a post-effective amendment which
indicates that all securities offered hereby have been sold or which
deregisters all securities then remaining unsold.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) will be
provided without charge to each person, including any beneficial owner, to whom
this Prospectus is delivered, upon a written or oral request to Evans Withycombe
Residential, Inc., Attention: Secretary, 6991 East Camelback Road, Suite A-200,
Scottsdale, Arizona 85251, telephone number: (602) 840-1040.
1
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DESCRIPTIONS AND THE FINANCIAL INFORMATION AND STATEMENTS APPEARING ELSEWHERE
AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR
AS THE CONTEXT OTHERWISE REQUIRES, (A) REFERENCES TO THE "COMPANY" SHALL INCLUDE
THE COMPANY'S PREDECESSOR, EVANS WITHYCOMBE, INC., AND ITS AFFILIATES,
PREDECESSORS AND PARTNERS (COLLECTIVELY, "EVANS WITHYCOMBE") AND EVANS
WITHYCOMBE RESIDENTIAL, L.P. (THE "OPERATING PARTNERSHIP"), EVANS WITHYCOMBE
FINANCE PARTNERSHIP, L.P. (THE "FINANCING PARTNERSHIP") AND EVANS WITHYCOMBE
MANAGEMENT, INC. (THE "MANAGEMENT COMPANY"), AND (B) REFERENCES TO THE OPERATING
PARTNERSHIP INCLUDE THE FINANCING PARTNERSHIP.
THE COMPANY
The Company is a developer, owner and manager of apartments in the
Southwest. The Company's property portfolio consists of stabilized properties
and properties under construction (a property is considered stabilized when it
reaches 93% occupancy). As of September 30, 1996, the Company owned and managed
44 stabilized multifamily apartment communities located in the metropolitan
Phoenix and Tucson areas, which contained a total of 11,885 apartments and four
stabilized multifamily apartment communities located in the Riverside/San
Bernardino, California area, which contained a total of 1,404 apartments. As of
September 30, 1996, the Company was also in the process of developing or
expanding six communities comprising 1,198 units in its Arizona markets. Six of
these communities were new developments or expansions of existing communities
owned by the Company comprising 1,198 units in its Arizona markets. The
stabilized communities and the communities under construction are referred to
herein collectively as the "Communities."
In August 1994 the Company completed an initial public offering of 8,685,000
Common Shares (the "Initial Public Offering"), and subsequently completed the
sale of an additional 1,302,750 Common Shares upon exercise of the underwriters'
over-allotment option. Concurrently with the Initial Public Offering, the
Company consummated transactions undertaken in connection with the formation of
the Company to transfer the ownership of the Communities and certain development
rights and the business of Evans Withycombe and other assets to the Operating
Partnership (the "Formation Transactions"). Pursuant to the Formation
Transactions, Common Shares or Units were issued to Messrs. Stephen O. Evans and
F. Keith Withycombe, certain affiliated entities and certain officers and
employees of such entities, affiliates of Aldrich, Eastman and Waltch, L.P.
("AEW") and funds managed by an affiliate of Copley Real Estate Advisors, Inc.
("Copley"), and certain other investors (collectively, the "Original
Investors").
All of the Communities and other assets of the Company are held by, and all
of the Company's operations are conducted through, the Operating Partnership
(either directly or through subsidiaries). The Company is the sole general
partner and also a limited partner of the Operating Partnership and, as of
September 30, 1996, owned an approximately 79.3% interest therein. The remaining
interests in the Operating Partnership are owned in the form of Units by the
other limited partners of the Operating Partnership (the "Limited Partners"). To
maintain the Company's qualifications as a REIT while realizing income from its
fee management and related service business, the Company's management operations
are conducted through the Management Company pursuant to the terms of management
agreements with the Operating Partnership and the Financing Partnership.
The Company was incorporated in Maryland in May 1994. The principal
executive offices of the Company are located at 6991 East Camelback Road, Suite
A-200, Scottsdale, Arizona 85251, telephone number: (602) 840-1040.
RISK FACTORS
Prospective investors and Limited Partners should carefully consider the
matters discussed under "Risk Factors" prior to making an investment decision
regarding the Common Shares offered hereby.
2
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TAX CONSIDERATIONS AND TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable period ending December 31, 1994. A REIT is a legal entity that holds
real estate interests and, through its payment of dividends, is able to reduce
substantially the incurrence of federal income tax at the corporate level,
allowing its shareholders to participate in real estate investments without the
"double taxation" of income that generally results from investment in a regular
corporation. REITs are subject to a number of organizational and operational
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates. See
"Risk Factors--Adverse Consequences of Failure to Qualify as a REIT; Partnership
Qualification" and "Federal Income Tax Considerations." Even if the Company
continues to qualify for taxation as a REIT, the Company may be subject to
certain federal, state and local taxes on its income and property.
REDEMPTION OF UNITS
Commencing one year after the date of acquisition of Units, Limited Partners
have the right (the "Redemption Right") to cause the Operating Partnership to
redeem all or a portion of their Units for cash equal to the fair market value
of an equivalent number of Common Shares at the time of such exchange, provided
that the Company at its option may elect to acquire any such Units presented for
redemption for the same amount of cash or Common Shares on a one-for-one basis.
The Company presently anticipates that it will elect to issue the Common Shares
pursuant to this Prospectus to acquire Units surrendered for redemption. Thus,
the Company may from time to time issue up to 182,685 Exchange Shares upon the
acquisition of the Units tendered for exchange by the Limited Partners. For the
Exchange Shares that the Company issues to a Limited Partner, the Company will
acquire such exchanging partner's Units. Consequently, with each exchange of
Units for Exchange Shares, the Company's interest in the Operating Partnership
will increase.
3
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS OR IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT, PROSPECTIVE
INVESTORS AND LIMITED PARTNERS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS
BEFORE MAKING AN INVESTMENT DECISION REGARDING THE SECURITIES OFFERED HEREBY.
TAX CONSEQUENCES OF REDEMPTION OF UNITS
The exercise by a Limited Partner of the Redemption Right generally will be
treated for tax purposes as a sale of such Units by such Limited Partner. Such a
sale will be fully taxable to the Limited Partner and such Limited Partner will
be treated as realizing for tax purposes an amount equal to the sum of the cash
or the value of the Exchange Shares received plus the amount of any Operating
Partnership liabilities allocable to the redeemed Units at the time of the
redemption. The gain or loss recognized by a Limited Partner will equal the
difference between the amount realized, as described in the preceding sentence,
and the Limited Partner's basis in the Units surrendered. It is possible that
the amount of gain recognized or even the tax liability resulting from such gain
could exceed the amount of cash and the value of other property (e.g., the value
of Exchange Shares) received upon such disposition. In addition, the ability of
a Limited Partner to sell a substantial number of Exchange Shares in order to
raise cash to pay tax liabilities associated with the redemption of Units may be
restricted due to the Company's relatively low trading volume, and, as a result
of fluctuations in the stock price, the price such holder receives for such
shares may not equal the value of the Units at the time of redemption.
POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS
If a Limited Partner exercises the right to require the redemption of its
Units, such Limited Partner may receive, at the option of the Company, cash or
Common Shares in exchange for the Units. If the Limited Partner receives cash,
the Limited Partner will no longer have any interest in the Company and will not
benefit from any potential increases in share price and will not receive any
future distributions from the Company (unless the Limited Partner currently owns
or acquires in the future additional Common Shares or Units). If the Limited
Partner receives Common Shares, the Limited Partner will become a stockholder of
the Company rather than a holder of Units in the Operating Partnership. Although
the nature of an investment in Common Shares is similar in certain respects to
an investment in Units, there are also differences between ownership of Units
and ownership of Common Shares. See "Redemption of Units--Comparison of
Ownership of Units and Common Shares."
ADVERSE CONSEQUENCES OF DEBT FINANCING
INABILITY TO SERVICE DEBT; RISKS OF REFINANCING. The Company is subject to
the risks normally associated with debt financing, including the risk that the
Company's cash flow will be insufficient to meet required payments of principal
and interest. Because the Company anticipates that only a portion of the
principal of the Company's indebtedness will be repaid prior to maturity and the
Company may not have on hand funds sufficient to repay indebtedness due at
maturity, it may be necessary for the Company to refinance debt through
additional debt financings or additional equity offerings. The Company's $131.0
million 7.98% mortgage financing securitized by certain Communities (the
"Mortgage Loan") will mature in 2001. The Company's Credit Facility will mature
in 1999 and additional outstanding mortgage indebtedness will mature between
1997 and 2001. If the Company were unable to refinance this indebtedness on
acceptable terms, the Company might be forced to dispose of properties upon
disadvantageous terms, which could result in losses to the Company and adversely
affect the cash available for distribution. In addition, if prevailing interest
rates or other factors at the time of a refinancing result in higher interest
rates on refinancings, the Company's interest expenses may increase, which
increase may adversely affect the Company's cash available for distribution and
its ability to pay distributions to shareholders. If the Company is unable to
meet its payment and other obligations, one or more of its properties could be
foreclosed upon or otherwise transferred to the mortgagee with a consequent loss
of income and asset value to the Company. See "Real Estate Investment Risks" and
"--Risks of Development, Construction and Acquisition Activities."
4
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RISK OF RISING INTEREST RATES. As of September 30, 1996, the Company had
$156.0 million of variable rate mortgage indebtedness and expects to continue
draw down upon the Credit Facility with respect to continued construction
financing for certain Communities. In addition, future indebtedness may also
bear interest at a variable rate. Accordingly, increases in interest rates could
increase the Company's interest expense, which would adversely affect the
Company's cash available for distribution to shareholders.
NO LIMITATIONS ON DEBT. As of September 30, 1996, the debt to total market
capitalization ratio of the Company was approximately 42.8%. The Company could
become more highly leveraged, resulting in an increase in debt service that
could adversely affect the Company's cash available for distribution to
shareholders and could increase the risk of default on the Company's
indebtedness.
The various risks relating to debt financing and the Company's debt
policies, considered in the aggregate, create a greater risk for the Company
than such risks and policies considered individually.
POTENTIAL DEFAULTS UNDER THE MORTGAGE LOAN. As of September 30, 1996, the
Financing Partnership has borrowed approximately $131.0 million in principal
amount under the Mortgage Loan. The payment and other obligations under the
Mortgage Loan are secured by first mortgage liens on 22 Communities. If the
Company fails to meet its obligations under the Mortgage Loan, the lender would
be entitled to foreclose on the Communities securing such debt, which would have
a material adverse effect on the Company and its ability to make expected
distributions and could threaten the continued viability of the Company.
INABILITY TO OBTAIN RELEASE OF PROPERTIES SECURING THE MORTGAGE LOAN. As
stated above, repayment of the Mortgage Loan is secured by a first mortgage lien
on certain Communities. The documents with respect to the Mortgage Loan contain
restrictions on the ability of the Company to obtain the release of a Community
securing the Mortgage Loan from the related lien. In the event the Company is
unable to obtain the release of a particular Community from the Mortgage Loan,
it would be unable to consummate a sale of such Community which might otherwise
be in the best interests of the Company.
RISKS WITH RESPECT TO REIT STATUS. It is a condition to the Mortgage Loan
that the Financing Partnership enter into a servicing arrangement on or before
the sixth anniversary of the issuance of the Mortgage Loan, as well as provide
evidence of refinancing availability six months prior to the Maturity Date.
Failure to enter into a service arrangement or provide evidence of refinancing
availability on a timely basis will result in the lender retaining all net cash
flow from the Communities securing the Mortgage Loan, which could result in a
loss of REIT status for the Company. Although no assurances can be given, the
Company expects to have a servicing arrangement in place and will be able to
provide evidence of refinancing availability prior to these aforementioned
dates.
CONFLICTS OF INTEREST
TAX CONSEQUENCES UPON SALE OR REFINANCING OF PROPERTIES. While the Company,
as the sole general partner of the Operating Partnership and the owner of the
sole general partner of the Financing Partnership, has the authority as to
whether and on what terms to sell or refinance an individual Community, those
members of the Company's management and Board of Directors of the Company who
hold Units, including Messrs. Evans, Withycombe and Berry, could potentially
influence the Company not to sell or refinance the Communities, even though such
sale might otherwise be financially advantageous to the Company, or may
influence the Company not to refinance a Community with a high level of debt,
because a sale or refinancing may result in different and more adverse tax
consequences to them than to the Company.
FAILURE TO ENFORCE TERMS OF CONTRIBUTIONS. As Original Investors and
recipients of cash in the Formation Transactions, Messrs. Evans, Withycombe and
Berry and the other executive officers of the Company and Mr. Azrack and Mr.
O'Connor, the designees on the Board of Directors of AEW and Copley,
respectively, have a conflict of interest with respect to their obligations as
directors or executive officers of the Company in enforcing the terms of the
agreements relating to such transactions. The failure to enforce the material
terms of those agreements, particularly the indemnification provisions and the
remedy provisions for breaches of representations and warranties, could result
in a monetary loss to the
5
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Company, which loss could have a material effect on the Company's financial
condition or results of operations.
CERTAIN PROPERTIES NOT INCLUDED IN COMPANY. Evans Withycombe has direct or
indirect interests in four multifamily apartment communities that were not
transferred to the Company at the time of its formation (collectively referred
to herein as the "Excluded Properties"). The Management Company manages certain
of the Excluded Properties for a fee pursuant to existing management agreements.
POLICIES WITH RESPECT TO CONFLICTS OF INTERESTS. The Company has adopted
certain policies designed to eliminate or minimize conflicts of interest. These
policies include a policy adopted by the Board of Directors that all
transactions in which executive officers or directors have a conflicting
interest must be approved by a majority of the disinterested directors of the
Company. However, there can be no assurance that these policies always will be
successful in eliminating the influence of such conflicts, and, if they are not
successful, decisions could be made that might fail to reflect fully the
interests of all shareholders.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend on the
amount of income generated and expenses incurred. If the Company's communities
do not generate revenues sufficient to meet operating expenses, including debt
service and capital expenditures, the Company's cash flow and ability to make
distributions to its shareholders will be adversely affected. A multifamily
apartment community's revenues and value may be adversely affected by a number
of factors including: the national economic climate; the local economic climate
(which may be adversely impacted by plant closings, industry slowdowns, changing
demographics, military base closings and other factors); local real estate
conditions (such as oversupply of or reduced demand for apartments); the
perceptions by prospective residents of the safety, convenience and
attractiveness of the Communities or neighborhoods in which they are located and
the quality of local schools and other amenities; the ability of the owner to
provide adequate management, maintenance and insurance; and increased operating
costs (including real estate taxes and utilities). Certain significant
expenditures associated with each equity investment (such as mortgage payments,
if any, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment. If a
property is mortgaged to secure payment of indebtedness, and if the Company is
unable to meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property or the exercise of other remedies by the mortgagee.
In addition, real estate values and income
from properties are also affected by such factors as applicable laws, including
tax laws, interest rate levels and the availability of financing.
DEPENDENCE ON PRIMARY MARKETS. The Communities are located in various
sub-markets in Phoenix and Tucson, Arizona and Riverside/San Bernardino,
California, and the Company's performance could be adversely affected by
economic conditions in, and other factors relating to, these geographic areas,
including supply and demand for apartments in these areas, zoning or other
regulatory conditions and competition from other available apartments and
alternative forms of housing. These and other factors or a decline in the
economy or real estate values in the Phoenix, Tucson and Southern California
markets may adversely affect the ability of the Company to make distributions to
its shareholders.
MARKET ILLIQUIDITY. Equity real estate investments are relatively illiquid.
Such illiquidity will tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, the Code limits the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell properties
without adversely affecting returns to holders of the Common Shares.
OPERATING RISKS. The Communities will be subject to all operating risks
common to multifamily apartment communities in general, any and all of which
might adversely affect apartment occupancy or rental rates. Increases in
unemployment in the areas in which the communities owned or managed by the
Company are located might adversely affect multifamily apartment occupancy or
rental rates. Increases in
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operating costs due to inflation and other factors may not necessarily be offset
by increased rents. Residents may be unable or unwilling to pay rent increases.
If operating expenses increase, the local rental market may limit the extent to
which rents may be increased to meet increased expenses without decreasing
occupancy rates. If any of the above occurs, the Company's ability to make
distributions to shareholders could be adversely affected.
CHANGE IN LAWS. Increases in real estate taxes and income, service or
transfer taxes cannot always be passed through to residents in the form of
higher rents, and may adversely affect the Company's cash available for
distribution and its ability to make distributions to shareholders. Similarly,
changes in laws increasing the potential liability for environmental conditions
existing on properties or increasing the restrictions on discharges or other
conditions, as well as changes in laws affecting development, construction and
safety requirements, may result in significant unanticipated expenditures, which
would adversely affect the Company's cash available for distribution and its
ability to make distributions to shareholders. In addition, future enactment of
rent control or rent stabilization laws or other laws regulating multifamily
housing may reduce rental revenue or increase operating costs.
RISK OF INCREASED PROPERTY TAXES. The transactions undertaken to form the
Company may increase the risk that certain Communities will be reassessed for
purposes of the Maricopa and Pima County property taxes. In the event of such
reassessments, the Company could incur significant additional liabilities for
property taxes, thereby reducing cash available for distribution to
shareholders.
COMPETITION. There are numerous housing alternatives that compete with the
Communities in attracting residents. The Communities compete directly with other
multifamily rental apartments and single family homes that are available for
rent in the markets in which the Communities are located. The Communities also
compete for residents with new and existing homes and condominiums. In addition,
other competitors for development and acquisitions of properties may have
greater resources than the Company.
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
The Company intends to actively continue development and construction of
multifamily apartment communities. Risks associated with the Company's
development and construction activities may include: development opportunities
may be abandoned; construction costs of a community may exceed original
estimates, possibly making the community uneconomical; occupancy rates and rents
at a newly completed community may not be sufficient to make the community
profitable; financing may not be available on favorable terms for development of
a community; and construction and lease-up may not be completed on schedule,
resulting in decreased revenues and increased interest expense. In addition, new
development activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of management's time and
attention. Development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy, and other required governmental permits and authorizations.
The Company intends to continue actively to acquire multifamily apartment
communities. Acquisitions of multifamily apartment communities entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment.
The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under various construction loans, the Credit
Facility, other lines of credit, other forms of secured or unsecured financing
or through the issuance of additional equity by the Company. However, the
Company expects periodically to review its financing options regarding the
appropriate mix of debt and equity financing. Equity, rather than debt,
financing of future developments or acquisitions could have a dilutive effect on
the interests of existing shareholders of the Company. If new developments are
financed through construction loans, there is a risk that, upon completion of
construction, permanent financing for such
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communities may not be available or may be available only on disadvantageous
terms or that the cash flow from new communities will be insufficient to cover
debt service. If a newly developed or acquired community is unsuccessful, the
Company's losses may exceed its investment in the community. Any of the
foregoing could have a material adverse effect on the Company and its ability to
make anticipated distributions.
RISKS OF FEE MANAGEMENT BUSINESS
POSSIBLE TERMINATION OF MANAGEMENT CONTRACTS. The Management Company
intends to continue the management for a fee of properties owned by third
parties. While the Company will take advantage of its reputation and experience
as a property manager and accept property management assignments that it expects
to be profitable and which fit well with the Company's property portfolio, it
does not anticipate revenue growth and has experienced a revenue decline in this
segment of its business. Risks associated with the management of properties
owned by third parties include the risk that the management contracts (which are
generally cancelable upon a sale of a property or, in some cases, upon 30 days'
notice) will be terminated by the property owner or will be lost in connection
with a sale of such property, that contracts may not be renewed upon expiration
or may not be renewed on terms consistent with current terms and that the rental
revenues upon which management fees are based will decline as a result of
general real estate market conditions or specific market factors affecting
properties managed by the Management Company, resulting in decreased management
fee income.
TAX LIABILITIES. The Management Company is subject to federal and state
income tax on its taxable income at regular corporate rates. Any federal, state
or local income taxes that the Management Company is required to pay will reduce
the cash available for distribution by the Company to its shareholders.
POSSIBLE ADVERSE CONSEQUENCES OF LACK OF CONTROL OVER THE BUSINESS OF THE
MANAGEMENT COMPANY. The capital stock of the Management Company is divided into
two classes: voting common stock, 99% of which is held by Messrs. Evans and
Withycombe and 1% of which is held by the Operating Partnership, and nonvoting
common stock, 100% of which is held by the Operating Partnership. This ownership
structure is necessary to permit the Company to share in the income of the
Management Company and also maintain its status as a REIT. The board of
directors of the Management Company consists of members of management of the
Company. Messrs. Evans and Withycombe, as the holders of 99% of the voting
common stock, will retain the ability to elect the entire board of directors of
the Management Company after the terms of the initial directors expire. Although
the nonvoting common stock and voting common stock of the Management Company
held by the Company through the Operating Partnership will represent 99% of the
equity interests in such company, the Company will not be able to elect
directors and its ability to influence the day-to-day decisions of the
Management Company will therefore be limited. As a result, the boards of
directors and management of the Management Company may implement business
policies or decisions that would not have been implemented by persons controlled
by the Company and that are adverse to the interests of the Company, or which
could adversely impact the Company's net operating income and funds from
operations. The voting common stock held by Messrs. Evans and Withycombe is
subject to a requirement that is designed to ensure that such stock will be held
by officers of the Management Company.
POSSIBLE ADVERSE CONSEQUENCES OF REIT STATUS ON THE BUSINESS OF THE
MANAGEMENT COMPANY. Certain requirements for REIT qualification may in the
future limit the Company's ability to increase fee management operations
conducted and related services offered by the Management Company without
jeopardizing the Company's qualification as a REIT. See "--Adverse Consequences
of Failure to Qualify as a REIT; Partnership Qualification" and "Federal Income
Tax Considerations--Taxation of the Company."
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF THE COMMON SHARES
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding capital stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in
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the Code to include certain entities). In order to protect the Company against
the risk of losing its status as a REIT due to a concentration of ownership
among its shareholders, the Company has limited actual or constructive ownership
of its issued and outstanding capital stock by any single person (with certain
exceptions) to 9.8% of the outstanding Common Shares (the "Ownership Limit").
See "Description of Capital Stock--Restrictions on Ownership." Although the
Board of Directors presently has no intention of doing so, the Board of
Directors could waive this restriction if certain conditions are met. The
acquisition or transfer of Common Shares in breach of the limitation will be
void AB INITIO and, provided the Company has requested and received a ruling
from the Internal Revenue Service ("IRS") or an opinion of counsel to the effect
that such action would not jeopardize the Company's status as a REIT, the Common
Shares purportedly acquired or transferred will become subject to provisions in
the Company's Charter that, in effect, are designed to prohibit the person who
purported to acquire those shares from voting, receiving dividends or other
distributions, and participating in the appreciation in value of those shares.
In addition, Common Shares acquired or transferred in breach of the limitation
may be purchased by the Company for the lesser of the price paid and the market
price (as determined in the manner set forth in the Charter). See "Description
of Capital Stock--Restrictions on Ownership" for additional information
regarding the Ownership Limit.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; PARTNERSHIP QUALIFICATION
TAX LIABILITIES AS A CONSEQUENCE OF THE FAILURE TO QUALIFY AS A REIT. The
Company intends to operate so as to qualify as a REIT under the Code. Although
management of the Company believes that the Company is organized and will
operate in such a manner, no assurance can be given that the Company will
qualify or remain qualified as a REIT. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial and administrative interpretations. The complexity of
these provisions and of the applicable income tax regulations (the "Treasury
Regulations") that have been promulgated under the Code is greater in the case
of a REIT that holds its assets in partnership form. The determination of
various factual matters and circumstances not entirely within the Company's
control may affect the Company's ability to qualify as a REIT. For example, in
order to qualify as a REIT, at least 95% of the Company's gross income in any
year must be derived from qualifying sources and the Company must make
distributions to shareholders aggregating annually at least 95% of its REIT
taxable income (excluding capital gains). Principal payments on indebtedness of
the Company, as well as expenditures for capital improvements, generally are not
immediately deductible for purposes of computing REIT taxable income, and
therefore may result in the Company being required to borrow or issue additional
equity in order to make required distributions. There can be no assurance that
the Company will be able to obtain such debt or equity financing. In addition,
no assurance can be given that new legislation, regulations, administrative
interpretations or court decisions will not significantly change the tax laws or
the application thereof with respect to qualification as a REIT or the federal
income tax consequences of such qualification.
Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5% of the value of the REIT's
total assets on certain testing dates. See "Federal Income Tax
Considerations--Taxation of the Company--Requirements for Qualification." The
Company believes that the value of the securities of the Management Company held
by the Company is less than 5% of the value of the Company's total assets, based
on the Company's belief regarding the maximum value that could be assigned to
the assets and net operating income contributions of the Management Company.
If the Company fails to qualify as a REIT, it will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income, without reduction for dividends paid, at regular corporate rates. In
addition, unless entitled to relief under certain statutory provisions, the
Company will be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. The additional tax would
significantly reduce the cash flow available for distribution to shareholders.
See "Federal Income Tax Considerations--Failure to Qualify."
QUALIFICATION OF THE OPERATING PARTNERSHIP AND FINANCING PARTNERSHIP AS
PARTNERSHIPS FOR FEDERAL INCOME TAX PURPOSES; IMPACT ON REIT STATUS OF THE
COMPANY. If the IRS were to challenge successfully the tax
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status of the Operating Partnership or the Financing Partnership as partnerships
for federal income tax purposes, the Operating Partnership, the Financing
Partnership or both, as the case may be, would be treated as an association
taxable as a corporation. In such event, the character of the Company's assets
and items of gross income would change and preclude the Company from satisfying
the asset tests and possibly the income tests (as discussed below) and, in turn,
would prevent the Company from qualifying as a REIT. See "Federal Income Tax
Considerations--Taxation of the Company." In addition, the imposition of a
corporate tax on the Operating Partnership or the Financing Partnership would
significantly reduce the amount of cash available for distribution to the
Company and its shareholders. See "Federal Income Tax Considerations--Tax
Aspects of the Operating Partnership and Financing Partnership."
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, it will be
subject to certain federal, state and local taxes on its income and property. In
particular, the Company will derive a portion of its operating cash flow from
the activities of the Management Company. The taxable income earned by the
Management Company, which will not qualify as a REIT, will be subject to
federal, state and local income tax. See "Federal Income Tax
Considerations--Other Tax Consequences."
CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, including growth,
debt, capitalization and operations, will be determined by the Board of
Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised at any time and from time to time at
the discretion of the Board of Directors without a vote of the shareholders of
the Company. A change in these policies could adversely affect the Company's
financial condition, results of operations or the market price of Common Shares.
EFFECT OF MARKET INTEREST RATES ON PRICE OF THE COMMON SHARES
One of the factors that will influence the market price of the Common Shares
in public markets will be the annual yield on the price paid for shares from
distributions by the Company. An increase in market interest rates may lead
prospective purchasers of the Common Shares to demand a higher annual yield from
future distributions. Such an increase in the required yield from distributions
may adversely affect the market price of the Common Shares.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers and
directors, particularly Messrs. Evans, Withycombe and Berry. The loss of their
services could have an adverse effect on the operations of the Company. The
Company does not have "key man" life insurance for Messrs. Evans, Withycombe and
Berry. Each of Messrs. Evans, Withycombe and Berry have entered into employment
agreements with the Company.
LIMITS ON CHANGES IN CONTROL
In addition to the Ownership Limit, certain provisions contained in the
Company's Charter and under Maryland law may have the effect of discouraging a
third party from making an acquisition proposal for the Company and may thereby
inhibit a change in control of the Company. For example, such provisions may (i)
deter tender offers for the Common Shares, which offers may be beneficial to
shareholders or (ii) deter purchases of large blocks of Common Shares, thereby
limiting the opportunity for shareholders to receive a premium for their Common
Shares over then-prevailing market prices. See "Description of Capital
Stock--Common Shares" and "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws." These provisions include the following:
PREFERRED SHARES. The Charter authorizes the Board of Directors to issue up
to 10,000,000 preferred shares, par value $.01 (the "Preferred Shares" and,
together with the Common Shares, the "Shares"), in one or more classes and to
establish the preferences and rights (including the right to vote and the right
to
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convert into the Common Shares) of any class of Preferred Shares issued. No
Preferred Shares are currently issued or outstanding. See "Description of
Capital Stock--Preferred Shares."
STAGGERED BOARD. The Board of Directors of the Company has three classes of
directors. The term of the third class will expire in 1997 and 1999,
respectively (the terms of the first and second classes expired in 1995 and
1996, respectively, and such directors were re-elected to terms expiring in 1998
and 1999, respectively). Directors for each class will be chosen for a
three-year term upon the expiration of the term of the current class. The
affirmative vote of two-thirds of the outstanding Common Shares is required to
remove a director.
MARYLAND BUSINESS COMBINATION STATUTE. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person who
owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "Interested Stockholder") must be
approved by a supermajority (80%) of voting shares. In addition, an Interested
Stockholder may not engage in a business combination for five years following
the date he or she became an Interested Stockholder.
MARYLAND CONTROL SHARE ACQUISITION. Maryland law provides that "control
shares" of a corporation acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the votes
eligible under the statute to be cast on the matter. "Control Shares" are voting
shares of beneficial interest which, if aggregated with all other such shares of
beneficial interest previously acquired by the acquiror, would entitle the
acquiror directly or indirectly to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority or (iii) a
majority of all voting power. Control Shares does not include shares of
beneficial interest the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval. A "control share acquisition"
means the acquisition of Control Shares, subject to certain exceptions.
If voting rights are not approved at a meeting of shareholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for Control Shares are approved at a
shareholders meeting and the acquiror becomes entitled to vote a majority of the
shares of beneficial interest entitled to vote, all other shareholders may
exercise appraisal rights.
INFLUENCE OF EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
As of September 30, 1996, all directors and executive officers of the
Company (including Messrs. Evans and Withycombe) as a group beneficially own
approximately 33.1% of the total issued and outstanding Common Shares and Units.
In addition, AEW and Copley and their affiliates own approximately 13.9% and
5.5%, respectively, of the total issued and outstanding Common Shares. Pursuant
to the terms of a Director Designation Agreement, (a) AEW has and Copley each
have the right to designate for nomination one director for a period of five
years following the initial public offering in August 1994, so long as it each
of them continues to hold at least a 7.5% interest in the Company (giving effect
to the exchange of all Units for Common Shares) and (b) Mr. Evans and Mr.
Withycombe each have the right to designate themselves to serve as directors of
the Company so long as each of them continues to hold a 7.5% interest in the
Company (giving effect to the exchange of all Units for Common Shares) or they
jointly hold a 12.5% interest in the Company (giving effect to the exchange of
all Units for Common Shares) and each of them continues to serve as an executive
officer of the Company. Pursuant to the Director Designation Agreement, each of
AEW, Mr. Evans and Mr. Withycombe have agreed to vote their Common Shares for
the persons nominated for director pursuant to the terms of the Director
Designation Agreement. Accordingly, such persons will have substantial influence
on the Company, which influence might not be consistent with the interests of
other shareholders, and may have a substantial influence on the outcome of any
matters submitted to the Company's shareholders for approval. In addition,
although there is no current agreement, understanding or arrangement for such
persons to act together on any
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matter, they could be in a position to exercise significant influence over the
affairs of the Company if they were to act together in the future.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate generally is liable for the costs of removal or remediation
of certain hazardous or toxic substances located on or in, or emanating from,
such property, as well as related costs of investigation and property damage.
Such laws often impose such liability without regard to whether the owner knew
of, or was responsible for, the presence of such hazardous or toxic substances.
The presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or lease a property
or to borrow using such real estate as collateral. Other federal and state laws
require the removal or encapsulation of asbestos-containing material when such
material is in poor condition or in the event of construction, demolition,
remodeling or renovation. Other statutes may require the removal of underground
storage tanks. Noncompliance with these and other environmental, health or
safety requirements may result in the need to cease or alter operations at a
property. All of the properties that the Company owns have been subject to Phase
I environmental reports (which typically involve inspection without soil
sampling or ground water analysis). The Company is not aware of any
environmental liability that the Company's management believes would have a
material adverse effect on the Company's business, assets or results of
operations. No assurance, however, can be given that these reports reveal all
environmental liabilities, that no environmental conditions have occurred since
the time of the reports, or that no prior owner created any material
environmental condition not known to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
The Company believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances, and the Company has not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of its present or former properties. The Company will also endeavor to protect
itself from acquiring contaminated properties or properties with significant
compliance problems by obtaining site assessments and property reports at the
time of acquisition when it deems such investigations to be appropriate. There
is no guarantee, however, that these measures will successfully insulate the
Company from all such liabilities.
Electric transmission lines are located in the vicinity of the Communities.
Electric transmission lines are one of many sources of electro-magnetic fields
("EMFs") to which people may be exposed. Research into potential health impacts
associated with exposure to EMFs has produced inconclusive results.
Notwithstanding the lack of conclusive scientific evidence, some states now
regulate the strength of electric and magnetic fields emanating from electric
transmission lines, while others have required transmission facilities to
measure for levels of EMFs. In addition, the Company understands that lawsuits
have, on occasion, been filed (primarily against electric utilities) alleging
personal injuries resulting from exposure as well as fear of adverse health
effects. In addition, fear of adverse health effects from transmission lines has
been a factor considered in determining property values in obtaining financing
and in condemnation proceedings. Therefore, there is a potential for the value
of a property to be affected as a result of its proximity to a transmission line
and for the Company to be exposed to damage claims by persons exposed to EMFs.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
Under the Americans with Disabilities Act of 1990, as amended (the "ADA"),
all places of public accommodation are required to meet certain Federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Although management of the Company believes
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that the Communities are substantially in compliance with present requirements
of the ADA, the Company may incur additional costs of complying with the ADA. A
number of additional federal, state and local laws exist which also may require
modifications to the Communities, or restrict certain further renovations
thereof, with respect to access thereto by disabled persons. For example, the
Fair Housing Amendments Act of 1988, as amended (the "FHAA"), requires apartment
communities first occupied after March 13, 1990, to be accessible to the
handicapped. Noncompliance with the FHAA could result in the imposition of fines
or an award of damages to private litigants. The Company believes that the
Communities that are subject to the FHAA are in compliance in all material
respects with such law.
Additional legislation may impose further burdens or restriction on owners
with respect to access by disabled persons. The ultimate amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, and,
while such costs are not expected to have a material effect on the Company, such
costs could be substantial. Limitations or restrictions on the completion of
certain renovations may limit application of the Company's investment strategy
in certain instances or reduce overall returns on the Company's investments.
UNINSURED LOSS
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the completed Communities, with
policy specifications, insured limits and deductibles customarily carried for
similar properties. The Company will carry similar insurance with respect to its
other properties, but with such exceptions as are appropriate given the
undeveloped nature of certain of these properties. There are, however, certain
types of losses (such as losses arising from acts of war or from earthquakes)
that are not generally insured because they are either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of insured
limits occur, the Company could lose its capital invested in a property, as well
as the anticipated future revenues from such property and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss would adversely affect the Company and its ability to
make distributions.
EFFECT ON COMMON SHARE PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Common Shares (including Common Shares
issued upon the exchange of Units), or the perception that such sales could
occur, could adversely affect prevailing market prices of the Common Shares.
Subject to certain adjustments, an aggregate of 182,685 additional Common Shares
may be issued to the Limited Partners (subject to the Ownership Limit) if they
exchange all their Units for Common Shares. In addition, as of September 30,
1996, the Company had granted options to purchase 942,250 Common Shares and
reserved for issuance an additional 887,750 Common Shares pursuant to the
Company's 1994 Stock Incentive Plan and Non-employee Directors Stock Plan, and
these shares will be available for sale in the public markets from time to time.
Furthermore, from such 887,750 reserved shares, approximately 82,800 shares of
restricted stock were issued under such plan to certain officers of the Company
on or about August 17, 1995. As of September 30, 1996 75,473 shares of
restricted stock were outstanding. No prediction can be made about the effect
that future sales of the Common Shares will have on the market prices of shares.
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DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the capital stock of the Company set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to Maryland law and to the Charter (as defined below) and Bylaws of
the Company, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part, as described in "Additional Information."
GENERAL
The Articles of Incorporation of the Company, as amended and supplemented
from time to time (the "Charter"), provide that the Company may issue up to
110,000,000 shares of capital stock, consisting of 100,000,000 shares of Common
Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock, par
value $.01 per share (the "Preferred Shares"). Under Maryland law, shareholders
generally are not liable for the corporation's debts or obligations.
COMMON SHARES
Subject to the preferential rights of any class of Preferred Shares, and to
the provision of the Company's Charter regarding the consequences of actually or
constructively owning Common Shares in violation of the Ownership Limit
Provision (as discussed below), holders of Common Shares are entitled to receive
distributions on such Common Shares if, as and when authorized and declared by
the Board of Directors of the Company out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company. The Company intends to continue to make quarterly
distributions to holders of Common Shares.
Subject to the provisions of the Company's Charter regarding the
consequences of actually or constructively owning Common Shares in violation of
the Ownership Limit Provision and to the matters discussed under "Certain
Provisions of Maryland Law and of the Company's Charter and Bylaws--Control
Share Acquisitions," each outstanding Common Share entitles the holder to one
vote on all matters submitted to a vote of shareholders, including the election
of directors, and, except as otherwise required by law or except as provided
with respect to any other class or series of stock, the holders of such shares
will possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding Common Shares can elect all of the directors then standing for
election and the holders of the remaining shares will not be able to elect any
directors.
Holders of Common Shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company. See
"--Restrictions on Ownership."
Subject to the provisions of the Company's Charter regarding the
consequences of actually or constructively owning Common Shares in violation of
the Ownership Limit Provision, all Common Shares will have equal dividend,
distribution, liquidation and other rights and will have no preference,
appraisal or exchange rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes to be cast on the
matter) is set forth in the corporation's charter. The Company's Charter
provides that a majority of all of the votes to be cast is the required vote of
shareholders in such situations, except that any proposal (i) to permit
cumulative voting in the election of directors, (ii) to alter provisions of the
Company's Charter with respect to the classified Board, removal of directors,
amendment of the Bylaws, preemptive rights, indemnification of corporate agents
and limitation of liability of officers and directors, or (iii) that would
jeopardize the Company's status as a REIT for tax purposes, requires, in each
case, the approval of two-thirds of the Common Shares entitled to vote. In
addition, a number of other provisions of the MGCL could have a significant
effect on the Common Shares and the rights and
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obligations of holders thereof. See "Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws."
PREFERRED SHARES
Preferred Shares may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each class,
the Board of Directors is required by the MGCL and the Company's Charter to fix
for each such class, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Board could authorize the issuance of Preferred Shares with
terms and conditions which could have the effect of discouraging a takeover or
other transaction which holders of some, or a majority, of the Company's
outstanding shares might believe to be in their best interests or in which
holders of some, or a majority, of shares might receive a premium for their
shares over the market price of such shares. As of the date hereof, no Preferred
Shares are outstanding. If and when issued, the Preferred Shares will be subject
to the restrictions on ownership set forth below.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding shares may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year and the shares must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of 12 months
(or during a proportionate part of a shorter taxable year). In addition, certain
income received by the Company from related parties will not be treated as
"rents from real property" in determining whether the Company satisfies the REIT
income tests. See "Federal Income Tax Considerations--Taxation of the
Company--Requirements for Qualification." Because the Board of Directors
believes it is essential for the Company to qualify as a REIT, the Board of
Directors has adopted, and the shareholders prior to the Company's initial
public offering approved, a provision in the Charter restricting the acquisition
of shares of the Company's capital stock (the "Ownership Limit Provision").
The Ownership Limit Provision provides that, subject to certain exceptions,
no shareholder may actually own, beneficially own (within the meaning of Section
13(d)(3) of the Exchange Act), or be deemed to own by virtue of the constructive
ownership provisions of the Code, more than the Ownership Limit, which is equal
to 9.8% of the lesser in value of the total number or value of the outstanding
Common Shares or Preferred Shares (or such other number or value of Preferred
Shares as the Board of Directors may determine in fixing the terms of the
Preferred Shares). The constructive ownership rules of the Code are complex and
may cause shares owned actually or constructively by two or more related
individuals and/ or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the outstanding Common
Shares or 9.8% (or such other number or value) of the Preferred Shares (or the
acquisition of an interest in an entity which owns shares) by an individual or
entity could cause that individual or entity (or another individual or entity)
to own constructively in excess of 9.8% of the outstanding Common Shares or 9.8%
(or such other number or value) of the outstanding Preferred Shares, and thus
subject such shares to the Ownership Limit Provision. The Ownership Limit
Provision also prohibits the acquisition or transfer of Common Shares and
Preferred Shares if the acquisition or transfer would result in the outstanding
shares of capital stock of the Company being owned by fewer than 100 persons,
and prohibits actual or constructive ownership of capital stock if as a result
of such ownership the Company would violate the "five or fewer" rule discussed
above or would otherwise cause the Company to fail to qualify as a REIT.
The Board of Directors may in its sole discretion waive the Ownership Limit
with respect to a particular acquisition of actual or constructive ownership of
the Company's shares, provided certain conditions are met. The Board of
Directors is not required to consider a request for such waiver, and, as a
condition for granting such a waiver, the Board of Directors may require
opinions of counsel or rulings
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satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of the Company.
Except as provided below, in the event of a transfer, acquisition or other
ownership of the Company's capital stock (including any constructive acquisition
or transfer or ownership) in violation of the Ownership Limit Provision, such
transfer, acquisition or ownership shall be null and void AB INITIO, and the
intended transferee or owner will acquire no rights to, or economic interest in,
the shares.
The Charter provides that, if the Board of Directors requests and receives a
ruling from the IRS or an opinion of counsel satisfactory to the Board of
Directors and is otherwise satisfied such actions can be taken without
jeopardizing the Company's REIT status, shares of the Company's capital stock
owned, actually or constructively, or transferred to or otherwise acquired,
actually or constructively, by a person in violation of the Ownership Limit
Provision ("Prohibited Shares") will become subject to a mechanism that, in
effect, is designed to prohibit the person who purported to acquire those shares
from voting, receiving dividends or other distributions, and participating in
the appreciation in value of those shares. In general, pursuant to this
mechanism, the Prohibited Shares would automatically be transferred to a trustee
of a trust, the beneficiary of which would be one or more charitable
organizations, at the close of business on the day preceding the violative
transaction. The intended owner of the Prohibited Shares would have no right to
vote or receive distributions on the Prohibited Shares, and generally would be
entitled to receive only the net proceeds from a sale of the Prohibited Shares,
or the purchase price paid by such person for the Prohibited Shares (or value as
of the date of the acquisition, in the case of an acquisition other than a
purchase), whichever is less. The Company will have a right to purchase the
Prohibited Shares for fair market value during a specified period. Until the
Board of Directors requests and receives a ruling from the IRS or an opinion of
counsel and is otherwise satisfied that implementation of these provisions will
not jeopardize the Company's REIT status, these provisions will not take effect
and attempted transfers or ownership of shares in violation of the Ownership
Limit Provision will be void AB INITIO.
The Ownership Limitation Provision contains an exception for Common Shares
acquired by AEW and Copley in the transactions undertaken in connection with the
formation of the Company (the "Formation Shares"), that are intended to prevent
such entities from violating the Ownership Limitation Provision as a result of
participating in such transactions. This exception continues to apply to
Formation Shares in the hands of a direct and indirect transferee of these
entities, provided the transferee is a qualified pension fund and other
conditions are met.
The Ownership Limit Provision will not be automatically removed even if the
REIT provisions of the Code are changed so as to remove any ownership
concentration limitation. Except as otherwise described above, any change of the
Ownership Limit Provision would require an amendment to the Charter. Such
amendment to the Charter requires the affirmative vote of holders owning a
majority of the outstanding shares entitled to vote, unless such amendment would
cause the Company to lose its status as a REIT for tax purposes, in which event
the affirmative vote of holders of two-thirds of the outstanding shares entitled
to vote would be required. In addition to preserving the Company's status as a
REIT, the Ownership Limit Provision may have the effect of precluding an
acquisition of control of the Company without the approval of the Board of
Directors.
All certificates representing Common Shares bear a legend referring to the
restrictions described above.
All persons who own a specified percentage (or more) of the outstanding
shares of the Company's capital stock must file a statement with the Company
containing information regarding their ownership of Common Shares, as set forth
in the Treasury Regulations. See "Federal Income Tax Considerations Taxation of
the Company--Requirements for Qualification."
TRANSFER AGENT AND REGISTRAR
Norwest Bank, Minnesota, National Association serves as the Company's
transfer agent and registrar.
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DESCRIPTION OF UNITS
GENERAL
All the Company's assets are held by, and all of its operations are
conducted through, the Operating Partnership (either directly or through
subsidiaries). The Company is the sole general partner and also a limited
partner of the Operating Partnership and as of September 30, 1996, held an
approximately 79.3% interest therein. The Company, in its capacity as general
partner, owns a number of Units equal to 1% of all Units outstanding, and holds
the balance of its Units in its capacity as a limited partner. Accordingly, the
Company is a limited partner and will have the rights of a limited partner
(including the voting and consent rights of a limited partner), with respect to
all Units held by the Company from time to time in excess of 1% of the total
number of Units outstanding.
The remaining Units are held by persons who contributed interests in certain
Communities and/or other assets to the Company or the Operating Partnership.
Holders of Units (other than the Company in its capacity as general partner)
hold a limited partnership interest in the Operating Partnership, and all
holders of Units (including the Company in its capacity as general partner) are
entitled to share in cash distributions from, and in the profits and losses of,
the Operating Partnership in proportion to their respective percentage interests
therein. Holders of Units will have the rights to which limited partners are
entitled under the Partnership Agreement and the Delaware Revised Uniform
Limited Partnership Act, as amended (the "Partnership Act"). The Units are not
listed on any exchange or quoted on any national market system. The Partnership
Agreement imposes certain restrictions on the transfer of Units, as described
below.
A summary of certain provisions of the Agreement of Limited Partnership of
the Operating Partnership (the "Partnership Agreement") and a description of the
material terms of the Units are set forth below. The following description does
not purport to be complete and is subject to and qualified in its entirety by
reference to applicable provisions of the Partnership Act and the Partnership
Agreement.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be conducted lawfully by a limited partnership organized
pursuant to the Partnership Act, except that the Partnership Agreement requires
the business of the Operating Partnership to be conducted in such a manner that
will permit the Company to be classified as a REIT under Section 856 of the
Code, unless the general partner provides notice to the Operating Partnership
that it intends to cease or has ceased to qualify as a REIT. Subject to the
foregoing limitation, the Operating Partnership may enter into partnerships,
joint ventures or similar arrangements and may own interests in any other
entity.
In general, the Board of Directors of the Company, in its capacity as sole
general partner of the Operating Partnership, will manage the affairs of the
Operating Partnership by directing the affairs of the Company.
Under the Partnership Agreement, the Limited Partners have no authority to
transact business for, or participate in the management activities or decisions
of, the Operating Partnership. Consent of the holders of majority of the limited
partnership interests (including Units held by the General Partner) is required
in connection with a sale of all or substantially all of the assets of the
Operating Partnership or in connection with the termination or dissolution of
the Operating Partnership (until 2053).
The Partnership Agreement permits the Operating Partnership to take all
actions consistent with the purpose and business of the Operating Partnership,
except that the Operating Partnership is specifically precluded from taking
actions which, in the judgment of the Company, could adversely affect the
ability of the Company to qualify as a REIT, subject the Company to certain
income and excise taxes, or violate any law or regulation of any governmental
body or agency having jurisdiction over the Company or its securities, unless
the Company specifically consents in writing to such action.
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ABILITY TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The Company may not conduct any business other than the business of the
Operating Partnership and activities incidental thereto. Other persons
(including officers, directors, employees, agents and other affiliates of the
Company) are not prohibited under the Partnership Agreement from engaging in
other business activities and are not be required to present any business
opportunities to the Operating Partnership, however, certain officers of the
Company (Messrs. Evans, Withycombe and Berry) have entered into employment
agreements with the Company, which include noncompetition provisions. In
addition, the Company, on behalf of the Operating Partnership, has adopted
certain policies regarding avoidance of conflicts of interest.
DISTRIBUTIONS
The Partnership Agreement provides for the quarterly distribution of
Available Cash (as such term is defined in the Partnership Agreement), as
determined in the manner provided in the Partnership Agreement, to the Company
and the Limited Partners in proportion to their percentage interests in the
Operating Partnership. Neither the Company nor the Limited Partners is entitled
to any preferential or disproportionate distributions of Available Cash.
BORROWING BY THE PARTNERSHIP
The Company is authorized to cause the Operating Partnership to borrow money
and to issue and guarantee debt as it deems necessary for the conduct of the
activities of the Operating Partnership. Such debt may be secured, among other
things, mortgages, deeds of trust, liens or encumbrances on properties of the
Operating Partnership.
LIABILITY OF GENERAL PARTNER AND LIMITED PARTNERS
The Company, as general partner of the Operating Partnership, will be liable
for all general recourse obligations of the Operating Partnership to the extent
not paid by the Operating Partnership. The Limited Partners are not required to
make additional contributions to the Operating Partnership. Assuming that a
Limited Partner does not take part in the control of the business of the
Operating Partnership and otherwise acts in conformity with the provisions of
the Partnership Agreement, the liability of the Limited Partner for obligations
of the Operating Partnership under the Partnership Agreement and the Partnership
Act is limited, subject to certain possible exceptions, generally to the loss of
the Limited Partner's investment in the Operating Partnership represented by its
Units. Under the Partnership Act, a Limited Partner may not receive a
distribution from the Operating Partnership if, at the time of the distribution
and after giving effect thereto, the liabilities of the Operating Partnership,
other than liabilities to parties on account of their interests in the Operating
Partnership and liabilities for which recourse is limited to specified property
of the Operating Partnership, exceed the fair value of the Operating
Partnership's assets, other than the fair value of any property subject to
nonrecourse liabilities of the Operating Partnership but only to the extent of
such liabilities. The Partnership Act provides that a Limited Partner who
receives a distribution knowing at the time that it violates the foregoing
prohibition is liable to the Operating Partnership for the amount of the
distribution. Unless otherwise agreed, such a Limited Partner will not be liable
for the return of such distribution after the expiration of three years from the
date of such distribution.
The Operating Partnership has qualified to conduct business in Arizona and
may in the future qualify in certain other jurisdictions. Maintenance of limited
liability may require compliance with certain legal requirements of those
jurisdictions and certain other jurisdictions. Limitations on the liability of a
Limited Partner for the obligations of a limited partnership have not been
clearly established in many jurisdictions. Accordingly, if it were determined
that the right, or exercise of the right by the Limited Partners, to make
certain amendments to the Partnership Agreement or to take other action pursuant
to the Partnership Agreement constituted "control" of the Operating
Partnership's business for the purposes of the statutes of any relevant
jurisdiction, the Limited Partners might be held personally liable for the
Operating
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Partnership's obligations. The Operating Partnership will operate in a manner
the general partner deems reasonable, necessary and appropriate to preserve the
limited liability of the Limited Partners.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement generally provides that the Company, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any Limited Partner for losses sustained or liabilities incurred
as a result of errors in judgment or of any act or omission if the Company
carried out its duties in good faith. In addition, the Company is not
responsible for any misconduct or negligence on the part of its agents, provided
the Company appointed such agents in good faith. The Company may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors, and any action it takes or omits to
take in reliance upon the opinion of such persons, as to matters that the
Company reasonably believes to be within their professional or expert
competence, shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the Company,
the officers of the Company and such other persons (including affiliates of the
Company or Operating Partnership) as the Company may from time to time designate
against any judgments, penalties, fines, settlements and reasonable expenses
actually incurred by such person in connection with the proceeding subject to
certain limitations set forth in the Partnership Agreement.
REMOVAL OF THE GENERAL PARTNER, TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Partnership Agreement provides that the Limited Partners may not remove
the Company as general partner of the Operating Partnership. In general, the
Company may not transfer or assign its general partnership interest nor sell all
or substantially all its assets, or enter into a merger unless (i) pursuant to
such a transaction the Limited Partners will not engage in a sale or exchange
for federal income tax purposes of their Units, or (ii) the sale or merger
includes the sale of all or substantially all of the assets of or the merger of
the Operating Partnership with partners of the Operating Partnership receiving
substantially the same consideration as holders of Shares.
RESTRICTIONS ON TRANSFER OF UNITS BY LIMITED PARTNERS
A Limited Partner may not transfer its Units without the prior consent of
the Company, with certain exceptions which include a transfer to an immediate
family member or an affiliate of the Limited Partner, a transfer upon the death
of a Limited Partner or a pledge to a lending institution as collateral for a
bona fide loan. A transferee of Units will be admitted to the Operating
Partnership as a substitute Limited Partner only with the consent of the Company
as general partner. If the general partner does not consent to the admission of
a transferee of Units as a substitute Limited Partner, the transferee will be
entitled to all the rights of an assignee of a limited partnership interest
under the Partnership Act, and will succeed to all economic rights and benefits
attributable to such Units, but will not become a Limited Partner or possess any
other rights of Limited Partners (including the right to vote, with such right
to vote remaining in the transferor).
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The Company is authorized without the consent of the Limited Partners to
cause the Operating Partnership to issue additional Units to itself, to the
Limited Partners or to other persons for such consideration and on such terms
and conditions as the Company deems appropriate. In addition, the Company may
cause the Operating Partnership to issue to the Company additional partnership
interests in different series or classes, which may be senior to the Units, in
conjunction with an offering of securities of the Company having substantially
similar rights, in which the proceeds thereof are contributed to the Operating
Partnership. Consideration for additional partnership interests may be cash or
any property or other assets permitted by the Partnership Act. No Limited
Partner has preemptive, preferential or similar
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rights with respect to additional capital contributions to the Operating
Partnership or the issuance or sale of any partnership interests therein. In
addition, whenever the Company issues Common Shares, the Company will be
obligated to contribute any net proceeds therefrom to the Operating Partnership
and the Operating Partnership will be obligated to issue an equivalent number of
Units to the Company. Additional Units will be issued to the Company upon the
exercise of awards granted under the 1994 Stock Incentive Plan, and it is
expected that such Units will be purchased at a price equal to fair market
value. The Company will acquire the cash for such purchase from the sale of
Common Shares used to fund the award to the Operating Partnership.
MEETINGS; VOTING
Meetings of the Limited Partners may be called only by the Company, on its
own motion or upon written request of Limited Partners owning at least 25% of
the Units. Limited partners may vote either in person or by proxy at meetings.
Any action that is required or permitted to be taken by the Limited Partners of
the Operating Partnership may be taken either at a meeting of the Limited
Partners or without a meeting if consents in writing setting forth the action so
taken are signed by Limited Partners owning not less than the minimum number of
Units that would be necessary to authorize or take such action at a meeting of
the Limited Partners at which all Limited Partners entitled to vote on such
action were present. On matters in which Limited Partners are entitled to vote,
each Limited Partner (including the Company to the extent it holds Units of
limited partnership interest) will have a vote equal to the number of Units it
holds in the Operating Partnership. The Partnership Agreement does not provide
for annual meetings of the Limited Partners, and the Company does not anticipate
calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company or by
Limited Partners owning at least 25% of the Units.
Generally, the Partnership Agreement may be amended with the approval of the
Company, as general partner, and holders of a majority or some greater
percentage of the Units, including Units held by the Company. As holder of over
75% of the limited partnership Units, the Company has the requisite ownership
interest to approve certain amendments without the consent of other Limited
Partners. However, certain amendments that would, among other things, (i)
convert a Limited Partner's interest into a general partner's interest, (ii)
modify the limited liability of a Limited Partner, (iii) alter the interest of a
partner to receive distributions or alter the allocations of profits or losses,
with certain limited exceptions, (iv) alter or modify the exchange right or
redemption amount described above, or (v) cause the termination of the Operating
Partnership at a time or on terms inconsistent with those set forth in the
Partnership Agreement, must be approved by the Company and each Limited Partner
that would be adversely affected by such an amendment.
Notwithstanding the foregoing, the Company, as general partner, has the
power, without the consent of the Limited Partners, to amend the Partnership
Agreement as may be required to (1) add to the obligations of the Company as
general partner or surrender any right or power granted to the Company as
general partner or any affiliate of the Company as General Partner for the
benefit of the Limited Partners, (2) reflect the admission, substitution,
termination or withdrawal of partners in accordance with the terms of the
Partnership Agreement, (3) establish the rights, powers, duties and preferences
of any additional partnership interests issued in accordance with the terms of
certain provisions of the Partnership Agreement, (4) reflect a change of an
inconsequential nature that does not materially adversely affect the Limited
Partners, or cure any ambiguity, correct or supplement any provisions of the
Partnership Agreement not inconsistent with law or with other provisions of the
Partnership Agreement, or make other changes concerning matters under the
Partnership Agreement that are not otherwise inconsistent with the Partnership
Agreement or law, (5) satisfy any requirements of federal or state law, (6)
reflect such changes as are reasonably necessary for the Company to maintain its
status as a REIT.
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DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31, 2093, unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of: (1) the withdrawal of the Company as general
partner without the permitted transfer of the Company's interest to a successor
general partner (except in certain limited circumstances); (2) the sale of all
or substantially all the Operating Partnership's assets and properties; (3) the
entry of a decree of judicial dissolution of the Operating Partnership pursuant
to the provisions of the Partnership Act or the entry of a final order for
relief in a bankruptcy proceeding of the general partner; (4) the entry of a
final judgment ruling that the general partner is bankrupt or insolvent; (5) the
merger or other combination of the Operating Partnership with or into another
entity; (6) (a) from and after the date of the Partnership Agreement through
December 31, 2053, an election by the Company, with the consent of the holders
of a majority of limited partnership interests (including limited partnership
interests held by the Company) and (b) on or after January 1, 2054, an election
by the Company, in its sole and absolute discretion. Upon dissolution, the
Company, as general partner, or any liquidator will proceed to liquidate the
assets of the Operating Partnership and apply the proceeds therefrom in the
order of priority set forth in the Partnership Agreement.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Charter and Bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Company's
Charter and Bylaws, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part, and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Charter provides that the initial number of directors of the
Company was three (3), which number may be increased or decreased pursuant to
the Bylaws of the Company but in no event shall be less than the minimum number
required by the MGCL, which in the case of the Company is three (3). The
Company's Bylaws currently provide that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than the
minimum number required by the MGCL nor more than fifteen (15). The Company has
set the number of directors to seven (7). Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a majority
of the remaining directors, except that a vacancy resulting from an increase in
the number of directors will be filled by a majority of the entire board of
directors. Pursuant to the terms of the Charter, the directors are divided into
three classes. One class held office initially for a term that expired at the
annual meeting of shareholders held in 1995 (and such directors were re-elected
to terms expiring in 1998), another class held office initially for a term that
expired at the annual meeting of shareholders held in 1996 (and such directors
were re-elected to terms expiring in 1999) and the remaining class holds office
initially for a term expiring at the annual meeting of shareholders to be held
in 1997. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualify. The Company believes that classification of the Board of Directors
will help to assure the continuity and stability of the Company's business
strategies and policies as determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
See "Risk Factors--Limits on Changes in Control--Staggered Board." Holders of
voting shares will have no right to cumulative voting for the election of
directors. Consequently, at each annual meeting of shareholders, the
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holders of a majority of shares entitled to vote will be able to elect all of
the successors of the class of directors whose term expires at that meeting.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause by
the affirmative vote of at least two-thirds of the votes entitled to be cast in
the election of directors, and by the vote required to elect a director, the
shareholders may fill a vacancy on the Board resulting from removal. This
provision, when coupled with the provision in the Bylaws authorizing the Board
of Directors to fill vacant directorships, could preclude shareholders from
removing incumbent directors except upon a substantial affirmative vote and
filling the vacancies created by such removal with their own nominees.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter limits the liability of the Company's directors and
officers to the Company and its shareholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the liability
of directors and officers to a corporation or its shareholders for money damages
to be limited, except (i) to the extent that it is proved that the director or
officer actually received an improper benefit or profit, or (ii) to the extent
that a judgment or other final adjudication is entered in a proceeding based on
a finding that the director's or officer's action, or failure to act, was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. This provision does not limit the ability
of the Company or its shareholders to obtain other relief, such as an injunction
or rescission.
The Company's Charter and Bylaws require the Company to indemnify its
directors, officers and certain other parties to the fullest extent permitted
from time to time by Maryland law. The Charter also permits the Company to
indemnify employees, agents and other persons acting on behalf of or at the
request of the Company. The MGCL permits a corporation to indemnify its
directors, officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service to or at the request of the corporation, unless it is established
that: (i) the act or omission of the indemnified party was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; (ii) the indemnified party actually
received an improper personal benefit; or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be made against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by the
director or officer in connection with the proceeding; provided, however, that
if the proceeding is one by or in the right of the corporation, indemnification
may not be made with respect to any proceeding in which the director or officer
has been adjudged to be liable to the corporation. In addition, a director or
officer may not be indemnified with respect to any proceeding charging improper
personal benefit to the director or officer in which the director or officer was
adjudged to be liable on the basis that personal benefit was improperly
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite standard of conduct required for indemnification to be
permitted. It is the position of the Commission that indemnification of
directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who directly or indirectly beneficially owns ten
percent or more of the voting power of the corporation's shares or an affiliate
of the corporation who, at any time within the two-year period prior to the date
in question, was the beneficial owner of ten percent or more of the voting power
of the then-outstanding voting stock of the corporation (an "Interested
Shareholder") or
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an affiliate thereof are prohibited for five years after the most recent date on
which the Interested Shareholder became an Interested Shareholder. Thereafter,
any such business combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Shareholder with whom the business combination is to be effected,
unless, among other things, the corporation's shareholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the Board of
Directors of the corporation prior to the time that the Interested Shareholder
becomes an Interested Shareholder. The Board of Directors has exempted from
these provisions of the MCGL any business combination with certain officers of
the Company including Stephen O. Evans and F. Keith Withycombe, and Evans
Withycombe, AEW and Copley and all present or future affiliates or associates
of, or any other person acting in concert or as a group with, any of the
foregoing persons.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power, would entitle the acquiror directly or indirectly
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of shareholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for control shares, as of the date of the last control share
acquisition or of any meeting of shareholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a shareholders meeting and, as a result, the acquiror becomes
entitled to vote a majority of the then outstanding shares entitled to vote, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the control share acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions of Shares by any officer or
director of the Company and by Stephen O. Evans, F. Keith Withycombe, Evans
Withycombe, AEW and Copley and all present or future affiliates or
23
<PAGE>
associates of, or any other person acting in concert or as a group with, any of
the foregoing persons. There can be no assurance that such provision will not be
amended or eliminated at any point in the future.
AMENDMENTS TO THE CHARTER
The Company's Charter may be amended only by the affirmative vote of the
holders of not less than a majority of all of the votes entitled to be cast on
the matter, except that any proposal (i) to permit cumulative voting in the
election of directors; (ii) to alter provisions of the Company's Charter with
respect to the classified Board, removal of directors, amendment of the Bylaws,
preemptive rights, indemnification of corporate agents and limitation of
liability of officers and directors; or (iii) that would jeopardize the
Company's status as a REIT for tax purposes, requires, in each case, the
approval of two-thirds of the shares entitled to vote. The Company's Bylaws may
be amended by the affirmative vote of holders of not less than two-thirds of all
of the votes entitled to be cast on the matter. Subject to the right of the
shareholders to adopt, alter and repeal Bylaws, the Board of Directors is
authorized to adopt, alter or repeal the Bylaws.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be cast
on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by shareholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Directors or (iii) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and (b)
with respect to special meetings of shareholders, only the business specified in
the Company's notice of meeting may be brought before the meeting of
shareholders, and nominations of persons for election to the Board of Directors
may be made only (i) pursuant to the Company's notice of the meeting, (ii) by
the Board of Directors or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the bylaws.
The provisions in the Charter on classification of the Board of Directors,
the business combination provisions of the MGCL and, control share acquisition
provisions of the MGCL, and the advance notice provisions of the Bylaws could
have the effect of discouraging a takeover or other transaction in which holders
of some, or a majority, of the shares might receive a premium for their shares
over the then prevailing market price or which such holders might believe to be
otherwise in their best interests.
REDEMPTION OF UNITS
Starting one year after the acquisition of Units, holders of Units may
exercise the Redemption Right with respect to all or a portion of their Units.
Following such exercise, the Operating Partnership will be required to redeem
the tendered Units for cash equal to the fair market value of an equivalent
number of Common Shares at the time of such exchange, provided that the Company
may elect to acquire any such Units presented for redemption for a similar
amount of cash or for Common Shares on a one-for-one basis (subject to certain
anti-dilution adjustments). The market value of the Common Shares for this
purpose will be equal to the average of the closing trading price, regular way,
of the Company's Common Shares (or substitute information, if no such closing
price is available) for the ten consecutive trading days before the day on which
the redemption notice was received by the Operating Partnership or, if such date
is not a business day, the first business day thereafter.
24
<PAGE>
The Company presently anticipates that it will elect to issue Common Shares
pursuant to this Prospectus to acquire Units surrendered for redemption and will
become the owner of the Units. With each such redemption, the Company's
percentage ownership interest in the Operating Partnership will increase. Such
an acquisition by the Company will be treated as a sale of the Units to the
Company for Federal income tax purposes. See "Federal Income Tax
Considerations--Tax Consequences of Exercise of Redemption Right." Upon
redemption, such Limited Partner's right to receive distributions with respect
to the Units redeemed will cease (but if such right is exchanged for Exchange
Shares, the Limited Partner will have rights as a shareholder of the Company
from the time of its acquisition of the Exchange Shares), and if all of its
Units are redeemed, such Limited Partner will have withdrawn as a partner of the
Operating Partnership and will no longer be a party to the Partnership
Agreement.
A Limited Partner must notify the Company, as the general partner of the
Operating Partnership, of its desire to require the Operating Partnership to
redeem Units by sending a notice in the form attached as an exhibit to the
Partnership Agreement, a copy of which is available from the Company. The
redemption generally will occur on the tenth day after the notice is delivered
by the Limited Partner, except that no redemption can occur if the delivery of
Exchange Shares would be prohibited under the provisions of the Charter designed
to protect the Company's qualification as a REIT.
COMPARISON OF OWNERSHIP OF UNITS AND COMMON SHARES
Generally, the nature of an investment in Common Shares is substantially
equivalent economically to an investment in Units in the Operating Partnership.
A holder of a Common Share receives the same distribution that a holder of a
Unit receives and shareholders and holders of Units generally share in the risks
and rewards of ownership in the enterprise being conducted by the Company
(through the Operating Partnership). However, there are some differences between
ownership of Units and ownership of Common Shares, some of which may be material
to investors.
The information below highlights a number of the significant differences
between the Operating Partnership and the Company relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and Federal income
taxation, and compares certain legal rights associated with the ownership of
Units and Common Shares, respectively. These comparisons are intended to assist
Limited Partners of the Operating Partnership in understanding how their
investment will be changed if their Units are exchanged for Common Shares.
HOLDERS OF UNITS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE
REGISTRATION STATEMENT AND THE EXHIBITS THERETO OF WHICH THIS PROSPECTUS IS A
PART AND ANY APPLICABLE PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT THE COMPANY.
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
FORM OF ORGANIZATION AND ASSETS OWNED
- ------------------------------------------------------------------------------------------------------------------
The Operating Partnership is organized as a Delaware The Company is a Maryland corporation. The Company has
limited partnership. The Operating Partnership owns elected to be taxed as a REIT under the Code,
interests (either directly or through subsidiaries) in commencing with its taxable year ended December 31,
the Communities. The Management Company provides 1994, and intends to maintain its election as a REIT.
construction, development and related services With certain limited exceptions, the Company's only
relating to the Company's properties and to third asset is its interest in the Operating Partnership,
parties. which gives the Company an indirect investment in the
Communities and the other assets owned by the
Operating Partnership.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
PURPOSE AND PERMITTED INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------
The Operating Partnership's purpose is to conduct any Under its Charter, the Company may engage in any lawful
business that may be lawfully conducted by a limited activity permitted to be engaged in by a Maryland
partnership organized pursuant to the Partnership Act, corporation pursuant to Maryland law. However, under
provided that such business is to be conducted in a the Partnership Agreement, the Company, as general
manner that permits the Company to be qualified as a partner, generally may not conduct any business other
REIT unless the Company ceases to qualify as a REIT. than the business of the Operating Partnership and
The Operating Partnership is authorized to perform any cannot own any assets, with certain limited
and all acts for the furtherance of the purposes and exceptions, other than its interest in the Operating
business of the Operating Partnership, provided that Partnership and other assets necessary to carry out
the Operating Partnership may not take, or refrain its responsibilities under the Partnership Agreement
from taking, any action which, in the judgment of the and its Charter.
general partner could (i) adversely affect the ability
of the Company to continue to qualify as a REIT, (ii)
subject the Company to certain income and excise
taxes, or (iii) violate any law or regulation of any
governmental body or agency (unless such action, or
inaction, is specifically consented to by the
Company). Subject to the foregoing, the Operating
Partnership may invest in or enter into partnerships,
joint ventures, or similar arrangements.
ADDITIONAL EQUITY
- ------------------------------------------------------------------------------------------------------------------
The Operating Partnership is authorized to issue Units The Company is authorized issue, in its discretion,
for any partnership purpose at any time or from time additional equity securities consisting of Common
to time for consideration and on such terms and Shares or Preferred Shares; provided, however, that
conditions as determined by the Company, as general the total number of equity securities outstanding may
partner, in its sole discretion. Additionally, the not exceed the total number of authorized shares set
Operating Partnership may issue Units and other forth in the Company's Charter (I.E., not more than
partnership interests (including partnership interests 100,000,000 Common Shares or 10,000,000 Preferred
of different series or classes that may be senior to Shares). Additionally, the Company may issue
Units) to the Company, as long as such interests are additional Common Shares upon exchange of Units for
issued in connection with an issuance by the Company Common Shares, upon exercise of options granted
of shares having designations, preferences and other pursuant to the stock incentive plan for Common Shares
rights such that the economic interests of such shares or Units in effect from time to time. As long as the
are substantially similar to those of the partnership Operating Partnership is in existence, the proceeds of
interests granted in connection therewith and proceeds all equity capital raised by the Company will be
raised in connection with the issuance of such shares contributed to the Operating Partnership in exchange
are contributed to the Operating Partnership. In for interests in the Operating Partnership.
addition, the Operating Partnership will issue
additional Units upon exercise of the options granted
pursuant to the Company's 1994 Stock Incentive Plan.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
BORROWING POLICIES
- ------------------------------------------------------------------------------------------------------------------
The Operating Partnership has no restrictions on The Company is not restricted under its Charter or
borrowings, and the Company, as general partner, has Bylaws from incurring borrowings. The Company
full power and authority to borrow money on behalf of anticipates that any additional borrowings would be
the Operating Partnership. made through the Operating Partnership, although the
Company might incur indebtedness, the proceeds of
which would be reloaned to the Operating Partnership.
MANAGEMENT CONTROL
- ------------------------------------------------------------------------------------------------------------------
All management powers over the business and affairs of The Board of Directors has exclusive control over the
the Operating Partnership are vested in the Company, Company's business and affairs subject only to the
as general partner. No Limited Partner of the restrictions in the Charter and Bylaws and the
Operating Partnership has any right to participate in Partnership Agreement. The Board of Directors is
or exercise control or management power over the divided into three classes. At each annual meeting of
business and affairs of the Operating Partnership. The the shareholders, the successors of the class of
Limited Partners have the right to vote on certain directors whose terms expire at that meeting will be
matters described under "Voting Rights" below. The elected. The policies adopted by the Board of
general partner may not be removed by the Limited Directors may be altered or eliminated without a vote
Partners with or without cause. of the shareholders. Accordingly, except for their
vote in the elections of directors, shareholders have
no control over the ordinary business policies of the
Company. The Board of Directors may change the
Company's policy of maintaining its status as a REIT,
without the approval of the Company's shareholders.
MANAGEMENT LIABILITY AND INDEMNIFICATION
- ------------------------------------------------------------------------------------------------------------------
As a matter of Delaware law, the general partner has The Company's Charter and Bylaws require the Company to
liability for the payment of the obligations and debts indemnify its directors, officers and certain other
of the Operating Partnership unless limitations upon parties to the fullest extent permitted from time to
such liability are stated in the document or time by Maryland law. The Charter also permits the
instrument evidencing the obligation. Under the Company to indemnify employees, agents and other
Partnership Agreement, the Operating Partnership has persons acting on behalf of or at the request of the
agreed to indemnify the Company, as general partner, Company. The MGCL permits a corporation to indemnify
any officer of the Operating Partnership of the its directors, officers and certain other parties
Company, as general partner, and such other persons as against judgments, penalties, fines, settlements and
the Company may designate from and against all losses, reasonable expenses actually incurred by them in
claims, damages, liabilities, joint or several, connection with any proceeding to which they may be
expenses (including legal fees and expenses), made a party by reason of their service to or at the
judgments, fines, settlements and other amounts request of the corporation, unless it is established
arising from any and all claims, demands, actions, that: (i) the act or omission of the indemnified party
suits or proceedings, civil, criminal, administrative was material to the matter giving rise to the
or investigative, that relate to the operation of the proceeding and was committed in bad faith or was the
Operating Partnership in which such person is result of active and deliberate dishonesty;
involved, or is
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
threatened to be involved, unless it is established (ii) the indemnified party actually received an
that (i) the act or omission of such person was improper personal benefit; or (iii) in the case of any
material to the matter giving rise to the proceeding criminal proceeding, the indemnified party had
and either was committed in bad faith or was the reasonable cause to believe that the act or omission
result of active and deliberate dishonesty; (ii) such was unlawful. Maryland law presently permits the
party actually received an improper personal benefit; liability of directors and officers to a corporation
or (iii) in the case of any criminal proceeding, such or its shareholders for money damages to be limited,
party had reasonable cause to believe the act or except (a) to the extent that it is proved that the
omission was unlawful. The reasonable expenses director or officer actually received an improper
incurred by an indemnitee may be reimbursed by the benefit or profit or (b) if a judgment or other final
Operating Partnership in advance of the final adjudication is entered in a proceeding based on a
disposition of the proceeding upon receipt by the finding that the director's or officer's action, or
Operating Partnership of a written affirmation by such failure to act, was the result of active and
indemnitee of his, her or its good faith belief that deliberate dishonesty and was material to the cause of
the standard of conduct necessary for indemnification action adjudicated in the proceeding. The Charter of
has been met and a written undertaking by such the Company contains a provision consistent with the
indemnitee to repay the amount reimbursed if it is foregoing. The Company has entered into
determined that such standard was not met. indemnification agreements with each of its executive
officers and directors. The indemnification agreements
require, among other things, that the Company
indemnify its officers and directors to the fullest
extent permitted by the MGCL, and advance to the
officers and directors all related expenses, subject
to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company must
also indemnify and advance all expenses incurred by
officers and directors seeking to enforce their rights
under the indemnification agreements.
ANTITAKEOVER PROVISIONS
- ------------------------------------------------------------------------------------------------------------------
Except in limited circumstances, the general partner of The Charter and Bylaws of the Company contain a number
the Operating Partnership has exclusive management of provisions that may have the effect of delaying or
power over the business and affairs of the Operating discouraging an unsolicited proposal for the
Partnership. The Company may not be removed as general acquisition of the Company or the removal of incumbent
partner by the Limited Partners with or without cause. management. These provisions include, among others:
Under the Partnership Agreement, the Company, as a (1) a staggered Board of Directors; (2) authorized
general partner, may, in its sole discretion, prevent shares of stock that may be issued, in the discretion
a transferee of a Unit from becoming a substituted of the Board of Directors, as Preferred Shares with
Limited Partner pursuant to the Partnership Agreement. superior voting rights to the Common Shares; (3) a
The general partner may exercise this right of requirement that directors may be removed only by a
approval to deter, delay or hamper attempts by persons vote of holders of at least two-thirds of the votes
to acquire a controlling interest in the Operating entitled to be cast in the election of directors; (4)
Partnership. Additionally, the Partnership Agreement advance notice required in order to nominate persons
contains restrictions on the ability of Limited for election to the Board of Directors or to propose
Partners to transfer their Units. business to be considered by shareholders at a
shareholder's meeting; and
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
(5) provisions designed to avoid concentration of
share ownership in a manner that would jeopardize the
Company's status as a REIT under the Code. See
"Description of Capital Stock-- Restrictions on
Ownership" and "Risk Factors-- Limits on Changes in
Control."
VOTING RIGHTS
- ------------------------------------------------------------------------------------------------------------------
Under the Partnership Agreement, the Limited Partners Each outstanding Common Share entitles the holder
have voting rights only with respect to certain thereof to one vote on all matters submitted to
limited matters. Consent of the holders of or majority shareholders for vote, including the election of
of the Units (including the Units held by the general directors. See "Description of Capital Stock--Common
partner) is required in connection with a sale of all Shares." Shareholders of the Company have the right to
or substantially all of the assets of the Operating vote on, among other things, a merger of the Company,
Partnership or in connection with the termination or amendments to the Charter and the dissolution of the
dissolution of the Operating Partnership (until 2053) Company. Certain amendments to the Charter require the
and with respect to certain amendments to the affirmative vote of not less than two-thirds of votes
Partnership Agreement. The Company, as general entitled to be cast on the matter. The Charter permits
partner, currently holds more than a majority of the the Board of Directors to classify and issue Preferred
Units and therefore has the requisite ownership Shares in one or more series having voting power which
interest to consent to such matters. may differ from that of the Common Shares.
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE CHARTER
- ------------------------------------------------------------------------------------------------------------------
The Partnership Agreement may be amended through a Except as described below, amendments to the Charter
proposal by the general partner or any Limited must be approved by the Board of Directors and by the
Partners holding 25% or more of the Units. Such vote of the holders of at least a majority of the
proposal, in order to be effective, must be approved shares entitled to vote thereon. Proposals that would
by the general partner and by the holders of at least (i) cause the Company not to qualify as a REIT, or to
a majority of the outstanding limited partnership (ii) alter Charter provisions relating to the
Units. Certain amendments that affect the fundamental classification or removal of directors, preemptive
rights of a Limited Partner must be approved by each rights, indemnification, limitation of liability or
Limited Partner adversely affected by the amendment. amendments to the Charter or Bylaws, require the
Currently, as holder of over 75% of the Units, the affirmative vote of holders of not less than
Company has the requisite ownership interest to two-thirds of the shares entitled to vote thereon.
approve certain amendments without the consent of
other Limited Partners. In addition, the general
partner may, without the consent of the Limited
Partners, amend the Partnership Agreement as to
certain limited matters enumerated in the Partnership
Agreement. See "Description of Units-- Amendment of
the Partnership Agreement."
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
COMPENSATION, FEES AND DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------
The Company, as general partner, does not receive any The officers and directors of the Company receive
compensation for its services as general partner of compensation for their services.
the Operating Partnership. As a partner in the
Operating Partnership, however, the Company has the
same right to allocations and distributions as other
partners of the Operating Partnership. In addition,
the Operating Partnership is responsible for all
expenses incurred relating to the Operating
Partnership's ownership of its assets and the
operation of the Operating Partnership and reimburses
the Company, as general partner, for such expenses
paid by the Company. The employees of the Operating
Partnership receive compensation for their services.
LIABILITY OF INVESTORS
- ------------------------------------------------------------------------------------------------------------------
Under the Partnership Agreement and applicable state The MCGL provides that no shareholder of a corporation
law, the liability of the Limited Partners for the will be personally liable for any obligations such
Operating Partnership's debts and obligations is corporation. Generally the liability of the
generally limited to the amount of their investment in stockholders for the Company's debts and obligations
the Operating Partnership. is limited to the amount of their investment in the
Company.
NATURE OF INVESTMENT
- ------------------------------------------------------------------------------------------------------------------
The Units constitute equity interests entitling each The Common Shares constitute equity interests in the
Limited Partner to such partner's pro rata share of Company. The Company is entitled to receive its pro
cash distributions made to the partners of the rata share of distributions made by the Operating
Operating Partnership. The Operating Partnership may Partnership with respect to the Units it holds, and
retain and reinvest proceeds of the sale of property each shareholder will be entitled to its pro rata
or excess refinancing proceeds in its business. share of any dividends or distributions paid with
respect to the Common Shares. The dividends payable to
the shareholders are not fixed in amount and are only
paid if, when and as declared by the Board of
Directors. In order to qualify as a REIT, the Company
generally must distribute at least 95% of its taxable
income (excluding capital gains).
LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------
Limited Partners may not transfer their Units without The Exchange Shares will be freely transferable as
the consent of the general partner and, because no registered securities under the Securities Act,
trading market exists for the Units, the Units are subject to the Ownership Limit Provisions in the
illiquid. Subject to certain limitations, a Limited Company's Charter and to prospectus delivery and other
Partner may assign its economic rights in its Units requirements for registered securities. The Common
without the Shares are listed on the NYSE.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Company's consent, but the Company may in its sole and The breadth and strength of this market will depend,
absolute discretion, refuse to admit the transferee as among other things, upon the number of Common Shares
a substituted Limited Partner. Beginning one year from outstanding, the Company's financial results and
the date of acquisition of the Units, each Limited prospects, the general interest in the Company's
Partner has the right to cause the Operating Common Shares and other real estate investments and
Partnership to redeem its Units for cash or, at the the Company's dividend yield compared to that of other
discretion of the Company, for Common Shares. debt and equity securities.
FEDERAL INCOME TAXATION
- ------------------------------------------------------------------------------------------------------------------
The Operating Partnership is not subject to Federal The Company has elected to be taxed as a REIT beginning
income taxes. Instead, each holder of Units includes with its fiscal year ended December 31, 1994. So long
its allocable share of the Operating Partnership's as it qualifies as a REIT, the Company will be
taxable income or loss in determining its individual permitted to deduct distributions paid to its
federal income tax liability. The maximum federal shareholders, which effectively will reduce the
income tax rate for individuals under current law "double taxation" that typically results when a
(without taking into account the phase-out of corporation earns income and distributes that income
exemptions and other adjustments) is 39.6%. to its shareholders in the form of dividends. A
qualified REIT, however, is subject to federal income
tax on income that is not distributed and also may be
subject to federal income and excise taxes in certain
circumstances. The maximum federal income tax rate for
corporations under current law is 35%, but in certain
circumstances a REIT is subject to a 100% tax on
certain kinds of income.
Income and loss from the Operating Partnership generally Dividends paid by the Company will be treated as
is subject to the "passive activity" limitations. "portfolio" income and cannot be offset with losses
Under the "passive activity" rules, income and loss from "passive activities." The maximum federal income
from the Operating Partnership that is considered tax rate for individuals under current law (without
"passive income" generally can be offset against taking into account the phase-out of exemptions and
income and loss from other investments that constitute other adjustments) is 39.6%.
"passive activities" (unless the Operating Partnership
is considered a "publicly traded partnership," in
which case income and loss from the Operating
Partnership can only be offset against other income
and loss from the Operating Partnership). Income of
the Operating Partnership, however, attributable to
dividends from the Management Company or interest paid
by the Management Company does not qualify as passive
income and cannot be offset with losses and deductions
from a "passive activity."
Cash distributions from the Operating Partnership are Distributions that are designated as capital gain
not taxable to a holder of Units except to the extent dividends generally will be taxed as long-term capital
they exceed such holder's basis in its interest in the gain, subject to certain limitations. Distributions in
Operating Partnership (which will excess of current or accumulated
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
include such holder's allocable share of the Operating earnings and profits will be treated as a non- taxable
Partnership's nonrecourse debt). Distributions made by return of basis to the extent of a shareholder's
the Company to its taxable domestic shareholders out adjusted basis in its Common Shares, with the excess
of current or accumulated earnings and profits will be taxed as capital gain.
taken into account by them as ordinary income.
Each year, holders of Units will receive a Schedule K-1 Each year, shareholders of the Company will receive a
tax form containing detailed tax information for Form 1099 used by REITs to report dividends paid to
inclusion in preparing their federal income tax their stockholders.
returns.
Holders of the Units are required, in some cases, to Shareholders who are individuals generally will not be
file state income tax returns and/or pay state income required to file state income tax returns and/or pay
taxes in the states in which the Operating Partnership state income taxes outside of their states of
owns property, even if they are not residents of those residence with respect to the Company's operations and
states. distributions. The Company may be required to pay
state income taxes in certain states.
</TABLE>
32
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material federal income tax considerations
regarding the offering of Common Shares pursuant to this Prospectus (the
"Offering") is based on current law, is for general information only and is not
tax advice. This discussion does not purport to deal with all aspects of
taxation that may be relevant to particular Limited Partners and shareholders in
light of their personal investment or tax circumstances, or to certain types of
Limited Partners and shareholders including insurance companies, tax-exempt
organizations (except to the extent discussed under the heading "Taxation of
Tax-Exempt Shareholders"), financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States
(except to the extent discussed under the heading "--Taxation of Non-U.S.
Shareholders"), which are subject to special treatment under the federal income
tax laws.
EACH LIMITED PARTNER AND/OR PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED
TO CONSULT WITH ITS OWN TAX ADVISOR TO DETERMINE THE IMPACT OF SUCH PROSPECTIVE
PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES OF THE
EXERCISE OF ITS REDEMPTION RIGHTS, AND OF THE PURCHASE, OWNERSHIP AND SALE OF
COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH EXERCISE,
PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAX CONSEQUENCES OF EXERCISE OF REDEMPTION RIGHT
TAX TREATMENT OF REDEMPTION OF UNITS. In the event that a Limited Partner
exercises its Redemption Right, it is generally anticipated that the Company
will exercise its right to acquire the Limited Partner's Units in exchange for
Exchange Shares. In that event, such acquisition will treated as a sale of the
Unit surrendered and will be fully taxable to the exchanging Limited Partner.
Such exchanging Limited Partner will be treated as realizing an amount equal to
the value of the Exchange Shares received plus the amount of liabilities
allocable to the exchanged Units at the time of the exchange. The difference
between the amount realized and the Limited Partner's basis in its Units
surrendered gives rise to gain or loss for federal income tax purposes. See
"--Character of Gain or Loss," below.
If the Company does not elect to assume the obligation to acquire a Limited
Partner's Units, the Operating Limited Partnership is required to redeem such
Units for cash. If the Operating Limited Partnership redeems Units for cash that
the Company contributes to the Operating Limited Partnership, the redemption
likely would be treated as a sale of such Units to the Company in a fully
taxable transaction, although the matter is not free from doubt. In that event,
the exchanging Limited Partner would be treated as discussed in the immediately
preceding paragraph. If, instead, the Operating Partnership chooses to redeem a
Limited Partner's Units for cash that is not contributed by the Company, the tax
consequences would be the same as described in the previous sentence, except
that if the Operating Partnership redeems less than all of a Limited Partner's
Units, the transaction would not be treated as a sale of the Units surrendered,
and the Limited Partner would recognize no taxable loss and would recognize
taxable gain only to the extent that the cash, plus the share of liabilities
allocable to the redeemed Units, exceeded the Limited Partner's basis in all
such Limited Partner's Units immediately before the redemption.
The tax liability resulting from gain recognized as a result of the exercise
of the Redemption Right could exceed the amount of cash and the value of any
Exchange Shares received upon the disposition.
CHARACTER OF GAIN OR LOSS. Gain or loss recognized upon the exercise of the
Redemption Right generally will be capital gain or loss if the surrendered Units
were held as a capital asset, and generally will be long-term capital gain or
loss if the holding period of the Units (including in certain cases the holding
period of interests exchanged for Units) exceeds one year at the time of the
sale. However, if any amount realized upon the sale of Units is attributable to
a holder's share of "unrealized receivables" (as defined in Section 751 of the
Code) of the Operating Partnership, a portion of such gain may be treated as
ordinary income. The term "unrealized receivables" includes amounts that would
be subject to recapture as
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ordinary income if the Operating Partnership sold its assets for fair market
value at the time of the sale of the Units.
BASIS IN UNITS SURRENDERED. A Limited Partner's basis in its Units
generally will equal such Limited Partner's initial basis in such Units,
increased by (a) its share of Operating Partnership taxable and tax-exempt
income and (b) its share of increases in nonrecourse liabilities incurred by the
Operating Partnership, if any (including the Operating Partnership's share of
nonrecourse liabilities of the Financing Partnership), and decreased (but not
below zero) by (i) its share of Operating Partnership distributions, (ii) its
share of decreases in nonrecourse liabilities of the Operating Partnership
(including the Operating Partnership's share of nonrecourse liabilities of the
Financing Partnership), (iii) its share of losses of the Operating Partnership,
and (iv) its share of nondeductible expenditures of the Operating Partnership
that are not chargeable to capital. A Limited Partner surrendering less than all
of its Units at one time will allocate a pro rata portion of its aggregate basis
in all of its Units to the Units surrendered.
POTENTIAL APPLICATION OF DISGUISED SALE REGULATIONS TO REDEMPTION OF
UNITS. A redemption of Units issued in the Formation Transactions within two
years of the Formation Transactions may cause the original transfer of property
to the Operating Partnership in exchange for such Units to be treated as a
"disguised sale" of property. Section 707 of the Code and the Treasury
Regulations thereunder (the "Disguised Sale Regulations") generally provide
that, unless one of the prescribed exceptions is applicable, a partner's
contribution of property to a partnership and a simultaneous or subsequent
transfer of money or other consideration (including the assumption of or taking
subject to a liability) from the partnership to the partner will be presumed to
be a sale, in whole or in part, of such property by the partner to the
partnership. Further, the Disguised Sale Regulations provide generally that in
the absence of an applicable exception, transfers of money or other
consideration between a partnership and a partner that are made within two years
of each other are presumed to be a sale unless the facts and circumstances
clearly establish that either the transfers do not constitute a sale or an
exception to disguised sale treatment applies.
If the Redemption Right is exercised within two years of the date of
consummation of the Formation Transactions, and the Company does not exercise
its right to acquire the Units, then it is likely that the Disguised Sale
Regulations will apply to the Formation Transactions and the proceeds of the
redemption will be treated as part of the disguised sale. In the event the
Disguised Sale Regulations were determined to apply with respect to the exercise
of a Redemption Right, the exercising Limited Partner would be treated as though
it sold property to the Operating Partnership on the date of the consummation of
the Formation Transactions and received on such date an obligation of the
Operating Partnership to transfer money or other consideration to it. Gain
realized as a result of the deemed sale may qualify for installment reporting
under Section 453 of the Code, subject to certain limitations.
TAXATION OF THE COMPANY
GENERAL. The Company has made an election to be taxed as a REIT under
Sections 856 and 860 of the Code, commencing with its taxable year ending
December 31, 1994. The Company believes that it is organized and operates in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified.
The sections of the Code and Treasury Regulations governing REITs are highly
technical and complex. The following sets forth the material aspects of the
sections that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, Treasury Regulations and rules promulgated thereunder, and
administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) of income that generally
results from an investment in a regular corporation. However, the Company will
be subject to federal income tax
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as follows: First, the Company will be taxed at regular corporate rates on any
undistributed "REIT taxable income" (as defined below), including undistributed
net capital gains. Second, under certain circumstances the Company may be
subject to the "alternative minimum tax" as a consequence of its items of tax
preference to the extent that tax exceeds its regular tax. Third, if the Company
has (i) net income from the sale or other disposition of "foreclosure property"
(generally, property acquired by reason of default on indebtedness held by the
Company) that is held primarily for sale to customers in the ordinary course
business or (ii) other nonqualifying income from foreclosure property, it will
be subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business, other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the greater of the amount by which the Company fails the 75%
or 95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any asset (a "Built-in Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (I.E., generally a corporation subject to full corporate-level tax)
in certain transactions in which the basis of the Built-in Gain Asset in the
hands of the Company is determined by reference to the basis of the asset in the
hands of the C corporation, if the Company recognizes gain on the disposition of
such asset during the 10-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-in Gain (I.E., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to IRS regulations that have not yet been
promulgated.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) in which during the last half of each taxable year not
more than 50% in value of its outstanding stock is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
The Company believes that it has issued sufficient shares to allow it to
satisfy conditions (v) and (vi). In addition, the Company's Charter provides for
restrictions regarding the transfer and ownership of shares, which restrictions
are intended to assist the Company in continuing to satisfy the share ownership
requirements described in (v) and (vi) above. Such transfer and ownership
restrictions are described in "Description of Capital Stock--Restrictions on
Ownership."
To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year from
the record holders of certain percentages of its shares of stock in which the
record holders are to disclose the actual owners of the shares (I.E., the
persons required to include in gross income the REIT dividends). A REIT with
2,000 or more record shareholders must demand statements from record holders of
5% or more of its shares, one with less than 2,000, but more
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than 200 record shareholders must demand statements from record holders of 1% or
more of the shares, while a REIT with 200 or fewer record shareholders must
demand statements from record holders of 0.5% or more of the shares. A list of
those persons failing or refusing to comply with this demand must be maintained
as part of the Company's records. A shareholder who fails or refuses to comply
with the demand must submit a statement with its tax return disclosing the
actual ownership of the shares and certain other information.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the assets tests, discussed below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership (including the Operating Partnership's share of
such items of the Financing Partnership and any other partnership in which the
Operating Partnership has a direct or indirect interest) are treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein. A summary of certain rules governing the federal
income taxation of partnerships and their partners is provided below in "--Tax
Aspects of the Operating Partnership and Financing Partnership." The Company
controls the Operating Partnership and the Financing Partnership and believes it
operates them in a manner consistent with the requirements for qualification as
a REIT, although there can be no assurance that the Company will actually
operate such partnerships in a manner that will satisfy the REIT provisions of
the Code.
The Company owns an indirect 1% interest as a general partner in the
Financing Partnership, which will be held through Evans Withycombe Finance,
Inc., a wholly owned subsidiary of the Company that will be organized and
operated as a "qualified REIT subsidiary" within the meaning of the Code.
Qualified REIT subsidiaries are not treated as separate entities from their
parent REIT for federal income tax purposes. Instead, all assets, liabilities
and items of income, deduction and credit of Evans Withycombe Financing, Inc.
are treated as assets, liabilities and items of the Company. Evans Withycombe
Financing, Inc., therefore, is not subject to federal corporate income taxation,
although it may be subject to state or local taxation. In addition, the
Company's ownership of the voting stock of Evans Withycombe Financing, Inc. will
not violate the general restriction against ownership of more than 10% of the
voting securities of any issuer.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived directly
or indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived from
items of income that qualify under the 75% test, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, gain from the sale or other disposition of stock or
securities held for less than one year, gain from certain sales of real property
held primarily for sale and gain from the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income for each taxable year.
Rents received by the Company qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income test if the Company,
or an owner of 10% or more of the Company, actually or constructively owns 10%
or more of such tenant (a "Related
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Party Tenant"). Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the Company generally must
not operate or manage the property or furnish or render services to the tenants
of such property, other than through an independent contractor from whom the
Company derives no revenue, provided, however, the Company may directly perform
certain services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and not otherwise considered "rendered to
the occupant" of the property. The Company does not believe that it (i) charges
rent for any property that is based in whole or in part on the income or profits
of any person (except by reason of being based on a percentage of receipts or
sales, as described above), (ii) rents property to a Related Party Tenant, (iii)
derives rental income attributable to personal property (other personal property
leased in connection with the lease of real property, the amount of which is
considered under the applicable Treasury Regulations to be less than 15% of the
total rent received under the lease), or (iv) performs services considered to be
rendered to the occupant of the property, other than through an independent
contractor from whom the Company derives no revenue.
As a result of the Operating Partnership's ownership interest in the
Management Company, the Management Company does not qualify as an independent
contractor from whom the Company derives no revenue. Accordingly, the Operating
Partnership hires independent contractors from whom the Company derives no
revenue to the extent necessary to qualify its rental income as rents from real
property under the gross income tests.
The Management Company receives fees in exchange for the performance of
certain management, development and construction services. Such fees do not
accrue to the Company but the Company derives dividends from the Management
Company which qualify under the 95% gross income test but not the 75% gross
income test. The Company believes that the aggregate amount of any nonqualifying
income in any taxable year will not exceed the limits on nonqualifying income
under the gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches to its return for that year a schedule of the nature and amount
of each item of its income, and (iii) any incorrect information on the schedule
was not due to fraud with intent to evade tax. However, in the event the Company
does not meet these tests, the Company would not be entitled to the benefit of
these relief provisions. If these relief provisions are inapplicable to a
particular set of circumstances involving the Company, the Company will not
qualify as a REIT. As discussed above in "--General," even if these relief
provisions apply, a tax would be imposed with respect to the excess
nonqualifying income. There are no comparable relief provisions which could
mitigate the consequences of a failure to satisfy the 30% gross income test.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and government securities.
Second, not more than 25% of Company's total assets may be represented by
securities other than those included in the 75% asset test. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities. In applying these tests, the Company will be
deemed to own a proportionate share of any assets owned, directly or indirectly,
by the Operating Partnership based on its capital interest in the Operating
Partnership and the Operating Partnership's direct or indirect capital interest
in any other partnership, including the Financing Partnership.
The Company believes that it complies with the asset tests. Substantially
all of the Company's investments are in the properties owned by the Operating
Partnership and Financing Partnership, which
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should represent qualifying real estate assets. The Company's proportionate
share of the Management Company's voting and nonvoting common stock owned by the
Operating Partnership also is within the permissible range, since these
interests do not exceed a 10% voting interest. In addition, the Company believes
that the value of its interests in the stock of the Management Company will be
less than the permitted 5% of the total value of the Company's assets.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. "REIT taxable income" for any year means the taxable
income of the Company for such year (excluding any net income derived either
from property held primarily for sale to customers or from foreclosure
property), subject to certain adjustments provided in the REIT provision of the
Code. In addition, if the Company disposes of any Built-in Gain Asset during
such asset's Recognition Period, the Company will be required, pursuant to IRS
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. The Company intends to make, and to cause the
Operating Partnership and Financing Partnership to make, timely distributions
sufficient to satisfy these annual distribution requirements. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its REIT taxable income, as adjusted, it will
be subject to tax thereon at regular capital gain and ordinary corporate tax
rates.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements described
above due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if nondeductible
capital expenditures such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange, or to cause the Operating Partnership or
Financing Partnership to arrange, for short-term, or possibly long-term,
borrowing, to sell assets, or to pay dividends in the form of taxable stock
dividends. In this regard, the Partnership Agreement authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements.
Under certain circumstances, the Company may be able to rectify a failure to
meet the above distribution requirements for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.
Furthermore, if the Company should fail to distribute each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year and (iii) any undistributed taxable
income from prior periods, the Company will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. Any
REIT taxable income and capital gains on which tax is imposed for any year is
treated as an amount distributed during that year for purposes of this excise
tax.
FAILURE TO QUALIFY
If the Company should fail to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
rates applicable to regular C corporations. Distributions to shareholders in
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any year in which the Company fails to qualify as a REIT will not be deductible
by the Company nor will they be required to be made. As a result, the Company's
failure to qualify as a REIT will reduce the cash available for distribution by
the Company to shareholders. In addition, if the Company fails to qualify as a
REIT, all distributions to shareholders will be taxable as ordinary income to
the extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gain (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current
and accumulated earnings and profits will be treated as tax-free returns of
capital to the extent of the shareholder's basis in the shares, and will reduce
the adjusted basis of such shares. To the extent distributions in excess of
current and accumulated earnings and profits exceed the basis of a shareholder's
shares they will be included in income as long-term capital gain (or short-term
capital gain if the shares have been held for one year or less), assuming the
shares are a capital asset in the hands of the shareholder. In addition, any
dividend declared by the Company in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, provided the shares were held as a capital asset, any gain or
loss realized on a taxable disposition of shares will be treated as long-term
capital gain or loss if the shares have been held for more than twelve months
and otherwise as short-term capital gain or loss. However, any loss upon a sale
or exchange of shares by a shareholder who has held such shares for six months
or less (after applying certain holding period rules) will be treated as a
long-term capital loss to the extent of distributions from the Company required
to be treated by such shareholder as long-term capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company reports to its domestic shareholders and the IRS the amount of
dividends paid with respect to each calendar year, and the amount of tax
withheld therefrom, if any. Under the backup withholding rules, a shareholder
may be subject to backup withholding at a rate of 31% with respect to dividends
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount withheld under the backup withholding rules will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions made
to any shareholders who fail to certify to their non-foreign status to the
Company. See "--Taxation of Non-U.S. Shareholders."
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TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has ruled that amounts distributed as dividends by a REIT do not
constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, dividend income from the Company should
not, subject to certain exceptions described below, be UBTI to a qualified plan,
IRA or other tax-exempt entity (a "Tax-Exempt Shareholder") provided the
Tax-Exempt Shareholder has not held its shares as "debt financed property"
within the meaning of Section 514 of the Code and the shares are not otherwise
used in an unrelated trade or business of the Tax-Exempt Shareholder. Similarly,
income from the sale of Common Shares should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Shareholder has held such
Common Shares as a dealer (under Section 512(b)(5)(B) of the Code) or as
"debt-financed property."
For Tax-Exempt Shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by the
Company shall be treated as UBTI to certain trusts if the Company is treated as
a "pension held REIT." A trust will be subject to this rule if it (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code, and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
The Company will be treated as a "pension held REIT" if (i) it would not
have qualified as a REIT but for the fact that Section 856(h)(3) of the Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the "five or fewer" shareholder requirement (discussed above), as owned by the
beneficiaries of the trust (rather than by the trust itself), and (ii) either
(a) at least one such qualified trust holds more than 25% (by value) of the
interests in the Company, or (b) one or more such qualified trusts, each of whom
owns more than 10% (by value) of the interests in the Company, hold in the
aggregate more than 50% (by value) of the interests in the Company.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax law and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income and
other tax laws with regard to an investment in Common Shares, including any
reporting requirements.
DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions generally will be subject to withholding of United
States federal income tax at a 30% rate on the total amount distributed unless
an applicable income tax treaty reduces or eliminates that tax. However,
dividends that are "effectively connected" with the conduct of a trade or
business by the Non-U.S. Shareholder will be subject to tax on a net basis at
graduated rates, in the same manner as domestic shareholders are taxed with
respect to such dividends, and are generally not subject to withholding. Any
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such "effectively connected" dividends received by a Non-U.S. Shareholder that
is a corporation may also be subject to an additional branch profits tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Pursuant to current Treasury regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of ascertaining the requirement of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury regulations not currently in effect, however, a Non-U.S.
Shareholder who seeks to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification and other requirements. Under certain
treaties, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT, such as the Company. A Non-U.S. Shareholder must file
a properly completed and executed IRS Form 4224 with the Company's withholding
agent certifying that the investment to which the distribution relates is
effectively connected with the conduct of a United States trade or business of
such Non-U.S. Shareholder in order to qualify for the exemption from withholding
under the effectively connected income exemption discussed above.
Distributions that are neither attributable to gain from sales or exchanges
by the Company of United States real property interests nor designated by the
Company as capital gains dividends and that are in excess of current or
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's Common Shares, but rather will reduce the adjusted basis of
such Common Shares. To the extent such distributions in excess of the Company's
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's Common Shares, they will give rise to gain from the sale
or exchange of the Common Shares, the tax treatment of which is described below.
If it cannot be determined at the time a distribution is made whether or not
such distribution will be in excess of current or accumulated earnings and
profits, the distribution will generally be treated as a dividend subject to
withholding. However, amounts thus withheld are generally refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
attributable to gain from sales or exchanges by the Company of United States
real property interests) generally will not be subject to United States federal
income taxation unless (i) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
domestic shareholders with respect to such gain (except that a shareholder that
is a foreign corporation may also be subject to the 30% branch profits tax, as
discussed above), or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and either has a "tax home" in the United States or sold his shares
under circumstances where the sale is attributable to a U.S. office, in which
case the nonresident alien individual will be subject a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
be treated as income that is effectively connected with a United States trade or
business of the Non-U.S. Shareholder. Non-U.S. Shareholders would thus generally
be taxed on such distributions at the same rates applicable to domestic
shareholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a corporate Non-U.S. Shareholder that is not
entitled to a treaty exemption or rate reduction. The Company is required to
withhold 35% of any such distribution, and the withheld amount is creditable
against the Non-U.S. Shareholder's United States federal income tax liability
SALE OF COMMON SHARES. Gain recognized by a Non-U.S. Shareholder upon a
sale or other disposition of Common Shares generally will not be subject to
United States federal income tax unless (i) the Company is not a "domestically
controlled REIT," or (ii) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business or
(iii) in the case of
41
<PAGE>
a Non-U.S. Shareholder who is a nonresident alien individual, the individual is
present in the United States for 183 days or more during the taxable year and
either has a "tax home" in the United States or sold his shares under
circumstances where the sale is attributable to a U.S. office. A domestically
controlled REIT is defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company currently believes that it is a
domestically controlled REIT. In the circumstances described above in clauses
(i) and (ii), the Non-U.S. Shareholders will generally be subject to the same
treatment as domestic shareholders with respect to such gain (subject to a
special alternative minimum tax in the case of nonresident alien individuals in
the circumstances described above in clause (i) and, in the case of foreign
corporations, subject to the possible application of the 30% branch profits tax,
discussed above). In the circumstances described above in clause (iii), the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company must report
annually to the IRS and to each Non-U.S. Shareholder the amount of distributions
subject to withholding as described above and the tax withheld with respect to
such distributions, regardless of whether withholding is actually required.
Copies of the information returns reporting such distributions and withholding
may also be made available to the tax authorities in the country in which the
Non-U.S. Shareholder resides under the provisions of an applicable income tax
treaty. Additional issues may arise pertaining to information reporting and
backup withholding for Non-U.S. Shareholders. Non-U.S. Shareholders should
consult their tax advisors with regard to U.S. information reporting and backup
withholding.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND FINANCING PARTNERSHIP
GENERAL. Substantially all of the Company's investments are held indirectly
through the Operating Partnership and the Financing Partnership. In general,
partnerships are "pass-through" entities which are not subject to federal income
tax. Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. The Company includes in its income its
proportionate share of the foregoing items of the Operating Partnership and the
Financing Partnership for purposes of the various REIT income tests and in the
computation of its REIT taxable income. Moreover, for purposes of the REIT asset
tests, the Company includes its proportionate share of assets held by the
Operating Partnership and the Financing Partnership. See "--Taxation of the
Company."
ENTITY CLASSIFICATION. The Company's interests in the Operating Partnership
and the Financing Partnership involve special tax considerations, including the
possibility of a challenge by the IRS of the status of either the Operating
Partnership or the Financing Partnership as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. If the
Operating Partnership or the Financing Partnership is treated as an association,
it would be taxable as a corporation and therefore subject to an entity-level
tax on its income, which would significantly reduce the amount of funds
available for distribution to shareholders. In such a situation, the character
of the Company's assets and items of gross income would change and preclude the
Company from satisfying the asset tests and possibly the income tests (see
"Federal Income Tax Considerations--Taxation of the Company--Asset Tests" and
"--Income Tests"), and in turn would prevent the Company from qualifying as a
REIT. See "Federal Income Tax Considerations--Taxation of the Company--Failure
to Qualify" above for a discussion of the effect of the Company's failure to
meet such tests for a taxable year. In addition, any change in the status of the
Operating Partnership or the Financing Partnership for tax purposes might be
treated as a taxable event in which case the Company might incur a tax liability
without any related cash distributions.
An organization formed as a partnership will be treated as a partnership for
federal income tax purposes rather than as a corporation only if it has no more
than two of the four corporate characteristics that the Treasury Regulations use
to distinguish a partnership from a corporation for tax purposes. These four
characteristics are (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Although the
Company believes they will be so treated, the Operating Partnership and the
Financing Partnership have not requested, and do not intend to request, rulings
from
42
<PAGE>
the IRS that they will be treated as partnerships for federal income tax
purposes. No assurance can be given that the IRS will not challenge the status
of the Operating Partnership or the Financing Partnership as a partnership for
federal income tax purposes. If such a challenge were sustained by a court, the
Operating Partnership and/or the Financing Partnership could be treated as
corporations for federal income tax purposes.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require partnership allocations to respect the economic arrangement
of the partners.
The Partnership Agreement provides that if the Operating Partnership
operates at a net loss, net losses shall be allocated to the Company and the
Limited Partners in proportion to their respective percentage interests in the
Operating Partnership, provided that net losses that would have the effect of
creating a deficit balance in a Limited Partner's capital account (as
specifically adjusted for such purpose) ("Excess Losses") will be reallocated to
the Company, as general partner of the Operating Partnership. The Partnership
Agreement also provides that, if the Operating Partnership operates at a net
profit, net income shall be allocated first to the Company to the extent of
Excess Losses with respect to which the Company has not previously been
allocated net income, and any remaining net income shall be allocated in
proportion respective percentage interests of the Company and the Limited
Partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangements of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property (such as the properties contributed to the Operating
Partnership) that is contributed to a partnership in exchange for an interest in
the partnership must be allocated in a manner such that the contributing partner
is charged with, or benefits from, respectively, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property. Consequently, the
Partnership Agreement requires such allocations to be made in a manner
consistent with Section 704(c) of the Code.
Final and temporary Treasury Regulations under Section 704(c) of the Code
were recently issued by the IRS. These regulations provide partnerships with an
election to use one of three specific methods of accounting for Book-Tax
Differences or any other method that is reasonable. As the general partner of
the Operating Partnership, the Company retains the right to determine the method
to be used to account for Book-Tax Differences. The Operating Partnership
presently uses the method known as the "traditional method" which among other
things will limit annual allocations to the Company of depreciation and other
deductions to the actual amount of depreciation and other deductions allowable
to the Operating Partnership and the Financing Partnership. Therefore, under
this method or certain other methods that may be selected by the Operating
Partnership for accounting for Book-Tax differences, it is possible that the
carryover basis of the contributed assets in the hands of the Operating
Partnership will cause the Company to be allocated lower depreciation and other
deductions, and possibly greater taxable income in the event of a sale of such
contributed assets, than the economic or book depreciation, deductions or income
allocated to it pursuant to the Partnership Agreement. This may cause the
Company to recognize
43
<PAGE>
taxable income in excess of cash proceeds, which might adversely affect the
Company's ability to comply with the REIT distribution requirements. See
"--Taxation of the Company--Annual Distribution Requirements."
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property has or will initially have a tax basis equal to its fair market value,
and Section 704(c) of the Code will not apply.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its partnership interest in the Operating Partnership generally (i) will be
equal to the amount of cash and the basis of any other property contributed to
the Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable
share of indebtedness of the Operating Partnership and (iii) will be reduced,
but not below zero, by the Company's allocable share of (a) losses suffered by
the Operating Partnership, (b) cash distributed to the partners of the Operating
Partnership, and (c) constructive distributions resulting from a reduction in
the Company's share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Company's share of the Operating Partnership's distributions, or any decrease in
the Company's share of the indebtedness of the Operating Partnership (such
decreases being considered a cash distribution to the Company), exceeds the
Company's adjusted tax basis of its interests in the Operating Partnership, such
excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the income will constitute long-term capital gain.
SALE OF THE OPERATING PARTNERSHIP'S PROPERTY. The Company's share of any
gain realized by the Operating Partnership or Financing Partnership on the sale
of any property held by the Operating Partnership or Financing Partnership as
inventory or other property held primarily for sale to customers in the ordinary
course of their trade or business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See "--General." Such
prohibited transaction income may also have an adverse effect upon the Company's
ability to satisfy the income tests for qualification as a REIT. See
"--Requirements for Qualification--Income Tests." Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a partnership's trade or business is a question of fact that depends
on all the facts and circumstances with respect to the particular transaction.
The Operating Partnership and Financing Partnership intend to hold their
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating its properties and
to make such occasional sales of its properties as are consistent with their
investment objectives.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
The Management Company does not qualify as a REIT, and therefore it is
subject to federal, state and local taxes on its income.
44
<PAGE>
ERISA CONSIDERATIONS
The following is intended to be a summary only and is not a substitute for
careful planning with a professional. EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA
AND THE CODE CONSIDERING PURCHASING THE COMMON SHARES SHOULD CONSULT WITH THEIR
OWN TAX OR OTHER APPROPRIATE COUNSEL REGARDING THE APPLICATION OF ERISA AND THE
CODE TO THEIR PURCHASE OF THE COMMON SHARES. Plans should also consider the
entire discussion under the heading of "Federal Income Tax Considerations," as
material contained therein is relevant to any decision by a Plan to purchase the
Common Shares.
FIDUCIARY CONSIDERATIONS
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively, "Plans") are subject to
various provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code. Before investing in the Common Shares of the
Company, a Plan fiduciary should ensure that such investment is in accordance
with ERISA's general fiduciary standards. In making such a determination, a Plan
fiduciary should ensure that the investment is in accordance with the governing
instruments and the overall policy of the Plan, and that the investment will
comply with the diversification and composition requirements of ERISA. In
addition, provisions of ERISA and the Code prohibit certain transactions in Plan
assets that involve persons who have specified relationships with a Plan
("disqualified persons"). The consequences of such prohibited transactions
include the imposition of excise taxes, disqualifications of IRAs and other
liabilities. A Plan fiduciary should ensure that any investment in the Common
Shares will not constitute such a prohibited transaction.
PLAN ASSETS ISSUES
A prohibited transaction may occur if the assets of the Company are deemed
to be assets of the investing Plans and disqualified persons deal with such
assets. In certain circumstances where a Plan holds an interest in an entity,
the assets of the entity are deemed to be Plan assets (the "look-through rule").
Under such circumstances, any person that exercises authority or control with
respect to the management or disposition of such assets is a Plan fiduciary.
Plan assets are not defined in ERISA or the Code, but the United States
Department of Labor has issued Regulations, effective March 13, 1987 (the
"Regulations"), that outline the circumstances under which a Plan's interest in
an entity will be subject to the look-through rule.
The Regulations apply only to the purchase by a Plan of an "equity interest"
in an entity, such as common stock of a REIT. The Regulations provide that the
look-through rule does not apply if (i) the equity interest is a "publicly
offered security," (ii) the equity interest is a security issued by an
investment company registered under the Investment Company Act of 1940, (iii)
the equity interest is in an entity that is an operating company or (iv) benefit
plan investment in the entity is not "significant."
Under the Regulations, a "publicly offered security" is a security that is
(i) freely transferable, (ii) part of a class of securities that is widely-held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or (b) sold to a Plan as part of an offering of securities to
the public pursuant to an effective registration statement under the Securities
Act and the class of securities of which such security is a part is registered
under the Exchange Act within 120 days (or such longer period allowed by the
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. Whether a security is
considered "freely transferable" depends on the facts and circumstances of each
case. Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less, any restriction on or prohibition against any
transfer or assignment of such security for the purposes of preventing a
termination or reclassification of the entity for federal or state tax purposes
will not of itself prevent the security from being considered freely
transferable. A class of securities is considered "widely held" if it is a class
of securities that is owned by 100 or more investors independent of the issuer
and of one another.
45
<PAGE>
The Company believes that the Common Shares, other than those initially
acquired and held by AEW and Copley, meet the criteria of the publicly-offered
securities exception to the look-through rule. First, the Common Shares will be
considered to be freely transferable, as the minimum investment will be less
than $10,000 and the only restrictions upon its transfer are those required
under federal tax laws to maintain the Company's status as a REIT. Second, the
Company believes that the Common Shares are held by 100 or more investors and
that at least 100 or more of these investors are independent of the Company and
of one another. Third, the Common Shares will be both (a) part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and will be registered under the Exchange Act within 120 days
after the end of the fiscal year of the Company during which the offering of
such securities to the public occurs and (b) part of a class of securities
registered under Section 12 of the Exchange Act. Accordingly, the Company
believes that if a Plan purchases the Common Shares, the Company's assets should
not be deemed to be Plan assets and, therefore, that any person who exercises
authority or control with respect to the Company's assets should not be a Plan
fiduciary. For the shares initially acquired by AEW and Copley, the Company, AEW
and Copley will be relying on other exceptions, as noted above, to the
look-through rule.
The look-through rule will also apply in determining whether the assets of
the Operating Partnership are deemed to be plan assets. The Units are not
publicly offered securities. Nevertheless, if the applicable exceptions
described above are satisfied, the indirect investment in the Operating
Partnership by ERISA Plans or other plans subject to Code Section 4975 through
their ownership of the Common Shares should not cause the assets of the
Operating Partnership to be considered plan assets of such shareholders.
SELLING STOCKHOLDERS
Those persons who may receive Exchange Shares upon exchange of Units are
referred to herein as "Selling Stockholders."
The following table provides, as of December 10, 1996, the names of and
maximum number of Exchange Shares to be owned by each Selling Stockholder. Since
the Selling Stockholders may sell all, or some or none of their Exchange Shares,
no estimate can be made of the aggregate number of such Exchange Shares that are
to be offered hereby or that will be owned by each Selling Stockholder upon
completion of the offering to which this Prospectus relates.
The Exchange Shares offered by this Prospectus may be offered from time to
time by the Selling Stockholders named below:
<TABLE>
<CAPTION>
COMMON SHARES/UNITS UNITS BENEFICIALLY COMMON SHARES
BENEFICIALLY OWNED/MAXIMUM BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF EXCHANGE OWNED FOLLOWING THE
NAME OFFERING SHARES OFFERED OFFERING(1)
- ----------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Timothy L. Strader........... 14,863 14,863 --
Anthony M. Vitti............. 14,856 14,856 --
Legacy Investors-86.......... 46 46 --
McKinley Stoneridge, L.P..... 77,038 77,038 --
Brookfield Development,
Inc........................ 73,582 73,582 --
Phoenix Art Museum........... 2,300 2,300 --
Total:................... 182,685 182,685 --
------- ------- ------
------- ------- ------
</TABLE>
- ------------------------
(1) Assumes all Units held by the Selling Stockholders are exchanged for
Exchange Shares, and that all such Exchange Shares are resold pursuant to
this Prospectus. Also assumes that no transactions with respect to the
Common Shares or Units occur other than the transactions registered pursuant
to the Registration Statement of which this Prospectus is a part. Under the
preceding assumptions, no Selling Stockholder will own more than 1% of the
outstanding Common Shares following the Offering.
46
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to (i) the possible issuance by the Company of the
Exchange Shares if, and to the extent that, holders of Units tender such Units
for redemption, and (ii) the offer and sale from time to time of any Exchange
Shares that may be issued to such Limited Partners. The Company has registered
the Exchange Shares for sale to provide the holders thereof with freely tradable
securities, but registration of such Exchange Shares does not necessarily mean
that any of such shares will be offered or sold by the holders thereof.
The Company will not receive any proceeds from the offering by the Selling
Stockholders or from the issuance of the Exchange Shares to holders of Units
upon receiving a notice of redemption (but it may acquire from such holders the
Units tendered). The Exchange Shares may be sold from time to time to purchasers
directly by any of the Selling Stockholders. Alternatively, the Selling
Stockholders may from time to time offer the Exchange Shares through dealers or
agents, who may receive compensation in the form of commissions from the Selling
Stockholders and/or the purchasers of Exchange Shares for whom they may act as
agent. The Selling Stockholders and any dealers or agents that participate in
the distribution of Exchange Shares may be deemed to be "underwriters" within
the meaning of the Securities Act and any profit on the sale of Exchange Shares
by them and any commissions received by any such dealers or agents might be
deemed to be underwriting commissions under the Securities Act.
At a time a particular offer of Exchange Shares is made by the Selling
Stockholders, a Prospectus Supplement, if required, will be distributed that
will set forth the name and names of any dealers or agents and any commissions
of other terms constituting compensation from the Selling Stockholders and any
other required information. The Exchange Shares may be sold from time to time at
varying prices determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Exchange Shares may be sold by the Selling Stockholders only
through registered or licensed brokers or dealers. In addition, in certain
states, the Exchange Shares may not be sold unless they have been registered or
qualified for sale in such state or an exemption from such registration or
qualification requirement is available and is complied with.
The Company may from time to time issue up to 182,685 Exchange Shares upon
the acquisition of the Units exchanged therefor. The Company will acquire one
Unit in exchange for each Exchange Share that the Company may issue to Limited
Partners pursuant to a Registration Statement of which this Prospectus is a
part. Consequently, with each exchange the Company's interest in the Operating
Partnership will increase.
The securities may be sold in (a) a block trade in which the broker or
dealer so engaged will attempt to sell the securities as agent but may position
and resell a portion of the block as principal to facilitate the transaction,
(b) transactions in which a broker or dealer acts as principal and resells the
securities for its account pursuant to this Prospectus, (c) an exchange
distribution in accordance with the rules of such exchange, and (d) ordinary
brokerage transactions and transactions in which the broker solicits purchases.
In effecting sales, brokers or dealers engaged by the Selling Stockholders may
arrange for other brokers or dealers to participate. Certain Selling
Stockholders also may, from time to time, authorize underwriters acting as their
agents to offer and sell securities upon such terms and conditions as shall be
set forth in any prospectus supplement. Underwriters, brokers or dealers will
receive commissions or discounts from Selling Stockholders in amounts to be
negotiated immediately prior to sale. Such underwriters, brokers or dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales and any
discounts and commissions received by them and any profit realized by them on
the resale of the securities may be deemed to be underwriting discounts and
commissions under the Securities Act.
There is no assurance that any of the Selling Stockholders will offer for
sale or sell any or all of the securities covered by this Prospectus.
47
<PAGE>
LEGAL MATTERS
The validity of the Common Shares will be passed upon for the Company by
Ballard, Spahr, Andrews & Ingersoll, Baltimore, Maryland.
EXPERTS
The consolidated financial statements of the Company and Evans Withycombe
Residential Group (the predecessor to the Company) in the Company's Annual
Report (Form 10-K) for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
48
<PAGE>
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-------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY SELLING STOCKHOLDER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 1
Incorporation of Certain Information by
Reference.................................... 1
Prospectus Summary............................. 2
Risk Factors................................... 4
Description of Capital Stock................... 14
Description of Units........................... 17
Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws................. 21
Redemption of Units............................ 24
Federal Income Tax Considerations.............. 33
ERISA Considerations........................... 45
Selling Stockholders........................... 46
Plan of Distribution........................... 47
Legal Matters.................................. 48
Experts........................................ 48
</TABLE>
182,685 SHARES
[LOGO]
EVANS WITHYCOMBE
RESIDENTIAL, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DECEMBER 13, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities registered hereby, all of which will
be paid by the Registrant.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................................... $ 1,198
Legal fees and expenses*........................................... 45,000
Accounting fees and expenses*...................................... 5,000
Blue sky fees and expenses*........................................ 7,500
Miscellaneous expenses*............................................ 5,302
---------
---------
Total:..................................................... $ 64,000
---------
---------
</TABLE>
- ------------------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Charter limits the liability of the Company's directors and
officers the Company and its shareholders to the fullest extent permitted from
time to time by Maryland law. Maryland law presently permits the liability of
directors and officers to a corporation or its shareholders for money damages to
be limited, except (i) to the extent that it is proved that the director or
officer actually received an improper benefit or profit or (ii) if a judgment or
other final adjudication is entered in a proceeding based on a finding that the
director's or officer's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in the
proceeding. This provision does not limit the ability of the Company or its
shareholders to obtain other relief, such as an injunction or rescission.
The Company's Charter and Bylaws require the Company to indemnify its
directors and officers to the fullest extent permitted from time to time by
Maryland law. The Charter also permits the Company to indemnify employees,
agents and other persons acting on behalf of or at the request of the Company.
The MGCL permits a corporation to indemnify its directors, officers and certain
other parties against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service to or at the request of the
corporation, unless it is established that the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(i) was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the indemnified party actually received an improper personal
benefit, or (iii) in the case of any criminal proceeding, the indemnified party
had reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director or officer in connection
with the proceeding; provided, however, that if the proceeding is one by or in
the right of the corporation, indemnification may not be made with respect to
any proceeding in which the director or officer has been adjudged to be liable
to the corporation. In addition, a director or officer may not be indemnified
with respect to any proceeding charging improper personal benefit to the
director or officer in which the director or officer was adjudged to be liable
on the basis that personal benefit was improperly received. The termination of
any proceeding by conviction, or upon a plea of nolo contendere or its
equivalent, or an entry of any order of probation prior to judgment, creates a
rebuttable presumption that the director or officer did not meet the requisite
standard of conduct required for indemnification to be permitted. It is the
position of the Securities and Exchange Commission that indemnification of
directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.
II-1
<PAGE>
The Agreement of Limited Partnership of the Operating Partnership also
provides for indemnification of the Company, or any director or officer of the
Company, in its capacity as general partner of the Partnership, from and against
all losses, claims, damages, liabilities, joint or several, expenses (including
legal fees), fines, settlements and other amounts incurred in connection with
any actions relating to the operations of the Operating Partnership as set forth
in the Operating Partnership Agreement.
The Company entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require, among
other things, that the Company indemnify its officers and directors to the
fullest extent permitted by the MGCL, and advance to the officers and directors
all related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted. The Company must also indemnify and
advance all expenses incurred by officers and directors seeking to enforce their
rights under the indemnification agreements, and cover officers and directors
under the Company's directors and officers' liability insurance. Although the
form of indemnification agreement offers substantially the same scope of
coverage afforded by provisions in the Charter and the Bylaws, it provides
greater assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or by the shareholders to eliminate the rights
it provides.
ITEM 16. EXHIBITS.
See Exhibit Index attached hereto on page II-5 and incorporated herein by
reference.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Securities
Act"), each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities therein thereby and the offering of such securities
at the time shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matters has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Scottsdale, State of Arizona, on this 13th day of
December, 1996.
EVANS WITHYCOMBE RESIDENTIAL, INC.
By: /s/ STEPHEN O. EVANS
------------------------------------------
Stephen O. Evans
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned directors and officers of Evans Withycombe Residential,
Inc. do hereby constitute and appoint Stephen O. Evans, F. Keith Withycombe and
Paul R. Fannin our true and lawful attorney and agent, to do any and all acts
and things in our name and behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorney and agent may deem necessary or advisable
to enable said corporation to comply with the Securities Act of 1933, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names and in the capacities indicated below, any and all amendments
(including post-effective amendments) to this Registration Statement, or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended; and we do hereby
ratify and confirm all that the said attorney and agent shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ STEPHEN O. EVANS Chairman of the Board of
- ------------------------------ Directors and Chief
Stephen O. Evans Executive Officer December 13, 1996
(Principal Executive
Officer)
- ------------------------------ President, Chief Operating December , 1996
F. Keith Withycombe Officer and Director
Senior Vice President and
- ------------------------------ Chief Financial Officer
Paul R. Fannin (Principal Financial and December , 1996
Accounting Officer)
/s/ RICHARD G. BERRY
- ------------------------------ Executive Vice President December 13, 1996
Richard G. Berry and Director
- ------------------------------ Director December , 1996
Joseph F. Azrack
/s/ G. PETER BIDSTRUP
- ------------------------------ Director December 13, 1996
G. Peter Bidstrup
- ------------------------------ Director December , 1996
Joseph W. O'Connor
/s/ JOHN O. THEOBALD II
- ------------------------------ Director December 13, 1996
John O. Theobald II
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<C> <S> <C>
4.1 Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit No. 3.1 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
4.2 Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
5.1* Opinion and consent of Ballard Spahr Andrews & Ingersoll regarding the validity of the Common
Stock being registered.
10.1 Credit Agreement, dated as of September 24, 1996, by and among Evans Withycombe Residential L.P.,
Bank One, Arizona, NA, as administrative agent, and Bank of America National Trust and Savings
Association and Wells Fargo Bank, National Association, as co-agents.
23.1 Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors.
24.1 Power of Attorney (included on signature page).
</TABLE>
- ------------------------
* To be filed by amendment.
II-5
<PAGE>
==============================================================================
CREDIT AGREEMENT
among
EVANS WITHYCOMBE RESIDENTIAL, L.P.,
a Delaware limited partnership
THE BANKS NAMED HEREIN,
BANK ONE, ARIZONA, NA,
as Administrative Agent
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Co-Agents
Dated as of September 24, 1996
==============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.2 Terms Generally . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE II THE CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.2 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.3 Notice of Borrowings. . . . . . . . . . . . . . . . . . . 19
SECTION 2.4 Excess Balance Repayment. . . . . . . . . . . . . . . . . 19
SECTION 2.5 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.6 Notes; Repayment of Loans . . . . . . . . . . . . . . . . 20
SECTION 2.7 Interest on Loans . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.8 Default Interest. . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.9 Alternate Rate of Interest. . . . . . . . . . . . . . . . 21
SECTION 2.10 Termination and Reduction of Commitments. . . . . . . . . 22
SECTION 2.11 Conversion and Continuation of Loans. . . . . . . . . . . 22
SECTION 2.12 Prepayment. . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.13 Reserve Requirements; Change in Circumstances . . . . . . 24
SECTION 2.14 Change in Legality. . . . . . . . . . . . . . . . . . . . 25
SECTION 2.15 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.16 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . 27
SECTION 2.17 Sharing of Setoffs. . . . . . . . . . . . . . . . . . . . 27
SECTION 2.18 Payments. . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.19 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.20 Termination or Assignment of Commitments Under
Certain Circumstances . . . . . . . . . . . . . . . . . . 30
SECTION 2.21 Extension . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 32
SECTION 3.1 Organization; Powers, etc . . . . . . . . . . . . . . . . 32
SECTION 3.2 Authorization, etc. . . . . . . . . . . . . . . . . . . . 32
SECTION 3.3 Enforceability. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.4 Financial Condition and Information . . . . . . . . . . . 33
SECTION 3.5 No Material Adverse Change. . . . . . . . . . . . . . . . 33
SECTION 3.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
SECTION 3.7 Federal Reserve Regulations . . . . . . . . . . . . . . . 34
SECTION 3.8 Investment Company Act. . . . . . . . . . . . . . . . . . 34
SECTION 3.9 Public Utility Holding Company Act. . . . . . . . . . . . 34
SECTION 3.10 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.12 Title to Properties: Possession . . . . . . . . . . . . . 34
SECTION 3.13 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.14 Environmental and Safety Matters. . . . . . . . . . . . . 35
SECTION 3.15 No Default. . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.16 Significant Debt Agreements . . . . . . . . . . . . . . . 35
SECTION 3.17 Compliance with Law . . . . . . . . . . . . . . . . . . . 35
SECTION 3.18 Survival of Representations . . . . . . . . . . . . . . . 35
SECTION 3.19 Solvent . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.20 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IV CONDITIONS TO CREDIT EVENTS. . . . . . . . . . . . . . . . . 36
SECTION 4.1 Credit Events . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.2 First Credit Event. . . . . . . . . . . . . . . . . . . . 36
ARTICLE V AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 39
SECTION 5.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.3 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.4 Financial Statements; Reports, etc. . . . . . . . . . . . 40
SECTION 5.5 Litigation and Other Notices. . . . . . . . . . . . . . . 41
SECTION 5.6 Maintaining Records: Access to Premises and Records . . . 42
SECTION 5.7 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.8 REIT Status . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.9 Interest Rate Agreements. . . . . . . . . . . . . . . . . 42
SECTION 5.10 Board of Directors of the General Partner . . . . . . . . 43
ARTICLE VI NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.2 Mergers, Consolidations, Sales of Assets. . . . . . . . . 44
SECTION 6.3 Business of Borrower and General Partner. . . . . . . . . 44
SECTION 6.4 ERISA Liabilities . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.5 Organizational Documents. . . . . . . . . . . . . . . . . 44
SECTION 6.6 Large Purchase Approval . . . . . . . . . . . . . . . . . 44
SECTION 6.7 Other Purchase Notice . . . . . . . . . . . . . . . . . . 45
SECTION 6.8 Financial Ratios. . . . . . . . . . . . . . . . . . . . . 45
<PAGE>
SECTION 6.9 Calculation of Its Financial Covenants. . . . . . . . . . 45
SECTION 6.10 Distributions . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.11 Permitted Investments . . . . . . . . . . . . . . . . . . 45
SECTION 6.12 Floating Rate Indebtedness. . . . . . . . . . . . . . . . 46
SECTION 6.13 Financial Covenants Noncompliance . . . . . . . . . . . . 46
SECTION 6.14 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VII EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.1 Event of Default. . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7.3 Occurrence and Declaration of an Event of Default . . . . 50
SECTION 7.4 Enforcement of Remedies . . . . . . . . . . . . . . . . . 50
SECTION 7.5 Approval Process for Proposed Plans . . . . . . . . . . . 51
ARTICLE VIII THE ADMINISTRATIVE AGENT; INTERBANK AGREEMENT . . . . . . . . 53
SECTION 8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 8.2 Liability . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 8.3 Action by Administrative Agent. . . . . . . . . . . . . . 54
SECTION 8.4 Qualification, Replacement of Administrative Agent. . . . 55
SECTION 8.5 Agent as Bank . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 8.6 Ownership and Possession of Loan Documents. . . . . . . . 58
SECTION 8.7 Indemnification . . . . . . . . . . . . . . . . . . . . . 58
SECTION 8.8 Independent Credit Analysis . . . . . . . . . . . . . . . 59
SECTION 8.9 Process for Obtaining Approval of the Banks . . . . . . . 59
SECTION 8.11 Relationship with the Borrower. . . . . . . . . . . . . . 60
SECTION 8.12 Payments. . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 8.13 Application of Payments . . . . . . . . . . . . . . . . . 62
SECTION 8.14 Defaults. . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.15 Purchase of Defaulting Bank's Interest After Default. . . 65
SECTION 8.16 Purchase Price and Payment for Defaulting Bank's Interest 65
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.2 Survival of Credit Agreement. . . . . . . . . . . . . . . 67
SECTION 9.3 Binding Effect. . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.4 Successors and Assigns. . . . . . . . . . . . . . . . . . 68
SECTION 9.5 Expenses; Indemnity . . . . . . . . . . . . . . . . . . . 71
SECTION 9.6 Applicable Law. . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9.7 Waivers; Amendment. . . . . . . . . . . . . . . . . . . . 72
SECTION 9.8 Interest Rate Limitation. . . . . . . . . . . . . . . . . 72
<PAGE>
SECTION 9.9 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 73
SECTION 9.10 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . 73
SECTION 9.11 Severability. . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 9.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 9.13 Headings. . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 9.14 Alternative Dispute Resolution. . . . . . . . . . . . . . 74
SECTION 9.15 Jurisdiction; Consent to Service of Process . . . . . . . 74
SECTION 9.16 Confidentiality . . . . . . . . . . . . . . . . . . . . . 75
EXHIBIT "A" FORM OF BORROWING NOTICE
EXHIBIT "B" FORM OF NOTE
EXHIBIT "C" FORM OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT "D" FORM OF COUNSEL OPINION OF BORROWER AND GENERAL PARTNER
EXHIBIT "E" FORM OF ADMINISTRATIVE QUESTIONNAIRE
EXHIBIT "F" FORM OF COMPLIANCE CERTIFICATE
SCHEDULE 2.1 COMMITMENTS OF BANKS
<PAGE>
CREDIT AGREEMENT
BY THIS CREDIT AGREEMENT (together with any amendments or
modifications, the "Credit Agreement"), entered into as of
September 24, 1996 by and among EVANS WITHYCOMBE RESIDENTIAL,
L.P., a Delaware limited partnership (the "Borrower"), the banks
listed in Schedule 2.1 (the "Banks"), BANK ONE, ARIZONA, NA, a
national banking association, as administrative agent for the
Banks (in such capacity, the "Administrative Agent") and Bank of
America National Trust and Savings Association and Wells Fargo
Bank, National Association, as Co-Agents, in consideration of the
mutual promises herein contained and for other valuable
consideration, the parties hereto do agree as follows:
RECITALS
A. The Borrower has asked that the Banks provide lending commitments
in an aggregate principal amount of $225,000,000.00 at any time outstanding
on a revolving credit basis on and after the date hereof and at any time and
from time to time prior to the Maturity Date.
B. The Banks have agreed to provide financial accommodations to the
Borrower pursuant to this Credit Agreement in an amount not to exceed the
Maximum Commitment, which amount is $225,000,000.00.
C. The proceeds of such borrowings are to provide funds for the
following purposes:
1. Working capital for Borrower's business
operations;
2. Payment of dividends;
3. Payment of pre-development and development
costs with respect to real estate projects;
4. Payment of acquisition costs with respect to
real estate properties;
5. Payment of capital expenditures with respect
to real estate properties;
6. Making of equity investments;
7. Repayment of existing indebtedness with
respect to real estate properties;
8. Payment of scheduled principal payments with
respect to remaining indebtedness; and
<PAGE>
9. General corporate purposes.
D. The Banks are willing to extend such credit to the Borrower on the
terms and subject to the conditions herein set forth.
E. The lending commitments of any Bank to the Borrower and the General
Partner pursuant to that Credit Agreement dated December 1, 1995 as amended
by that Modification Agreement dated July 23, 1996 (as amended, the "1995
Agreement") shall be terminated upon the execution and delivery of this
Credit Agreement by the Borrower to the Banks and the satisfaction of those
conditions precedent specified in Section 4.2 hereof. At such time, said
Credit Agreement and that Unconditional Guarantee of Payment dated December
1, 1995 related thereto shall be terminated and of no force and effect after
which that Note dated December 1, 1995 related thereto shall be canceled and
returned to Borrower.
Accordingly, the Borrower, the Banks and the Administrative Agent agree
as follows:
-2-
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS. Although terms may be defined elsewhere
herein, as used in this Credit Agreement, unless the context otherwise
requires, the following terms shall have the meanings specified below:
"ADJUSTED ASSET VALUE" of a Person shall mean, on any date of
determination, such Person's EBITDA, annualized on the basis of the most
recent quarter, divided by 9.50%.
"ADJUSTED NET WORTH" of a Person shall mean seventy-five percent (75.0%)
times the net of such Person's Gross Asset Value after subtracting from its
Gross Asset Value its Total Liabilities and its Intangible Assets.
"ADJUSTED NOI" shall mean with respect to a Project, its Project NOI
adjusted as follows:
(a) For a Project that became a Stabilized Project
our (4) or more quarters ago, its Adjusted NOI shall be
equal to its Project NOI calculated on a basis of its most
recent rolling four quarter period.
(b) For a Project that became a Stabilized
Project less than four (4) quarters ago, its Adjusted
NOI shall be equal to the sum of its Project NOI for
the quarter when it became a Stabilized Project and
each subsequent quarter, which sum shall be annualized.
(c) For a Project acquired by the Borrower or the
General Partner during the prior twelve (12) month
period that is not a Stabilized Project, its Adjusted
NOI shall be equal to its Project NOI calculated on a
basis of its most recent rolling four quarter period,
adjusted if necessary for a three percent (3%)
management fee and a $135.00 per apartment unit annual
reserve.
"ADMINISTRATION FEES" shall have the meaning assigned to such term in
Section 2.5(d).
"ADMINISTRATIVE AGENT" shall have the meaning assigned to such term in
the Preamble, and any successor thereto.
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in the form of Exhibit "E" hereto.
"AFFILIATE" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with
the Person specified.
-3-
<PAGE>
"AGGREGATE VALUE" shall mean an amount equal to the sum of the following
with respect to all Unencumbered Assets that shall have been included by the
Borrower in the most recent calculation of the Aggregate Value furnished by
it to the Administrative Agent:
(a) as to all such Unencumbered Assets that are
Stabilized Projects, an amount equal to (i) their
Adjusted NOI divided by 9.5%, (ii) then divided by
175.0%;
(b) as to all such fully completed Unencumbered
Assets that are not Stabilized Projects, an amount
equal to seventy-five percent (75%) of their book value
according to GAAP;
(c) as to all such Unencumbered Assets under
construction, an amount equal to fifty percent (50%) of
their book value according to GAAP;
provided, however, that:
(i) the sum of (b) and (c) above shall
not exceed thirty percent (30%) of the total
Aggregate Value; and
(ii) the amount of (c) shall not exceed
fifteen percent (15%) of the total Aggregate
Value.
"ALTERNATIVE PLAN": See Section 7.4(c).
"ANNIVERSARY DATE" shall mean September 24, 1997.
"APPLICABLE MARGIN" shall mean on any date, with respect to Eurodollar
Loans, the applicable spread set forth below based upon the ratings
applicable on such date to the Borrower's or the General Partner's Index Debt
from at least two of the Rating Agencies, one of which shall be S&P or
Moody's, or if no Index Debt is then outstanding, the indicative ratings
established by the respective rating agencies in respect of the Borrower or
the General Partner on its notional senior unsecured long-term indebtedness:
Eurodollar
Loan Spread
-----------
CATEGORY 1
RATING
A- or above by S&P 1.25%
A3 or above by Moody's
Equivalent by another Rating Agency
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CATEGORY 2
RATING
BBB by S&P or above 1.375%
Baa2 by Moody's or above
Equivalent by another Rating Agency
CATEGORY 3
RATING
BBB- by S&P or above 1.50%
Baa3 by Moody's or above
Equivalent by another Rating Agency
CATEGORY 4
RATING
BB+ or below by S&P or not rated 1.75%
Ba1 or below by Moody's or not rated
Equivalent by another Rating Agency
For purposes of the foregoing, (i) unless the ratings for Index Debt
established or deemed to have been established by the two Rating Agencies
with the highest such ratings, one which shall be S&P or Moody's, shall fall
within a single Category, the Applicable Margin shall be determined by
reference to the lower rating; (ii) if no two Rating Agencies shall have in
effect a rating for Index Debt or established an indicative rating in respect
of the Borrower or the General Partner or its notional senior unsecured
long-term indebtedness, then the Applicable Margin shall be determined by
reference to Category 4; and (iii) if any rating for Index Debt established
or deemed to have been established by a Rating Agency shall be changed (other
than as a result of a change in the rating system of such Rating Agency),
such change shall be effective as of the date on which it is first announced
by the applicable rating agency. Each change in the Applicable Margin shall
apply during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change. If the rating system of a Rating Agency shall change, or if no Rating
Agency shall any longer have in effect a rating for Index Debt or established
an indicative rating in respect of the Borrower or the General Partner or its
notional senior unsecured long-term indebtedness, and clause (ii) above shall
not be applicable, the Borrower and the Banks, acting through the
Administrative Agent, shall negotiate in good faith to amend the references
to specific ratings in this definition to reflect such changed rating system
or the non-availability of ratings from such rating agency.
"APPROVED PLAN" See Section 7.5(a).
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"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance entered
into by a Bank and an assignee, accepted by the Administrative Agent and, if
assignee is not a Bank, consented to by the Borrower, in the form of Exhibit
"C".
"AVAILABLE COMMITMENT" shall mean at any time an amount that, together with
the amount of any Debt of the Borrower and the General Partner that is not
secured by any Lien on any of the property or assets of the Borrower or the
General Partner, equals the Aggregate Value.
"BANKS" shall have the meaning assigned to such term in the Preamble.
"BOARD" shall mean the Board of Governors of the Federal Reserve System of
the United States.
"BOAZ" shall mean Bank One, Arizona, NA.
"BORROWER" shall have the meaning assigned to such term in the Preamble.
"BORROWER REPRESENTATIVE" shall mean a Person designated as such by the
Borrower.
"BORROWING" shall mean a group of Loans made by the Banks on a single date.
"BORROWING NOTICE" shall mean a notice given pursuant to Section 2.3, a
form of which is attached hereto as Exhibit "A".
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Arizona, State of California, the
State of New York or State of Rhode Island) on which banks are open for
business in Phoenix, Arizona, Los Angeles, California, New York City, New
York and Providence, Rhode Island; PROVIDED, HOWEVER, that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"CAPITAL LEASE" shall mean any lease of any property (whether real,
Personal or mixed) required by GAAP to be accounted for as a capital lease on
the balance sheet of the lessee.
"CAPITAL LEASE OBLIGATIONS" of any Person shall mean the obligations of
such Person to pay rent or other amounts under any Capital Lease and, for the
purposes of this Credit Agreement, the amount of such obligations at any time
shall be the capitalized amount thereof at such time determined in accordance
with GAAP.
A "CHANGE IN CONTROL" shall be deemed to have occurred if, after the date
hereof, (a) any Person or group (within the meaning of Rule 13d-3, as in
effect on the date hereof, promulgated by the SEC under the 1934 Act) (other
than Stephen O. Evans or Keith Withycombe or any group including either of
them), shall acquire, directly or indirectly, beneficially or of record,
shares
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representing more than fifty percent (50%) of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the General
Partner; or (b) a majority of the seats (other than vacant seats) on the
board of directors become occupied by Persons not members of said board on
the date hereof that were neither (i) nominated by the board of directors of
the General Partner, nor (ii) appointed by directors so nominated.
"CLOSING DATE" shall mean the date of the first Credit Event hereunder.
"CO-AGENTS" shall mean Bank of America National Trust and Savings
Association and Wells Fargo Bank, National Association. The Co-Agents shall
have no right, duties or responsibilities under the Loan Documents beyond
those of a Bank.
"CODE" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time.
"COMMITMENT" shall mean, with respect to each Bank, the revolving credit
commitment of such Bank hereunder as set forth in Schedule "2.1" hereto
(which amount shall not be less than $10,000,000.00) as such Bank's
Commitment may be permanently terminated or reduced from time to time
pursuant to Section 2.10 or 2.20. The Commitments shall automatically and
permanently terminate on the Maturity Date.
"COMMITMENT FEE" shall have the meaning assigned to such term in Section
2.5(a).
"COMPLIANCE CERTIFICATE" shall have the meaning assigned to such term in
Section 5.4(c) in the form of Exhibit "F" attached hereto.
"CONTROL" shall mean the exercise of the power to direct or cause the
direction of the management or policies of a Person, whether through the
exercise of rights of ownership under voting securities, under contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"CREDIT AGREEMENT" shall have the meaning assigned to such term in the
Preamble.
"CREDIT EVENT" shall have the meaning given such term in Article IV.
"CURRENT BANK": See Section 8.15.
"CURRENT FINANCIAL STATEMENT DATE" shall mean December 31,
1995.
"CURRENT MATURITY DATE" shall mean September 24, 1999.
"DECLARATION OF DEFAULT": See Section 7.3.
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"DEBT" of a Person shall mean each of the following (without duplication):
(a) obligations of that Person to any other Person for payment of borrowed
money, (b) Capital Lease Obligations, (c) notes and drafts drawn or accepted
by that Person payable to any other Person, whether or not representing
obligations for borrowed money (but without duplication of indebtedness for
borrowed money), (d) any obligation for the purchase price of property the
payment of which is deferred for more than one year or evidenced by a note or
equivalent instrument, (e) Guarantees of Debt of third parties, and (f) a
recourse or nonrecourse payment obligation of any other Person that is
secured by a Lien on any property of the first Person, whether or not assumed
by the first Person, up to the fair market value (from time to time) of such
property (absent manifest evidence to the contrary, the fair market value of
such property shall be the amount determined under GAAP for financial
reporting purposes).
"DEBT SERVICE" of a Person shall mean its Interest Expense plus its
scheduled amortization payments of principal of any Debt, excluding any
principal payments due on the maturity date of such Debt.
"DEFAULT" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
"DEFAULT PLAN": See Section 7.4(a).
"DEFAULTING BANK": See Section 8.14.
"DESIGNATED OFFICER" shall mean any of the Chairman of the Board,
President, the Chief Financial Officer, the General Counsel, the Secretary,
the Treasurer and the Assistant Treasurer of the General Partner.
"DOLLARS" or "$" shall mean lawful money of the United States of America.
"DUFF" means Duff & Phelps Credit Rating Co.
"EBITDA" of a Person shall mean, for any period, such Person's net income
(before any deductions for minority interest attributable to any limited
partners in the Borrower) plus interest expense, taxes, depreciation and
amortization expenses to the extent deducted in determining such net income
plus any earnings distributed by any unconsolidated Affiliates, plus (or
minus) any extraordinary losses (or gains) from asset sales, asset writeoffs
and debt forgiveness. "EBITDA" shall exclude all extraordinary gains.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
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<PAGE>
"ERISA AFFILIATE" shall mean any trade or business (whether or not
incorporated) that is a member of a group of which the General Partner is a
member and which is treated as a single employer under Section 414 of the
Code.
"ERISA LIABILITIES" shall mean at any time the minimum liability with
respect to Plans that would be required to be reflected at such time as a
liability on the consolidated balance sheet of the General Partner under GAAP.
"EURODOLLAR LENDING OFFICE," with respect to any Bank (or transferee) or
the Administrative Agent, shall mean such office or branch as such Bank (or
transferee) or the Administrative Agent has designated to the Borrower herein
in Schedule "2.1" as the office or branch of such Bank (or transferee) or the
Administrative Agent which shall constitute the Lending Office thereof for
Eurodollar Loans.
"EURODOLLAR LOAN" shall mean any Loan bearing interest at a rate determined
by reference to the LIBO Rate in accordance with the provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in Article
VII.
"EXTENSION FEE" shall have the meaning assigned to such term in Section
2.5(c).
"FACILITY FEE" shall have the meaning assigned to such term in Section
2.5(b).
"FACILITY FEE PERCENTAGE" shall mean (i) one-quarter percent (0.25%) if the
daily unused amount during the preceding calendar quarter (or any shorter
period described in Section 2.5(b)) averages less than sixty percent (60%) of
the Total Commitment, or (ii) otherwise, one-eighth percent (0.125%).
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of San
Francisco, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.
"FEE LETTER" shall mean that letter agreement between the Borrower and the
Administrative Agent with respect to the payment of Administrative Fees
hereunder.
"FEES" shall mean the Commitment Fees, the Facility Fees, the
Administration Fees and the Extension Fees.
"FINANCIAL COVENANTS" shall mean those financial covenants described in
Sections 6.8 through 6.12.
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<PAGE>
"FINANCIAL OFFICER" of any corporation shall mean the chief financial
officer, principal accounting officer, treasurer or controller of such
corporation.
"FITCH" shall mean Fitch Investor's Service.
"FLOATING RATE INDEBTEDNESS" of a Person shall mean its variable rate Debt,
including without limitation that of its unconsolidated Affiliates which is
recourse to such Person and any Debt that reprices within 365 days, but
excluding any "low-floater" tax-exempt bonds and any such Debt for which such
Person is protected from interest rate risk to the satisfaction of the Banks.
"FUNDS FROM OPERATIONS" of the General Partner shall mean, at any date of
determination, its "funds from operations" as determined in accordance with
policies and standards promulgated from time to time by the National
Association of Real Estate Investment Trusts, calculated on the basis of its
most recent rolling four quarter period.
"GAAP" shall mean generally accepted accounting principles as currently in
effect in the United States.
"GENERAL PARTNER" shall mean Evans Withycombe Residential, Inc., a Maryland
corporation, the general partner of the Borrower.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body
having jurisdiction over Borrower or the General Partner or any of their
assets.
"GROSS ASSET VALUE" of a Person shall mean the sum of such Person's
Adjusted Asset Value as hereinafter adjusted, cash and cash equivalents, the
book value of construction in process and land held for development,
excluding without limitation restricted cash; provided that for purposes of
calculating Gross Asset Value, Adjusted Asset Value shall not include any
positive EBITDA generated by any construction in process.
"GUARANTEE" of or by any Person shall mean any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Debt of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, and including without limitation any
obligation of such Person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Debt, (b) to purchase property, securities or services
for the purpose of assuring the owner of such Debt of the payment of such
Debt or (c) to maintain working capital, equity capital or other financial
statement condition or liquidity of the Primary Obligor so as to enable the
Primary Obligor to pay such Debt; PROVIDED, HOWEVER, that the term Guarantee
shall not include endorsements for collection or deposit, in either case in
the ordinary course of business.
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"GUARANTY" shall mean that Unconditional Guarantee of Payment dated as of
even date herewith from the General Partner to the Administrative Agent for
the benefit of the Banks, as such Guaranty shall be amended, modified and
restated from time to time.
"INDEX DEBT" shall mean with respect to Applicable Margin a Person's
senior, unsecured, non-credit-enhanced long-term indebtedness for borrowed
money.
"INTANGIBLE ASSETS" of a Person shall mean all intangible, non-current
assets of such Person.
"INTEREST EXPENSE" of a Person shall mean all interest expense incurred by
such Person during the relevant period, plus its pro-rata share of interest
expense in its unconsolidated Affiliates and all interest expense incurred by
such Person on any obligations for which such Person is wholly or partially
liable during the relevant period. "Interest Expense" shall not include any
interest that is capitalized.
"INTEREST PAYMENT DATE" shall mean the first day of each month.
"INTEREST PERIOD" shall mean as to any Eurodollar Loan, the period
commencing on the date of the related Borrowing or conversion and ending on
the numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is 1, 2, 3, or
6 months thereafter, as the Borrower may elect; PROVIDED, HOWEVER, that if
any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day.
Interest shall accrue from and including the first day of an Interest Period
to but excluding the last day of such Interest Period.
"LENDING OFFICE," with respect to any Bank (or transferee) or the
Administrative Agent, shall mean such office or branch as such Bank (or
transferee) or the Administrative Agent has designated to the Borrower herein
as the office or branch of that Bank (or transferee) or the Administrative
Agent from which Loans are to be made.
"LIBO RATE" shall mean, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 100th of 1%) equal to the composite London interbank offered rate
for dollar deposits approximately equal in principal amount to such
Eurodollar Loan and for a maturity comparable to such Interest Period
appearing on the display designated as page "LIBO" on the Reuters System, or
such other display as the Reuters System shall from time to time use to
present such London interbank offered rates, at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period.
"LIEN" shall mean any mortgage, pledge, security interest or similar lien.
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"LOAN DOCUMENTS" shall mean this Credit Agreement, the Notes, the Fee
Letter, the Guaranty and all documents executed by the parties pursuant to
the terms of this Credit Agreement.
"LOANS" shall mean the revolving loans made by the Banks to the Borrower
pursuant to Section 2.3. Each Loan shall be a Eurodollar Loan or Variable
Loan.
"MARGIN STOCK" shall have the meaning given such term under Regulation U.
"MATURITY DATE" shall mean the earliest of the following: (a) the date the
Banks exercise their option to declare the Loans fully due and payable after
the occurrence of an Event of Default and the continuation thereof, or (b)
the Current Maturity Date, unless Borrower shall have exercised its option
pursuant to Section 2.21 to extend the Maturity Date, then September 24, 2000.
"MAXIMUM COMMITMENT" shall mean $225,000,000.00.
"MAXIMUM NUMBER" shall mean ten (10) for the purposes of Section 2.2(b).
"MINIMUM ADDITIONAL AMOUNT" shall mean $100,000.00 for the purposes of
Sections 2.2(a), 2.10(b), 2.11(b), and 2.12(a).
"MINIMUM AMOUNT" shall mean $500,000.00 for the purposes of Sections
2.2(a), 2.10(b), 2.11(b), and 2.12(a).
"MOODY'S" shall mean Moody's Investors Service, a Delaware corporation, and
its successors and assigns.
"MULTI-EMPLOYER PLAN" shall mean a multi-employer plan as defined in
Section 4001(a)(3) of ERISA to which the General Partner or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Section 414 of the Code) is making or accruing an
obligation to make contributions, or has within any of the preceding two plan
years made or accrued an obligation to make contributions.
"NET WORTH" of a Person shall mean such Person's net worth as determined
under GAAP.
"1934 ACT" shall mean the United States Securities Exchange Act of 1934, as
amended.
"1995 AGREEMENT" shall have the meaning assigned to such term in Recital E.
"NOTE" and "NOTES" shall mean, severally and collectively, revolving credit
notes of the Borrower executed and delivered as provided in Section 2.6, as
such Notes shall be amended, modified, extended and restated from time to
time.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"PERMITTED LIEN" shall mean a Lien permitted under Section 6.1.
"PERSON" shall mean any natural Person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"PLAN" shall mean any pension plan (other than a Multi-employer Plan) that
is (i) a qualified plan under Section 401(a) of the Code, (ii) subject to the
provisions of Title IV of ERISA or Section 412 of the Code and (iii)
maintained for employees of the General Partner or any ERISA Affiliate.
"PROJECT" shall mean an apartment community consisting of non-high rise
buildings, which is either under construction or has been completed, that is
not primarily oriented to students or elderly congregate care, and that is
located either in Arizona, California, Colorado, Nevada, New Mexico or Utah.
The Administrative Agent and the Banks acknowledge that as of the Closing
Date, all apartment communities owned by the Borrower and the General Partner
qualify as "Projects."
"PROJECT EXPENSES" shall mean the sum of (A) a replacement reserve of at
least $135.00 per unit per year, plus (B) all expenses actually incurred in
each calendar month by or on behalf of the Borrower or the General Partner
for: (i) lease-up, operation, cleaning, and maintenance costs of the Project
for the month in question, determined on an accrual basis (including, but not
limited to, the cost of all utilities supplied to the Project to the extent
the utilities are not separately charged or metered to tenants of the
Project); (ii) promotional expenses of the Project (including the cost of
brochures, advertising fees, broker fees, and tenant locator/referral fees);
(iii) repairs to the Project; (iv) insurance actually maintained by the
Borrower or the General Partner in the amounts and with the coverage
specified by the Borrower or the General Partner; (v) compensation payable to
all persons employed by the Borrower or the General Partner's manager in
connection with the operation, maintenance, repair, and management of the
Project including the property management agent's standard benefits package
for its employees; (vi) the cost of complying with rules, regulations, and
orders of governmental authorities; (vii) accounting and legal fees relating
to the operation and management of the Project (including collection costs);
(viii) all real and personal property taxes determined on an accrual basis
and prorated, whether or not such taxes are due or payable; (ix) all sales
and use taxes paid by the Borrower or the General Partner or its manager (and
not paid or reimbursed by tenants) to appropriate governmental authorities;
(x) a management fee equal to the higher of that actually incurred or three
percent (3%) of Project Receipts; and (xi) all homeowners association fees,
general assessments, special assessments, or improvement district assessment
levied or assessed against the Project, whether by a school, hospital,
municipality, or other governmental agency determined on an accrual basis and
prorated, whether or not such assessments are due or payable. For the
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purposes of calculating the "Project Expenses," all prepaid expenses shall be
amortized on a monthly basis over the period to which such expenses relate.
"PROJECT NOI" shall mean, as to any period, with respect to any Project,
the excess of its Project Receipts over its Project Expenses.
"PROJECT RECEIPTS" shall mean all gross income from the Project, using the
actual vacancy factor, including, except as otherwise provided below, rental
income, forfeited security deposits, laundry income, cleaning charges,
administrative vending income, parking fees, recreation room charges,
telephone and cable revenues, and similar items actually received by Borrower
or the General Partner in the operation and rental of the Project during any
given period, determined on a gross receipts basis. The term "Project
Receipts" shall NOT include refundable (to the extent not forfeited) or
unforfeited security or other deposits, refundable cleaning charges,
refundable pet fees, refundable key charges, refundable tenant maintenance
charges, any other refundable charges, or sales or use taxes collected from
or reimbursed by tenants of the Project.
"PROPOSED PLAN": See Section 7.5(a).
"QUALIFIED BANK" shall mean a financial institution, with a reported
capital and surplus of not less than $10 billion, and possessing a rating as
to its senior, unsecured long-term indebtedness from S&P or Moody's of at
least BAA1 or its equivalent.
"RATING AGENCIES" shall mean S&P, Moody's, Fitch and Duff, each being a
Rating Agency.
"REGISTER" shall have the meaning given such term in Section 9.4(d).
"REGULATION D" shall mean Regulation D of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"REGULATION G" shall mean Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"REGULATION T" shall mean Regulation T of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"REGULATION U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"REGULATION X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
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"REIT" shall mean an entity that qualifies as a real estate investment
trust under Sections 856, ET SEQ., of the Code.
"REPORTABLE EVENT" shall mean any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"REPRESENTATIVE" of a Person shall mean any natural person(s) who may be
designated as such by written certificate furnished to the Administrative
Agent containing the specimen signature of such person(s) and signed by such
Person.
"REQUIRED BANKS" shall mean, at any time, Banks having Commitments
representing at least 66-2/3% of the Total Commitment.
"RESERVE FOR REPLACEMENT" shall mean a pro-forma amount (which amount need
not be deposited into a reserve fund) equal to $135.00 per year per apartment
unit owned by the Borrower or the General Partner.
"S&P" shall mean Standard & Poor's Ratings Group and its successors and
assigns.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECURED DEBT" of a Person shall mean that portion of such Person's Total
Liabilities secured by real property.
"SIGNIFICANT DEBT AGREEMENT" shall mean all documents, instruments and
agreements executed by the Borrower or the General Partner evidencing,
securing or ensuring any Indebtedness or any guaranty in excess of
$1,000,000.00 in outstanding principal (or principal equivalent) amount.
"STABILIZED PROJECT" shall mean a Project whose average occupancy factor
has equaled or exceeded eighty-five percent (85%) for at least one prior
quarter.
"SUBSIDIARY" of a Person shall mean any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
stock entitled in ordinary circumstances to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person, by one or more of the other
Subsidiaries of that Person, or by any combination thereof.
"TOTAL COMMITMENT" shall mean at any time the aggregate amount of the
Banks' Commitments, as in effect at such time, which amount shall not exceed
the Maximum Commitment.
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"TOTAL LIABILITIES" of a Person shall mean all liabilities of such Person
including without limitation, any mortgage debt whether recourse or
non-recourse, letters of credit issued for the account of such Person,
unsecured debt, accounts payable, subordinated debt, the full amount of such
Person's liability under any Guarantees, any loans to any partnership of
which such Person is a general partner and such Person's share of
non-recourse debt in unconsolidated Affiliates; provided, however, that
"Total Liabilities" shall not include any minority interest attributable to
any limited partners in the Borrower but only to the extent such minority
interest is convertible to stock (common or preferred) of the General Partner
or, as to any consolidated joint venture, the share of any non-recourse debt
that is properly allocable to such Person's joint venture partner.
"TREASURY CONSTANT MATURITIES RATE" means the yield in percent per annum as
calculated for each Business Day by the United States Treasury Department for
U.S. Government securities adjusted to five (5) year Treasury Constant
Maturities, averaged for a calendar week, presently reported weekly in the
Federal Reserve Statistical Release H.15 (519).
"TYPE," when used in respect of any Loan, shall refer to the Rate by
reference to which interest on such Loan is determined. For purposes hereof,
"Rate" shall include the LIBO Rate and the Variable Rate.
"UNENCUMBERED ASSET" shall mean a Project, wholly owned by the Borrower or
the General Partner, which shall not be subject to any Liens, stock pledges,
negative pledges (other than pursuant to this Credit Agreement) or pledges of
partnership interests.
"UNENCUMBERED NOI" shall mean the sum of the Adjusted NOI of all
Unencumbered Assets.
"UNSECURED INTEREST EXPENSE" of the General Partner shall mean its Interest
Expense incurred with respect to that portion of its Total Liabilities that
is not secured by a Lien on any of the property or assets of the Borrower or
of the General Partner.
"VARIABLE LOAN" shall mean any Loan bearing interest at a rate determined
by reference to the Variable Rate in accordance with the provisions of
Article II.
"VARIABLE RATE" shall mean, for any day, a rate per annum equal to the
Prime Rate in effect on such day. For purposes hereof, "Prime Rate" shall
mean the rate of interest per annum publicly announced from time to time by
the Administrative Agent as its prime rate in effect at its principal office
in Phoenix, Arizona; each change in the Prime Rate shall be effective on the
date such change is publicly announced as effective.
SECTION 1.2 TERMS GENERALLY. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references
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herein to Articles, Sections, Exhibits and Schedules shall be deemed
references to Articles and Sections of, and Exhibits and Schedules to, this
Credit Agreement unless the context shall otherwise require. Except as
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time. All financial statements, to the extent applicable, shall be presented
on a consolidated basis.
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ARTICLE II
THE CREDITS
SECTION 2.1 COMMITMENTS. Subject to the terms and conditions herein set
forth, each Bank agrees, severally and not jointly, to make Loans to the
Borrower, at any time and from time to time on and after the date hereof and
until the Maturity Date, in an aggregate principal amount at any time
outstanding not to exceed such Bank's Commitment, subject, however, to the
conditions that (a) at no time shall (i) the outstanding aggregate principal
amount of all Loans made by all Banks exceed (ii) the lesser of the Available
Commitment or the Total Commitment and (b) at all times the outstanding
aggregate principal amount of all Loans made by each Bank shall equal the
product of (i) the percentage which its Commitment represents of the Total
Commitment times (ii) the outstanding aggregate principal amount of all
Loans. Each Bank's Commitment is set forth opposite its respective name in
Schedule 2.1. Such Commitments may be terminated or reduced from time to
time pursuant to Sections 2.10 and 2.20.
Within the foregoing limits, the Borrower may borrow, pay or prepay and
reborrow hereunder, on and after the date hereof and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.
SECTION 2.2 LOANS.
(a) Each Loan shall be made as part of a Borrowing consisting of Loans
made by the Banks ratably in accordance with their Commitments; PROVIDED,
HOWEVER, that the failure of any Bank to make any Loan shall not in itself
relieve any other Bank of its obligation to lend hereunder (it being
understood, however, that no Bank shall be responsible for the failure of any
other Bank to make any Loan required to be made by such other Bank). The
Loans comprising any Borrowing shall be in an aggregate principal amount
which is an integral multiple of the Minimum Additional Amount and not less
than the Minimum Amount (or an aggregate principal amount equal to the
remaining balance of the available Commitments).
(b) Each Bank may make any Eurodollar Loan by causing at its option any
domestic branch or Eurodollar Lending Office of such Bank to make such Loan;
provided that any exercise of such option shall not affect the obligation of
the Borrower to repay such Loan in accordance with the terms of this Credit
Agreement and the applicable Note. The Borrower shall not be entitled to
request any Borrowing which, if made, would result in the aggregate number of
separate Loans of any Bank being outstanding hereunder at any one time
exceeding the Maximum Number (provided that all Borrowings of Variable Rate
Loans shall be considered to be a single Loan). For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether
they commence on the same date, shall be considered separate Loans, and
Eurodollar Loans having the same Interest Period and the same Borrowing shall
be considered to be a single Loan.
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(c) Subject to Section 2.4, each Bank shall make each Loan to be made by
it hereunder on the proposed date thereof by wire transfer of immediately
available funds to the Administrative Agent in Phoenix, Arizona, not later
than 11:00 a.m., Arizona time, and the Administrative Agent shall by 12:00
noon, Arizona time, credit the amounts so received to the general deposit
account of the Borrower with the Administrative Agent (or such other account
as the Borrower may designate) or, if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not have been
met, return the amounts so received to the respective Banks. Loans shall be
made by the Banks pro rata in accordance with Section 2.16. Unless the
Administrative Agent shall have received notice from a Bank prior to any
Borrowing that such Bank will not make available to the Administrative Agent
such Bank's portion of such Borrowing, the Administrative Agent may assume
that such Bank has made such portion available to the Administrative Agent on
the date of such Borrowing in accordance with this paragraph (c) and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that
such Bank shall not have made such portion available to the Administrative
Agent, such Bank and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Bank, the Federal Funds Effective Rate. If such Bank shall
repay to the Administrative Agent such corresponding amount, such amount
shall constitute such Bank's Loan as part of such Borrowing for purposes of
this Credit Agreement.
(d) Notwithstanding any other provision of this Credit Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest
Period requested with respect thereto would end after the Maturity Date.
SECTION 2.3 NOTICE OF BORROWINGS. In order to request a Borrowing, the
Borrower shall give to the Administrative Agent written or telecopy notice
(or telephone notice promptly confirmed in writing or by telecopy in the form
of Exhibit "A") (a "Borrowing Notice") (a) in the case of a Eurodollar Loan
Borrowing, not later than 9:30 a.m., Arizona time, three Business Days before
a proposed Borrowing, and (b) in the case of a Variable Loan Borrowing, not
later than 9:30 a.m., Arizona time, on the day of a proposed Borrowing. Such
notice shall be irrevocable and shall in each case specify (i) whether any
Loan then being requested is to be a Eurodollar Loan or a Variable Loan; (ii)
the date of such Borrowing (which shall be a Business Day) and the amount
thereof; and (iii) if any Loan is to be a Eurodollar Loan, the Interest
Period with respect thereto. If no election as to the Type of Loan is
specified in any such notice, then the requested Loan shall be a Variable
Loan. If no Interest Period with respect to any Eurodollar Loan is specified
in any such notice, then the Borrower shall be deemed to have selected an
Interest Period of one month's duration.
SECTION 2.4 EXCESS BALANCE REPAYMENT. There shall be due and payable from
Borrower to the Banks, and Borrower shall repay to the Banks upon five (5)
days notice from the
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Administrative Agent, from time to time, any amount by which the outstanding
aggregate principal amount of all Loans made by all Banks exceeds the lesser
of the Available Commitment or the Total Commitment. The notice from the
Administrative Agent shall include evidence and calculations reasonably
necessary for it to have made the repayment determination.
SECTION 2.5 FEES.
(a) In connection with the Commitment, the Borrower agrees to pay to the
Administrative Agent for distribution to the Banks pursuant to Section 8.9 a
fee (the "Commitment Fee") in the amount of $843,750.00.
(b) The Borrower agrees to pay to each Bank, through the Administrative
Agent, quarterly in arrears for the calendar quarter ending each March 31,
June 30, September 30 and December 31 on a date not later than three Business
Days after such calendar quarter has ended and on the date on which the
Commitment of such Bank shall be terminated as provided herein, a fee (a
"Facility Fee") at a rate per annum equal to the Facility Fee Percentage from
time to time in effect on the daily unused amount of the Commitment of such
Bank for each day during the preceding calendar quarter (or shorter period
commencing with the date hereof or ending with the Maturity Date or any date
on which the Commitment of such Bank shall be terminated). All Facility Fees
shall be computed on the basis of the actual number of days elapsed in a year
of 360 days. The Facility Fee due to each Bank shall commence to accrue on
the date hereof and shall cease to accrue on the earlier of the Maturity Date
and the termination of the Commitment of such Bank as provided herein.
(c) In the event that the Borrower elects to extend the Maturity Date in
accordance with Section 2.21 and all of the Banks consent to such extension,
Borrower agrees to pay each Bank, through the Administrative Agent a fee (the
"Extension Fee") equal to one-quarter percent (0.25%) of the Commitment of
such Bank on or before the Current Maturity Date.
(d) The Borrower agrees to pay the Administrative Agent, for its own
account, the fees provided for in the Fee Letter (the "Administration Fees")
at the times provided therein.
(e) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Banks. Once paid, none of the Fees shall be refundable under any
circumstances.
SECTION 2.6 NOTES; REPAYMENT OF LOANS. The Loans made by each Bank shall
be evidenced by a single Note duly executed on behalf of the Borrower, dated
the date of said Bank's Commitment, in substantially the form attached hereto
as Exhibit "B" with the blanks appropriately filled, payable to the order of
such Bank in a principal amount equal to the Commitment of such Bank. The
outstanding principal balance of each Loan, as evidenced by the applicable
Note, shall be payable on the Maturity Date. Each Note shall bear interest
from the
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date thereof on the outstanding principal balance thereof as set forth in
Section 2.7. Each Bank shall, and is hereby authorized by the Borrower to,
endorse on the schedule attached to the Note held by such Bank (or on a
continuation of such schedule attached to each such Note and made a part
thereof), or otherwise to record in such Bank's internal records, an
appropriate notation evidencing the date and amount of each Loan of such
Bank, each payment or prepayment of principal of any Loan and the other
information provided for on such schedule; PROVIDED, HOWEVER, that the
failure of any Bank to make such a notation or any error therein shall not in
any manner affect the obligation of the Borrower to repay the Loans made by
such Bank in accordance with the terms of the relevant Note.
SECTION 2.7 INTEREST ON LOANS.
(a) Subject to the provisions of Sections 2.8 and 2.9, each
Eurodollar Loan shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to
the LIBO Rate for the Interest Period in effect for such Loan plus the
Applicable Margin. Interest on each Eurodollar Loan shall be payable on each
applicable Interest Payment Date. The LIBO Rate for each Interest Period
shall be determined by the Administrative Agent, and such determination shall
be conclusive absent manifest error. The Administrative Agent shall promptly
advise the Borrower and each Bank, as appropriate, of such determination.
(b) Subject to the provisions of Sections 2.8 and 2.9, each
Variable Loan shall bear interest (computed on the basis of the actual number
of days elapsed over a year of 360 days) at a rate per annum equal to the
Variable Rate. Interest on each Variable Loan shall be payable on each
applicable Interest Payment Date. The Variable Rate shall be determined by
the Administrative Agent, and such determination shall be conclusive absent
manifest error. The Administrative Agent shall promptly advise the Borrower
and each Bank of such determination.
SECTION 2.8 DEFAULT INTEREST.
(a) If the Borrower shall default in the payment of the principal
of or interest on any Loan or any other amount becoming due hereunder,
whether by scheduled maturity, notice of prepayment, acceleration or
otherwise, the Borrower shall on demand from time to time pay interest, to
the extent permitted by law, on such defaulted amount up to (but not
including the date of actual payment (after as well as before judgment) at a
rate per annum (computed as provided in Section 2.7(b)) equal to the interest
rate then in effect plus four percent (4.0%).
(b) In the event a payment is made in excess of fifteen (15) days
after it is due, a late fee equal to four percent (4%) of the late payment
will be charged.
SECTION 2.9 ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan the Administrative Agent shall have
determined that dollar deposits in the principal amounts of
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said Eurodollar Loan are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered
will not adequately and fairly reflect the cost to Banks holding a majority
of the Total Commitment of making or maintaining its Eurodollar Loan during
such Interest Period, or that reasonable means do not exist for ascertaining
the LIBO Rate, the Administrative Agent shall give immediate telecopy notice
of such determination to the Borrower and the Banks. In the event of any
such determination, until the Administrative Agent shall have advised the
Borrower and the Banks that the circumstances giving rise to such notice no
longer exist, any request by the Borrower for a Eurodollar Borrowing Loan to
Section 2.3 shall be deemed to be a request for a Variable Loan. The basis
for each such determination by the Administrative Agent hereunder shall be
explained in reasonable detail in the aforesaid notice to the Borrower and
the Banks and shall be conclusive absent manifest error.
SECTION 2.10 TERMINATION AND REDUCTION OF COMMITMENTS.
(a) The Commitments shall be automatically terminated on the
Maturity Date.
(b) Upon at least three Business Days' prior irrevocable written
or telecopy notice to the Administrative Agent, the Borrower may at any time
in whole permanently terminate, or from time to time in part permanently
reduce the Total Commitment, PROVIDED, HOWEVER, that each partial reduction
of the Total Commitment shall be in an integral multiple of the Minimum
Additional Amount and in a minimum principal amount of the Minimum Amount;
and PROVIDED FURTHER, that the Borrower shall not be permitted to terminate
or reduce the Total Commitment if, as a result, the aggregate principal
amount of all Loans outstanding hereunder would exceed the Total Commitment.
(c) Each reduction in the Commitments hereunder shall be made
ratably among the Banks in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the Banks,
on the date of each termination or reduction, the Facility Fees on the amount
of the Commitments so terminated or reduced accrued through the date of such
termination or reduction.
SECTION 2.11 CONVERSION AND CONTINUATION OF LOANS. The Borrower shall
have the right at any time upon prior irrevocable notice to the
Administrative Agent (i) not later than 9:30 a.m., Arizona time, on the day
of conversion, to convert any Eurodollar Loan into a Variable Loan, (ii) not
later than 9:30 a.m., Arizona time, three Business Days prior to conversion
or continuation, to convert any Variable Loan into a Eurodollar Loan or to
continue any Eurodollar Loan as a Eurodollar Loan for an additional Interest
Period, and (iii) not later than 9:30 a.m., Arizona time, three Business Days
prior to conversion, to continue the Interest Period with respect to any
Eurodollar Loan to another permissible Interest Period, subject in each case
to the following:
(a) Each conversion or continuation shall be made
pro rata among the Banks in accordance with the
respective principal amounts of the converted or
continued Loans;
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(b) If less than all the outstanding principal
amount of any Loans shall be converted or continued,
the aggregate principal amount of such Loans converted
or continued shall be an integral multiple of the
Minimum Additional amount and not less than the Minimum
Amount;
(c) Any Eurodollar Loan may be converted
only at the end of the Interest Period applicable
thereto;
(d) Any portion of a Eurodollar Loan which has
not been converted into or continued as a Eurodollar
Loan shall be automatically converted at the end of the
Interest Period in effect for such Loan into a Variable
Loan.
Each notice pursuant to this Section 2.11 shall be irrevocable and shall
refer to this Credit Agreement and specify (i) the identity and amount of the
Loan that the Borrower requests be converted or continued, (ii) whether such
Loan is to be converted to or continued as a Eurodollar Loan, or a Variable
Loan, (iii) if such notice requests a conversion, the date of such conversion
(which shall be a Business Day) and (iv) if such Loan is to be converted to
or continued as a Eurodollar Loan, the Interest Period with respect thereto.
If no Interest Period is specified in any such notice with respect to any
conversion to or continuation as a Eurodollar Loan, the Borrower shall be
deemed to have selected an Interest Period of one month's duration. The
Administrative Agent shall advise the other Banks of any notice given
pursuant to this Section 2.11 and of each Bank's portion of any converted or
continued Loan. If the Borrower shall not have given notice in accordance
with this Section 2.11 to continue any Loan into a subsequent Interest Period
(and shall not otherwise have given notice in accordance with this Section
2.11 to convert such Loan), such Loan shall, at the end of the Interest
Period applicable thereto (unless repaid pursuant to the terms hereof),
automatically be continued as a Variable Loan.
SECTION 2.12 PREPAYMENT.
(a) The Borrower shall have the right at any time and from time to
time to prepay any Loan, in whole or in part, upon one Business Day's written
or telecopy notice (or telephone notice promptly confirmed by written or
telecopy notice) to the Administrative Agent; PROVIDED, HOWEVER, that each
partial prepayment shall be in an amount which is an integral multiple of the
Minimum Additional Amount and not less than the Minimum Amount.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.10 or 2.20, the Borrower shall pay or prepay an amount
of the Loans such that the aggregate principal amount of the Loans
outstanding will not exceed the Total Commitment after giving effect to such
termination or reduction.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Loan (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Borrower to prepay such
Loan (or portion thereof) by the amount stated therein on
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the date stated therein. All prepayments under this Section 2.12 shall be
subject to Section 2.15 but otherwise without premium or penalty. All
prepayments under this Section 2.12 shall be accompanied by interest on the
amount being prepaid to the date of payment.
SECTION 2.13 RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if after the date
of this Credit Agreement any change in applicable law or regulation (either
by way of changes in existing laws or regulations or the introductions of new
laws or regulations) or in the interpretation or administration thereof by
any Governmental Authority charged with the interpretation or administration
thereof (whether or not having the force of law) shall change the basis of
taxation of payments to any Bank of the principal of or interest on any
Eurodollar Loan made by such Bank, Fees or other amounts payable hereunder
(other than changes in respect of taxes imposed on the net income of such
Bank), or shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by such Bank, including without limitation any
reserve requirement that may be applicable to "eurocurrency liabilities"
under and as defined in Regulation D, or shall impose on such Bank or the
London interbank market any other condition affecting this Credit Agreement
or any Eurodollar Loan made by such Bank, and the result of any of the
foregoing shall be to increase the cost to such Bank of making or maintaining
any Eurodollar Loan or to reduce the amount of any sum received or receivable
by such Bank hereunder or under the Notes (in respect of Eurodollar Loans
only), whether of principal, interest or otherwise, by an amount deemed by
such Bank in good faith to be material, then, subject to Section 2.20, the
Borrower will pay to such Bank upon demand such additional amount or amounts
as will compensate such Bank for such additional costs incurred or reduction
suffered.
(b) If any Bank shall have determined that the adoption after the
date hereof of any law, rule, regulation or guideline regarding capital
adequacy, or any change after the date hereof in any of the foregoing or in
the interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or any
Lending Office of such Bank) or any Bank's holding company with any request
or directive promulgated after the date hereof regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority,
central bank or comparable agency, has or would have the effect of reducing
the rate of return on such Bank's capital or on the capital of such Bank's
holding company, if any, as a consequence of this Credit Agreement or the
Loans made by such Bank pursuant hereto to a level below that which such Bank
or such Bank's holding company could have achieved but for such adoption,
change or compliance (taking into consideration such Bank's policies and the
policies of such Bank's holding company with respect to capital adequacy) by
an amount deemed by such Bank in good faith to be material, then, subject to
Section 2.20, from time to time the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank or such Bank's
holding company for any such reduction suffered.
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(c) A certificate of a Bank setting forth such amount or amounts as
shall be necessary to compensate such Bank or the holding company of either
as specified in paragraph (a) or (b) above, as the case may be, and setting
forth in reasonable detail the manner in which such amount or amounts shall
have been determined shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay each Bank the
amount shown as due on any such certificate delivered by it within 10 days
after its receipt of the same.
(d) Failure on the part of any Bank to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction
in return on capital with respect to any period shall not constitute a waiver
of such Bank's right to demand compensation with respect to such period or
any other period; PROVIDED that each Bank will agree to submit claims under
this Section 2.13 only if it is the general policy of such Bank to make such
claims under comparable provisions of credit agreements with other similarly
situated borrowers; PROVIDED FURTHER that no Bank shall be entitled to
compensation under this Section 2.13 for any costs incurred or reduction
suffered with respect to any date unless such Bank shall have notified the
Borrower that it will demand compensation for such costs or reduction under
paragraph (c) above not more than 90 days after the later of (i) such date
and (ii) the date on which such Bank becomes aware or should have become
aware in the exercise of prudent banking practices of the event giving rise
to such costs or reduction. Notwithstanding any other provision of this
Section 2.13, no Bank shall demand compensation for any increased cost of
reduction referred to above if it shall not at the time be the general policy
or practice of such Bank to demand such compensation in similar circumstances
under comparable provisions of other credit agreements, if any. The
protection of this Section shall be available to each Bank regardless of any
possible contention of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall have occurred
or been imposed.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section
2.13 shall survive the payment in full of the principal of and interest on
all Loans made hereunder.
SECTION 2.14 CHANGE IN LEGALITY.
(a) Notwithstanding any other provision herein, if any change in
any law or regulation or in the interpretation thereof by any Governmental
Authority charged with the administration or interpretation thereof shall
make it unlawful for any Bank to make or maintain any Eurodollar Loan or to
give effect to its obligations as contemplated hereby with respect to any
Eurodollar Loan, then, subject to Section 2.20, by written notice to the
Borrower and to the Administrative Agent setting forth in reasonable detail
the relevant circumstances and the effect thereof, such Bank may:
(i) Declare that Eurodollar Loans
will not thereafter be made by such Bank
hereunder, whereupon any request by the
Borrower for a Eurodollar Loan shall, as to
such Bank only, be
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deemed a request for a Variable Loan unless such
declaration shall be subsequently withdrawn; and
(ii) Require that all outstanding
Eurodollar Loans made by it be converted to
Variable Loans, in which event all such
Eurodollar Loans shall be automatically
converted to Variable Loans as of the
effective date of such notice as provided in
paragraph (b) below.
In the event any Bank shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied
to repay the Eurodollar Loans that would have been made by such Bank or the
converted Eurodollar Loans of such Bank shall instead be applied to repay the
Variable Loans made by such Bank in lieu of, or resulting from the conversion
of, such Eurodollar Loans.
(b) For purposes of this Section 2.14, a notice to the Borrower by
any Bank shall be effective as to each Eurodollar Loan, if lawful, on the
last day of the Interest Period currently applicable to such Eurodollar Loan;
in all other cases such notice shall be effective on the date of receipt by
the Borrower.
(c) Each Bank shall use its best efforts to give prompt
notification to the Administrative Agent and the Borrower of any event or
prospective event which will give rise to the operation of paragraph (a) of
this Section.
SECTION 2.15 INDEMNITY. The Borrower shall indemnify each Bank on
demand against any Redeployment Loss (defined below, which shall not include
lost profit) or expense which such Bank may sustain or incur with respect to
a Eurodollar Loan as a consequence of (a) any failure by the Borrower to
fulfill on the date of any Borrowing hereunder the applicable conditions set
forth in Article IV, (b) any failure by the Borrower to borrow, continue or
convert any Loan hereunder after irrevocable notice of such borrowing,
continuation or conversion has been given pursuant to Section 2.3 or 2.11, as
the case may be, (c) any payment, prepayment or conversion of a Eurodollar
Loan required by any other provision of this Credit Agreement or otherwise
made or deemed made on a date other than the last day of the Interest Period
applicable thereto, (d) any default in payment or prepayment of the principal
amount of any Loan or any part thereof or interest accrued thereon, as and
when due and payable (at the due date thereof, whether by scheduled maturity,
acceleration, irrevocable notice of prepayment or otherwise) or (e) the
occurrence of any Default or Event of Default, including without limitation,
in each such case, any loss or expense sustained or incurred or to be
sustained or incurred in liquidating or employing deposits from third parties
acquired to effect or maintain such Loan or any part thereof as a Eurodollar
Loan. "Redeployment Loss" shall mean, in each circumstance, the amount equal
to any losses, costs, or expenses that a Bank may reasonably incur as a
result of such prepayment, including, without limitation, any loss, cost, or
expense incurred by reason of the liquidation of reemployment of deposits or
other funds acquired by such Bank to fund or maintain the Loan.
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A certificate of any Bank setting forth in reasonable detail any amount or
amounts which such Bank is entitled to receive pursuant to this Section and
setting forth in reasonable detail the manner in which such amounts shall
have been determined shall be delivered to the Borrower and shall be
conclusive absent manifest error. Without prejudice to the survival of any
other agreement contained herein, the agreements and obligations contained in
this Section 2.15 shall survive the payment in full of the principal of and
interest on all Loans made hereunder.
SECTION 2.16 PRO RATA TREATMENT. Except as required under Section
2.14 or permitted by Section 2.20, each Borrowing, each payment or prepayment
of principal of any Loan, each payment of interest on the Loans, each payment
of the Commitment Fee, Extension Fee and Facility Fees, each reduction of the
Commitments and continuation of Eurodollar Loans for a successive Interest
Period and conversion of any Loan into a Loan of the other Type, shall be
allocated pro rata among the Banks in accordance with their respective
Commitments (or, if such Commitments shall have expired or been terminated,
in accordance with the respective principal amounts of their outstanding
Loans). Each Bank agrees that in computing such Bank's portion of any
Borrowing to be made hereunder, the Administrative Agent may, in its
discretion, round each Bank's percentage of such Borrowing to the next higher
or lower whole dollar amount.
SECTION 2.17 SHARING OF SETOFFS. Each Bank agrees that if it shall,
through the exercise of a right of banker's lien with the consent of the
Required Banks, setoff or counterclaim against the Borrower, or pursuant to a
secured claim under Section 506 of Title 11 of the United States Code or
other security or interest arising from, or in lieu of, such secured claim,
received by such Bank under any applicable bankruptcy, insolvency or other
similar law or otherwise, or by any other means, obtain payment (voluntary or
involuntary) in respect of any Loan or Loans as a result of which the unpaid
principal portion of the Loans of such Bank shall be proportionately less
than the unpaid principal portion of the Loans of any other Bank, it shall be
deemed simultaneously to have purchased from such other Bank at face value,
and shall promptly pay to such other Bank the purchase price for, a
participation in the Loans of such other Bank, so that the aggregate unpaid
principal amount of the Loans and participations in the Loans held by each
Bank shall be in the same proportion to the aggregate unpaid principal amount
of all Loans then outstanding as the principal amount of its Loans prior to
such exercise of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Loans outstanding prior to such exercise of
banker's lien, setoff or counterclaim or other event; PROVIDED, HOWEVER,
that, if any such purchase or purchases or adjustments shall be made pursuant
to this Section 2.17 and the payment giving rise thereto shall thereafter be
recovered, such purchase or purchases or adjustments shall be rescinded to
the extent of such recovery and the purchase price or prices or adjustment
restored without interest. The Borrower expressly consents to the foregoing
arrangements and agrees that any Bank holding a participation in a Loan
deemed to have been so purchased may exercise any and all rights of banker's
lien, setoff or counterclaim with respect to any and all moneys owing by the
Borrower to such Bank by reason thereof as fully as if such Bank had made a
Loan directly to the Borrower in the amount of such participation.
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SECTION 2.18 PAYMENTS.
(a) The Borrower shall make each payment (including without
limitation principal of or interest on any Loan or any Fees or other amounts)
hereunder and under any other Loan Document no later than 12:00 noon, Arizona
time, on the date when due in dollars to the Administrative Agent at its
offices at 201 North Central Avenue, Phoenix, Arizona, in immediately
available funds.
(b) Whenever any payment (including without limitation principal
of or interest on any Loan or any Fees or other amounts) hereunder or under
any other Loan Document shall become due, or otherwise would occur, on a day
that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of interest or Fees, if applicable.
SECTION 2.19 TAXES.
(a) All payments by the Borrower under this Credit Agreement shall
be made without setoff or counterclaim and in such amounts as may be
necessary in order that all such payments after deduction or withholding for
or on account of any present or future taxes, levies, imposts, duties,
withholdings or other charges of whatsoever nature and all liabilities with
respect thereto, other than any taxes on or measured by the gross or net
income of a Bank pursuant to (i) the income and/or franchise tax laws of the
jurisdictions in which such Bank is incorporated or organized or in which the
principal office of such Bank or the branch that is a party to this Credit
Agreement of that Bank is located, and (ii) the income and/or franchise tax
laws of the jurisdictions in which the Lending Office or the Eurodollar
Lending Office of that Bank are then located (all such nonexcluded taxes,
levies, imposts, duties, withholdings and liabilities, net of tax credits
available with respect to such excluded taxes as a result of such
non-excluded taxes, levies, imposts, duties, withholdings and liabilities,
being hereinafter referred to as "Taxes"), shall not be less than the amounts
otherwise specified to be paid by the Borrower to or for the account of the
Administrative Agent or Bank (or any transferee or assignee (each, a
"Transferee")) under this Credit Agreement. Upon request of the Borrower in
writing, each Bank shall designate a different Lending Office or Eurodollar
Lending Office, as the case may be, if such designation will avoid the
imposition of Taxes and if such designation will not, in the sole judgment of
such Bank, be otherwise financially disadvantageous to such Bank. With
respect to each deduction or withholding for or on account of any Taxes of
the Administrative Agent or any Bank (or Transferee), Borrower shall promptly
(and in any event not later than 45 days thereafter) furnish to such
Administrative Agent or Bank (or Transferee) a receipt evidencing payment
thereof.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder to the Banks or
from the execution, delivery or registration of, or otherwise with respect
to, this Credit Agreement or any other Loan Document (hereinafter referred to
as "Stamp Taxes"). By making a Loan hereunder, each Bank that is organized
outside
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the United States represents and warrants that as of the Closing Date, it is
not aware of any Stamp Tax imposed by the jurisdiction in which it is
incorporated that applies to this Credit Agreement or any payment made to
such Bank hereunder.
(c) The Borrower will reimburse each Bank (or Transferee) and
the Administrative Agent for the full amount of Taxes and Stamp Taxes
(including without limitation any Taxes or Stamp Taxes imposed by any
jurisdiction on amounts payable under this Section 2.19) paid by such Bank
(or Transferee) or the Administrative Agent, as the case may be, and any
liability (including without limitation penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Stamp
Taxes were correctly or legally asserted by the relevant taxing authority or
other Governmental Authority. Such indemnification shall be made within 30
days after the date any Bank (or Transferee) or the Administrative Agent, as
the case may be, makes written demand therefor. If a Bank, as the result of
any Tax with respect to which the Borrower is required to make a payment
pursuant to Section 2.19 shall realize a tax credit or refund in its country
or other jurisdiction of incorporation or organization or in the jurisdiction
in which its principal office or Lending Office or Eurodollar Lending Office
is then located, which tax credit or refund would not have been realized but
for the Borrower's payment of such Tax, such Bank shall pay to the Borrower
an amount equal to such tax credit or refund (to the extent of amounts that
have been paid by the Borrower under Section 2.19 with respect to such credit
or refund) net of all out-of-pocket expenses of such Bank; PROVIDED that the
Borrower, upon the request of the Bank, agrees to return such credit or
refund (plus penalties, interest or other charges) to such Bank in the event
such Bank is required to repay such credit or refund to the relevant taxing
authority. Any amount required to be calculated pursuant to this Section
2.19(c) shall be calculated in good faith by the Bank (or Transferee) or the
Administrative Agent, and such calculation shall be conclusive and binding
upon the parties hereto.
(d) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section
2.19 shall survive the payment in full of the principal of and interest on
all Loans made hereunder.
(e) Each Bank (or Transferee) that is organized outside the United
States (i) on or before the date it becomes a party to this Credit Agreement
and (ii) with respect to each Lending Office or Eurodollar Lending Office
located outside the United States of such Bank (or Transferee), on or before
the date such office or branch becomes a Lending Office or Eurodollar Lending
Office, shall deliver to the Borrower and the Administrative Agent such
certificates, documents or other evidence, as required by the Code or
Treasury Regulations issued pursuant thereto, including Internal Revenue
Service Form 1001 or Form 4224, properly completed and duly executed by such
Bank (or Transferee) establishing that payments received hereunder are (i)
not subject to withholding under the Code because such payment is effectively
connected with the conduct by such Bank (or Transferee) of a trade or
business in the United States or (ii) totally exempt from United States
Federal withholding tax under a provision of an applicable tax treaty. In
addition, each such Bank (or Transferee) shall, if legally able to do so,
thereafter deliver such certificates, documents or other evidence from time
to time establishing that payments received
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hereunder are not subject to such withholding upon receipt of a written
request therefor from the Borrower or the Administrative Agent. Unless the
Borrower and the Administrative Agent have received forms or other documents
satisfactory to them indicating that payments hereunder or under the Notes
are not subject to United States Federal withholding tax, the Borrower or the
Administrative Agent shall withhold such taxes from such payments at the
applicable statutory rate.
(f) The Borrower shall not be required to pay any additional
amounts to any Bank (or Transferee) or the Administrative Agent in respect to
United States Federal withholding tax pursuant to paragraph (a) or (c) above
if the obligation to pay such additional amounts would not have arisen but
for a failure by such Bank (or Transferee) or the Administrative Agent to
deliver the certificates, documents or other evidence specified in the
preceding paragraph (e) unless such failure is attributable to (i) a change
in applicable law, regulation or official interpretation thereof or (ii) an
amendment or modification to or a revocation of any applicable tax treaty or
a change in official position regarding the application or interpretation
thereof, in each case on or after the date such Bank (or Transferee) or the
Administrative Agent becomes a party to this Credit Agreement (or, if
applicable, on or after the date a Lending Office or Eurodollar Lending
Office of such Bank (or Transferee) or Administrative Agent became a Lending
Office or Eurodollar Lending Office hereunder).
(g) Nothing contained in this Section 2.19 shall require any
Bank (or Transferee) or the Administrative Agent to make available any of its
tax returns (or any other information relating to its taxes) which it deems
to be confidential.
SECTION 2.20 TERMINATION OR ASSIGNMENT OF COMMITMENTS UNDER CERTAIN
CIRCUMSTANCES.
(a) If any Bank (or Transferee) or the Administrative Agent claims
any additional amounts payable pursuant to Section 2.13 or Section 2.19 or
exercises its rights under Section 2.14, it shall (consistent with legal and
regulatory restrictions) (i) promptly notify the Borrower (through the
Administrative Agent) of the circumstances giving rise to such additional
amounts or the exercise of such rights and (ii) file any certificate or
document requested by the Borrower or change the jurisdiction of its
applicable Lending Office or take any other action if the making of such a
filing or change or the taking of such action would avoid the need for or
reduce the amount of any such additional amounts which may thereafter accrue
or avoid the circumstances giving rise to such exercise and would not, in the
sole determination of such Bank (or Transferee), be otherwise disadvantageous
to such Bank (or Transferee).
(b) In the event that any Bank shall have delivered a notice or
certificate pursuant to Section 2.13 or 2.14, or the Borrower shall be
required to make additional payments to any Bank under Section 2.19, the
Borrower shall have the right, at its option and own expense, upon notice to
such Bank and the Administrative Agent, (i) in the case of Sections 2.13 or
2.19 only, to terminate the Commitment of such Bank or (ii) in all cases
described in this paragraph,
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to require such Bank to transfer and assign without recourse (in accordance
with and subject to the restrictions contained in Section 9.4) all its
interests, rights and obligations under this Credit Agreement to another
financial institution reasonably acceptable to the Administrative Agent which
shall assume such obligations; PROVIDED that (i) no such termination or
assignment shall conflict with any law, rule or regulation or order of any
Governmental Authority and (ii) the Borrower or the assignee, as the case may
be, shall pay to the affected Bank in immediately available funds on the date
of such termination or assignment the principal of and interest accrued to
the date of payment on the Loans made by it hereunder and all other amounts
accrued for its account or owed to it hereunder.
(c) Each Bank represents and warrants to the Borrower that as
of the date hereof it is not aware of any claims available to it under
Section 2.13 or 2.14 or any circumstances which it has determined will enable
it to make any such claims.
SECTION 2.21 EXTENSION. At the option of Borrower, the Maturity Date
may be extended beyond the Current Maturity Date subject to the following
terms and conditions:
(a) Borrower (i) on or after ninety (90) days,
but no later than thirty (30) days, prior to the
Anniversary Date shall have given Administrative Agent
written notice that Borrower desires such extension,
and (ii) shall have paid to Administrative Agent in
cash or immediately available funds on or before the
commencement of the extension period, the Extension
Fee;
(b) No Event of Default and no event, that with
the giving of notice or the passage of time, or both,
would be an Event of Default, shall have occurred and
be continuing on the date of Borrower's notice of
extension to Administrative Agent or on the
commencement of the extension period; and
(c) All the Banks shall have consented to
such extension in their sole and absolute discretion.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Administrative Agent
and the Banks as follows:
SECTION 3.1 ORGANIZATION; POWERS, ETC. (a) The Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) the Borrower has the power and
authority to own its property and assets and to carry on its business as now
conducted and is qualified to do business in every jurisdiction where such
qualification is required except where the failure to so qualify would not
result in a material adverse effect on the business, assets, operations or
condition (financial or otherwise) of the Borrower; (c) the Borrower has the
corporate power to execute, deliver and perform this Credit Agreement and the
other Loan Documents and to borrow hereunder; (d) the General Partner is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (e) the General Partner has the power and
authority to own its property and assets and to carry on its business as now
conducted and is qualified to do business in every jurisdiction where such
qualification is required except where the failure to so qualify would not
result in a material adverse effect on the business, assets, operations or
condition (financial or otherwise) of the General Partner; (f) the General
Partner has the corporate power to execute, deliver and perform the Guaranty
and the other Loan Documents; and (g) the General Partner is qualified as a
"real estate investment trust" under Section 856, ET SEQ., of the Code.
SECTION 3.2 AUTHORIZATION, ETC. The execution, delivery and
performance by the Borrower of this Credit Agreement, the Borrowings
hereunder, and the issuance, execution and delivery of the Notes: (a) have
been duly authorized by all requisite partnership action; (b) will not
violate (i) any provision of law, any order of any court, or any rule,
regulation or order of any other agency of government, (ii) the partnership
agreement of the Borrower or (iii) any provision of any material indenture,
agreement or other instrument to which the Borrower is a party, or by which
the Borrower or any of its properties or assets are or may be bound; (c) will
not be in conflict with, result in a breach of or constitute (alone, with
notice, with lapse of time, or with any combination of these factors) a
default under any indenture, agreement or other instrument referred to in
(b)(iii) above; and (d) will not result in the creation or imposition of any
Lien upon any property or assets of the Borrower that is not a Permitted
Lien. Except for filings which may be required under the 1934 Act, no
registration with or consent or approval of, or other action by, any
Governmental Authority is required in connection with the execution, delivery
and performance of this Credit Agreement, the execution and delivery of the
Notes or the Borrowings hereunder.
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SECTION 3.3 ENFORCEABILITY.
(a) This Credit Agreement constitutes, and each other Loan
Document when duly executed and delivered by the Borrower will constitute,
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms, subject, as to the enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium and other laws
of general applicability relating to or affecting creditors' rights from time
to time in effect and to general principles of equity (regardless of whether
such enforcement is considered in a proceeding at law or in equity).
(b) The Guaranty constitutes, and each other Loan Document when,
to the extent applicable, duly executed and delivered by the General Partner
will constitute, the legal, valid and binding obligation of the General
Partner, enforceable in accordance with its terms, subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws of general applicability relating to or
affecting creditors' rights from time to time in effect and to general
principles of equity (regardless of whether such enforcement is considered in
a proceeding at law or in equity).
SECTION 3.4 FINANCIAL CONDITION AND INFORMATION. The General Partner
has heretofore furnished to each of the Banks copies of (i) its consolidated
balance sheet as of the Current Financial Statement Date, and its related
consolidated statements of income, stockholder's equity and cash flows for
the year ended as of the Current Financial Statement Date, including without
limitation the related notes, audited by and including the opinion of the
independent public accountants for the General Partner, and (ii) its Annual
Report and its Form 10-K for the fiscal year ended as of the Current
Financial Statement Date. Such financial statements fairly present the
financial condition of the General Partner as of the date thereof and the
results of the operations and changes in cash flows of the General Partner
for the periods covered thereby. All such financial statements, including
related schedules and notes thereto, (consolidated to the extent applicable)
have been prepared in accordance with GAAP.
SECTION 3.5 NO MATERIAL ADVERSE CHANGE. Since the Current Financial
Statement Date, there has been no material adverse change in the respective
business, operations, assets or condition (financial or otherwise) of the
Borrower or of the General Partner (except as disclosed in the financial
statements referred to in Section 3.4).
SECTION 3.6 LITIGATION. Except as set forth in the General Partner
SEC filing on Form 10-K for the year ended as of the Current Financial
Statement Date, there are no actions, suits or proceedings at law or in
equity or by or before any governmental instrumentality or other agency now
pending or, to the knowledge of the Borrower, threatened against the Borrower
or the General Partner or any property or rights of the Borrower or the
General Partner which would be reasonably likely in the aggregate to (i)
materially impair the ability of the Borrower to perform its obligations
under this Credit Agreement or the Notes or materially impair the ability of
the Borrower or the General Partner to carry on their respective businesses
substantially as now being
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conducted or (ii) result in any material adverse change in their respective
businesses, assets, operations, or condition (financial or otherwise) of the
Borrower or the General Partner.
SECTION 3.7 FEDERAL RESERVE REGULATIONS.
(a) Neither the Borrower nor the General Partner is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately,
(i) to purchase or carry Margin Stock or to extend credit to others for the
purpose of purchasing or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose, or (ii) for any purpose which entails a
violation of, or which is inconsistent with, the provisions of the
Regulations of the Board, including Regulation G, T, U or X.
SECTION 3.8 INVESTMENT COMPANY ACT. Neither the Borrower nor the
General Partner is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 3.9 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor the General Partner is a "holding company," or a "Subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"Subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 3.10 TAX RETURNS. As of the filing date of the General
Partner's Form 10-K, Form 10-Q or Form 8-K most recently filed with the SEC,
each of the Borrower and the General Partner has duly filed or caused to be
filed all Federal, state and local tax returns which are required to have
been filed and has paid or caused to be paid all material taxes required to
be paid by it, except taxes the validity of which is being contested in good
faith by appropriate proceedings and with respect to which such reserves as
are required by GAAP have been set aside on its books.
SECTION 3.11 ERISA. As of the filing date of the General Partner's Form
10-K, Form 10-Q or Form 8-K most recently filed with the SEC, the General
Partner had no material undisclosed ERISA Liabilities under any Plans.
SECTION 3.12 TITLE TO PROPERTIES: POSSESSION. The Borrower and the
General Partner have fee simple title to, or valid leasehold interests in,
all their respective material properties and assets, subject only to
encumbrances, adverse claims and defects in title which do not involve any
risk of loss that is material to the Borrower or the General Partner. All
Unencumbered Assets are free and clear of all Liens other than those
permitted by Section 6.1. Each of the Borrower
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and the General Partner has all licenses and rights necessary to enable it to
use all material technology used by it in its respective operations.
SECTION 3.13 USE OF PROCEEDS. The Borrower will use the proceeds of any
Borrowing hereunder solely for the purposes set forth in the Recitals.
SECTION 3.14 ENVIRONMENTAL AND SAFETY MATTERS. As of the filing date of
the General Partner's Form 10-K, Form 10-Q or Form 8-K most recently filed
with the SEC, the Borrower and the General Partner had no material
undisclosed environmental liabilities.
SECTION 3.15 NO DEFAULT. No event or condition has occurred and is
continuing that constitutes an Event of Default.
SECTION 3.16 SIGNIFICANT DEBT AGREEMENTS. Neither the Borrower nor the
General Partner is in default in any material respect under any Significant
Debt Agreement.
SECTION 3.17 COMPLIANCE WITH LAW. Each of the Borrower and the General
Partner is in substantial compliance with all laws, rules, regulations,
orders and decrees that are applicable to it or its respective properties.
SECTION 3.18 SURVIVAL OF REPRESENTATIONS. All representations and
warranties by the Borrower and the General Partner herein shall survive the
making of the Loans and the execution and delivery of the Notes; any
investigation at any time made by or on behalf of the Banks shall not
diminish the Banks' right to rely on the representations and warranties by
the Borrower and the General Partner herein.
SECTION 3.19 SOLVENT. Each of the Borrower (both before and after
giving effect to the Loans contemplated hereby) and the General Partner is
solvent, has assets having a fair value in excess of the amount required to
pay its respective probable liabilities on its existing debts as they become
absolute and matured, and has, and will have, access to adequate capital for
the conduct of its respective business and the ability to pay its respective
debts from time to time incurred in connection therewith as such debts mature.
SECTION 3.20 LOANS. Each request for a Loan or for the extension of any
financial accommodation by the Banks whatsoever shall constitute an
affirmation that the representations and warranties contained herein are, in
all material respects, true and correct as of the time of such request and no
Event of Default known to Borrower shall have occurred and be continuing.
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ARTICLE IV
CONDITIONS TO CREDIT EVENTS
The obligations of the Banks to make Loans (the foregoing event being
called a "Credit Event") are subject to the satisfaction of the following
conditions:
SECTION 4.1 CREDIT EVENTS. On the date of each Credit Event:
(a) The Administrative Agent shall have received
in respect of each Borrowing a Borrowing Notice (in the
form of Exhibit "A") as required by Section 2.3.
(b) The representations and warranties set forth
in Article III hereof shall have been true and correct
in all material respects on the date hereof and the
representations and warranties set forth in Sections
3.1, 3.2, 3.3, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.12,
3.13, 3.14, 3.15, 3.16, 3.17 and 3.19 shall be true and
correct in all material respects on and as of the date
of such Borrowing with the same effect as though made
on and as of such date, except to the extent such
representations and warranties expressly relate to an
earlier date.
(c) At the time of and immediately after
such Borrowing no Event of Default or Default shall
have occurred and be continuing and Borrower shall be
in compliance with all Financial Covenants.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower, and where appropriate the Guarantor, on the date of such
Borrowing as to the satisfaction of the conditions specified in paragraphs
(b) and (c) of this Section 4.1.
SECTION 4.2 FIRST CREDIT EVENT. On the Closing Date:
(a) Each Bank shall have received a duly executed
Credit Agreement and a duly executed Note complying
with the provisions of Section 2.6.
(b) The Administrative Agent and each Bank shall
have received favorable written opinions of counsel for
the Borrower and the General Partner, dated as of the
Closing Date and addressed to the Administrative Agent
and each Bank, to the effect set forth in Exhibit "D"
hereto, and the Borrower hereby instructs such counsel
to deliver such opinions to the Administrative Agent
and each Bank.
(c) The Administrative Agent and each Bank
shall have received the duly executed Guaranty from the
General Partner.
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(d) All legal matters incident to this Credit
Agreement and the Credit Events hereunder shall be
reasonably satisfactory to the Banks and to counsel for
the Administrative Agent.
(f) The Administrative Agent and each Bank shall
have received the following:
(i) A copy of the certificate of
partnership, including all amendments
thereto, of Borrower, certified as of a
recent date by the Secretary of State of the
state of its organization, and a certificate
as to the good standing of the Borrower as of
a recent date, from such Secretary of State
and in every other state in which it is
qualified to do business;
(ii) A certificate of the Borrower
Representative dated the Closing Date and
certifying (A) that attached thereto is a
true and complete copy of the partnership
agreement of the Borrower as in effect on the
Closing Date and at all times since a date
prior to the date of the authorizations
described in clause (B) below, (B) that
attached thereto is a true and complete copy
of its partnership authorization authorizing
the execution, delivery and performance of
the Loan Documents and the Credit Events
hereunder, and that such authorizations have
not been modified, rescinded or amended and
are in full force and effect, (C) that the
partnership agreement of the Borrower has not
been amended since the date of the last
amendment thereto shown on the certificate of
good standing furnished pursuant to
subparagraph (i) above, and (D) as to the
incumbency and specimen signature of each
Borrower Representative executing any Loan
Document or any other document delivered in
connection herewith on behalf of the
Borrower; and
(iii) A certificate of another
Borrower Representative as to the specimen
signature of the Borrower Representative
executing the certificate pursuant to (ii)
above.
(f) The Administrative Agent and each Bank shall
have received the following:
(i) A copy of the certificate or
articles of incorporation, including all
amendments thereto, of the General Partner,
certified as of a recent date by the
Secretary of State of the state of its
organization, and a certificate as to the
good standing of the General
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Partner as of a recent date, from such Secretary of
State and in every other state in which it is qualified
to do business;
(ii) A certificate of the Secretary
or Assistant Secretary of the General Partner
dated the Closing Date and certifying (A)
that attached thereto is a true and complete
copy of the Articles of Incorporation and the
by-laws of the General Partner as in effect
on the Closing Date and at all times since a
date prior to the date of the resolutions
described in clause (B) below, (B) that
attached thereto is a true and complete copy
of resolutions duly adopted by the Board of
Directors of the General Partner authorizing
the execution, delivery and performance of
the Loan Documents, the Guaranty and the
Credit Events hereunder, and that such
resolutions have not been modified, rescinded
or amended and are in full force and effect,
(C) that the certificate or articles of
incorporation of the General Partner have not
been amended since the date of the last
amendment thereto shown on the certificate of
good standing furnished pursuant to
subparagraph (i) above, and (D) as to the
incumbency and specimen signature of each
officer executing any Loan Document or any
other document delivered in connection
herewith on behalf of the General Partner;
and
(iii) A certificate of another
officer as to the incumbency and specimen
signature of the Secretary or Assistant
Secretary executing the certificate pursuant
to (ii) above.
(g) The Administrative Agent shall have
received a certificate, dated the Closing Date and
signed on behalf of the Borrower by a Borrower
Representative and of the General Partner by a
Designated Officer, confirming compliance with the
conditions precedent set forth in paragraphs (b) and
(c) of Section 4.1.
(h) The Administrative Agent shall have
received the Fee Letter and all Fees and other amounts
due and payable hereunder or under the other Loan
Documents on or prior to the Closing Date.
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ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower and, to the extent applicable, the General Partner each
covenants and agrees that, so long as this Credit Agreement shall remain in
effect or the principal of or interest on any Loan or any Fee or any other
expenses or amounts payable hereunder shall be unpaid, unless the Required
Banks shall otherwise consent in writing, it will:
SECTION 5.1 EXISTENCE. Do or cause to be done all things necessary
to preserve, renew and keep in full force and effect its existence (except as
expressly permitted by Section 6.2), material rights, licenses, permits and
franchises material to the conduct of their respective business, except where
the failure to preserve or maintain such material rights, licenses, permits
and franchises would not have a material adverse effect on the respective
business, assets, operations or conditions (financial or otherwise) of the
Borrower or the General Partner; comply in all material respects with all
applicable laws, rules, regulations, and orders (except that force majeure
events will excuse noncompliance so long as noncompliance would not
materially impair the creditworthiness of the Borrower or that of the General
Partner) whether now in effect or hereafter enacted where the failure to so
comply would be reasonably likely to have a material adverse effect on the
business, assets, operations or condition (financial or otherwise) of the
Borrower of that of the General Partner; and, at all times maintain and
preserve all material property required for the conduct of their respective
business as presently or hereafter conducted.
SECTION 5.2 INSURANCE. Maintain adequate insurance by financially
sound and reputable insurers rated A- or better by Best Rating Service of all
properties of a character usually insured by companies engaged in the same or
a similar business operating on a similar economic scale in the same vicinity
against loss or damage resulting from fire, in California earthquake, rent
loss or other risks insured against by extended coverage and of the kind
customarily insured against by such companies, and maintain in full force and
effect public liability insurance against claims for personal injury, death
or property damage occurring upon, in, about or in connection with the use of
any properties occupied or controlled by it in such amounts as shall be
customary among companies engaged in the same or similar businesses and
similarly situated and maintain such other insurance as may be required by
law; PROVIDED, HOWEVER, that nothing in this Section 5.2 shall preclude the
Borrower or the General Partner from being self-insured to the extent
customary with companies in the same or similar business.
SECTION 5.3 TAXES. Pay and discharge promptly any taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits or in respect of its material property (real or personal), before the
same shall become delinquent; PROVIDED, HOWEVER, that neither the Borrower
nor the General Partner shall be required to pay and discharge or to cause to
be paid and discharged any such obligation, tax, assessment, charge, levy or
claim so long as the validity or amount thereof shall be contested in good
faith by appropriate proceedings and such reserves as are required by GAAP
with respect thereto have been set aside on its books.
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SECTION 5.4 FINANCIAL STATEMENTS; REPORTS, ETC. Furnish to the
Administrative Agent:
(a) ANNUAL STATEMENTS OF THE GENERAL PARTNER:
Within ninety (90) days after the end of each fiscal
year, (i) a consolidated balance sheet of the General
Partner as of the close of such fiscal year and the
related consolidated statement of income and the
results of operations during such year, (ii) a
statement of stockholder's equity of the General
Partner as of the close of such fiscal year, and (iii)
a consolidated statement of cash flows of the General
Partner for such fiscal year, in each case audited and
setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and
accompanied by an unqualified opinion thereon of
independent public accountants of recognized national
standing selected by the General Partner and acceptable
to the Administrative Agent, to the effect that such
financial statements have been prepared in accordance
with GAAP (except for changes in which such accountants
concur) and that the examination of such accounts in
connection with such financial statements has been made
in accordance with generally accepted auditing
standards and, accordingly, includes such tests of the
accounting records and such other auditing procedures
as were considered necessary in the circumstances.
(b) QUARTERLY STATEMENTS OF THE GENERAL PARTNER:
Within forty-five (45) days after the end of each of
the first three fiscal quarters of each fiscal year of
the General Partner, an unaudited (i) balance sheet,
(ii) statement of income and (iii) statement of cash
flows, each showing the financial condition of the
General Partner as of the end of such quarter and the
results of operations for the then-elapsed portion of
the fiscal year, certified by a Financial Officer of
the General Partner as being correct and complete and
as presenting fairly the financial position and results
of operations of the General Partner in accordance with
GAAP, in each case subject to normal year-end
adjustments.
(c) COMPLIANCE CERTIFICATE: Concurrently
with each delivery of the statements referred to in (a)
and (b) above, a certificate, in the form of Exhibit
"F" attached hereto (the "Compliance Certificate"), of
a Borrower Representative and a Financial Officer of
the General Partner, certifying that to the best of
their knowledge no Event of Default or Default has
occurred, or, if such an Event of Default or Default
has occurred, specifying the nature and extent thereof,
specifying any corrective action taken or proposed to
be taken with respect thereto, and setting forth in
reasonable detail the calculations required to
demonstrate compliance with the Financial Covenants,
conditions and agreements contained in Article VI
hereof.
(iv) FILINGS: Within ten (10) days of their
filing, (i) copies of all reports (other than
preliminary proxy statements) filed by the General
Partner with the SEC (or any Governmental Authority
succeeding to any or all of the functions
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of the SEC) under the requirements of the 1934 Act, or any successor statute,
and (ii) if requested by Lender, copies of the Borrower's and the General
Partner's federal tax returns.
(e) FINANCIAL STATEMENTS OF THE BORROWER: If requested by the
Administrative Agent, within forty-five (45) days after the close of
each fiscal year and within forty-five (45) days after the close of
each interim quarterly accounting period of Borrower beginning with
the quarter and fiscal year that include the Closing Date, financial
statements of Borrower, including a balance sheet, statement of income
and expenses and statement of cash flows, all in reasonable detail and
prepared according to GAAP; all statements shall be company prepared,
shall be certified by the Borrower and shall include a reconciliation
to those financial statements provided by the General Partner pursuant
to paragraphs (a) and (b) above.
(f) PROPERTY INFORMATION: Upon reasonable request of the
Administrative Agent, all financial information maintained on
individual real estate properties owned by the Borrower and the
General Partner, including without limitation property cash flow
projections, property budgets, operating statements, leasing status
reports, contingent liability summary, note receivable summary,
summary of cash and cash equivalent, overhead, and capital improvement
budgets.
(g) PROJECTIONS: Within forty-five (45) days after the end of
each of the first three fiscal quarters of each fiscal year of the
General Partner and within forty-five (45) days after the end of each
fiscal year, projections for the next four fiscal quarters and for the
next fiscal year with respect to (i) its quarterly cash flow, (ii) its
EBITDA, (iii) its Funds From Operations, (iv) the operating results of
Projects under development, (v) the operating results of Projects in
lease-up, and (vi) the operating results of all other Projects owned
by the Borrower or the General Partner.
(h) AVAILABLE COMMITMENT: Within ten (10) days after the end of
each month, a certificate of a Financial Officer of the General
Partner, certifying as to the amount of the Available Commitment and
setting forth in reasonable detail the calculations of the Aggregate
Value.
(i) OTHER INFORMATION: Promptly, from time to time, such other
information regarding the operations, business affairs and financial
condition of the Borrower and the General Partner as the
Administrative Agent may reasonably request.
SECTION 5.5 LITIGATION AND OTHER NOTICES. Give the Administrative
Agent prompt written or telecopy notice of the following:
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(a) Any Event of Default or Default and the steps, if any,
proposed to be taken by the Borrower with respect thereto;
(b) The filing or commencement of any action, suit or formal
proceeding at law or in equity or by or before any court or hearing
officer of any Governmental Authority, or any other event or
condition, which has resulted in, or which is reasonably likely to
result in, a material adverse change in the business, operations or
condition (financial or otherwise) of the Borrower or of the General
Partner and which has not been reported in the General Partner's most
recent SEC filings on Form 10-K, 10-Q or 8-K.
SECTION 5.6 MAINTAINING RECORDS: ACCESS TO PREMISES AND RECORDS.
Maintain all financial records in accordance with GAAP, and upon three (3)
Business Days prior notice permit representatives of the Administrative Agent
and each Bank to have access to such financial records and the premises of
the Borrower at reasonable times and to make such excerpts from such records
as such representatives may deem necessary.
SECTION 5.7 USE OF PROCEEDS. Use the proceeds of the Borrowings
hereunder solely for the purposes set forth in the Recitals hereto.
SECTION 5.8 REIT STATUS. With respect to the General Partner, remain
at all times qualified as a REIT and be listed on either the New York Stock
Exchange or the American Stock Exchange.
SECTION 5.9 INTEREST RATE AGREEMENTS.
(a) Borrower shall, within five (5) Business Days after the
request of the Required Banks at any time that the Treasury Constant
Maturity Rate equals or exceeds 9.25%, institute an interest rate
hedging program with respect to the Loans through the purchase or
entering into of an interest rate swap or such other interest rate
protection product ("INTEREST RATE PROTECTION PRODUCT") made available
by the Banks to their customers from time to time or by such other
financial institution acceptable to the Borrower and the Required
Banks in their reasonable discretion. Any Interest Rate Protection
Product shall be offered subject to all customary terms and conditions
pertaining thereto, including payment of applicable fees, if any, and
credit approvals in connection therewith, and for terms not extending
beyond the Maturity Date. Borrower hereby agrees any material default
by Borrower under the terms of any Interest Rate Protection Product
beyond any applicable grace period provided therein shall constitute
an Event of Default hereunder.
(b) If Borrower purchases an Interest Rate Protection Product
from a party other than any Bank ("Third Party Interest Rate
Protection Product
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Issuer"), then such Interest Rate Protection Product and the Third
Party Interest Rate Protection Product Issuer shall be subject to the
Required Banks' prior written approval, not to be unreasonably
withheld, conditioned or delayed. Borrower hereby agrees any material
default by Borrower under the terms of any Interest Rate Protection
Product beyond any applicable grace period provided therein shall
constitute an Event of Default hereunder.
SECTION 5.10 BOARD OF DIRECTORS OF THE GENERAL PARTNER. With respect
to the General Partner, maintain as a majority of its board of directors who
are unaffiliated (in the sole determination of the board of directors of the
General Partner, which determination shall be final) with, and who do not
receive compensation from the General Partner (other than as a result of
status as a director of the General Partner), any advisor or any subsidiaries
thereof.
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ARTICLE VI
NEGATIVE COVENANTS
The Borrower and, to the extent applicable, the General Partner each
covenants and agrees that, so long as this Credit Agreement shall remain in
effect or the principal of or interest on any Loan or any Fee or any other
expenses or amounts payable hereunder shall be unpaid unless the Required
Banks shall otherwise consent in writing which consent shall not be
unreasonably withheld, it will not:
SECTION 6.1 LIENS. Incur, create, assume or permit to exist any
Liens on any Project so long as it is an Unencumbered Asset that shall have
been included by the Borrower in the most recent calculation of the Aggregate
Value furnished by it to the Administrative Agent or on any income or rights
in respect of any thereof, to secure any Debt unless such Debt is Debt that
is otherwise permitted hereunder.
SECTION 6.2 MERGERS, CONSOLIDATIONS, SALES OF ASSETS. Merge into or
consolidate with or acquire any other Person, or permit any other Person to
merge into or consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of related transactions) all or
substantially all of its assets whether now owned or hereafter acquired
except that if at the time thereof and immediately after giving effect
thereto no Event of Default or Default shall have occurred and be continuing
any other entity may be merged into the Borrower or the General Partner if
the Borrower or the General Partner shall be the surviving entity and no
Event of Default or Default has occurred or would occur as a result of such
merger or acquisition, provided that in any such merger or acquisition, the
surviving entity shall be at least as creditworthy as the Borrower or the
General Partner, as applicable, immediately prior to such merger or
acquisition. The Banks agree that they shall respond to Borrower's request
for consent to any transaction that does not comply with this Section 6.2
within thirty (30) Business Days of receipt of information reasonably
requested by each Bank in connection with such request.
SECTION 6.3 BUSINESS OF BORROWER AND GENERAL PARTNER. Substantially
change the nature of the business conducted by the Borrower or the General
Partner, which shall consist of the acquisition, construction and/or
operation of garden apartments whose buildings do not exceed three (3)
stories.
SECTION 6.4 ERISA LIABILITIES. Create or suffer to exist ERISA
Liabilities in an aggregate amount for all Plans in excess of $1,000,000.00.
SECTION 6.5 ORGANIZATIONAL DOCUMENTS. Change materially its
organizational documents.
SECTION 6.6 LARGE PURCHASE APPROVAL. Purchase any single real
property whose purchase price is in excess of $60,000,000.00; the Banks agree
that they shall respond to
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Borrower's request for consent to purchase any such real property in excess
of such amount within ten (10) Business Days of receipt of such request.
SECTION 6.7 OTHER PURCHASE NOTICE. Make any material asset
acquisition other than as described in Section 6.6 without notice to the
Administrative Agent together with a certificate indicating that all
Financial Covenants shall be complied with after giving effect to such
acquisition.
SECTION 6.8 FINANCIAL RATIOS. Permit:
(a) The Adjusted Net Worth of the General Partner to be less
than $250,000,000.00 at the end of any fiscal quarter.
(b) The General Partner's ratio of its Total Liabilities to its
Gross Asset Value to be more than 0.55 to 1.0 at the end of any fiscal
quarter.
(c) The General Partner's ratio of its Secured Debt to its Gross
Asset Value to be more than 0.40 to 1.0 at the end of any fiscal
quarter.
(d) The General Partner's ratio of its EBITDA to its Interest
Expense to be less than 2.25:1.0 during its most recent four (4)
fiscal quarters.
(e) The General Partner's ratio of its EBITDA to the sum of its
Debt Service and its Reserve for Replacement to be less than 2.0:1.0
during its most recent four (4) fiscal quarters.
(f) The ratio of the General Partner's Unencumbered NOI to its
Unsecured Interest Expense to be less than 1.75 to 1.0 during its most
recent four (4) fiscal quarters.
SECTION 6.9 CALCULATION OF ITS FINANCIAL COVENANTS. Change the General
Partner's method of expensing its costs from that used with respect to its
most recent financial statement presented to the Banks before the Closing
Date.
SECTION 6.10 DISTRIBUTIONS. Make distributions to the stockholders of
the General Partner that exceed ninety-five percent (95%) of the General
Partner's Funds From Operations, subject to the limitations in Section 7.2.
SECTION 6.11 PERMITTED INVESTMENTS. Make any investments other than in
apartment communities and other assets used or useful in the Borrower's
business, provided that the Borrower may make investments in the following
but only to the extent hereinafter described:
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(a) RAW LAND (I.E. LAND NOT UNDER DEVELOPMENT): An amount not to
exceed (i) ten percent (10%) of (ii) the sum of its Net Worth and the
value of any minority interests and less its Intangible Assets.
(b) CONSTRUCTION IN PROGRESS: An amount not to exceed
$150,000,000.00 at any one time.
(c) OTHER INVESTMENTS: An amount not to exceed twenty percent
(20%) of its total assets in other investments which may consist of
securities (which are to be valued at cost), mortgages, and joint
ventures and partnerships with third parties that are otherwise
unaffiliated (which are to be valued at Borrower's net equity
investment in the joint venture or partnership).
SECTION 6.12 FLOATING RATE INDEBTEDNESS. Have outstanding at any time
Floating Rate Indebtedness in excess of $225,000,000.00. For this purpose,
the amount of Floating Rate Indebtedness deemed to be outstanding under this
Credit Agreement shall be equal to the outstanding aggregate principal amount
of all Loans made by all Banks hereunder.
SECTION 6.13 FINANCIAL COVENANTS NONCOMPLIANCE. Upon any noncompliance
with the Financial Covenants and so long as such noncompliance continues,
make any Borrowings, purchase land or start new construction.
SECTION 6.14 DEBT. Incur additional Debt that consists of construction
financing.
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ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1 EVENT OF DEFAULT. In case of the happening of any of the
following events (herein called "Events of Default"):
(a) default shall be made in the payment of any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or by acceleration thereof or otherwise and such
default shall continue for a period of one Business Day after such
default;
(b) interest on any Loan shall not be paid within five calendar
days of when and as the same shall become due and payable, whether at
the due date thereof or by acceleration thereof or otherwise and such
interest shall continue to remain unpaid for a period of one Business
Day after such five-day period;
(c) default shall be made in the payment of any Fee,
indemnification amount or any other amount due from the Borrower under
the Loan Documents (other than an amount referred to in (a) or (b)
above), when and as the same shall become due and payable, and such
default shall continue for a period of five Business Days after
receipt by the Borrower of written or telecopy notice from the
Administrative Agent of such default;
(d) any representation or warranty made by the Borrower or the
General Partner in connection with the Loan Documents or in any
report, certificate or other instrument furnished by the Borrower or
the General Partner pursuant to the Loan Documents or with the
borrowing hereunder shall prove to have been false or misleading in
any material respect when made or delivered in accordance with the
terms hereof; PROVIDED that if any such breach of representation or
warranty has been subsequently remedied (such that if made or given as
of the date of remedy it is no longer false or misleading in any
material respect) and such breach has caused no material adverse
effect on the rights or interests of any Bank under this Credit
Agreement, such breach shall no longer constitute a Default or Event
of Default hereunder.
(e) default shall be made in the due observance or performance
of any covenant or agreement to be observed or performed on the part
of the Borrower or the General Partner contained herein other than as
to the payment of money or the Financial Covenants, such default shall
continue for a period of thirty (30) days after the receipt by the
Borrower of written or telecopy notice from the Administrative Agent
of such default or, if such default cannot reasonably be cured
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within such 30-day period, such additional time, not to exceed additional
sixty (60) days, as may be reasonably required to cure the same;
(f) the Borrower or the General Partner shall fail to make any
payment under any Significant Debt Agreement when due (whether due by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Indebtedness, or any failure by the Borrower or the General
Partner to perform any covenant or agreement on either's part to be
performed under any Significant Debt Agreement shall result in the
acceleration of the maturity of a portion of such Debt;
(g) the Borrower or the General Partner shall (i) voluntarily
commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code or any other Federal, state or
foreign bankruptcy, insolvency or similar law, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such petition, (iii)
apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator or similar official for such corporation or
for a substantial part of its property, (iv) file an answer admitting
the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due, (vii) become insolvent,
or (viii) take corporate action for the purpose of effecting any of
the foregoing;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or the
General Partner or of a substantial part of its or the General
Partner's property under Title 11 of the United States Code or any
other Federal, state or foreign bankruptcy, insolvency or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator
or similar official for the Borrower or the General Partner or for a
substantial part of the property of any of them, or (iii) the
winding-up or liquidation of the Borrower or the General Partner and
such proceeding or petition shall continue undismissed for 60 days or
an order or decree approving or ordering any of the foregoing shall be
entered;
(i) either of (A) the occurrence of any one or more Reportable
Events or (B) a failure to make a "required payment" under the
provisions of Section 412(n)(1) of the Code shall have occurred with
respect to any Plan or Plans and the occurrence of either (A) or (B)
above shall have resulted in any of (1) liability of the General
Partner to the PBGC or to one or more Plans in an aggregate amount
exceeding $1,000,000.00, (2) the termination of the respective Plan or
Plans by the PBGC, (3) the appointment by the appropriate United
States District Court of a
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trustee to administer such Plan or Plans or (4) for the imposition of a
Lien in favor of such Plan or Plans;
(j) any material provision of the Loan Documents ceases to be
valid and binding on or enforceable against the Borrower or the
General Partner, as applicable;
(k) there shall have occurred a Change in Control;
(l) the occurrence of any default under the Guaranty;
(m) noncompliance with any Financial Covenant and the
continuation thereof for sixty (60) days after notice thereof by the
Administrative Agent;
(n) the Borrower or the General Partner shall claim that the
Loan Documents, or any material provision thereof, are not valid,
binding on or enforceable against the Borrower or the General Partner,
as applicable;
(o) the entry of any judgment in excess of $1,000,000 against
the Borrower or the General Partner that is not adequately covered by
insurance; and
(p) the occurrence of any adverse change in the financial
condition of Borrower or the General Partner that the Banks, in their
reasonable discretion, deem material, or if the Banks in good faith
shall believe that the prospect of payment or performance of the Loan
is impaired.
SECTION 7.2 REMEDIES. Upon the occurrence of any Event of Default, and
at any time thereafter during the continuance of such Event of Default, the
Administrative Agent, at the request of the Required Banks, may, by written
or telecopy notice to the Borrower, take any of the following actions, plus
any other actions provided for under this Credit Agreement, the Loan
Documents or applicable law, at the same or different times:
(a) terminate forthwith the Commitments of the Banks hereunder;
(b) declare the Loans to be forthwith due and payable, whereupon
the principal of such loans, together with accrued interest thereon
and any unpaid accrued Fees and all other liabilities of the Borrower
accrued hereunder, shall become forthwith due and payable together
with interest thereon, if applicable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any
Note to the contrary notwithstanding;
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(c) upon the occurrence of an Event of Default described in
Section 7.1(a), (b) or (c) and the continuation thereof, notify the
Borrower that the Borrower shall not (i) purchase any land, and (ii)
start any new construction project and notify the General Partner that
the General Partner shall not make any distributions to its
stockholders;
(d) notify the General Partner upon the occurrence of any Event
of Default other than that described in Section 7.1(a), (b) or (c) and
the continuation thereof, that the General Partner shall not make any
distributions to its stockholders except for the minimum amount
necessary to maintain its status as a REIT; and
(e) exercise its remedies against the General Partner pursuant
to the Guaranty;
PROVIDED, HOWEVER, that in the case of an Event of Default specified in
paragraph (g), (h) or (i) above involving the Borrower, without notice to the
Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall automatically terminate and all such Loans together with
all such interest, Fees and other amounts, shall become immediately due and
payable, all without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by the Borrower, anything
contained herein or in any Note to the contrary notwithstanding.
SECTION 7.3 OCCURRENCE AND DECLARATION OF AN EVENT OF DEFAULT. If
the Administrative Agent obtains actual knowledge of the occurrence of an
Event of Default, the Administrative Agent shall, within five (5) Business
Days of obtaining such knowledge, give written notice of such occurrence to
each of the Banks. In addition, if any Bank obtains actual knowledge of the
occurrence of an Event of Default, that Bank shall, within five (5) Business
Days of obtaining such knowledge, give written notice of such occurrence to
the Administrative Agent and the Administrative Agent shall give written
notice of such occurrence to each of the Banks. Immediately upon the
Administrative Agent obtaining actual knowledge of the occurrence of an Event
of Default, the Administrative Agent shall send a notice (a "Declaration of
Default") to the Borrower declaring that an Event of Default has occurred.
SECTION 7.4 ENFORCEMENT OF REMEDIES.
(a) PREPARATION OF PLAN BY THE ADMINISTRATIVE AGENT. Within
thirty (30) days after the occurrence of a Declaration of Default, the
Administrative Agent shall prepare a recommended course of action for
the exercise of remedies against the Borrower ("Default Plan") and
shall submit the Default Plan to the Banks pursuant to Section 7.5.
The Default Plan shall contain a recommendation regarding the manner
that any and all rights under the Loan Documents shall be exercised.
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(b) IMPLEMENTATION OF APPROVED PLAN. Once an Approved Plan has
been adopted pursuant to Section 7.5, the Administrative Agent shall
act in accordance therewith unless otherwise approved by the Required
Banks.
(c) PROPOSAL OF ALTERNATIVE PLANS. If the Administrative Agent
fails to submit a Default Plan to the Banks within 30 days after the
occurrence of a Declaration of Default, any Bank may submit to the
Administrative Agent an alternative plan (the "Alternative Plan")
incorporating the elements specified in Section 7.4(a) within fifteen
(15) days of expiration of the 30-day period. Immediately upon
receipt of an Alternative Plan, the Administrative Agent shall submit
such plan to the Banks for consideration of approval pursuant to
Section 7.5.
SECTION 7.5 APPROVAL PROCESS FOR PROPOSED PLANS.
(a) MAJORITY BANK APPROVAL PROCESS. The Default Plan, any
Alternative Plan (generically, a "Proposed Plan"), and any proposed
material modification to an Approved Plan, shall be subject to
approval according to this Section 7.5. Any Bank disapproving a
Proposed Plan shall specify in reasonable details in a written notice
to the Administrative Agent (a "Disapproval Notice") both the grounds
for such disapproval and its alternative recommendations as to matters
disapproved ("Alternative Recommendations"). Upon disapproval of a
Proposed Pan and receipt of a Disapproval Notice and Alternative
Recommendations from one or more Banks, the Administrative Agent shall
submit the Disapproval Notices, including the Alternative
Recommendations, to the Banks for reconsideration. Unless the Required
Banks approve the Proposed Plan, as modified by one or more of the
Alternative Recommendations, within ten (10) days after the
Alternative Recommendations have been given to the Banks, the matter
shall be resolved in the manner set forth in Section 7.5(b). However,
if the Required Banks approve the Proposed Plan, as modified by one or
more of the Alternative Recommendations, within the ten (10) day
period, the Proposed Plan, as so modified, will be deemed adopted (the
"Approved Plan").
(b) RESOLUTION PROCEDURES. If the Required Banks cannot agree
on a Proposed Plan pursuant to the provisions of Section 7.5(a), the
matter (the "Disputed Matter") shall be resolved in accordance with
the following provisions and procedures:
(i) The Disputed Matter will be resolved by the decision of
one neutral individual (the "Neutral") in accordance with the
provisions of this Section 7.5(b). The fees for the Neutral will
be paid by the Banks in proportion to their pro rata Commitments.
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Each Bank will bear its own attorneys' fees and costs in
connection with the procedures set forth in this Section 7.5(b).
(ii) Within five (5) Business Days of expiration of the
10-day period in Section 7.5(a), if the Required Banks have not
agreed on a mutually acceptable Neutral to resolve the Disputed
Matter, the Administrative Agent shall obtain from the Center for
Public Resources a list of four (4) individuals from the CPR
Panels of Distinguished Neutrals, each of whom shall have
experience and expertise in commercial lending matters. Each of
the three (3) Banks having the largest Commitments shall be
entitled to strike one name from the list. The individual
remaining on the list after such strike rights have been
exercised will be the Neutral. If after all strike rights are
exercised, more than one individual remains on the list, the
Administrative Agent shall select the Neutral from among the
remaining individuals.
(iii) Within five (5) Business Days following
appointment of the Neutral, the Administrative Agent shall
provide the Neutral with copies of the Proposed Plan and any
Alternative Recommendations.
(iv) A hearing before the Neutral shall be held in the
offices of the Administrative Agent not earlier than 30 days from
appointment of the Neutral and not later than 45 days following
the appointment, as determined by the Neutral. The Neutral shall
advise the Banks of the date of the hearing within five (5) days
of appointment.
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ARTICLE VIII
THE ADMINISTRATIVE AGENT; INTERBANK AGREEMENT
SECTION 8.1 APPOINTMENT. In order to expedite the transactions
contemplated by this Credit Agreement, Bank One, Arizona, NA, is hereby
appointed to act as Administrative Agent on behalf of the Banks, and Bank of
America National Trust and Savings Association and Wells Fargo Bank, National
Association are hereby appointed as Co-Agents. Each of the Banks, and each
subsequent holder of any Note by its acceptance thereof, hereby irrevocably
authorizes the Administrative Agent to take such actions on its behalf and to
exercise such powers as are specifically delegated to the Administrative
Agent by the terms and provisions hereof and of the other Loan Documents,
together with such actions and powers as are reasonably incidental thereto.
The Administrative Agent is hereby expressly authorized by the Banks, without
hereby limiting any implied authority, (a) to receive on behalf of the Banks
all payments of principal of and interest on the Loans and all other amounts
due to the Banks hereunder, and promptly to distribute to each Bank its
proper share of each payment so received in accordance with this Article
VIII; (b) to give notice on behalf of each of the Banks to the Borrower of
any Default or Event of Default specified in this Credit Agreement of which
the Administrative Agent has actual knowledge acquired in connection with its
agency hereunder; and (c) to distribute to each Bank copies of all notices,
financial statements and other materials delivered by the Borrower pursuant
to this Credit Agreement as received by the Administrative Agent.
SECTION 8.2 LIABILITY. Neither the Administrative Agent nor any of its
directors, officers, employees or agents shall be liable as such to any Bank
for any action taken or omitted by any of them except for its or his own
gross negligence or wilful misconduct, or be responsible for any statement,
warranty or representation herein or the contents of any document delivered
in connection herewith, or be required to ascertain or to make any inquiry
concerning the performance or observance by the Borrower of any of the terms,
conditions, covenants or agreements contained in any Loan Document. The
Administrative Agent shall not be responsible to the Banks or the holders of
the Notes for the due execution, genuineness, validity, enforceability or
effectiveness of this Credit Agreement, the Notes or any other Loan Documents
or other instruments or agreements. The Administrative Agent may deem and
treat the payee of any Note as the owner thereof for all purposes hereof
until it shall have received from the payee of such Note notice, given as
provided herein, of the transfer thereof. The Administrative Agent shall in
all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Banks and, except
as otherwise specifically provided herein, such instructions and any action
or inaction pursuant thereto shall be binding on all the Banks and each
subsequent holder of any Note. The Administrative Agent shall, in the
absence of knowledge to the contrary, be entitled to rely on any instrument
or document believed by it in good faith to be genuine and correct and to
have been signed or sent by the proper Person or Persons. Neither the
Administrative Agent nor any of its directors, officers, employees or agents
shall have any responsibility to the Borrower on account of the failure
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of or delay in performance or breach by any Bank of any of its obligations
hereunder or to any Bank on account of the failure of or delay in performance
or breach by any other Bank or the Borrower of any of their respective
obligations hereunder or under any other Loan Document or in connection
herewith or therewith. The Administrative Agent may execute any and all
duties hereunder by or through agents or employees and shall be entitled to
rely upon the advice of legal counsel selected by it with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
SECTION 8.3 ACTION BY ADMINISTRATIVE AGENT.
(a) The Banks hereby acknowledge that the Administrative Agent
shall be under no duty to take any discretionary action permitted to be taken
by it pursuant to the provisions of this Credit Agreement unless it shall be
requested in writing to do so by the Required Banks.
(b) Unless in each case consented to in writing by all the Banks,
the Administrative Agent shall not (i) agree to the modification or waiver of
any of the terms of any of the Loan Documents, or (ii) consent to any act or
omission by the Borrower, or (iii) exercise any rights which the
Administrative Agent may have with respect to the Loans, the Notes, or any of
the other Loan Documents, if any such agreement, consent or exercise would:
(i) change or modify the interest rate and repayment
provisions set forth in the Loan Documents;
(ii) increase the Maximum Commitment of the Loans;
(iii) extend the Maturity Date of the Loans;
(iv) postpone any date for payment or forgive the payment
of principal of, or interest on, the Loans or the payment of any other
sum due under the Loan Documents;
(v) change or modify or waive any Financial Covenant;
(vi) waive any Event of Default; or
(vii) allow any assignment by Borrower of any right or
interest in the Loan Documents.
(c) Upon receipt of a Borrowing Notice from the Borrower, the
Administrative Agent shall provide to each Bank a copy of such Borrowing
Notice by telecopy notice (or telephone notice promptly confirmed by
telecopy) (i) in the case of a Eurodollar Loan Borrowing, not later than
10:00 a.m., Arizona time, three Business Days before a proposed
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Borrowing, and (b) in the case of a Variable Loan Borrowing, not later than
10:00 a.m., Arizona time, on the day of a proposed Borrowing.
(d) The Administrative Agent agrees to distribute to each Bank its
pro rata share of each payment or prepayment of principal of any Loan, each
payment of interest on the Loans, and each payment of the Commitment Fee,
Extension Fee and Facility Fees that is received from the Borrower prior to
12:00 noon, Arizona time, by 4:00 p.m., Arizona time.
(e) The Administrative Agent agrees to distribute promptly to each
Bank a copy of all information received from the Borrower and the General
Partner.
(f) The Administrative Agent agrees to distribute no later than
thirty (30) days after the Closing Date to each Bank a copy of the Loan
Documents.
SECTION 8.4 QUALIFICATION, REPLACEMENT OF ADMINISTRATIVE AGENT.
(a) The Administrative Agent agrees that, so long as it remains as
the Administrative Agent, its Commitment as a Bank shall not be less than the
Commitment of any other Bank. In the event that the Commitment of the
Administrative Agent as a Bank should be less than that of any other Bank for
at least ninety (90) days, the Required Banks may cause the Administrative
Agent to resign as Administrative Agent hereunder.
(b) Subject to giving thirty (30) days' prior written notice to
the Banks, the Administrative Agent may resign as Administrative Agent
hereunder without the consent of any of the Banks. In addition, if any
Governmental Authority issues an order or directive or otherwise makes a
determination (a "Governmental Order"), the effect of which is to determine
or provide that the performance by the Administrative Agent of its duties
pursuant to this Credit Agreement violates applicable laws, rules, or
regulations or is otherwise prohibited, the Administrative Agent may resign
as an agent without the consent of any of the Banks by giving 30 days prior
written notice of such resignation to the Banks unless a shorter notice
period or no notice period is required by such Governmental Order. If, by
making one or more changes in the Administrative Agent's administration of
the Loans or in such Administrative Agent's duties under this Credit
Agreement or the Loan Documents or that otherwise relate solely and
exclusively to the credit facility made available pursuant to the Loan
Documents (a "Conforming Change"), such Administrative Agent would be
permitted to continue to serve as the Administrative Agent under the
Governmental Order and if the Required Banks approve the Conforming Change
(unless the Conforming Change is a provision of this Credit Agreement that
requires approval from all of the Banks, in which case the Conforming Change
must be approved by all of the Banks), the Administrative Agent will
implement the Conforming Change and will not resign under this Section 8.4(b).
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(c) In addition, the Administrative Agent may be removed by the
Required Banks (determined without regard to a Bank acting as the
Administrative Agent proposed for removal) if:
(i) The Administrative Agent shall have failed to pay to
any Bank any amount due to such Bank pursuant to this Credit Agreement
within five (5) days of the date such payment is due from the
Administrative Agent to such Bank;
(ii) (A) Shall have failed to perform any of its
obligations under this Credit Agreement in any material respect
(other than the obligations referenced in Section ___ with
respect to the Administrative Agent), and such failure shall not
have been cured within 30 days after written notice by any Bank
(other than a Bank which acts as such Administrative Agent) to
such Administrative Agent of such failure, or if such failure
cannot reasonably be cured within such 30 day period, within such
longer period of time as may be necessary to complete such cure
so long as such Administrative Agent commences such cure within
such 30 day period and thereafter diligently pursues such cure to
completion;
(B) Shall institute or be subject to any bankruptcy,
insolvency, receivership, conservatorship, reorganization,
liquidation or similar proceedings under state or federal law; or
(C) Is a Defaulting Bank;
PROVIDED, HOWEVER, that the removal of such Administrative Agent shall
not in any way affect the rights and obligations of the Administrative
Agent as a Bank or relieve the Administrative Agent from liabilities
arising prior to such resignation or removal.
(d) Upon the resignation or removal of the Administrative Agent,
such Administrative Agent shall continue to act as the Administrative Agent
pursuant to this Credit Agreement for up to 60 days (or such longer period as
is specified by the Required Banks not including the resigning or removed
Administrative Agent), unless prohibited from doing so by a final order of a
Governmental Authority, in order to provide the Banks the opportunity to
obtain a successor. Notwithstanding such resignation or removal, the
Administrative Agent resigning or being removed will cooperate with the other
Banks in obtaining a new Administrative Agent. Such cooperation shall
include providing all procedures, manuals, computer software and other
systems (other than such procedures, manuals, computer software and other
systems that may be
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proprietary, contain or constitute trade or similar secrets, or be subject to
any applicable privileges or confidentiality obligations) used by such
Administrative Agent in performing the duties and obligations pursuant to
this Credit Agreement to the extent that such Administrative Agent may
legally do so.
(e) The successor Administrative Agent shall be selected by the
Required Banks (other than the Bank acting as the Administrative Agent
resigning or being removed) and, unless otherwise agreed by all of the Banks,
must be a banking institution with sophisticated experience and expertise in
the operation and administration of revolving creditors held for its own
account and with net assets of at least $20,000,000,000. The resignation or
removal of the Administrative Agent shall be effective upon the earlier of
the expiration of such 60 day period (or applicable Required Banks-approved
longer period) or the acceptance of any appointment as the Administrative
Agent by a successor Administrative Agent. Upon such acceptance of the
appointment, such successor Administrative Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
respective retiring or removed Administrative Agent, and the retiring or
removed Administrative Agent shall be discharged from duties and obligations
as the Administrative Agent under this Credit Agreement arising after the
date of such resignation or removal becomes effective. Notwithstanding the
Administrative Agent's resignation or removal as provided herein, the
provisions of this Credit Agreement shall inure to the benefit of and be
binding upon such Administrative Agent as to any actions taken or omitted to
be taken by it while it was the Administrative Agent under this Credit
Agreement.
As to any matters which, pursuant to this Credit Agreement, are
subject to the consent, approval, or direction of, or determination by, all
of the Banks or the Required Banks, the Administrative Agent or the
Co-Agents, as the case may be, shall take action in such matters as directed
by all of the Banks or the Required Banks, as the case may be, and neither
the Administrative Agent nor the Co-Agents shall be permitted or required to
exercise any discretion or take any action except upon the written
instructions or concurrence of all of the Banks or the Required Banks, as the
case may be, which instructions shall be binding upon all of the Banks. The
Administrative Agents and their respective directors, officers, agent and
employees shall be fully protected in acting or in refraining from acting
upon such instructions, but in no event shall the Administrative Agents be
required to take any action which is contrary to the Loan Documents or
applicable law, rules and regulations. With respect to any matters as to
which either this Credit Agreement or the Loan Documents grants the
Administrative Agent or the Co-Agents discretion and as to which this Credit
Agreement does not specifically impose any requirement to obtain the consent
or direction of the Banks or the Required Banks with respect to the
particular matter, the Administrative Agent may take such action or refrain
from taking action as the Administrative Agent shall determine in the
exercise of its or their reasonable discretion; however, the Administrative
Agent shall not be required to exercise any discretion or take any action
with respect to such matters, and the Administrative Agent may request a
determination or decision in such matters from the Required Banks or all of
the Banks pursuant to the procedures set forth in Section 8.3. In acting
hereunder as the Administrative Agent, the Administrative Agent shall be
acting (i) for its own account as one of the Banks and for the account of and
as agent of the other
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Banks, to the extent of the pro rata Commitment of each of the Banks in the
Loans; and (ii) for its own account as the Administrative Agent and for the
account of and as agent for the Co-Agents, each to the extent of their
interests in the Loans.
SECTION 8.5 AGENT AS BANK. With respect to the Loans made by it
hereunder and the Notes issued to it, the Administrative Agent in its
individual capacity and not as an Administrative Agent shall have the same
rights and powers as any other Bank and may exercise the same as though it
were not the Administrative Agent, and the Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in
any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent.
SECTION 8.6 OWNERSHIP AND POSSESSION OF LOAN DOCUMENTS. Each Bank
shall own an undivided interest in the Loans and the Loan Documents equal to
its pro rata Commitment from time to time. The Administrative Agent shall
hold the Loan Documents in its possession, as agent, at its office at 241
North Central Avenue., 20th Floor, Phoenix, Arizona 85001, or at such other
location as the Administrative Agent shall designate in writing to the Banks,
for the pro rata benefit of itself as one of the Banks and each of the other
Banks; PROVIDED, HOWEVER, that the Administrative Agent shall deliver to each
Bank an original promissory note executed by the Borrower and evidencing such
Bank's maximum Commitment. The Administrative Agent shall keep and maintain
complete and accurate files and records of all matters pertaining to the
Loans. Upon reasonable prior notice to the Administrative Agent by a Bank,
the files and records shall be made available to such Bank and its respective
representatives and agents for inspection and copying during normal business
hours.
SECTION 8.7 INDEMNIFICATION. Each Bank agrees (i) to reimburse the
Administrative Agent, on demand, in the amount of its pro rata share (based
on its Commitment hereunder) of any commercially reasonable expenses incurred
for the benefit of the Banks by the Administrative Agent, including counsel
fees and compensation of agents and employees paid for services rendered on
behalf of the Banks, which shall not have been reimbursed by the Borrower and
(ii) to indemnify and hold harmless the Administrative Agent and any of its
directors, officers, employees or agents, on demand, in the amount of such
pro rata share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against it in its capacity as the Administrative
Agent or any of them in any way relating to or arising out of this Credit
Agreement or any other Loan Document or any action taken or omitted by it or
any of them under this Credit Agreement or any other Loan Document, to the
extent the same shall not have been reimbursed by the Borrower; PROVIDED that
no Person shall be liable to the Administrative Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence
or wilful misconduct of the Administrative Agent or any of its directors,
officers, employees or agents.
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SECTION 8.8 INDEPENDENT CREDIT ANALYSIS. Each Bank acknowledges that
it has, independently and without reliance upon the Administrative Agent or
any other Bank and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Credit Agreement. Each Bank also acknowledges that it will, independently
and without reliance upon the Administrative Agent or any other Bank and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Credit Agreement or any other Loan Document,
any related agreement or any document furnished hereunder or thereunder.
SECTION 8.9 PROCESS FOR OBTAINING APPROVAL OF THE BANKS.
(a) With respect to obtaining the consent, approval, or
determination of all of the Banks or of the Required Banks, the
Administrative Agent or any Bank may request that the Banks make a
determination pursuant to this Credit Agreement. In the case of a request by
any such Bank, the request shall be made through the Administrative Agent and
the Administrative Agent shall request a determination of the Banks in
accordance with this Section 8.9. All communications from the Administrative
Agent to the Banks requesting the Banks' determination, consent, approval,
disapproval and/or joinder shall:
(i) Be given in the form of a written notice to each of the
Banks;
(ii) Be accompanied by a description of the matter or thing
as to which such determination, approval, consent, disapproval or
joinder is requested, and shall advise each of the Banks where such
matter or thing may be inspected, or shall otherwise adequately
describe the matter or issue to be resolved;
(iii) Include, to the extent not previously provided to
the Banks, all written materials (to the extent necessary to make an
informed decision) and a description of all oral information (to the
extent necessary to make an informed decision) provided to the
Administrative Agent in respect of the matter or issue to be resolved;
and
(iv) Include such other information and recommendations as
the Administrative Agent may reasonably deem appropriate.
(b) The Banks shall reply within 15 Business Days after such
written notice is given by the Administrative Agent; PROVIDED, HOWEVER, that
if the Administrative Agent notifies the Banks that, pursuant to the Loan
Documents, the matter with respect to which such consent, approval,
disapproval ro joinder is sought requires that the Administrative Agent
respond within a certain time period and/or provides that if a response is
not given within a certain time period such approval or consent shall be
deemed given, the Banks shall reply by the earlier of (i) 3
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Business Days before such time period expires (as designated by the
Administrative Agent) or (ii) 5 Business Days after such written notice is
given by the Administrative Agent.
(c) With respect to each Bank, unless the Bank shall give written
notice to the Administrative Agent that such Bank does not consent to or
approve any matter as to which such Bank's consent or approval is sought
within the applicable time frame, such Bank shall be deemed to have approved
of or consented to such recommendation or determination.
SECTION 8.10 NOTICES AND COMMUNICATIONS TO THE BANKS. All
communications to the Banks relating to the Loan Documents and the Borrowings
shall be sent by or through the Administrative Agent. The Administrative
Agent shall promptly provide the Banks with copies of all financial
statements and other materials delivered by the Borrower to the
Administrative Agent pursuant to Section 5.4 of the Credit Agreement. The
Banks agree to keep such financial statements confidential, except to the
extent disclosure is required by applicable laws, rules and regulations,
judicial process, or to the extent that such information is otherwise
publicly available and except that the Banks may deliver such information to
their Affiliates, attorneys, accountants, and consultants. The
Administrative Agent shall also, within 5 Business Day of receipt, deliver to
the Banks copies of all notices (including, without limitation, notices of
default) and other communications of a material nature relating to the
obligations which are set or received by the Administrative Agent. To the
extent any Bank receives any notices, communications, or other information
relating to the Loans, such Bank shall promptly give copies of all such items
to the Administrative Agent. Notices and other communications sent to one
Bank shall be sent concurrently to all of the Banks unless the communication
is being given by the Administrative Agent to an individual in a Bank who is
assisting the Administrative Agent in the performance of the Administrative
Agent's duties under this Credit Agreement. A Bank may, upon reasonable
notice to the Administrative Agent, examine the Administrative Agent's books
and records with respect to the Loans, provided that such Bank shall keep all
such books and records confidential, except to the extent disclosure is
required by applicable laws, rules and regulations, judicial process, or to
the extent that such information is otherwise publicly available and except
that such Bank may deliver such information to its Affiliates, attorneys,
accountants and consultants.
SECTION 8.11 RELATIONSHIP WITH THE BORROWER. Consistent with the
agency established hereunder, the Banks acknowledge and agree that the
Administrative Agent, in accordance with their respective rights and duties
under the Loan Documents, shall have the sole and exclusive authority to bind
the Administrative Agent, and the Banks with respect to matters relating to
the Loan Documents. To the extent that any matter has been approved by all
of the Banks or by a Required Bank in accordance with the provisions of this
Credit Agreement, the Administrative Agent is authorized to execute such
documents and instruments as the Administrative Agent may deem prudent to
evidence and confirm such approval.
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SECTION 8.12 PAYMENTS.
(a) The Banks shall be entitled to interest on the amount of
Borrowings held by each Bank for the period of time such Borrowings are
outstanding at the rates set forth in the Credit Agreement, to the extent that
such payments are actually received from the Borrower. If permitted pursuant to
Section 2.8 of the Credit Agreement, the Administrative Agent shall charge and
collect interest at the Default Rate unless the Required Banks otherwise agree.
(b) On the Closing Date, the Commitment Fee shall be distributed
to each Bank in an amount equal to 0.375% (the "Commitment Percentage") of the
Commitment of such bank in effect on the Closing Date.
(c) Other Fees to the extent applicable shall be paid to the Banks
in accordance with Section 2.5.
(i) The Banks shall be entitled to their respective pro rata
share in all late charges ("Late Charges") under Section 2.8 of the
Credit Agreement, to the extent collected.
(ii) Amounts paid by the Borrower pursuant to any
provision of the Loan Documents providing for payment, compensation,
or reimbursement to one or more, but not necessarily all, of the
Banks, shall be paid to the Bank or Banks incurring such expenses or
otherwise entitled to compensation under any of those provisions, with
each Bank entitled to receive any payment, reimbursement, or
compensation pursuant to any of such Sections or other provisions
being obligated to provide to the Administrative Agent and the
Borrower a certificate setting forth in reasonable detail the basis
for the amount of any request for compensation, payment or
reimbursement under any of those Sections or other provisions.
(iii) Regular monthly payments of interest, payment of
the fees described in Section 2.5, and any other payments to the
Administrative Agent on behalf of the Banks (other than payments to be
applied to the outstanding principal amount of Borrowings, which
payments will be applied as provided in Section 8.13), received by the
Administrative Agent before 11:00 a.m. (Phoenix, Arizona time) on any
Business Day shall be made available to the Banks and/or the Agents
entitled thereto on or before 2:00 p.m. (Phoenix, Arizona time) on the
same Business Day. Any such payments received after 11:00 a.m.
(Phoenix, Arizona time) on any Business Day shall be made available to
the Banks on or before 11:00 a.m. (Phoenix, Arizona time) on the
immediately following Business Day.
(iv) If and to the extent any Bank shall not have made
any payment required pursuant to Section 2.2, such Bank agrees to pay
the
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Administrative Agent, forthwith on demand, such amount, together with
interest thereon, for each day from such date until the date such amount is
paid to the Administrative Agent as provided in Section 2.2(c). The
failure of any Bank to make available to the Administrative Agent any
amount required pursuant to Section 2.2 shall not relieve any other Bank of
its obligation hereunder to make available as aforesaid such payment, as
specified above, nor shall any Bank be relieved of its obligations to make
such payments for any other reason.
(v) Funds shall be transferred to the Banks in
accordance with the funds transfer instructions given to the
Administrative Agent and by the Administrative Agent to the Banks from
time to time.
SECTION 8.13 APPLICATION OF PAYMENTS.
(a) All amounts which pursuant to the Loan Documents are to be
applied to the outstanding principal amount of Borrowings shall be so applied.
(b) All other monies collected or received by the Administrative
Agent on account of the Loans or in respect of security for the Loans, directly
or indirectly, shall be applied in the following order of priority, except to
the extent otherwise required by Article II of this Credit Agreement, in which
case the provisions of Article II shall control:
(i) To the payment of all costs and expenses due to
the Administrative Agent and/or the Banks pursuant to the Loan
Documents, including costs incurred in collection of such monies,
including, without limitation, the payment to the Banks of the Late
Charges referred to in Section 8.12 and the other amounts described in
Section 8.12;
(ii) To outstanding interest on the Advances, which
amount shall be allocated between the Banks in accordance with the
actual principal amount of Advances held by each Bank throughout the
period in question as determined by the Administrative Agent on a
daily basis; PROVIDED, HOWEVER, that if amounts received by the
Administrative Agent are not sufficient to pay in full all such
outstanding interest on the Advances, such amount shall be allocated
among the Banks pro rata in accordance with the amount of Advances
held by each Bank during the period in question;
(iii) To the payment of principal on the Borrowings in
accordance with the principal amount of Borrowings held by each Bank;
and
(iv) To the Banks in accordance with their respective
pro rata share.
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SECTION 8.14 DEFAULTS.
(a) DEFAULTING BANKS. If for any reason any of the Banks shall
fail or refuse to abide by its obligations under the Loan Documents (each a
"Defaulting Bank"), then, in addition to the rights and remedies that may be
available to the Administrative Agent, the Co-Agents and the other Banks at law
and in equity, but subject to the notice and cure periods hereinafter set forth,
such Defaulting Bank's right to participate in the administration of the Loans
and the Loan Documents, including without limitation, any rights to consent to
or direct any action or inaction of the Administrative Agent, the Co-Agents, all
of the Banks, or to be taken into account in the calculation of the Required
Banks (other than the right to vote with respect to a decision to extend the
Maturity Date), shall be suspended during the pendency of such failure or
refusal. A Bank shall be deemed to be a Defaulting Bank if (i) such Bank shall
have failed to pay to the Administrative Agent any amount due pursuant to this
Credit Agreement within 5 Business Days after written notice by the
Administrative Agent to such Bank stating such payment is due from such Bank to
the Administrative Agent; (ii) such Bank shall have failed to perform any of its
other obligations under this Credit Agreement or the Loan Documents in any
material respect. and such failure shall not have been cured within 30 days
after written notice by the Administrative Agent to such Bank of such failure,
or if such failure cannot reasonably be cured within such 30 day period, within
such longer period of time as may be necessary to complete such cure, so long as
such Bank commences such cure within such 30-day period and thereafter
diligently pursues such cure to completion within not more than 120 days after
such written notice; or (iii) such Bank shall institute or be subject to any
bankruptcy, insolvency, receivership, conservatorship, reorganization,
liquidation or similar proceedings under state or federal law; provided,
however, in the case of a failure described in clause (i) or clause (ii) of this
sentence, if within the 5-Business Day period described in clause (i) or the 30
day period described in clause (ii), as applicable, the Bank in question in good
faith disputes such default asserting that such default has not occurred (and
provided that such Bank has satisfied its funding obligations pursuant to the
provisions of Section 2.2), such Bank shall not be deemed to be a Defaulting
Bank until such Bank is found to be in default pursuant to a final judicial or
arbitration determination and such Bank does not thereafter take the action
necessary to cure the default within 10 Business Days following the date of the
final determination. If the Administrative Agent is a Defaulting Bank, the
removal of the Administrative Agent may occur pursuant to Section 8.4. A Bank
that is a "Defaulting Bank" under the Credit Agreement will automatically be
deemed in default under this Credit Agreement and will also be a Defaulting Bank
under this Credit Agreement.
(b) CERTAIN REMEDIES WITH RESPECT TO DEFAULTING BANKS.
(i) During any period that a Bank is a Defaulting
Bank, such Bank shall not be entitled to interest with respect to its
interest in any Advances held by such Defaulting Bank and any interest
paid by the Borrower with respect to such interest shall, except as
otherwise provided in this Article 8, be allocated among the Current
Banks according to their pro rata shares.
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(ii) With respect to each Defaulting Bank, any Current
Bank shall, in addition to any other rights or remedies available at
law or equity, be entitled, at its option, to do either or both of the
following:
(A) In the case of the failure of a
Defaulting Bank to pay its pro rata share (the "Defaulting
Bank's Share") in an Advance made pursuant to Section 2.2,
to pay to the Administrative Agent the Defaulting Bank's
Share (pro rata if made by more than one Current Bank, based
on the pro rata shares of the Current Banks making the
payment). If one or more of the Current Banks pays the
Defaulting Banks' Share, in addition to any other rights and
remedies available to the Banks, each Current Bank making
such payment may elect to do either of the following with
respect to the payment made by such Current Bank:
(1) Notify the Administrative
Agent to adjust the pro rata shares of the
Defaulting Bank and the Current Bank making
payment of the Defaulting Bank's Share,
allocating the Defaulting Bank's Share to
the Current Bank as of the date the Advance
was made; or
(2) Receive all amounts which
the Defaulting Bank would otherwise be
entitled to receive pursuant to this Credit
Agreement with respect to the Defaulting
Bank's Share (including interest accruing
under the Loan Documents on the Advance, to
the extent of the Defaulting Bank's Share of
such Advance), pro rata according to the
portion of the Defaulting Bank's Share paid
by such Current Bank, until such Current
Bank has been repaid the full amount of the
Defaulting Bank's Share, together with
accrued interest paid by the Borrower under
the Credit Agreement with respect thereto.
If none of the Current Banks elects to fund the Advance for
the Defaulting Bank, the Administrative Agent shall be
entitled to collect interest from the Defaulting Bank
pursuant to Section 2.2 for the period from the date on
which the payment was due (which in the case of a Bank which
disputes an alleged default pursuant to Section 2.2 shall be
the date the payment was originally due
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notwithstanding the fact that the Bank was later determined to be in
default and is granted a period of time in which to cure the default)
until the date on which the payment is made and to withhold or set
off, and to apply to the payment of the defaulted amount and any
related interest, any amounts to be paid to the Defaulting Bank under
this Credit Agreement. If one or more Current Banks funds the Advance
for the Defaulting Bank and if the Administrative Agent has previously
advanced funds pursuant to Section 2.2 on behalf of the Defaulting
Bank, the Administrative Agent shall be entitled to collect from the
Defaulting Bank any interest due pursuant to Section 2.2 from the date
of the Borrowing by the Administrative Agent until the Current Bank(s)
fund the Borrowing or Protective Borrowing to the Administrative
Agent.
(B) To bring an action or suit against the
Defaulting Bank in a court of competent jurisdiction to
recover the defaulted amount and any related interest and
otherwise exercise any available rights and remedies.
SECTION 8.15 PURCHASE OF DEFAULTING BANK'S INTEREST AFTER DEFAULT. If a
Bank becomes a Defaulting Bank under Section 8.14, BOAZ (provided it is not the
Defaulting Bank) shall have the right, but not the obligation, in its sole
discretion, to acquire all of such Defaulting Bank's interest in the Commitment
and the Loans pursuant to the provisions of this Section 8.15. In the event
that BOAZ does not exercise its right to so acquire all of the Defaulting Bank's
interest in the Commitment and the Loans. within 30 days after such Bank becomes
a Defaulting Bank, then each of Banks which is not a Defaulting Bank, including
BOAZ (a "Current Bank") shall have the right. but not the obligation, in their
sole discretion to acquire (or if more than one Current Bank exercises such
right, each such Current Bank shall have the right to acquire, pro rata
according to their pro rata shares, or in such other proportions as they may
mutually agree), the interest in the Commitment and the Loans of a Defaulting
Bank. Upon any such purchase, the Defaulting Bank's interest in the Commitment
and the Loans and its rights hereunder as a Bank (but not its liability in
respect thereof or under the Loan Documents or this Credit Agreement for events
occurring prior to such purchase) shall terminate at the date of purchase, and
the Defaulting Bank shall promptly execute all documents reasonably requested to
surrender and transfer such interest including an assignment and acceptance
agreement. Current Banks exercising purchase rights under this Credit Agreement
must, as a precondition to the exercise of such rights, concurrently exercise
their corresponding purchase rights under this Credit Agreement.
SECTION 8.16 PURCHASE PRICE AND PAYMENT FOR DEFAULTING BANK'S INTEREST.
The purchase price for the interest in the Commitment and the Loans of a
Defaulting Bank shall be equal to the total outstanding Advances owned by the
Borrower to the Defaulting Bank as of the date of such purchase. Payment of the
purchase price for the Defaulting Bank's interest in the Commitment and the
Loans so acquired shall be deferred and shall be limited to and made only from
the
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repayment of the outstanding principal balance of the Loans and only to the
extent such principal repayments result in permanent Commitment reductions, if
and as received by the purchasing Bank or the Banks on account of the Loans
previously owned by the Defaulting Bank. The Defaulting Bank shall not be
entitled to interest on the purchase price for the Defaulting Bank's interest in
the Commitment and the Loans, and interest paid by the Borrower with respect to
the purchased interest shall be retained by the purchasing Bank. There shall be
no recourse against any Current Bank or the Administrative Agent, for the
payment of such sums except to the extent of the receipt of payments from the
Borrower in respect of the Loans. Payments to the Defaulting Bank shall be made
promptly after the time of receipt of such payments by Administrative Agent.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NOTICES. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed or sent by telecopy, graphic scanning or other telegraphic communications
equipment of the sending party, as follows:
(a) if to the Borrower and the General Partner, to it at 6991
East Camelback Road, Suite A-200, Scottsdale, Arizona 85251,
Attention: Paul R. Fannin;
(b) if to the Administrative Agent, to it at Post Office Box
29542, Phoenix, Arizona 85038, Attention: Western Region Real Estate
Finance Division, Dept. A365, Bruce Hart;
(c) if to a Bank, to it at its address (or telecopy number)
set forth in Schedule 2.1 or in the Assignment and Acceptance pursuant
to which such Bank shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Credit Agreement shall be deemed to have been given
on the date of receipt if delivered by hand or overnight courier service or sent
by telecopy or other telegraphic communications equipment of the sender, or on
the date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 9.1 or in accordance with the latest unrevoked
direction from such party given in accordance with this Section 9.1.
SECTION 9.2 SURVIVAL OF CREDIT AGREEMENT. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Credit Agreement or any other Loan Document shall be considered
to have been relied upon by the Banks and shall survive the making by the Banks
of the Loans, and the execution and delivery to the Banks of the Notes
evidencing such Loans, regardless of any investigation made by the Banks or on
their behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any Fee or any other amount
payable under this Credit Agreement or any other Loan Document is outstanding
and unpaid and so long as the Commitments have not been terminated.
SECTION 9.3 BINDING EFFECT. This Credit Agreement shall become effective
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have received copies hereof which, when
taken together, bear the signatures of each Bank, and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Administrative Agent
and each Bank and their respective successors and assigns,
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except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior consent of all the Banks and the
Administrative Agent.
SECTION 9.4 SUCCESSORS AND ASSIGNS.
(a) Whenever in this Credit Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and agreements by or on
behalf of the Borrower, the Administrative Agent or the Banks that are contained
in this Credit Agreement shall bind and inure to the benefit of their respective
successors and assigns.
(b) Each Bank at its own expense may assign to one or more
assignees that is a Qualified Bank all or a portion of its interests, rights and
obligations under this Credit Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it and the Notes held by it);
PROVIDED, HOWEVER, that (i) each such assignment shall be of a constant, and not
a varying, percentage of all the assigning Bank's rights and obligations under
this Credit Agreement, (ii) the amount of the Commitment of the assigning Bank
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $10,000,000.00, (iii) the amount of the Commitment
retained by the assigning Bank, unless the Assignment and Acceptance covers all
or the remaining portion of the assigning Bank's interest, rights and
obligations under this Credit Agreement, after each such assignment shall not be
less than $10,000,000.00, (iv) the parties to each such assignment shall execute
and deliver to the Administrative Agent an Assignment and Acceptance, together
with the Note or Notes subject to such assignment, (v) any increased costs by
reason of any such assignment will not be borne by the Borrower, (vi) assignee
shall be Bank unless in each case consented to in writing by all the Banks,
(vii) the assignee, if it shall not be a Bank, shall deliver to the
Administrative Agent an Administrative Questionnaire, and (viii) if the assignee
shall not be a Bank, the Borrower shall have consented to such assignment, which
consent shall not unreasonably be withheld. Upon acceptance and recording
pursuant to paragraph (e) of this Section 9.4, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance, have all the rights and obligations of a Bank
under this Credit Agreement and (B) the assigning Bank thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Credit Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Credit Agreement, such Bank shall cease
to be a party hereto (but shall continue to be entitled to the benefits of
Sections 2.13, 2.15, 2.19 and 9.5, as well as to any Fees accrued for its
account hereunder and not yet paid)).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the assignee thereunder shall be deemed to confirm
to and agree with each
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other and the other parties hereto as follows: (i) such assigning Bank warrants
that it is the legal and beneficial owner of the interest being assigned thereby
free and clear of any adverse claim and that its Commitment and the outstanding
balances of its Loans, without giving effect to assignments thereof which have
not become effective, are as set forth in such Assignment and Acceptance, (ii)
except as set forth in (i) above, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Credit
Agreement, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, any other Loan Document or any
other instrument or document furnished pursuant hereto or the financial
condition of the Borrower or the performance or observance by the Borrower of
any of its obligations under this Credit Agreement, any other Loan Document or
any other instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance; (iv) such assignee confirms that it has received a
copy of this Credit Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Bank or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Credit Agreement; (vi) such assignee
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Credit Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all the obligations which by the
terms of this Credit Agreement are required to be performed by it as a Bank.
(d) The Administrative Agent shall maintain at one of its offices
in Phoenix, Arizona, a copy of each Assignment and Acceptance delivered to it
and a register for the recordation of the names and addresses of the Banks, and
the Commitment of, and principal amount of the Loans owing to, each Bank
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive in the absence of manifest error and the
Borrower, the Administrative Agent and the Banks may treat each Person whose
name is recorded in the Register pursuant to the terms hereof as a Bank
hereunder for all purposes of this Credit Agreement. The Register shall be
available for inspection by the Borrower and any Bank, at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Bank and an assignee together with the Note or Notes
subject to such assignment, an Administrative Questionnaire completed in respect
of the assignee (unless the assignee shall already be a Bank hereunder), the
Administrative Agent shall (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register, and (iii) give prompt
notice thereof to the Borrower and the Banks. Within five Business Days after
receipt of notice, the Borrower, at its own expense, shall execute and deliver
to the Administrative Agent, in
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exchange for the surrendered Note or Notes, a new Note or Notes to the order of
such assigning Bank in a principal amount equal to the applicable Commitment
retained by it. Such new Note or Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Note or
Notes; such new Notes shall be dated the date of the surrendered Notes which
they replace and shall otherwise be in substantially the form of Exhibit "A"
hereto. Canceled Notes shall be returned to the Borrower.
(f) Each Bank may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Credit Agreement
(including all or a portion of its Commitment and the Loans owing to it and the
Notes held by it); PROVIDED, HOWEVER, that (i) such Bank's obligations under
this Credit Agreement shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled to the benefit
of the cost protection provisions contained in Sections 2.13, 2.15 and 2.19 to
the same extent as if they were Banks (however no participating bank or entity
shall be entitled to claim a greater amount than could have been claimed by the
Bank from whom the participation was acquired), (iv) the Borrower, the
Administrative Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Credit Agreement, and such Bank shall retain the sole right to
enforce the obligations of the Borrower relating to the Loans and to approve any
amendment, modification or waiver of any provision of this Credit Agreement, and
(v) the Borrower shall not incur any cost from such participation sale. No
entity acquiring a participation pursuant to this paragraph (f) shall by virtue
of such participation have any direct voting rights under this Credit Agreement,
and no agreement between the selling Bank and the purchaser of any such
participation shall give such participant any right to consent to, or instruct
such Bank with respect to, any action required or permitted to be taken by such
Bank hereunder or the exercise by such Bank of its voting rights hereunder,
except that such participant may be given the right to consent to waivers or
amendments referred to in clause (i) of the first proviso to Section 9.7(b)
herein.
(g) Any Bank or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.4, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Bank by
or on behalf of the Borrower; PROVIDED that, prior to any such disclosure of
such information, each such assignee or participant or proposed assignee or
participant shall execute an agreement whereby such assignee or participant
shall agree to preserve the confidentiality of such information on terms no less
restrictive than those applicable to Banks pursuant to Section 9.16.
(h) Any Bank may at any time assign all or any portion of its
rights under this Credit Agreement and the Notes issued to it to a Federal
Reserve Bank; PROVIDED that no such assignment shall release a Bank from any of
its obligations hereunder.
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(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Banks.
SECTION 9.5 EXPENSES; INDEMNITY.
(a) The Borrower agrees to pay all reasonable out-of-pocket
expenses reasonably incurred by the Administrative Agent in connection with the
preparation of this Credit Agreement and the other Loan Documents or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby contemplated shall be
consummated) or reasonably incurred by the Administrative Agent or any Bank in
connection with the enforcement or protection of their rights in connection with
this Credit Agreement and the other Loan Documents or in connection with the
Loans made or the Notes issued hereunder, including without limitation the
reasonable fees, charges and disbursements of the counsel for the Administrative
Agent, and, in connection with any such enforcement or protection, the
reasonable fees, charges and disbursements of counsel for the Banks. The
Borrower further agrees that it shall indemnify the Banks from and hold them
harmless against any documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of this Credit
Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Administrative Agent,
each Bank and each of their respective directors, officers, employees and agents
(each such Person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including without limitation reasonable counsel fees, charges
and disbursements, incurred by or asserted against any Indemnitee arising out
of, in any way connected with, or as a result of (i) the execution or delivery
of this Credit Agreement or any other Loan Document or any agreement or
instrument contemplated thereby, the performance by the parties thereto of their
respective obligations thereunder or the consummation of the transactions
contemplated thereby, (ii) the use of the proceeds of the Loans, or (iii) any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; PROVIDED that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.5 shall remain operative and
in full force and effect regardless of the expiration of the term of this Credit
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Credit Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative Agent or any Bank. All
amounts due under this Section 9.5 shall be payable on written demand therefor.
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SECTION 9.6 APPLICABLE LAW. THIS CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF ARIZONA.
SECTION 9.7 WAIVERS; AMENDMENT.
(a) Except as otherwise provided in Section 2.13(d), no failure or
delay of the Administrative Agent or any Bank in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Administrative Agent and the Banks hereunder and under the other Loan
Documents are cumulative and are not exclusive of any rights or remedies which
they would otherwise have. No waiver of any provision of this Credit Agreement
or any other Loan Document or consent to any departure by the Borrower therefrom
shall in any event be effective unless the same shall be permitted by paragraph
(b) below, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Credit Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Banks; PROVIDED, HOWEVER,
that no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each holder of a Note affected thereby, (ii) change or extend the
Commitment or decrease the Fees of any Bank without the prior written consent of
such Bank, or (iii) amend or modify the provisions of Sections 2.13, 2.14, 2.16,
2.19, 8.3(b), 9.5 or 9.6, the provisions of this Section or the definition of
"Required Banks", without the prior written consent of each Bank; PROVIDED
FURTHER that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent hereunder without the prior written
consent of the Administrative Agent. Each Bank and each holder of a Note shall
be bound by any waiver, amendment or modification authorized by this Section
regardless of whether its Note shall have been marked to make reference thereto,
and any consent by any Bank or holder of a Note pursuant to this Section shall
bind any Person subsequently acquiring a Note from it, whether or not such Note
shall have been so marked.
SECTION 9.8 INTEREST RATE LIMITATION. Notwithstanding anything herein or
in the Notes to the contrary, if at any time the applicable interest rate,
together with all fees and charges which are treated as interest under
applicable law (collectively, the "Charges"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Bank, shall exceed the maximum
lawful rate (the "Maximum
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Rate") which may be contracted for, charged, taken, received or reserved by such
Bank in accordance with applicable law, the rate of interest payable under the
Notes held by such Bank, together with all Charges payable to such Bank, shall
be limited to the Maximum Rate.
SECTION 9.9 ENTIRE AGREEMENT. This Credit Agreement and the other Loan
Documents constitute the entire contract between the parties relative to the
subject matter hereof. Any previous agreement among the parties with respect to
the subject matter hereof is superseded by this Credit Agreement and the other
Loan Documents, including without limitation the 1995 Agreement. Nothing in
this Credit Agreement or in the other Loan Documents, expressed or implied, is
intended to confer upon any party other than the parties hereto and thereto any
rights, remedies, obligations or liabilities under or by reason of this Credit
Agreement or the other Loan Documents.
SECTION 9.10 WAIVER OF JURY TRIAL. Each party hereto hereby waives, to the
fullest extent permitted by applicable law, any right it may have to a trial by
jury in respect of any litigation directly or indirectly arising out of, under
or in connection with this Credit Agreement or any of the other Loan Documents.
Each party hereto (a) certifies that no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it and the other parties hereto have been induced to enter
into this Credit Agreement and the other Loan Documents, as applicable, by,
among other things, the mutual waivers and certifications in this Section 9.10.
SECTION 9.11 SEVERABILITY. In the event any one or more of the provisions
contained in this Credit Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.12 COUNTERPARTS. This Credit Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.3. Delivery of an executed counterpart of a
signature page to this Credit Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this Credit
Agreement.
SECTION 9.13 HEADINGS. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Credit Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Credit Agreement.
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SECTION 9.14 ALTERNATIVE DISPUTE RESOLUTION.
(a) Banks, Administrative Agent and Borrower hereby agree that all
controversies and claims arising directly or indirectly out of the Loans, this
Credit Agreement or any related documents shall at the written request of any
party be arbitrated pursuant to the applicable rules of the American Arbitration
Association. The arbitration shall occur in the State of Arizona. Judgment
upon any award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The Federal Arbitration Act shall apply to the construction and
interpretation of this arbitration agreement.
(b) A single arbitrator shall have the power to render a maximum
award of one hundred thousand dollars. When any party files a claim in excess
of this amount, the arbitration decision shall be made by the majority vote of
three arbitrators. No arbitrator shall have the power to restrain any act of
any party.
(c) No provision of paragraph (a) shall limit the right of any
party to exercise self-help remedies, to foreclose against any real or personal
property collateral, or to obtain any provisional or ancillary remedies
(including but not limited to injunctive relief or the appointment of a
receiver) from a court of competent jurisdiction. At Administrative Agent's
option, it may enforce its right under a mortgage by judicial foreclosure, and
under a deed of trust either by exercise of power of sale or by judicial
foreclosure. The institution and maintenance of any remedy permitted above
shall not constitute a waiver of the rights to submit any controversy or claim
to arbitration. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding.
SECTION 9.15 JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of Arizona State court or Federal court of the United States of
America sitting in Phoenix, Arizona, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Credit Agreement
or the other Loan Documents, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such Arizona State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Credit Agreement shall affect any right that any Bank may
otherwise have to bring any action or proceeding relating to this Credit
Agreement or the other Loan Documents against the Borrower or its properties in
the courts of any jurisdiction.
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(b) Each of the parties hereto hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Credit
Agreement or the other Loan Documents in any Arizona State or Federal court
sitting in Phoenix, Arizona. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Credit Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.1. Nothing
in this Credit Agreement will affect the right of any party to this Credit
Agreement to serve process in any other manner permitted by law.
SECTION 9.16 CONFIDENTIALITY. Each Bank agrees to keep confidential (and
to cause its respective officers, directors, employees, agents and
representatives to keep confidential) the Information (as defined below), except
that any Bank shall be permitted to disclose Information (i) to such of its
officers, directors, employees, agents and representatives (including outside
counsel) as need to know such Information; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any bank regulatory authority (provided that such Bank shall
promptly notify Borrower (to the extent practicable and lawful, notice shall be
given to the Borrower before such disclosure is made so as to permit Borrower to
seek a protective order) of the circumstances and content of each such
disclosure and shall request confidential treatment of any Information so
disclosed); (iii) to the extent such Information (A) becomes publicly available
other than as a result of a breach of this Credit Agreement, (B) becomes
available to such Bank on a nonconfidential basis from a source other than the
Borrower or its Affiliates, or (C) was available to such Bank on a
nonconfidential basis prior to its disclosure to such Bank by the Borrower or
its Affiliates; or (iv) to the extent the Borrower shall have consented to such
disclosure in writing. As used in this Section 9.16, as to any Bank,
"Information" shall mean any financial statements, materials, documents and
other information that the Borrower or any of its Affiliates may have furnished
or may hereafter furnish
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to the Administrative Agent or any Bank in connection with this Credit Agreement
or any other materials prepared by any such Person from any of the foregoing,
including without limitation projections provided pursuant to Section 5.4(g).
IN WITNESS WHEREOF, the Borrower, the Administrative Agent, and the Banks
have caused this Credit Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
EVANS WITHYCOMBE RESIDENTIAL, L.P., a
Delaware limited partnership
BY: EVANS WITHYCOMBE RESIDENTIAL,
INC., a Maryland corporation, its General
Partner
By /s/ Paul R. Fannin
-------------------------------------------
Name Paul R. Fannin
-----------------------------------------
Its Sr. V.P.
------------------------------------------
BORROWER
BANK ONE, ARIZONA, NA, a national banking
association
By /s/ Bruce Hart
------------------------------------------------
Name: Bruce Hart
Its: Senior Vice President
ADMINISTRATIVE AGENT
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BANK ONE, ARIZONA, NA, a national banking
association
By /s/ Bruce Hart
------------------------------------------------
Name: Bruce Hart
Its: Senior Vice President
BANK
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ Derik Hart
------------------------------------------------
Name: Derik Hart
---------------------------------------------
Title: V.P.
--------------------------------------------
BANK
DRESDNER BANK
By: /s/ John W. Sweeney
------------------------------------------------
Name: John W. Sweeney
---------------------------------------------
Title: Asst. V.P.
--------------------------------------------
BANK
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FLEET BANK
By: /s/ Mark E. Danton
------------------------------------------------
Name: Mark E. Danton
---------------------------------------------
Title: V.P.
--------------------------------------------
BANK
NORWEST BANK OF ARIZONA, N.A.
By: /s/ Paul M. Pickett
------------------------------------------------
Name: Paul M. Pickett
---------------------------------------------
Title: V.P.
--------------------------------------------
BANK
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: /s/ John W. McKinney
------------------------------------------------
Name: John W. Mckinney
---------------------------------------------
Title: V.P.
--------------------------------------------
BANK
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ACKNOWLEDGEMENT AND AGREEMENT OF THE
GENERAL PARTNER
The undersigned is the General Partner as so defined in that Credit
Agreement dated as of September 24, 1996 (as amended, modified and restated from
time to time the "Agreement") between Evans Withycombe Residential, L.P., a
Delaware limited partnership (the "Borrower"), the Banks named therein, Bank
One, Arizona, NA, a national banking association, as Administrative Agent and
Bank of America National Trust and Savings Association and Wells Fargo Bank
National Association as Co-Agents and hereby acknowledges and agrees as follows
as of the date of the Agreement:
(a) It is the sole general partner of the Borrower.
(b) It, to the extent applicable, joins in the
representations and warranties contained in the Agreement, including
without limitation those contained in Article III of the Agreement.
(c) It, to the extent applicable, agrees to be bound by the
agreements and covenants contained in the Agreement, including without
limitation those contained in Articles V and VI of the Agreement, and
the alternative dispute resolution provisions contained in Section
9.14 of the Agreement.
EVANS WITHYCOMBE RESIDENTIAL, INC., a
Maryland corporation
By /s/ Paul R. Fannin
------------------------------------------------
Name Paul R. Fannin
----------------------------------------------
Its Sr. V.P.
-----------------------------------------------
<PAGE>
EXHIBIT "A"
FORM OF BORROWING NOTICE
BANK ONE, ARIZONA, NA, as Administrative
Agent for the Banks referred to below
201 North Central Avenue
Phoenix, Arizona 85004
Attention: Bruce Hart
Date ___________
Dear Sirs:
The undersigned, Evans Withycombe Residential, L.P., a Delaware limited
partnership (the "Borrower"), refers to the Credit Agreement dated as of
September 24, 1996 (as it may hereafter be amended, modified, extended or
restated from time to time, the "Credit Agreement"), among the Borrower, the
Banks named therein, Bank One, Arizona, NA, as Administrative Agent for the
Banks and Bank of America National Trust and Savings Association and Wells Fargo
Bank, National Association, as Co-Agents. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement. The Borrower hereby gives you notice pursuant to Section 2.3
of the Credit Agreement that it requests a Borrowing under the Credit Agreement,
and in that connection sets forth below the terms of which such Borrowing is
requested to be made:
(A) Date of Borrowing
(which is a Business Day) __________________
(B) Principal Amount of
Borrowing(1) __________________
(C) Interest rate basis(2) __________________
(D) Interest Period and last
day, thereof(3) __________________
(1) Not less than $500,000 (and in integral multiples of $100,000) or greater
than the Total Commitment then available.
(2) Eurodollar Loans or Variable Loans.
(3) Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<PAGE>
(E) Refinance Election
Identity _________________
Amount _________________
Upon acceptance of any or all of the Loans made by the Banks in response to
this request, the Borrower, and where appropriate the Guarantor, shall be
deemed to have represented and warranted that the conditions to lending
specified in Sections 4.1(b) and (c) of the Credit Agreement have been
satisfied.
Very truly yours,
EVANS WITHYCOMBE RESIDENTIAL, L.P., a
Delaware limited partnership
BY: EVANS WITHYCOMBE RESIDENTIAL,
INC., a Maryland corporation, its General
Partner
By______________________________________
Name____________________________________
Title___________________________________
EVANS WITHYCOMBE RESIDENTIAL, INC., a
Maryland corporation
By______________________________________
Name____________________________________
Title___________________________________
_________________
(continued)
Maturity Date.
(4) Identity shall include the Type and the date of the last Interest Period.
<PAGE>
EXHIBIT "B"
FORM OF NOTE
$[________________] Phoenix, Arizona
_____________, 19__
FOR VALUE RECEIVED, the undersigned EVANS WITHYCOMBE RESIDENTIAL, L.P., a
Delaware limited partnership (the "Borrower"), hereby promises to pay to the
order of __________________________________________________ (the "Bank"), at
the office of BANK ONE, ARIZONA, NA (the "Administrative Agent"), at 201
North Central Avenue, Phoenix, Arizona 85004, on (i) the Interest Payment
Date as defined in the Credit Agreement dated as of September 24, 1996, among
the Borrower, the Banks named therein, BANK ONE, ARIZONA, NA, as
Administrative Agent for the Banks and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION and WELLS FARGO BANK, NATIONAL ASSOCIATION as Co-Agents
(as the same may be modified, amended, extended or restated from time to
time, the "Credit Agreement"), unpaid interest which has accrued on the
aggregate unpaid principal amount of all Loans made by the Bank to the
Borrower pursuant to Article II of the Credit Agreement and (ii) on the
Maturity Date (as defined in the Credit Agreement), the lesser of the
principal of ______________________________________ DOLLARS ($____________)
and the aggregate unpaid principal amount of all Loans made by the Bank to
the Borrower pursuant to Article II of the Credit Agreement, in lawful money
of the United States of America in same day funds, and to pay interest from
the date hereof on such principal amount from time to time outstanding, in
like funds, at said office, at a rate or rates per annum and payable on such
dates as determined pursuant to the Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue principal
and, to the extent permitted by law, overdue interest from their due dates at
a rate or rates determined as set forth in the Credit Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments of
the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on the schedule attached hereto and
made a part hereof, or on a continuation thereof which shall be attached
hereto and made a part hereof, or otherwise recorded by such holder in its
internal records; provided, HOWEVER, that any failure of the holder hereof to
make such a notation or any error in such notation shall not in any manner
affect the obligation of the Borrower to make payments of principal and
interest in accordance with the terms of this Note and the Credit Agreement.
<PAGE>
This Note is one of the Notes referred to in the Credit Agreement which,
among other things, contains provisions for the acceleration of the maturity
hereof upon the happening of certain events, for optional and mandatory
prepayment of the principal hereof prior to the maturity thereof and for the
amendment or waiver of certain provisions of the Credit Agreement, all upon
the terms and conditions therein specified. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ARIZONA AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
EVANS WITHYCOMBE RESIDENTIAL, L.P., a
Delaware limited partnership
BY: EVANS WITHYCOMBE RESIDENTIAL,
INC., a Maryland corporation, its General
Partner
By___________________________________________
Name_________________________________________
Its__________________________________________
<PAGE>
EXHIBIT "C"
FORM OF ASSIGNMENT AND ACCEPTANCE
______________, 19___
Reference is made to the Credit Agreement dated as of September 24, 1996
(the "Credit Agreement"), among EVANS WITHYCOMBE RESIDENTIAL, L.P., a
Delaware limited partnership (the "Borrower"), the lenders named therein (the
"Banks"), BANK ONE, ARIZONA, NA, as Administrative Agent for the Banks (in
such capacity, the "Administrative Agent") and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION and WELLS FARGO BANK, NATIONAL ASSOCIATION as
Co-Agents. Terms defined in the Credit Agreement and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date set forth on the
reverse hereof, the interests set forth on the reverse hereof (the "Assigned
Interest") in the Assignor's rights and obligations under the Credit
Agreement, including, without limitation, the interests set forth on the
reverse hereof in the Commitment of the Assignor on the Effective Date and
the Loans owing to the Assignor which are outstanding on the Effective Date,
together with unpaid interest accrued on the assigned Loans to the Effective
Date and the amount, if any, set forth on the reverse hereof of the Fees
accrued to the Effective Date for the account of the Assignor. Each of the
Assignor and the Assignee hereby makes and agrees to be bound by all the
representations, warranties and agreements set forth in Section 9.4(c) of the
Credit Agreement, a copy of which has been received by each such party. From
and after the Effective Date (i) the Assignee shall be a party to and be
bound by the provisions of the Credit Agreement and, to the extent of the
interests assigned by this Assignment and Acceptance, have the rights and
obligations of a Bank thereunder and under the Loan Documents and (ii) the
Assignor shall, to the extent of the interests assigned by this Assignment
and Acceptance, relinquish its rights and be released from its obligations
under the Credit Agreement.
2. This Assignment and Acceptance is being delivered to the Agent
together with (i) the Notes evidencing the Loans included in the Assigned
Interest, (ii) the appropriate forms specified in Section 2.19(e) of the
Credit Agreement, duly completed and executed by such Assignee, (iii) if the
Assignee is not already a Bank under the Credit Agreement, an Administrative
Questionnaire in the form of Exhibit "E" to the Credit Agreement and (iv) a
processing fee of $2,500.00.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Arizona.
<PAGE>
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notice:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):
Percentage Assigned of
Facility/Commitment (set forth,to at
least 8 decimals, as apercentage of
the Facility and the aggregate
Commitments of all Banks
Principal Amount Assigned thereunder)
Facility
Commitment $________________ ______________%
Assigned:
Loans:
Fees Assigned
(if any):
The terms set forth above and
on the reverse side hereof are
hereby agreed to: Accepted(1)
__________________, as Assignor ___________________________________
By__________________________ By __________________________
Its___________________ Its___________________
_________________
(1) To be completed only if consents are required under Section 9.4(b).
<PAGE>
__________________, as Assignor ____________________________________________
By__________________________ By __________________________
Its___________________ Its___________________
<PAGE>
EXHIBIT "D"
COUNSEL OPINION
A. Borrower:
1. The Borrower is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
2. The Borrower has the requisite partnership power and partnership
authority (i) to own and operate its properties and assets; (ii) to carry out
its business as such business is currently being conducted; and (iii) to
carry out the terms and conditions applicable to it under the Loan
Documents.* The execution, delivery, and performance of the Loan Documents
by the Borrower have been duly authorized by all requisite partnership action
on the part of the Borrower and the Loan Documents have been duly executed
and delivered by the Borrower.
3. We have no knowledge of any pending or overtly threatened litigation
or other legal proceeding against the Borrower after ____________, 19___.
4. The execution and delivery of the Loan Documents and consummation of
the Loans by the Borrower will not conflict with or result in a violation of
any applicable law or rule affecting the Borrower.
5. No consent, approval, authorization, or other action by, or filing
with, any federal, state, or local governmental authority is required in
connection with the execution and delivery by the Borrower of the Loan
Documents and the consummation of the Loans.
6. The execution and delivery of the Loan Documents and consummation of
the Loan by the Borrower will not conflict with or result in a violation of
the Borrower's __________________________ (organizational documents).
7. The execution and delivery of the Loan Documents and consummation of
the Loans by the Borrower will not conflict with or result in a violation of
any judgment, order, or decree of any court or governmental agency to which
the Borrower is a party or by which it is bound.
8. The execution and delivery of the Loan Documents, and consummation of
the Loans by the Borrower will not conflict with or result in a violation of
any contract, indenture, instrument, or other agreement to which the Borrower
is a party or by which it is bound.
9. The Loan Documents constitute legal, valid, and binding obligations of
the Borrower, enforceable in accordance with their terms.
*Loan Documents: Credit Agreement, Note.
<PAGE>
B. General Partner:
1. The General Partner is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland and is qualified
as a "real estate investment trust" under Sections 856, ET SEQ., of the
Internal Revenue Code.
2. The General Partner has the requisite corporate power and corporate
authority (i) to own and operate its properties and assets; (ii) to carry out
its business as such business is currently being conducted; and (iii) to
carry out the terms and conditions applicable to it under the Loan
Documents.** The execution, delivery, and performance of the Loan Documents
by the General Partner have been duly authorized by all requisite corporate
action on the part of the General Partner and the Loan Documents have been
duly executed and delivered by the General Partner.
3. We have no knowledge of any pending or overtly threatened litigation
or other legal proceeding against the General Partner after ___________, 19___.
4. The execution and delivery of the Loan Documents by the General
Partner will not conflict with or result in a violation of any applicable law
or rule affecting the General Partner.
5. No consent, approval, authorization, or other action by, or filing
with, any federal, state, or local governmental authority is required in
connection with the execution and delivery by the General Partner of the Loan
Documents.
6. The execution and delivery of the Loan Documents by the General
Partner will not conflict with or result in a violation of the General
Partner's _____________________________ (organizational documents).
7. The execution and delivery of the Loan Documents by the General
Partner will not conflict with or result in a violation of any judgment,
order, or decree of any court or governmental agency to which the General
Partner is a party or by which it is bound.
8. The execution and delivery of the Loan Documents by the General
Partner will not conflict with or result in a violation of any contract,
indenture, instrument, or other agreement to which the General Partner is a
party or by which it is bound.
9. The Loan Documents constitute legal, valid, and binding obligations of
the General Partner, enforceable in accordance with their terms.
**Loan Documents: Guaranty, Credit Agreement Acknowledgement.
<PAGE>
EXHIBIT "E"
ADMINISTRATIVE QUESTIONNAIRE
___________________
Please accurately complete the following information and return via FAX to the
attention of ____________________, as soon as possible.
FAX Number: _________________
LEGAL NAME OF YOUR INSTITUTION TO APPEAR IN DOCUMENTATION:
______________________________________________________________________________
GENERAL INFORMATION - ALTERNATE BASE RATE LENDING OFFICE:
Institution Name:_____________________________________________________________
Street Address:_______________________________________________________________
City, State, Zip Code:________________________________________________________
GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:
Institution Name:_____________________________________________________________
Street Address:_______________________________________________________________
City, State, Zip Code:________________________________________________________
CREDIT CONTACTS/NOTIFICATION METHODS:
Primary Contact:______________________________________________________________
Street Address:_______________________________________________________________
City, State, Zip Code:________________________________________________________
Phone Number:_________________________________________________________________
FAX Number:___________________________________________________________________
Backup Credit Contact:________________________________________________________
Street Address:_______________________________________________________________
City, State, Zip Code:________________________________________________________
Phone Number:_________________________________________________________________
FAX Number:___________________________________________________________________
TAX WITHHOLDING:
UNITED STATES
Non-Resident Alien or Foreign Corporation or Other Foreign Entity
_________________ YES _________________ NO
If yes, please enclose Form 4224 or 101. If no, please enclose Form W-8 or
W-9.
<PAGE>
Tax ID Number _________________________________________
CONTACTS/NOTIFICATION METHODS:
ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact:______________________________________________________________________
Street Address:_______________________________________________________________
City, State, Zip Code:________________________________________________________
Phone Number:_________________________________________________________________
FAX Number:___________________________________________________________________
Telex & Answer Back:__________________________________________________________
PAYMENT INSTRUCTIONS:
Name of Bank where funds are to be transferred:
_________________________________________________________________________
Routing Transit/ABA number of Bank where funds are to be transferred:
_________________________________________________________________________
Name of Account, if applicable:
_________________________________________________________________________
Account Number:_______________________________________________________________
Additional Information:_______________________________________________________
______________________________________________________________________________
MAILINGS:
Please specify who should receive financial information:
Name:_________________________________________________________________________
Street Address:_______________________________________________________________
City, State, Zip Code:________________________________________________________
It is very important that all of the above information is accurately filled in
and returned promptly. If there is someone other than yourself who should
receive this questionnaire, please notify us of their name and FAX number and we
will FAX them a copy of the questionnaire. If you have any questions, please
call _______________ at ______________________.
<PAGE>
EXHIBIT "F"
COMPLIANCE CERTIFICATE
EVANS WITHYCOMBE RESIDENTIAL, L.P.,
a Delaware limited partnership ("Borrower")
and
EVANS WITHYCOMBE RESIDENTIAL, INC.,
a Maryland corporation ("General Partner")
as of ___________ ("Quarter End Date")
Pursuant to Section 5.4 of that Credit Agreement dated as of September 24,
1996 (the "Agreement") among the Borrower, the Banks named therein, Bank One,
Arizona, NA (the "Administrative Agent") and Bank of America National Trust
and Savings Association and Wells Fargo Bank, National Association as
Co-Agents, the Borrower and the General Partner certify as follows:
A. To the best of their knowledge [no Event of Default or Default has
occurred] [the following Event of Default has occurred _________________
___________________ and the Borrower has taken or proposes to take the
following corrective action _______________________].
B. To the best of the knowledge, as of the Quarter End Date:
1. The total number of apartment units owned by Borrower or by the
General Partner is: _________________
2. The amount of scheduled principal payments of Debt made during the
quarter: $________________
C. To the best of their knowledge, the current status of the Financial
Covenants as of the Quarter End Date is as follows:
1. Adjusted Net Worth:
- At the end of the fiscal quarter: $
-------------
- Minimum (Section 6.8(a)): $250,000,000
2. Total Liabilities to Gross Asset Value ratio:
<PAGE>
- At the end of the fiscal quarter: X
-------------
- Maximum (Section 6.8(b)): 0.55x
3. Secured Debt to Gross Asset Value ratio:
- At the end of the fiscal quarter X
-------------
- Maximum (Section 6.8(c)): 0.40x
4. EBITDA to Interest Expense ratio:
- Most recent four (4) fiscal quarters: X
-------------
- Minimum (Section 6.8(d)) 2.25x
5. EBITDA to Debt Service and Reserve for
Replacement ratio:
- Most recent four (4) fiscal quarters: X
-------------
- Minimum (Section 6.8(e)) 2.0x
6. Unencumbered NOI to Unsecured Interest
Expense ratio:
- Unencumbered NOI $________
- Most recent four (4) fiscal quarters: X
-------------
- Minimum (Section 6.8(f)) 1.75x
7. Distributions as a Percentage of FFO:
- Actual percentage X
-------------
- Maximum (Section 6.10) 95.0%
8. Non-apartment investments:
(a) Raw Land as a Percentage of Net Worth plus
minority interests less Intangible Assets:
- Actual Amount of Raw Land Investment $________
- Actual percentage %
-------------
- Maximum (Section 6.11(a)) 10%
(b) Construction In Progress
<PAGE>
- Actual Amount $
-------------
- Maximum (Section 6.11(b)) $150,000,000
(c) Other Investments as a Percentage
of total assets
- Actual Amount of other investments $________
- Actual percentage %
-------------
- Maximum (Section 6.11(c)) 20%
9. Floating Rate Indebtedness
- Floating Rate Indebtedness (includes
outstanding Loans and excludes low-floater
bonds and Debt with interest rate protection) $
-------------
- Maximum (Section 6.12) $225,000,000
The undersigned each hereby certifies to the Administrative Agent that as
of the date written above, the foregoing information is true and correct and
was provided from financial information prepared according to GAAP,
consistently applied. All capitalized undefined terms used herein have the
meaning given them in the Agreement.
EVANS WITHYCOMBE RESIDENTIAL, L.P., a
Delaware limited partnership
BY: EVANS WITHYCOMBE RESIDENTIAL,
INC., a Maryland corporation, its General
Partner
By:__________________________________________
Name:________________________________________
Title:_______________________________________
BORROWER
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC., a
Maryland corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
GENERAL PARTNER
Date:________________________________________
<PAGE>
SCHEDULE 2.1
COMMITMENTS OF BANKS
as of September 24, 1996
Euro Lending
Office
Bank One, Arizona, NA $75,000,000.00 _________________
Bank of America National Trust and $40,000,000.00 _________________
Savings Association
555 South Flower, 6th Floor
Los Angeles, California 90071
Attention: Bill Rothman, Regional
Vice President
Phone: (213) 228-4153
Fax: (213) 228-5389
Dresdner Bank $20,000,000.00 _________________
725 South Figueroa
Los Angeles, California 90017
Attention: Vitol Wiacek,
Assistant
Vice President
Phone: (213) 630-5422
Fax: (213) 627-3819
Fleet Bank $30,000,000.00 _________________
111 Westminister Street
MS RIMO215
Providence, Rhode Island 02903
Attention: Mark E. Dalton,
Vice President
Phone: (401) 278-5605
Fax: (401) 278-5166
Norwest Bank of Arizona, N.A. $20,000,000.00 _________________
3300 North Central Avenue MS9008
Phoenix, Arizona 85012-2501
Attention: Paul Pickett, Vice
President
Phone: (602) 248-2312
Fax: (602) 248-3661
<PAGE>
Wells Fargo Bank, National Association $40,000,000.00 _________________
100 West Washington
Phoenix, Arizona 85003
Attention: John McKinny, Vice
President/Manager
Phone: (602) 440-1317
Fax: (602) 528-6533
<PAGE>
EXHIBIT (23.2)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Evans Withycombe
Residential, Inc. for the registration of 182,685 shares of its common stock and
to the incorporation by reference therein of our report dated January 19, 1996,
with respect to the consolidated financial statements and schedule of Evans
Withycombe Residential, Inc. and Evans Withycombe Residential Group included in
its Annual Report (Form 10-K) for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
Ernst & Young LLP
Phoenix, Arizona
December 12, 1996
