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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ERP OPERATING LIMITED PARTNERSHIP
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[EQR LOGO]
June 30, 1998
Dear Limited Partner:
These consent solicitation materials are being sent to you and other limited
partners ("Limited Partners") of ERP Operating Limited Partnership ("ERP" or the
"Partnership") to inform you of, and solicit your consent to, certain amendments
(the "Amendments") of the Fourth Amended and Restated ERP Operating Limited
Partnership Agreement of Limited Partnership, as amended to date (the
"Partnership Agreement"). Upon receiving the consents required for the
effectuation of the Amendments, the Partnership Agreement will be amended and
restated as the Fifth Amended and Restated ERP Operating Limited Partnership
Agreement of Limited Partnership in the form attached as Appendix A to the
enclosed Consent Solicitation/Information Statement (the "Restated Partnership
Agreement") to reflect such Amendments.
The Amendments, as more fully described in the enclosed materials, are intended
primarily to facilitate ERP's ability to enter into agreements with existing
property owners desiring to contribute their properties to ERP in consideration
for units of limited partnership interest in ERP ("OP Units") in a non-taxable
transaction. Under these agreements, a consenting property owner that becomes a
Limited Partner ("Obligated Partner") would agree, upon liquidation of ERP, to
contribute to ERP up to a specified portion of the deficit capital account
balance (if any) of such Obligated Partner (referred to herein as a "Deficit
Restoration Obligation"). Equity Residential Properties Trust ("EQR"), the sole
general partner of ERP, and its Board of Trustees, believes that such agreements
will allow ERP to attract additional property acquisition opportunities, while
minimizing the restrictions on ERP's financing alternatives, by providing
property owners with a method to potentially reduce or eliminate the recognition
of taxable gain in the event any nonrecourse indebtedness encumbering the
property contributed to ERP by such property owners is paid off by ERP, in whole
or in part, after such property contribution is made.
The Amendments would facilitate these arrangements by (i) providing a mechanism
pursuant to which Obligated Partners would agree, upon the liquidation of ERP,
to contribute to the capital of ERP an amount equal to the lesser of its deficit
capital account balance or a pre-determined maximum amount (the "Restoration
Amount"), (ii) causing losses attributable to recourse liabilities of ERP to be
allocated to the Obligated Partners in a manner which could result in such
Obligated Partners potentially having deficit capital account balances up to
each such Obligated Partner's Restoration Amount, thereby permitting an amount
of the recourse liabilities of ERP equal to the respective Restoration Amount of
each Obligated Partner to be allocated to such partners under Section 752 of the
Internal Revenue Code of 1986, as amended (the "Code"). It is contemplated that
such arrangements will be entered into primarily in connection with the
acquisition of new properties by ERP, including certain acquisitions in process.
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Only Limited Partners who enter into such separate arrangements with ERP and
thereby become Obligated Partners will be affected by a Deficit Restoration
Obligation and the corresponding loss allocations. The economic effect of a
Deficit Restoration Obligation and the corresponding loss allocations set forth
in the Amendments is that upon liquidation, the Obligated Partners could
potentially be liable for an amount of recourse liabilities of ERP (not to
exceed such Obligated Partner's respective Restoration Amount) that EQR, as the
sole General Partner of ERP, would otherwise be obligated to repay.
Accordingly, the Amendments will have no effect on the amount of cash that the
Limited Partners who are not Obligated Partners ("Non-Obligated Limited
Partners") would receive at any time during the term of ERP. In addition, the
Amendments will not alter the amount of profits or losses that will be allocated
to the Non-Obligated Limited Partners. Moreover, because the Amendments affect
only the allocation of recourse liabilities of ERP, and under current law, the
Non-Obligated Limited Partners would not receive any allocations of such
recourse liabilities whether or not the Amendments were adopted, the Amendments
are not expected to cause a reduction in the amount of liabilities to be
allocated to the Non-Obligated Limited Partners under Section 752 of the Code.
The Amendments regarding the deficit restoration provisions (the "Deficit
Restoration Amendments") require your consent to be effectuated, as described in
the accompanying material. The Amendments also contain various other amendments
to the Partnership Agreement primarily of an administrative and mechanical
nature, some of which also require your consent to be effectuated, as more fully
described in the accompanying material.
The enclosed consent materials consist of: (i) a Consent
Solicitation/Information Statement, which further describes the Amendments,
their effects on ERP and its Limited Partners, and the consent requirements and
procedure; (ii) a copy of the Restated Partnership Agreement marked to indicate
the proposed Amendments; and (iii) a consent card to be completed and returned
in accordance with the instructions contained herein. EQR and its Board of
Trustees believe that the Amendments are in the best interest of ERP and its
Limited Partners and encourage you to carefully review the enclosed material and
to CONSENT to the Amendments in the manner described therein. The Amendments
will be effectuated upon the receipt of the required consent of the Limited
Partners and, therefore, EQR and its Board of Trustees encourage you to fill out
and return the enclosed consent card as soon as possible. This consent
solicitation is made on behalf of the Board of Trustees of EQR, as sole general
partner of ERP.
Sincerely,
/s/ Bruce C. Strohm
Bruce C. Strohm
Executive Vice President,
General Counsel and Secretary
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ERP OPERATING LIMITED PARTNERSHIP
CONSENT SOLICITATION/INFORMATION STATEMENT
This Consent Solicitation/Information Statement is being furnished to the
holders ("Limited Partners") of units of limited partnership interest ("OP
Units") in ERP Operating Limited Partnership, an Illinois limited partnership
("ERP"), on behalf of the Board of Trustees of Equity Residential Properties
Trust, a Maryland real estate investment trust, the sole general partner of ERP
("EQR" or the "General Partner"). Limited Partners are hereby requested to
consent to certain amendments (the "Amendments") to the Fourth Amended and
Restated ERP Operating Limited Partnership Agreement of Limited Partnership, as
amended to date (the "Partnership Agreement"), which primarily add certain
limited deficit restoration provisions to the Partnership Agreement.
This Consent Solicitation/Information Statement is also being provided to
Limited Partners to inform such Limited Partners that the General Partner has
determined to adopt certain additional amendments ("Additional Amendments") to
the Partnership Agreement which will be effectuated by the Chairman of the Board
of Trustees of EQR, as attorney in fact for the Limited Partners, pursuant to
Section 16 of the Partnership Agreement.
Upon receiving the consents required for the effectuation of the
Amendments, the Partnership Agreement will be amended and restated as the Fifth
Amended and Restated ERP Operating Limited Partnership Agreement of Limited
Partnership (the "Restated Partnership Agreement") to reflect the Amendments and
the Additional Amendments, in the form attached hereto as Appendix A. In the
event that certain or all of the Amendments do not receive the required consent
of the Limited Partners, the Restated Partnership Agreement will reflect only
those Amendments receiving such consent, as well as the Additional Amendments.
All descriptions and/or summaries of the Amendments and Additional
Amendments contained herein are qualified in their entirety by the full text of
the form of the Restated Partnership Agreement. Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Restated
Partnership Agreement.
This Consent Solicitation/Information Statement is first being mailed to
Limited Partners on or about June 30, 1998.
DEFICIT RESTORATION AMENDMENTS
The following is a description of the amendments which will add certain
limited deficit restoration provisions to the Partnership Agreement (the
"Deficit Restoration Amendments"). The Deficit Restoration Amendments are
indicated in boldface on the Restated Partnership Agreement, attached hereto as
Appendix A.
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The General Partner believes that the Deficit Restoration Amendments are in
the best interests of the Limited Partners and recommends that each Limited
Partner vote FOR such amendments.
Reasons for the Deficit Restoration Amendments.
The Deficit Restoration Amendments will amend certain Profit and Loss
allocations in the Partnership Agreement and add certain other provisions to the
Partnership Agreement pertaining to the obligation of a consenting Limited
Partner to restore a portion of the deficit (if any) in each Partner's Capital
Account upon liquidation of the Partnership (referred to herein as a "deficit
restoration obligation"). The General Partner believes the Deficit Restoration
Amendments will allow ERP to attract additional property acquisition
opportunities while minimizing the restrictions in ERP's financing alternatives,
by providing property owners with a method to potentially reduce or eliminate
the recognition of taxable gain in the event any nonrecourse indebtedness
encumbering property contributed to ERP by such property owners is repaid, in
whole or in part, by ERP after such contribution is made. See "Tax Consequences
of the Deficit Restoration Amendments." The Partnership Agreement currently
provides that no Limited Partner shall be obligated to repay any negative
balance which may exist in such Limited Partner's Capital Account. The Deficit
Restoration Amendments will (i) alter the Profit and Loss allocations to
consenting Limited Partners (the "Obligated Partners") to provide for Losses to
be allocated to such Obligated Partners in a manner which, under certain
conditions, could cause each Obligated Partner's deficit Capital Account balance
to equal a pre-determined maximum amount (the "Restoration Amount") for such
Obligated Partner (and to allocate Profits to reverse such Loss allocations),
and (ii) provide for such Obligated Partner to be required to contribute to the
Partnership, upon liquidation and after all allocations of Profit and Loss, the
lesser of the Restoration Amount or the amount of such Obligated Partner's
deficit Capital Account balance. Such Restoration Amount cannot be modified
without the prior written consent of the Obligated Partner. No Limited Partner
can become an Obligated Partner without such Limited Partner's prior written
consent.
As of the date hereof, ERP has entered into certain agreements and
discussions with respect to individuals and entities becoming Obligated
Partners, including a pending acquisition of property by ERP from certain
affiliates of Lincoln Property Company Management Services, Inc. ("Lincoln").
The pending transaction with Lincoln (the "Lincoln Transaction") involves the
transfer of 26 apartment communities by Lincoln to ERP and certain of its
affiliates for a combination of cash, the assumption of liabilities and OP
Units. In connection with the Lincoln Transaction, ERP is obligated to use its
best efforts to effectuate the Deficit Restoration Amendments. In addition, upon
consummation of the Lincoln Transaction and adoption of the Deficit Restoration
Amendments, certain affiliates of Lincoln will become Obligated Partners with an
aggregate Restoration Amount of approximately $100 million. The value of the
properties to be acquired in connection with the Lincoln Transaction is
approximately $500 million, and such transaction is currently scheduled to close
in stages, beginning in the second quarter of 1998. The
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consummation of the Lincoln Transaction is not subject to the consent of the
Limited Partners, and therefore, such consent is not being requested. In
addition, although the consent of the Limited Partners is required to approve
the Amendments, approval of the Amendments is not a condition to the
consummation of the Lincoln Transaction. In addition to the Lincoln Transaction,
ERP has also entered into discussions with, but has not entered into any
definitive agreements or understandings, with various additional parties,
including an affiliate of a trustee of EQR. Such discussions have concerned
possible transactions between ERP and such additional parties pursuant to which
such parties would become Obligated Partners. However, despite such discussions,
there can be no assurance as to when or if such transactions will be
consummated.
Summary of the Deficit Restoration Amendments.
Allocation of Losses. Section 7.2 of the Partnership Agreement sets forth
the method of Loss allocation. Section 7.2 currently provides that, after giving
effect to certain special allocations, Losses for any fiscal year shall be
allocated among the partners of ERP ("Partners") in proportion to their
Percentage Interests, so long as such allocation does not result in any Limited
Partner having an Adjusted Capital Account Deficit at the end of any fiscal
year.
As amended, Section 7.2 would provide that after giving effect to certain
special allocations, Losses for any fiscal year would be allocated in the
following order of priority: (a) first, to the Partners, in proportion to their
respective Percentage Interests, provided that the Losses so allocated shall not
exceed the maximum amount of Losses that can be allocated without causing any
Partner to have an Adjusted Capital Account Deficit (excluding for this purpose
any increase to such Adjusted Capital Account Deficit for a Partner's actual
obligation to fund a deficit Capital Account balance); (b) second, to the
General Partner, until the General Partner's Adjusted Capital Account Deficit
(excluding for this purpose any increase to such Adjusted Capital Account
Deficit for the General Partner's actual obligation to fund a deficit Capital
Account balance) equals the excess of (i) the amount of Recourse Liabilities
over (ii) the Aggregate Restoration Amount (defined as the total of all
Obligated Partners' Restoration Amounts); (c) third, to the Obligated Partners,
in proportion to their respective Restoration Amounts, until such time as the
Obligated Partners have been allocated an aggregate amount of Losses equal to
the Aggregate Restoration Amount; and (d) thereafter, to the General Partner.
Allocation of Profits. Section 7.1 of the Partnership Agreement sets forth
the method of Profit allocation. Section 7.1 currently provides that after
giving effect to certain special allocations, Profits for any fiscal year shall
be allocated among the Partners in proportion to their respective Percentage
Interests. As amended, Section 7.1 would provide that after giving effect to
certain special allocations, Profits for any fiscal year would be allocated
first in the reverse order of any previously allocated Losses, to the extent of
such previously allocated Losses, and then among the Partners in proportion to
their respective Percentage Interests.
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Negative Capital Accounts. Section 3.6 of the Partnership currently
provides that no Partner shall be required to pay ERP any amount of any deficit
or negative balance which may exist in such Partner's Capital Account. As
amended, Section 3.6 would provide that upon the liquidation of the Partnership,
if any Obligated Partner has a deficit balance in its Capital Account (after
giving effect to all contributions, distributions and allocations for all prior
periods), such Obligated Partner shall contribute to the capital of ERP an
amount equal to such deficit Capital Account balance, with such payment being
made by the end of the fiscal year of ERP's liquidation or dissolution (or, if
later, within ninety (90) days following the liquidation or dissolution of ERP).
Amended Section 3.6 would also provide that an Obligated Partner ceases to be an
Obligated Partner for purposes of Section 3.6 twelve months after the exchange
by such Obligated Partner of all OP Units held by such Obligated Partner for
common shares of beneficial interest of EQR unless, at the time of such
exchange, or during the 12-month period immediately following such exchange, an
action has commenced with regard to ERP under the federal bankruptcy laws or
similar laws.
Definition of Adjusted Capital Account Deficit; Allocations Upon
Liquidation. The Deficit Restoration Amendments revise the definition of
Adjusted Capital Account Deficit in the Partnership Agreement so that such term
means the balance in a Partner's Capital Account after giving effect to the
adjustments currently described in such definition and adding the additional
adjustment of crediting to such Capital Account any amount a Partner is
obligated to restore pursuant to such Partner's agreement with the Partnership.
In connection with the Deficit Restoration Amendments, Section 14.2(C) of the
Partnership Agreement will be amended to clarify that upon any voluntary or
involuntary dissolution, liquidation or winding up of the Partnership, the
Company, as the holder of Preference Units, shall (subject to certain
limitations) be allocated items of gross income to the extent necessary to cause
its Capital Account balance to equal the amount established in the applicable
Other Securities Term Sheet, and that no other Partner shall receive any such
gross income allocation.
Amendments Affecting Deficit Restorations. The Deficit Restoration
Amendments provide that Sections 7.1 and 7.2 of the Partnership Agreement, which
set forth the method of Profit and Loss allocation, shall not be amended in a
manner which adversely affects an Obligated Partner without the written consent
of such Obligated Partner. The Deficit Restoration Amendments also provide that
amended Section 3.6(B), which sets forth when an Obligated Partner ceases to be
an Obligated Partner, may not be amended without the consent of two-thirds in
number of the Obligated Partners, and, in addition, that no such amendment shall
adversely affect an Obligated Partner without such Obligated Partner's written
consent.
Federal Income Tax Consequences of the Deficit Restoration Amendments
The tax discussion set forth below is not and is not intended to be, nor
should it be construed as, legal or tax advice to any particular holder of OP
Units. Accordingly, holders of OP Units are strongly urged to consult their own
tax advisors as to the Federal income tax
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consequences of the Deficit Restoration Amendments and any other consequences of
the Deficit Restoration Amendments under state, local and foreign tax laws.
A Limited Partner who contributes property to ERP in consideration for OP
Units will initially have an adjusted basis in his or her OP Units equal to (i)
the adjusted tax basis of the property contributed to ERP by such partner plus
(ii) such partner's share of the liabilities of ERP. Such ERP Unit holder's
adjusted basis in such OP Units will subsequently be reduced by allocations of
Losses and distributions of money to such Limited Partner and increased by such
Limited Partner's share of Profits. Under Section 731 of the Code, an ERP
Unitholder is deemed to receive a distribution of money to the extent such
partner's share of ERP liabilities is reduced. Accordingly, if a property owner
contributes property to ERP, such partner's adjusted tax basis in his or her OP
Units would initially be equal to the adjusted tax basis of the property
contributed to ERP. However, if the property is encumbered by indebtedness and
such indebtedness is paid off by ERP, then such partner may be deemed to have
received a distribution of money in excess of such Limited Partner's adjusted
basis in his or her OP Units (thereby triggering gain recognition), unless such
Limited Partner receives an allocation of other liabilities of ERP to offset
this deemed cash distribution.
The purpose of adopting the Deficit Restoration Amendments is to enable ERP
to allocate Recourse Liabilities of ERP to Limited Partners to potentially
reduce or eliminate the recognition of gain upon the contribution of certain
property to ERP and the reduction or repayment by ERP of the nonrecourse
Liabilities encumbering such properties. In general, under Section 752 of the
Code and the Treasury Regulations promulgated thereunder, Recourse Liabilities
of a partnership are allocated to those partners who would bear the economic
risk of loss for payment of such liabilities if all of the partnership's assets
were to become worthless and the partnership constructively liquidated. Because
a general partner of a limited partnership is liable for the Recourse
Liabilities of a limited partnership under state law, the general partner of a
limited partnership generally bears the economic risk of loss for all Recourse
Liabilities of a limited partnership. Therefore, in such case, all of the
Recourse Liabilities of a limited partnership would be allocated to the general
partner under Code Section 752. However, to the extent a limited partner has an
obligation to restore a deficit in its capital account upon liquidation of a
limited partnership, then such partner has essentially agreed to "step into the
shoes" of the general partner with respect to that portion of the Recourse
Liabilities of the partnership. Accordingly, the Deficit Restoration Obligation
can result in a limited partnership allocating Recourse Liabilities to a limited
partner to the extent such limited partner has agreed to restore any deficit in
its capital account and has no right of indemnification with respect to such
obligation.
Because the economic risk of loss of an Obligated Partner (and the
corresponding allocation of Recourse Liabilities to such Obligated Partner) is
predicated upon the deficit balance in its Capital Account that would exist upon
liquidation (assuming all of ERP's assets became worthless), the Loss
allocations of ERP must be structured so that if all of ERP's assets were to
become worthless, the allocation of Losses attributable to the payment of
Recourse Liabilities of ERP
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would cause the Obligated Partners' deficit Capital Account balances to be equal
to their respective Restoration Amounts.
To illustrate the foregoing, if all of ERP's assets were to become
worthless (the presumption for the allocation of Recourse Liabilities in the
Treasury Regulations under Section 752), ERP would have a Loss in excess of the
ERP partners' Capital Account balances equal to the amount of the Recourse
Liabilities of ERP. The purpose of the Deficit Restoration Amendments is to
cause such Loss to be allocated among the Partners in a manner that will cause
the Obligated Partners' deficit Capital Account balances to be equal to the
amount of their Restoration Amount and thereby bear the economic risk of loss
for a portion of the Recourse Liabilities, equal to their respective Restoration
Amounts.
The Deficit Restoration Amendments are intended to potentially achieve this
result by providing that after allocating the maximum amount of Losses to the
Partners without causing any of them to have an Adjusted Capital Account Deficit
(excluding for this purpose any increase to such Adjusted Capital Account
Deficit for a Partner's actual obligation to fund a deficit Capital Account
balance), Losses of ERP be allocated: (i) first, to EQR in an amount equal to
the total amount of Recourse Liabilities of ERP less the aggregate amount of
Restoration Amounts of all of the Obligated Partners; (ii) second, to the
Obligated Partners in proportion to their respective Restoration Amounts; and
(iii) thereafter, to the General Partner. The Profit allocations in the
Partnership Agreement would be revised to reverse the Loss allocations. Such
Loss allocations are intended to cause (x) EQR to potentially have a deficit
Capital Account balance equal to the amount of Recourse Liabilities less the
Restoration Amounts of all of the Obligated Partners, and (y) each of the
Obligated Partners to potentially have deficit Capital Account balances equal to
their respective Restoration Amounts and thereby bear the economic risk of loss
for a portion of the Recourse Liabilities, equal to their respective Restoration
Amounts.
The economic effect of a Deficit Restoration Obligation and the
corresponding Loss allocation set forth in the Deficit Restoration Amendments is
that upon liquidation, the Obligated Partners could potentially be liable for
certain Recourse Liabilities of ERP that the General Partner would otherwise be
obligated to repay. Accordingly, the Deficit Restoration Amendments will have no
effect on the amount of cash that a Limited Partner who is not an Obligated
Partner (a "Non-Obligated Limited Partner") would receive at any time during the
term of ERP. In addition, the Deficit Restoration Amendments will not alter the
amount of Profit or Loss allocated to any Non-Obligated Limited Partners under
the Partnership Agreement. Moreover, because the Deficit Restoration Amendments
affect only the allocation of Recourse Liabilities of ERP and under current law,
the Non-Obligated Limited Partners would not receive any allocations of such
Recourse Liabilities even if the Deficit Restoration Amendments were not
adopted, the Deficit Restoration Amendments, in and of themselves, are not
expected to cause a reduction in the amount of liabilities to be allocated to
the Non-Obligated Limited Partners under Section 752 of the Code.
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SUMMARY OF AND REASONS FOR THE REMAINING AMENDMENTS REQUIRING
LIMITED PARTNER CONSENT
The General Partner is also proposing the following amendments to the
Partnership Agreement. The General Partner determined that the proposed
amendments were advisable after a review of the agreements of limited
partnership of other publicly traded UPREITs and consultation with outside
counsel. These amendments are indicated in italics on the Restated Partnership
Agreement, attached hereto as Appendix A.
The General Partner believes that the following proposed amendments are in
the best interests of the Limited Partners and recommends that each Limited
Partner vote FOR such amendments.
Amendments to Certain Definitions
Summary. The definitions of "Company" and "General Partner" will be amended
to include any successor thereto (including, Equity Residential Properties Trust
as constituted as of the date of the Restated Partnership Agreement). In
addition, the definition of "Common Share" will be amended to include common
equity securities of any successor to the Company. Such amendments are referred
to herein as the "Successor Amendments."
Reasons. The redemption right as currently contained in Section 3.2 of the
Partnership Agreement may adversely impact EQR's ability to pursue mergers or
other business combinations in which EQR is not the surviving entity. This
adverse impact could result because the redemption right provides that each
Limited Partner has the right to exchange its OP Units for common shares of
beneficial interest of EQR ("Common Shares"), without any reference to a
successor to EQR. By clarifying that the redemption right binds any successor to
EQR that results from a business combination or otherwise, the proposed
definitional amendments assure the Limited Partners that there will be an entity
to redeem their OP Units for common equity, whether it is EQR or a successor
thereto.
OP Unit Calculation for Contributing Partners.
Summary. Section 3.2(B)(d) of the Partnership Agreement currently provides
that the number of OP units issued to a Contributing Partner under Section
3.2(B)(v) shall be equal to the quotient arrived at by dividing (i) the initial
Gross Asset Value of the property contributed as additional Capital
Contributions by (ii) the Market Price (as defined in Section 3.2(B)(d)). As
amended, Section 3.2(B)(d) will provide that rather than dividing the initial
Gross Asset Value of the contributed property by the Market Price, such value
will be divided by the contractual price per OP Unit agreed to by the General
Partner and the Contributing Partner. Such amendments are referred to herein as
the "Unit Calculation Amendments."
Reasons. The General Partner believes it is in the best interests of the
Limited Partners to be able to attract and execute additional property
acquisition opportunities. This amendment will provide the General Partner with
additional flexibility when negotiating acquisitions of properties.
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Amendment of Definition of Market Price for Purposes of Section 3.2(C)
Summary. The definition of "Market Price" for purposes of Section 3.2(C) of
the Partnership Agreement will be amended to mean either (a) the last reported
sale price per share of the Common Shares at the close of trading on the
Determination Date as reported in the Wall Street Journal (Midwest Edition) or
such other reportable stock price reporting service as may be selected by the
General Partner, or (b) in the event that the Common Shares were not traded on
such Determination Date, then the last reported sale price as aforesaid on the
most recent day that the Common Shares were traded. Such amendments are referred
to herein as the "Market Price Amendments."
Reasons. The General Partner believes that it is in the best interests of
the Limited Partners to provide more certainty as to the definition of Market
Price for purposes of Section 3.2(C). This amendment provides that Market Price
will be determined using the closing price of the Common Shares on one day
instead of a 10-day trailing average.
Adjustment by General Partner of ERP Unit Exchange Ratio if EQR's Shareholder
Rights Plan is Triggered
Summary. Section 3.2(C) of the Partnership Agreement will be amended to
provide that if the General Partner adopts a shareholder rights or similar plan,
then the General Partner, in its sole discretion, will in good faith make an
equitable adjustment to the exchange ratio of Common Shares for OP Units to
protect the value of the OP Units if any rights or similar securities issued
under such plan become exercisable and expire prior to a Determination Date.
Such amendments are referred to herein as the "Shareholders' Rights Amendments."
Reasons. EQR may adopt a shareholder rights plan or similar arrangement
whereby holders of Common Shares would receive certain rights entitling them to
acquire securities of EQR at a discount to their market price under certain
circumstances. If EQR adopted such a plan and the rights issued thereunder were
exercised, it is possible that the value of the OP Units would be diluted to the
extent of the discount to market price at which securities of EQR were issued
pursuant to the exercise of such rights. To prevent such dilution, the General
Partner believes it is in the Limited Partners best interests that the General
Partner have the ability to equitably adjust the ERP Unit exchange ratio set
forth in Section 3.2(C) of the Partnership Agreement.
Elimination of Restrictions on Pledgees of Limited Partners
Summary. Section 12 of the Partnership Agreement will be amended by
deleting the proviso contained in subsection (B)(i)(x) thereof which effectively
limits a Limited Partner's ability to pledge its OP Units by requiring that the
pledgee subordinate its rights to those of the Partnership and that the pledgee
defer exercising its right to realize on the collateral until the expiration of
any lock-up period under the terms of any agreement between the Partnership and
the pledging Limited Partner. Such amendments are referred to herein as the
"Pledgee Amendments."
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Reasons. The General Partner believes it is in the best interests of the
Limited Partners to allow them to pledge more freely their OP Units without the
current restrictions which might make it more difficult for a Limited Partner to
pledge his OP Units.
Rights of Assignees of Partnership Interest
Summary. Section 12(B)(ii) of the Partnership Agreement will be amended to
provide assignees of OP Units ("Assignees") the right to exercise the exchange
rights provided to holders of OP Units by Section 3.2(C) of the Partnership
Agreement. Such amendment will allow Assignees to exchange their interests for
Common Shares, or, at the option of the General Partner, cash, pursuant to
Section 3.2(C) of the Partnership Agreement. Additionally, Section 12(B)(ii)
will be amended to provide that Assignees will not be bound by any amendments,
modifications or changes to the Partnership Agreement that would adversely
affect their rights under Section 12(B)(ii) without their consent. In connection
with the foregoing amendment, a new definition, "Assignee," will be added to
Section 2.1 of the Partnership Agreement. Such amendments are referred to herein
as the "Assignee Amendments."
Reasons. The General Partner believes it is in the best interests of the
Limited Partners to allow their Assignees to exchange OP Units underlying their
economic interest pursuant to Section 3.2(C) of the Partnership Agreement. This
amendment should make it easier for Limited Partners to assign their limited
partner interests, as collateral or otherwise, and should make potential
Assignees more willing to accept such assignments.
THE ADDITIONAL AMENDMENTS
Pursuant to Section 16 of the Partnership Agreement, the Chairman of the
Board of the General Partner has the power to amend certain sections of the
Partnership Agreement pursuant to a power of attorney granted by each Limited
Partner. Such amendments do not require the General Partner to solicit the
consent of any Limited Partner. Pursuant to this power of attorney, the General
Partner has determined to adopt the Additional Amendments summarized below,
effective upon receipt of the consent of the Limited Partners to the Amendments,
or such other time as the General Partner shall determine. These amendments are
indicated by underscoring on the Restated Partnership Agreement, attached hereto
as Appendix A.
- - Section 3.1 of the Partnership Agreement regarding capital will be amended
by substituting the current list of transactions pursuant to which OP Units
have been issued with a reference to Schedule C to the Partnership
Agreement, setting forth the Partners and the Percentage Interest in the
Partnership held by each of them, as it may be adjusted in accordance with
the terms of the Restated Partnership Agreement.
- - Section 5(A) of the Partnership Agreement regarding the purposes and powers
of the Partnership will be amended to expand such powers to include the
power to conduct any other business that may be lawfully conducted by a
limited partnership pursuant to the Act.
9
<PAGE>
- - Section 9.1(iv) of the Partnership Agreement regarding the General
Partner's power to sell and dispose of assets will be amended to clarify
that the General Partner's power (without the consent of any Limited
Partner) to acquire any assets or to sell any or all of the assets of the
Partnership includes the power to merge, consolidate or combine the
Partnership with any other Person.
- - Section 9.5 of the Partnership Agreement regarding indemnification will be
amended to clarify that the General Partner is entitled to reimbursement
from the Partnership for any amounts paid by it in satisfaction of
indemnification obligations owed by the General Partner to present or
former trustees or officers of the General Partner, or other Persons
indemnified by the General Partner.
- - Section 17.2 of the Partnership Agreement regarding waivers of terms or
conditions of the Partnership Agreement will be amended to clarify that a
waiver must be writing and signed by all Partners who were intended, as
determined in the reasonable discretion of the General Partner, to be the
primary beneficiaries of the waived term or condition. In connection with
this amendment, the General Partner currently contemplates requesting the
Zell Partners and Starwood Partners to execute a waiver of their special
voting and consent rights granted to the Zell Partners and Starwood
Partners under Section 3.2(B)(e) and Article 16 of the Partnership
Agreement.
In addition to the above amendments, the Additional Amendments also
include several minor immaterial ministerial amendments designed to clarify or
provide certain mechanical improvements to the Partnership Agreement, as
indicated by underscoring on the Restated Partnership Agreement, attached hereto
as Appendix A.
CONSENT SOLICITATION/SOLICITATION INFORMATION
Purpose
The Limited Partners are being asked by EQR, in its capacity as sole
general partner of ERP, to consent to the Amendments. Consent to the
Amendments by the Limited Partners is required for their approval and
effectuation. The Additional Amendments will be effectuated by the Chairman
of the Board of EQR, as attorney in fact for the Limited Partners.
Record Date
The Partnership Agreement allows EQR, as sole general partner of ERP,
to set a record date for Limited Partners entitled to consent to the
Amendments. Only Limited Partners of record at the close of business on
June 1, 1998 will be entitled to consent to the Amendments.
Consents Required
Approval of the Amendments requires the affirmative consent of the
Zell Partners, the Starwood Partners and the Limited Partners holding 67%
of the total number of OP Units held by all Limited Partners (including all
OP Units held by the Zell Partners and the Starwood
10
<PAGE>
Partners) (collectively, the "Required Consent"). On June 1, 1998, Limited
Partners held a total of 9,692,328 OP Units. Accordingly, approval of the
Amendments requires the affirmative consent of the Zell Partners, the
Starwood Partners and Limited Partners holding 6,493,860 OP Units
(including all OP Units held by the Zell Partners and the Starwood
Partners). Failure by a Limited Partner to affirmatively consent to the
Amendments in accordance with the instructions given herein, or to abstain
from granting such consent on the enclosed form of consent, will have the
same effect as if such Limited Partner responded negatively on such form of
consent. The Amendments shall be approved and become effective upon receipt
by ERP of the Required Consent. The date on which the Amendments shall
become effective is referred to herein as the "Effective Date."
Solicitation of Consents
Consents will be solicited by mail, telephone and in person.
Solicitations may be made by certain employees of EQR, none of whom will
receive additional compensation for such solicitations. ERP will bear the
expenses incurred in connection with the Consent Solicitation/Information
Statement. Consents must be received prior to the Effective Date. In order
to consent to the Amendments, please fill out and return the enclosed
consent card as soon as possible.
Revocation of Consents
Limited Partners may revoke their consents until the expiration of the
Consent Period by dating, signing and delivering a written notice, which
clearly expresses the revocation of consent, to ERP, or by delivering a
properly executed, subsequently dated consent card withholding a previously
granted consent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of March 1, 1998,
(except as otherwise indicated in the footnotes) regarding the beneficial
ownership of OP Units by (i) each person known by ERP to be the beneficial
owner of more than five percent of ERP's outstanding OP Units, (ii) each
trustee of EQR, (iii) the five most highly compensated executive officers
of EQR, and (iv) by all trustees and executive officers of EQR as a group.
Each person named in the table has sole voting and investment power with
respect to all OP Units shown as beneficially owned by such person, except
as otherwise set forth in the notes to the table.
11
<PAGE>
OP Units Beneficially Owned
---------------------------
<TABLE>
<CAPTION>
Name and Business Percent of
Address of Beneficial Owner Amount(1) Class
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Samuel Zell and Ann Lurie and entities
controlled by or established for the
benefit of Samuel Zell and/or Ann Lurie 3,436,060(2) 3.23%
- -----------------------------------------------------------------------------------------------
Douglas Crocker II -- *
- -----------------------------------------------------------------------------------------------
Alan W. George -- *
- -----------------------------------------------------------------------------------------------
Gregory H. Smith -- *
- -----------------------------------------------------------------------------------------------
Gerald A. Spector 1,683 *
- -----------------------------------------------------------------------------------------------
Frederick C. Tuomi -- *
- -----------------------------------------------------------------------------------------------
John W. Alexander -- *
- -----------------------------------------------------------------------------------------------
Stephen O. Evans 904,066 *
- -----------------------------------------------------------------------------------------------
Henry H. Goldberg (3) 387,139(3) *
- -----------------------------------------------------------------------------------------------
Errol R. Halperin -- *
- -----------------------------------------------------------------------------------------------
James D. Harper, Jr. -- *
- -----------------------------------------------------------------------------------------------
Edward Lowenthal -- *
- -----------------------------------------------------------------------------------------------
Jeffrey H. Lynford -- *
- -----------------------------------------------------------------------------------------------
Sheli Z. Rosenberg (4) 1,528 *
- -----------------------------------------------------------------------------------------------
B. Joseph White -- *
- -----------------------------------------------------------------------------------------------
Barry S. Sternlicht (5) 1,831,943(5) 1.74%
- -----------------------------------------------------------------------------------------------
EQR 95,790,005 90.90%
- -----------------------------------------------------------------------------------------------
All trustees and executive officers of EQR
as a group including the above-named
persons (21 persons) 5,657,684 5.37%
- -----------------------------------------------------------------------------------------------
* Less than 1%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The listed individuals also beneficially own a total of 2,708,023 Common
Shares as follows (including Common Shares, which may be acquired within 60
days after March 1, 1998 through the exercise of share options): Mr. Zell:
862,136 (Mr. Zell disclaims beneficial ownership of 634,949 Common Shares
because the economic benefits with respect to such Common Shares are
attributable to other persons); Mr. Crocker: 544,694 (Mr. Crocker disclaims
beneficial ownership of 8,825 Common Shares beneficially owned by Mr.
Crocker's spouse); Mr. Evans: 83,566; Mr. Spector: 237,403 (Mr. Spector
disclaims beneficial ownership of 37,342 Common Shares beneficially owned by
Mr. Spector's spouse and minor children); Mr. Alexander: 21,227; Mr.
Goldberg: 20,981; Mr. Halperin: 44,419 (Mr. Halperin disclaims beneficial
ownership of 1,000 Common Shares beneficially owned by Mr. Halperin's
spouse); Mr. Harper: 23,211; Mr. Lowenthal: 111,117 (Mr. Lowenthal disclaims
beneficial ownership of 726 Common Shares beneficially owned by Mr.
Lowenthal's spouse); Mr. Lynford: 82,803; Ms. Rosenberg: 109,661 (Ms.
Rosenberg disclaims beneficial ownership of certain Common Shares indirectly
beneficially
12
<PAGE>
owned by trusts created for the benefit of Mr. Zell and his family); Mr.
Sternlicht: 22,567; Mr. White: 26,008; Mr. George: 54,693; Mr. Smith:
68,624; Mr. Tuomi: 101,924.
(2) Includes 3,436,060 OP Units deemed to be owned beneficially by Mr. Zell and
Ms. Lurie because Mr. Zell and Ms. Lurie control or share control of power
to vote and invest such OP Units, either as the indirect majority
shareholder of a corporation or a corporate general partner or as a general
partner. However, Mr. Zell disclaims ownership of 1,541,966 OP Units
because the economic benefits, with respect to such OP Units, are
attributable to others. Ms. Lurie disclaims of 1,894,763 OP Units because
the economic benefits, with respect to such OP Units, are attributable to
others.
(3) Includes 48,078 OP Units held by Mr. Goldberg's spouse. Also includes
75,714 OP Units held by GGL Investment Partners #1 ("GGL"), a Maryland
general partnership. Mr. Goldberg is a general partner of GGL with a 66.67%
percentage interest. Mr. Goldberg disclaims beneficial ownership of OP
Units held by his spouse and 33.33% of the OP Units held by GGL.
(4) Ms. Rosenberg is a trustee or a co-trustee for the benefit of Ms. Lurie and
her family and certain trusts for the benefits of Mr. Zell and his family
and accordingly may be deemed to control or share control or share the power
to vote and invest OP Units attributable to Samuel Zell and Ann Lurie. Ms.
Rosenberg disclaims beneficial ownership of all OP Units owned by trusts for
which she is a trustee or co-trustee.
(5) Mr. Sternlicht may be deemed to be the beneficial owner of these 1,831,943
OP Units because each controls or shares control of the power to vote and
invest the OP Units. However, Mr. Sternlicht disclaims beneficial ownership
of 1,555,955 OP Units.
AVAILABLE INFORMATION
ERP is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith,
file reports, proxy statements and other information with the Commission.
Reports, proxy statements and other information filed by ERP 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 its Regional Offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven 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,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's Web site is:
http:www.sec.gov. In addition, all documents described in this Consent
Solicitation/Information Statement but not delivered herewith are available
without charge (other than exhibits to such documents which are not specifically
described herein) upon request from Two North Riverside Plaza, Suite 400,
Chicago, Illinois 60606, Attention: Cynthia
13
<PAGE>
McHugh, telephone (312) 474-1300. OP Units are not listed or authorized for
listing on any national or regional securities exchange.
14
<PAGE>
APPENDIX A
FORM OF
FIFTH AMENDED AND RESTATED
ERP OPERATING LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
--------------------------------
As of
June ___, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Partnership. A-1
1.1 Continuation of Partnership; Partnership Interests.................A-1
1.2 Name...............................................................A-2
2. Definitions.............................................................A-2
2.1 ...................................................................A-2
3. Capital................................................................ A-8
3.1 Capital Contributions of the Partners............................. A-8
3.2 Issuance and Conversion of Units.................................. A-8
3.3 Additional Funds..................................................A-13
3.5 Interest on and Return of Capital.................................A-15
3.6 Negative Capital Accounts.........................................A-15
3.7 Limit on Contributions and Obligations of Partners................A-17
3.8 Redemption and Repurchase of Units................................A-17
4. Principal Office.......................................................A-17
5. Purposes and Powers of Partnership.....................................A-17
=
6. Term...................................................................A-18
7. Allocations............................................................A-18
7.1 Allocation of Profits.............................................A-18
7.2 Losses............................................................A-19
7.3 Special Allocations...............................................A-20
7.4 Curative Allocations..............................................A-22
7.5 Tax Allocations: Code Section 704(c)..............................A-22
8. Cash Available For Distribution........................................A-23
8.1 Operating Cash Flow...............................................A-23
8.2 Capital Cash Flow.................................................A-23
8.3 Consent to Distributions..........................................A-24
8.4 Right to Limit Distributions......................................A-24
9. Management of Partnership..............................................A-24
9.1 General Partner...................................................A-24
9.2 Limitations on Powers and Authorities of Partners.................A-26
9.3 Limited Partners..................................................A-26
A-i
<PAGE>
Page
----
9.4 Liability of General Partner......................................A-26
9.5 Indemnity.........................................................A-26
9.6 Other Activities of Partners and Agreements with Related Parties..A-27
9.7 Other Matters Concerning the General Partner......................A-27
9.8 Partner Exculpation...............................................A-28
9.9 General Partner Expenses and Liabilities..........................A-28
10. Banking................................................................A-29
11. Accounting.............................................................A-29
11.1 Fiscal Year......................................................A-29
11.2 Books of Account.................................................A-29
11.3 Method of Accounting.............................................A-29
11.4 Section 754 Election.............................................A-29
11.5 Tax Matters Partner..............................................A-30
11.6 Administrative Adjustments.......................................A-30
12. Transfers of Partnership Interests.....................................A-30
13. Admission of New Partners..............................................A-32
14. Termination, Liquidation and Dissolution of Partnership................A-32
14.1 Termination Events...............................................A-32
14.2 Method of Liquidation............................................A-33
14.3 Date of Termination..............................................A-33
14.4 Reconstitution Upon Bankruptcy...................................A-34
14.5 Death, Legal Incompetency, Etc. of a Limited Partner.............A-34
15. Power of Attorney......................................................A-34
16. Amendment of Agreement.................................................A-35
17. Miscellaneous..........................................................A-36
17.1 Notices..........................................................A-36
17.2 Modifications....................................................A-36
17.3 Successors and Assigns...........................................A-37
17.4 Duplicate Originals..............................................A-37
17.5 Construction.....................................................A-37
17.6 Governing Law....................................................A-37
17.7 Other Instruments................................................A-37
17.8 General Partner with Interest as Limited Partner.................A-37
17.9 Legal Construction...............................................A-37
17.10 Gender...........................................................A-38
17.11 Prior Agreements Superseded......................................A-38
A-ii
<PAGE>
Page
----
17.12 No Third Party Beneficiary......................................A-38
17.13 Purchase for Investment.........................................A-38
17.14 Waiver..........................................................A-38
17.15 Time of Essence.................................................A-38
17.16 Counterparts....................................................A-38
SCHEDULE A - ZELL PARTNERS
SCHEDULE B - STARWOOD PARTNERS
SCHEDULE C - LIMITED PARTNERS
SCHEDULE D - OBLIGATED PARTNERS
A-iii
<PAGE>
FIFTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FOR
ERP OPERATING LIMITED PARTNERSHIP
---------------------------------
THIS FIFTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") has been executed and delivered as of the ______ day of June, 1998,
by Equity Residential Properties Trust (the "General Partner" or the "Company"),
a Maryland real estate investment trust, pursuant to Section 16 hereof, for
itself and on behalf of those partnerships identified on Schedule A to this
Agreement (each a "Zell Partner" and collectively, the "Zell Partners"); those
entities identified on Schedule B to this Agreement (each a "Starwood Partner"
and collectively, the "Starwood Partners"); and to the extent not included in
Schedule A or B those persons and entities identified in Schedule C (the
"Additional Partners") (the General Partner, the Zell Partners, the Starwood
Partners and the Additional Partners, being each a "Partner" and collectively,
the "Partners"). The Zell Partners, the Starwood Partners and the Additional
Partners are each a "Limited Partner" and are, as of the date of this Agreement,
the "Limited Partners".
R E C I T A L S:
---------------
A. The Partners are parties to that certain Fourth Amended and Restated
Agreement of Limited Partnership of ERP Operating Limited Partnership dated as
of September 30, 1995 (the "Prior Partnership Agreement") and, in accordance
therewith, have been doing business as an Illinois limited partnership (the
"Partnership") under the name "ERP Operating Limited Partnership."
B. Pursuant to the powers granted to the General Partner under Section 16
hereof, the General Partner deems it to be in the best interest of the
Partnership to amend and restate the Prior Partnership Agreement and is desirous
of continuing the Partnership in accordance with the Illinois Revised Uniform
Limited Partnership Act and this Agreement.
THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the General Partner, for itself
and on behalf of the Partners, agrees as follows:
1. Partnership.
1.1 Continuation of Partnership; Partnership Interests. The General
Partner and the Limited Partners do hereby continue the Partnership as an
Illinois limited partnership according to all of the terms and provisions
of this Agreement and otherwise in accordance with the Act. The General
Partner is the sole general partner and the Limited Partners are the sole
limited partners of the Partnership. All Partnership profits, losses, and
distributive shares of tax items accruing prior to the date of this
Agreement shall be allocated in accordance with, and the respective rights
and obligations of the Partners with respect to the period prior to the
date of this Agreement shall be governed by, the Prior Partnership
Agreement. No
A-1
<PAGE>
Partner has any interest in any Partnership property but the interests of
all Partners in the Partnership are, for all purposes, personal property.
1.2 Name. The Partnership name shall be "ERP Operating Limited
Partnership", but the General Partner may from time to time change the name
of the Partnership or may adopt such trade or fictitious names as it may
determine.
2. Definitions.
2.1 As used in this Agreement, the following terms shall have the
meanings set forth respectively after each:
"Act" shall mean the Illinois Revised Uniform Limited Partnership Act,
as amended from time to time, and any successor statute.
"Adjusted Capital Account Deficit" shall mean, at any time, the then
balance in the Capital Account of a Partner, after giving effect to the
following adjustments:
(i) credit to such Capital Account any amounts that such
Partner is obligated to restore pursuant to this Agreement or
otherwise or is deemed to be obligated to restore as described in the
penultimate sentences of Regulations Section 1.704-2(g)(1) and
Regulations Section 1.704-2(i)(5), or any successor provisions; and
(ii) debit to such Capital Account the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Aggregate Restoration Amount" shall mean with respect to the
Obligated Partners, as a group, the aggregate balances of the Restoration
Amounts, if any, of the Obligated Partners, as determined on the date in
question.
"Agreement" shall mean this Fourth Amended and Restated Agreement of
Limited Partnership, as it may be amended from time to time.
"Assignee" shall mean a Person to whom one or more OP Units have been
transferred in a manner permitted under this Agreement, but who has not
become a substituted Limited Partner, and who has the rights set forth in
Section 12(B)(ii).
"Bankruptcy" of a Partner shall mean (a) the filing by a Partner of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States
Code (or corresponding provisions of future laws) or any other Federal or
state insolvency law, or a Partner's filing an answer consenting to or
acquiescing in any such petition, (b) the making by a Partner of any
assignment for the benefit of its creditors or the admission by a Partner
in writing of its inability to pay its debts as they mature, or (c) the
expiration of sixty (60) days after the filing of an involuntary petition
under
A-2
<PAGE>
Title 11 of the United States Code (or corresponding provisions of future
laws), seeking an application for the appointment of a receiver for the
assets of a Partner, or an involuntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts under any other
Federal or state insolvency law, provided that the same shall not have been
vacated, set aside or stayed within such 60-day period.
"Capital Account" shall mean the capital account maintained by the
Partnership for each Partner as described in Section 3.4 below.
"Capital Cash Flow" shall have the meaning provided in Section 8.2
below.
"Capital Contribution" shall mean, when used in respect of a Partner,
the initial capital contribution of such Partner as set forth in Schedule C
below and any other amounts of money or the fair market value of other
property contributed by such Partner to the capital of the Partnership
pursuant to the terms of this Agreement, including the Capital Contribution
made by any predecessor holder of the Partnership Interest of such Partner.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended from time to time, and any successor statute.
"Common Share" shall mean a common share of beneficial interest (or
other comparable common equity interest) of the Company.
"Company" means Equity Residential Properties Trust, a Maryland real
estate investment trust and the General Partner of the Partnership, and any
successor thereto (including Equity Residential Properties Trust as
constituted as of the date of this Agreement).
"Contributing Partner" shall have the meaning provided in clause (vi)
of Section 3.2(B) below.
"Depreciation" shall mean for any fiscal year or portion thereof, an
amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such period for Federal
income tax purposes, except that if the Gross Asset Value of an asset
differs from its adjusted basis for Federal income tax purposes at the
beginning of such period, Depreciation shall be an amount that bears the
same relationship to such beginning Gross Asset Value as the depreciation,
amortization or cost recovery deduction in such period for Federal income
tax purposes bears to the beginning adjusted tax basis; provided, however,
that if the adjusted basis for Federal income tax purposes of an asset at
the beginning of such period is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any reasonable method
selected by the General Partner.
"Determination Date" shall have the meaning provided in Section 3.2
below.
"FPAA" shall have the meaning provided in Section 11.6 below.
A-3
<PAGE>
"General Partner" means Equity Residential Properties Trust, a
Maryland real estate investment trust sometimes also referred to in this
Agreement as the "Company," and any successor thereto (including Equity
Residential Properties Trust as constituted as of the date of this
Agreement).
"Gross Asset Value" means, with respect to any Partnership asset, the
asset's adjusted basis for Federal income tax purposes, except as follows:
(ii) The initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be the gross fair market value of
such asset, as determined by the General Partner;
(iii) The Gross Asset Value of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as
determined by the General Partner, as of the following times: (a) the
acquisition of an additional interest in the Partnership by any new or
existing Partner in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property as consideration
for an interest in the Partnership; and (c) the liquidation of the
Partnership within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
clauses (a) and (b) above shall be made only if the General Partner
reasonably determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Partners
in the Partnership;
(iv) The Gross Asset Value of any Partnership asset distributed
to any Partner shall be adjusted to equal the gross fair market value
of such asset on the date of distribution as determined by the General
Partner; and
(v) The Gross Asset Value of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m) and paragraph (vi) of the definition of
Profits and Losses and Section 7.3(G) below; provided, however, that
Gross Asset Value shall not be adjusted pursuant to this paragraph
(iv) to the extent the General Partner determines that an adjustment
pursuant to paragraph (ii) above is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
paragraphs (i), (ii) or (iv) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
"IRS" shall have the meaning provided in Section 11.6 below.
A-4
<PAGE>
"Limited Partner" shall mean any Person (i) whose name is set forth as
a Limited Partner on Schedule C attached hereto or who has become a Limited
Partner pursuant to the terms and conditions of this Agreement, and (ii)
who holds a Partnership Interest. "Limited Partners" means all such
persons.
"Market Price" shall have the meaning set forth in Section 3.2(C)
below.
"Nonrecourse Debt" shall mean a liability as defined in Regulations
Section 1.704-2(b)(3).
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(c).
"Obligated Partners" shall mean that or those Limited Partner(s)
listed as Obligated Partner(s) on Schedule D attached hereto and made a
part hereof, as such Schedule may be amended from time to time by the
General Partner, whether by express amendment to this Partnership Agreement
or by execution of a written instrument by and between any additional
Obligated Partner(s) being directly affected thereby and the General
Partner, acting on behalf of the Partnership and without the prior consent
of the Limited Partners (whether or not Obligated Partners other than the
Obligated Partner(s) being directly affected thereby). Any successor,
Assignee, or transferee of the entire Partnership Interest of an Obligated
Partner shall be considered an Obligated Partner; provided, however, that
if an Obligated Partner makes a distribution of all or any portion of its
OP Units in accordance with Section 12(B)(i)(z) hereof, the General Partner
shall, upon receipt of written notice from such Obligated Partner and such
distributee(s) of OP Units, amend Schedule D to add any such distributee(s)
as an additional Obligated Partner in the manner set forth in such notice.
"Operating Cash Flow" shall have the meaning provided in Section 8.1
below.
"OP Units" are units of Partnership Interest more particularly
described in Section 3.2 below.
"OP Unit Value" shall mean, as of any given time, the number of OP
Units into which a Preference Unit is convertible (whether or not the
conversion can then be effected), or the value of the Preference Unit
expressed in OP Units if the Preference Unit is not convertible into OP
Units, as provided for in the applicable Preference Unit Term Sheet or
Other Securities Term Sheet.
"Other Securities" shall have the meaning set forth in clause (iv) of
Section 3.2(B) below.
"Other Securities Term Sheet" shall have the meaning provided in
clause (f) of Section 3.2(B) below.
A-5
<PAGE>
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i).
"Partners" shall mean, collectively, the General Partner and the
Limited Partners, or any additional or successor Partners of the
Partnership admitted to the Partnership in accordance with the terms of
this agreement. Reference to a Partner shall be to any one of the
Partners.
"Partnership Interest" shall mean the ownership interest of a Partner
in the Partnership at any particular time, including the right of such
Partner to any and all benefits to which such Partner may be entitled as
provided in this Agreement, and to the extent not inconsistent with this
Agreement, under the Act, together with the obligations of such Partner to
comply with all of the terms and provisions of this Agreement and of the
Act.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d).
"Percentage Interest" shall mean, as to each Partner, the quotient
(expressed as a percentage) arrived at by dividing (i) the sum of the OP
Unit Value of any Preference Units held by that Partner and the number of
OP Units held by that Partner, by (ii) the sum of the OP Unit Value of all
Preference Units issued and outstanding at the time and the total number of
OP Units issued and outstanding at the time. The respective Percentage
Interests of the Partners shall be as set forth in Schedule C attached to
this Agreement, as such may be revised by the General Partner to add
Partners from time to time as provided in Section 3.1.
"Person" means any individual, partnership, corporation, trust or
other entity.
"Pledge" shall have the meaning provided in Section 12(B)(i) below.
"Preference Units" are units of Partnership Interest more particularly
described in Section 3.2 below.
"Preference Unit Term Sheet" shall have the meaning provided in clause
(e) Section 3.2(B) below.
"Prior Partnership Agreement" has the meaning set forth in Recital A
above.
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"Profits" and "Losses" shall mean for each fiscal year or portion
thereof, an amount equal to the Partnership's items of taxable income or
loss for such year or period, determined in accordance with Section 703(a)
of the Code with the following adjustments:
(i) any income which is exempt from Federal income tax and not
otherwise taken into account in computing Net Profits or Net Losses
shall be added to taxable income or loss;
(ii) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Section 705(a)(2)(B) expenditures
under Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken
into account in computing Profits or Losses, will be subtracted from
taxable income or loss;
(iii) in the event that the Gross Asset Value of any Partnership
asset is adjusted pursuant to the definition of Gross Asset Value
contained in this Section 2, the amount of such adjustment shall be
taken into account as gain or loss from the disposition of such asset
for purposes of computing Profits and Losses;
(iv) gain or loss resulting from any disposition of Partnership
assets with respect to which gain or loss is recognized for Federal
income tax purposes shall be computed by reference to the Gross Asset
Value of the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year or other period;
(vi) to the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in complete
liquidation of a Partner's Partnership Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Profits or Losses; and
(vii) any items specially allocated pursuant to Section 7.3 or
Section 7.4 below shall not be considered in determining Profits or
Losses.
"Recapitalization" shall have the meaning provided in Section 3.2(C)
below.
"Record Date" shall have the meaning provided in Section 9.1(x) below.
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"Recourse Debt" shall mean the amount of indebtedness owed by the
Partnership other than Nonrecourse Debt and Partner Nonrecourse Debt.
"Regulations" shall mean the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may
be amended from time to time (including corresponding provisions of
succeeding regulations).
"Restoration Amount" shall mean with respect to any Obligated Partner,
the amount set forth opposite the name of such Obligated Partner on
Schedule D attached hereto and made a part hereof, as such Schedule may be
modified from time to time by an amendment to the Partnership Agreement or
by execution of a written instrument by and between such Obligated Partner,
and/or any additional Obligated Partner(s) being directly affected thereby
and the General Partner, acting on behalf of the Partnership and without
the prior written consent of the Limited Partners (whether or not Obligated
Partners other than the Obligated Partner(s) being directly affected
thereby). If an Obligated Partner makes a distribution of all or any
portion of its OP Units in accordance with Section 12(B)(i)(z) hereof, and
the General Partner receives a written notice from such Obligated Partner
and any distributee of OP Units to amend Schedule D to add such distributee
as an additional Obligated Partner, the Restoration Amount of such
additional Obligated Partner shall be increased by an amount equal to that
amount set forth in such notice, and the Restoration Amount of the
Obligated Partner making such distribution shall be reduced by such amount.
"TMP" shall have the meaning provided in Section 11.5 below.
"Third Party Loan" shall have the meaning provided in Section 9.7(E)
below.
"Units" has the meaning set forth in Section 3.2(A) below.
3. Capital.
3.1 Capital Contributions of the Partners. At the time of the
execution of this Agreement, the Partners shall make or shall have made or
be deemed to have made the Capital Contributions as set forth in Schedule
C. The Partners shall own OP Units in the amounts set forth in Schedule C
and shall have a Percentage Interest in the Partnership as set forth in
Schedule C, which Percentage Interest shall be adjusted in Schedule C from
time to time by the General Partner to the extent necessary to reflect
accurately redemptions, Capital Contributions, the issuance of additional
OP Units or similar events having an effect on a Partner's Percentage
Interest. To the extent the Partnership is acquiring any property by the
merger of any other Person into the Partnership, Persons who receive
Partnership interests in exchange for their interests in the Person merging
into the Partnership shall become Partners and shall be deemed to have made
Capital Contributions as provided in the applicable merger agreement and as
set forth in Schedule C.
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3.2 Issuance and Conversion of Units.
A. The interest of a Partner in the Partnership is referred to
as being evidenced by one or more "Units". Units may be either "OP
Units" or "Preference Units":
(i) An "OP Unit" is a unit of Partnership Interest that,
as more particularly provided for below in Section 3.2(B), may be
converted into either cash or one (1) Common Share.
(ii) A "Preference Unit" is a unit of Partnership Interest
having such rights, preferences and other privileges, variations
and designations as may be determined by the General Partner in
its sole and absolute discretion (but not in violation of the
provisions of Section 3.2(B) or the terms of any other Preference
Unit(s)). There may be more than one series or class of
Preference Units having differing terms and conditions, but all
Preference Units within a given series or class shall have the
same rights, preferences and other privileges, variations and
designations. A Preference Unit shall be convertible into one or
more OP Units or be capable of being valued in OP Units. With
respect to each series or class of Preference Units, the General
Partner may also, in its discretion, determine and fix, among
other terms and conditions, any of the following: (a) the series
to which such Preference Units shall belong, (b) the distribution
rate therefore, (c) the price at and the terms and conditions on
which such Preference Units may be redeemed, (d) the amount
payable in respect of such Preference Units in the event of
involuntary or voluntary liquidation, (e) the terms and
conditions on which such Preference Units may be converted, if
such Preference Units are issued with the privilege of
conversion, and (f) the number of such Preference Units to be
issued as a part of such series. Once determined and fixed as
herein provided, however, the terms and conditions of a
particular series or class of Preference Units may not be changed
without the written consent of the holders of at least 67% of the
Preference Units within the class or series (or such greater
percentage as may be provided for in the applicable Preference
Unit Term Sheet or Other Securities Term Sheet, as the case may
be).
The aggregate total of all Units outstanding as of the date of this
Agreement, including the making of the capital contributions referred
to in Section 3.1 above, is ________________. As of the date of this
Agreement, each Partner is deemed to hold Units as shown on Schedule
C.
B. From time to time hereafter, subject to and in accordance
with the provisions of this Section 3.2(B), the General Partner shall
cause the Partnership to issue additional Units as follows:
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(i) OP Units to the Company upon the issuance by the
Company of additional Common Shares (other than in exchange for
OP Units) and the contribution of the net proceeds thereof as a
Capital Contribution to the Partnership as provided for in
Section 3.3(B) below it being understood, however, that the
Company may issue Common Shares in connection with share option
plans, dividend reinvestment plans, restricted share plans or
other benefit or compensation plans (for example, shares issued
in lieu of fees or compensation) without receiving any proceeds
and that the issuance of such Common Shares shall nonetheless
entitle the Company to additional OP Units pursuant to this
clause (i);
(ii) OP Units to Partners (including itself) that hold
Preference Units that are convertible into OP Units, upon the
exercise of such conversion in accordance with the terms and
conditions of the Preference Unit Term Sheet or Other Securities
Term Sheet (each hereinafter defined) applicable thereto;
(iii) OP Units to Partners holding OP Units (including
itself) if and to the extent of each such Partner's participation
in any reinvestment program contemplated by Section 3.3(C) below;
(iv) Preference Units to the Company upon the issuance by
the Company of securities other than Common Shares (whether debt
or equity securities; ("Other Securities") and the contribution
of the net proceeds thereof as a Capital Contribution to the
Partnership as provided for in Section 3.3(B) below; and
(v) in all other cases, OP Units and/or Preference Units,
as determined by the General Partner, in its discretion, to
existing or newly-admitted Partners (including itself), in
exchange for the contribution by a Partner (the "Contributing
Partner") of additional Capital Contributions to the Partnership.
Issuance of OP Units as aforesaid shall be in accordance with the
following:
(a) the number of OP Units issued to the Company under
clause (i) of this Section 3.2(B) shall be equal to the number of
Common Shares issued;
(b) the number of OP Units issued to a Partner under
clause (ii) of this Section 3.2(B) shall be as provided for in
the Preference Unit Term Sheet or the Other Securities Term Sheet
(each hereinafter defined) pursuant to which the Preference Units
being converted exist;
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(c) the number of OP Units issued to a Limited Partner
under clause (iii) of this Section 3.2(B) shall be as provided
for in the applicable reinvestment program; and
(d) the number of OP Units issued to a Contributing Partner
under clause (v) of this Section 3.2(B) shall be equal to the
quotient (rounded to the nearest whole number) arrived at by
dividing (x) the initial Gross Asset Value of the property
contributed as additional Capital Contributions (net of any debt
to which such property is subject or assumed, and any cash paid
to the Contributing Partner, by the Partnership in connection
with such contribution) by (y) the contractual price per OP Unit
agreed to by the General Partner and the Contributing Partner.
Issuance of Preference Units as aforesaid shall be in accordance with
the following:
(e) Preference Units issued pursuant to clause (v) of this
Section 3.2(B) shall have the terms and conditions specified in
an agreement (a "Preference Unit Term Sheet") executed by and
between the Partnership (at the direction and in the discretion
of the General Partner) and the Contributing Partner and such
Preference Unit Term Sheet shall thereupon be a part of this
Agreement. The number of Preference Units issued to a
Contributing Partner under clause (v) of this Section 3.2(B)
shall be equal to the quotient (rounded to the nearest whole
number) arrived at by dividing (x) the initial Gross Asset Value
of the property contributed as additional capital contributions
(net of any debt to which such property is subject or assumed by
the Partnership in connection with such contribution) by (y) an
amount provided for in the Preference Unit Term Sheet; and
(f) Preference Units issued pursuant to clause (iv) of this
Section 3.2(B) shall have economic terms substantially identical
to those of the applicable Other Securities and such other terms
and conditions, all of which are specified in an agreement (an
"Other Securities Term Sheet") executed between the Partnership
and the Company and such Other Securities Term Sheet shall
thereupon be a part of this Agreement.
Units may also be issued to some or all of the Partners holding
Preference Units if and to the extent of such Partner's participation
in any reinvestment program contemplated by Section 3.3(C) below. Upon
the issuance of additional OP Units and/or Preference Units in
accordance with the provisions of this Section 3.2(B), each recipient
of such Units shall either execute this Agreement or a joinder to this
Agreement (which joinder, as to Preference Units, may be a part of the
applicable Preference Unit Term Sheet or Other Securities Term Sheet)
and the Percentage Interests of all of the Partners shall thereupon be
appropriately adjusted by the General Partner. Notwithstanding
anything to the contrary contained herein, in no event shall any
additional Preference Units or OP Units be issued (pursuant to this
Section 3.2(B) or
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otherwise) to the extent that the effect of such issuance would be to
reduce the General Partner's Percentage Interest to fifty percent
(50%) or less.
C. Subject to the further provisions of this Section 3.2(C),
the Company hereby grants to each Limited Partner holding OP Units the
right to request an exchange of any or all of its OP Units for Common
Shares, with one OP Unit being exchangeable for one Common Share. Such
right may be exercised by a Limited Partner at any time and from time
to time upon not less than ten (10) days prior written notice to the
Company. Upon receipt of such a request, the Company may, in its
discretion, in lieu of issuing Common Shares, cause the Partnership to
pay to such Limited Partner cash in an amount equal to the product
arrived at by multiplying (i) the number of OP Units requested to be
exchanged by such Limited Partner multiplied by (ii) the Market Price,
with such payment to be made within ten (10) days after the Company's
receipt of the Limited Partner's exercise notice as aforesaid;
provided, however, that in calculating Market Price for this Section
3.2(C) only, the "Determination Date" shall mean the trading date
immediately preceding the date on which the Company receives notice
from the holder of OP Units stating such holder's intention to
exercise its right to request an exchange of its OP Units for Common
Shares. As used in this Section 3.2(C), "Market Price" means either
(a) the last reported sale price per share of the Common Shares at the
close of trading on the Determination Date as reported in the Wall
Street Journal (Midwest Edition) or such other reportable stock price
reporting service as may be selected by the General Partner, or (b) in
the event that the Common Shares were not traded on such Determination
Date, then the last reported sale price as aforesaid on the most
recent day that the Common Shares were traded. If the Company does not
elect to make a cash payment, it shall be obligated to issue Common
Shares as provided above. The Company shall at all times reserve and
keep available out of its authorized but unissued Common Shares,
solely for the purpose of effecting the exchange of OP Units for
Common Shares, such number of Common Shares as shall from time to time
be sufficient to effect the conversion of all outstanding OP Units not
owned by the Company, and any Preference Units not owned by the
Company that are convertible into OP Units (whether or not the
conversion can then be effected). No Limited Partner shall, by virtue
of being the holder of one or more OP Units and/or Preference Units,
be deemed to be a shareholder of or have any other interest in the
Company. In the event of any change in the outstanding Common Shares
by reason of any share dividend, split, recapitalization, merger,
consolidation, combination, exchange of shares or other similar
corporate change (a "Recapitalization"), the number of OP Units held
by each Partner (or into which Preference Units are or may be
convertible, if applicable) shall be proportionately adjusted so that
one OP Unit remains exchangeable for one Common Share without
dilution. The Assignee of any Limited Partner may exercise the rights
of such Limited Partner pursuant to this Section 3.2(C), and such
Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such
Limited Partner's Assignee. In connection with any exercise of such
rights by such Assignee on behalf of such Limited Partner, if the
Company elects to make a cash
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payment as provided herein, the cash payment shall be paid by the
Partnership directly to such Assignee and not to such Limited Partner.
If the Company adopts a shareholder rights plan or such other plan or
arrangement pursuant to which the holders of Common Shares are
entitled to receive rights or other securities upon the occurrence of
specified events, then the General Partner shall in good faith make an
equitable adjustment to the exchange ratio of Common Shares for OP
Units, as the General Partner shall determine in its sole discretion,
to protect the value of the OP Units if any rights or other securities
issued under such plan or arrangement become exercisable and expire
prior to a Determination Date. In the event the Company issues any
Common Shares in exchange for OP Units pursuant to this Section
3.2(C), the General Partner shall record the transfer on the books of
the Partnership so that the Company is thereupon the owner and holder
of such OP Units. Notwithstanding the foregoing provisions of this
Section 3.2(C), a Limited Partner shall not have the right to exchange
OP Units for Common Shares if (i) in the opinion of counsel for the
Company, the Company would, as a result thereof, no longer qualify (or
it would be likely that the Company no longer would qualify) as a real
estate investment trust under the Code; or (ii) such exchange would,
in the opinion of counsel for the Company, constitute or be likely to
constitute a violation of applicable securities laws. In either such
event, to the extent the consequences described in (i) or (ii) could
be eliminated by reasonable action of the Company without any material
detriment to the Company and at the expense of such Limited Partner(s)
requesting such exchange, the Company shall take all such reasonable
action to affect the exchange of OP Units for Common Shares by such
Limited Partner(s) as herein provided.
3.3 Additional Funds.
A. No Partner shall be assessed or, except as otherwise provided
in this Agreement, required to contribute additional funds or other
property to the Partnership. Any additional funds or other property
required by the Partnership, as determined by the General Partner in
its sole discretion, may, at the option of the General Partner and
without an obligation to do so (except as provided for in Section
3.3(B) below), be contributed by the General Partner or any other
Partner (provided such other Partner is willing to do so and the
General consents thereto, each in its sole and absolute discretion) as
additional Capital Contributions. If and as the General Partner or any
other Partner makes additional Capital Contributions to the
Partnership, each such Partner shall receive additional OP Units
and/or Preference Units as provided for in Section 3.2(B) above. The
General Partner shall also have the right (but not the obligation) to
raise any additional funds required for the Partnership in accordance
with the provisions of Section 9.7(E) below and/or by causing the
Partnership to borrow the necessary funds from third parties on such
terms and conditions as the General Partner shall deem appropriate in
its sole discretion. If the General Partner elects to cause the
Partnership to borrow the additional funds, or if the Partnership
issues a guaranty, indemnity or similar undertaking in connection with
indebtedness of the Company as aforesaid, in any such case one or more
of the Partnership's assets may be encumbered to secure the loan or
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undertaking. Except as provided for in Section 3.3(C) below, no
Limited Partner shall have the right to make additional Capital
Contributions to the Partnership without the prior written consent of
the General Partner.
B. Except for (i) the capitalization of any wholly owned entity
of the General Partner which is the general partner of a partnership
having the Partnership as a limited partner, (ii) the net proceeds
generated by the issuance of Other Securities that evidence debt (and
are not equity securities) that are loaned by the Company to the
Partnership, and (iii) where, in the good faith opinion of the
Company, the net proceeds generated by the issuance of Other
Securities (whether for debt or equity) are retained by the Company
for a valid business reason consistent with the purposes of the
Partnership and such retention does not materially adversely affect
the Limited Partners, the net proceeds of any and all funds raised by
or through the Company through the issuance of Common Shares or Other
Securities shall be contributed to the Partnership as additional
Capital Contributions, and in such event the Company shall be issued
additional Units pursuant to Section 3.2(B) above.
C. If the General Partner creates and administers a reinvestment
program in substantial conformance with a dividend reinvestment
program which may be available from time to time to holders of the
Common Shares, each Limited Partner holding OP Units shall have the
right to reinvest any or all cash distributions payable to it from
time to time pursuant to this Agreement by having some or all (as the
Limited Partner elects) of such distributions contributed to the
Partnership as additional Capital Contributions, and in such event the
Partnership shall issue to each such Limited Partner additional OP
Units pursuant to clause (iv) of Section 3.2(B) above, or the General
Partner may elect to cause distributions with respect to which a
Limited Partner has elected reinvestment to be contributed to the
Company in exchange for the issuance of Common Shares. At the option
of the General Partner, such a program may also be made available with
respect to Preference Units.
3.4 Capital Accounts. A separate capital account ("Capital Account")
shall be maintained for each Partner.
A. To each Partner's Capital Account there shall be credited
such Partner's Capital Contributions, such Partner's distributive
share of Profits and any items in the nature of income or gain which
are specially allocated pursuant to Section 7.3, Section 7.4 or
Section 14.2(C) hereof, and the amount of any Partnership liabilities
assumed by such Partner or which are secured by any Partnership
property distributed to such Partner.
B. To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership property
distributed to such Partner pursuant to any provision of this
Agreement, such Partner's distributive share of Losses and any items
in the nature of expenses or losses which are specially allocated
pursuant to Section 7.3 or Section 7.4 hereof, and the amount of any
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liabilities of such Partner assumed by the Partnership or which are
secured by any property contributed by such Partner to the
Partnership.
C. In the event all or a portion of a Partnership Interest is
transferred in accordance with the terms of this Agreement (including
a transfer of OP Units in exchange for Common Shares, pursuant to
Section 3.2(C)), the transferee shall succeed to the Capital Account
of the transferor to the extent it relates to the transferred
Partnership Interest.
D. In determining the amount of any liability for purposes of
Sections 3.4(A) and 3.4(B) above, there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code
and Regulations.
E. This Section 3.4 and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply
with Regulations Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property
or which are assumed by the Partnership, or the Partners) are computed
in order to comply with such Regulations, the General Partner may make
such modification, provided that it is not likely to have a material
effect on the amounts distributed to any Partner pursuant to Section
14 below upon the dissolution of the Partnership. The General Partner
also shall (i) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Partners and
the amount of Partnership capital reflected on the Partnership's
balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any
appropriate modifications in the event unanticipated events (for
example, the acquisition by the Partnership of oil or gas properties)
might otherwise cause this Agreement not to comply with Regulations
Section 1.704-1(b).
3.5 Interest on and Return of Capital.
A. No Partner shall be entitled to any interest on its Capital
Account or on its contributions to the capital of the Partnership.
B. Except as expressly provided for in this Agreement, no
Partner shall have the right to demand or to receive the return of all
or any part of his capital contributions to the Partnership and there
shall be no priority of one Partner over the other as to the return of
capital contributions or withdrawals or distributions of profits and
losses. No Partner shall have the right to demand or receive property
other than cash in return for the contributions of such Partner to the
Partnership.
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3.6 Negative Capital Accounts.
A. Except as provided in the next sentence and Section 3.6(B),
no Partner shall be liable to the Partnership or to any other Partner
for any deficit or negative balance which may exist in such Partner's
Capital Account. If any Obligated Partner has a deficit balance in its
Capital Account (after giving effect to all contributions,
distributions, allocations and adjustments to Capital Accounts for all
periods), each such Obligated Partner shall contribute to the capital
of the Partnership an amount equal to its respective deficit balance;
such obligation to be satisfied by the end of the fiscal year of
liquidation (or, if later, within ninety (90) days following the
liquidation and dissolution of the Partnership.) Such contributions
shall be used to make payments to creditors of the Partnership and
such Obligated Partners (i) shall not be surrogate to the rights of
any such creditor against the General Partner, the Partnership,
another Partner or any person related thereto, and (ii) hereby waive
any right to reimbursement, contribution or similar right to which
such Obligated Partners might otherwise be entitled as a result of the
performance of its obligations under this Agreement.
B. Except as otherwise agreed in writing, by the General Partner
and an Obligated Partner, prior to the time of admission of such
Obligated Partner to the Partnership, notwithstanding any other
provision of this Agreement, an Obligated Partner shall cease to be an
Obligated Partner for purposes of this Section 3.6 upon an exchange by
such Obligated Partner of all remaining OP Units for Common Shares
(pursuant to Section 3.2(C) or otherwise) 12 months after the date of
such exchange by such Obligated Partner unless at the time of, or
during the 12 month period following, such exchange, there has been:
(i) An entry of a decree or order for relief in respect of
the Partnership by a court having jurisdiction over a substantial
part of the Partnership's assets, or the appointment of a
receiver, liquidator, Assignee, custodian, trustee, sequestrator
(or other similar official) of the Partnership or of any
substantial part of its property, or ordering the winding up or
liquidation of the Partnership's affairs, in an involuntary case
under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law; or
(ii) The commencement against the Partnership of an
involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law; or
(iii) The commencement by the Partnership of a voluntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or
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any other applicable federal or state bankruptcy, insolvency or
other similar law, or the consent by it to the entry of an order
for relief in an involuntary case under any such law or the
consent by it to the appointment of or taking possession by a
receiver, liquidator, Assignee, custodian, trustee, sequestrator
(or other similar official) of the Partnership or of any
substantial part of its property, or the making by it of a
general assignment for the benefit of creditors, or the failure
of Partnership generally to pay its debts as such debts become
due or the taking of any action in furtherance of any of the
foregoing;
provided that, after the passage of such 12 months, the Obligated
Partner shall cease to be an Obligated Partner, at the first time, if
any, that all of the conditions set forth in (i) through (iii) above
are no longer in existence.
This Section 3.6(B) shall not be amended without the consent of two-
thirds in number of the Obligated Partners, provided, however, that no such
amendment shall adversely affect an Obligated Partner without the written
consent of such Obligated Partner.
3.7 Limit on Contributions and Obligations of Partners. Neither the
Limited Partner nor the General Partner shall be required to make any
additional advances or contributions to or on behalf of the Partnership or
to endorse any obligations of the Partnership.
3.8 Redemption and Repurchase of Units. Notwithstanding any other
provision of this Agreement which may be contrary to this Section 3.8, in
the event of the proposed repurchase or redemption for cash by the Company
of (i) Common Shares or, (ii) Other Securities with respect to which the
Company had previously been issued Preference Units pursuant to Section
3.2(B)(iv) of this Agreement, then, in such event, the Partnership shall
provide cash to the Company concurrently with such repurchase or redemption
for such purpose equal to the proposed repurchase or redemption price, and
one OP Unit owned by the General Partner (or, in the case of redemption or
repurchase by the Company of Other Securities contemplated by clause (ii)
above, one Preference Unit owned by the General Partner which had been
issued with respect to such Other Securities) shall be canceled with
respect to each Common Share (or share of Other Securities) so repurchased
or redeemed.
4. Principal Office. The principal office of the Partnership shall be
located at Two North Riverside Plaza, Suite 400, Chicago, Illinois 60606, or at
such other place as the General Partner may designate after giving written
notice of such designation to the other Partners.
5. Purposes and Powers of Partnership.
A. The purposes of the Partnership shall be to acquire, purchase,
own, operate, manage, develop, redevelop, invest in, finance, refinance,
sell, lease and otherwise deal with multifamily residential properties and
assets related thereto, and interests therein, whether
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directly or indirectly, alone or in association with others, and to conduct
any other business that may be lawfully conducted by a limited partnership
pursuant to the Act. The purposes of the Partnership include, but are not
limited to:
(i) acquiring, developing, operating, leasing and managing
multifamily residential properties and conducting any other lawful
business relating thereto;
(ii) financing, mortgaging, exchanging, selling, encumbering or
otherwise disposing of all or any part of a multifamily residential
property or any interest therein;
(iii) constructing, reconstructing, altering, modifying and
subtracting from or adding to a multifamily residential property or
any part thereof;
(iv) organizing and holding partnership interests in partnerships
owning or otherwise having an interest in, whether directly or
indirectly, one or more multifamily residential properties; and
(v) in general, the making of any investments or expenditures,
the borrowing and lending of money and the taking of any and all
actions which are incidental or related to any of the purposes recited
above.
It is agreed that each of the foregoing is an ordinary part of the
Partnership's business and affairs. Property may be acquired subject to, or
by assuming, the liens, encumbrances, and other title exceptions which
affect such property. The Partnership may also be a partner, general or
limited, in partnerships, general or limited, and joint ventures created to
accomplish all or any of the foregoing.
B. The Partnership purposes may be accomplished by taking any action
which is not prohibited under the Act and which is related to the
acquisition, ownership, development, improvement, operation, management,
financing, leasing, exchanging, selling or otherwise encumbering or
disposing of all or any portion of the assets of the Partnership, or any
interest therein.
6. Term. The term of the Partnership shall continue until the Partnership
is terminated upon the occurrence of an event described in Section 14.1 below.
7. Allocations.
7.1 Allocation of Profits. After giving effect to the allocations
set forth in Section 7.3 and 7.4, Profits for any fiscal year shall be
allocated to the Partners in the following order of priority:
A. First, to the General Partner to the extent that the
cumulative Losses allocated to the General Partner pursuant to Section
7.2(D) exceed the
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cumulative Profits allocated to the General Partner pursuant to this
Section 7.1(A);
B. Second, to each Partner to the extent of and in proportion to
the amount by which the cumulative Losses allocated to such Partner
pursuant to Section 7.2(C) exceed the cumulative Profits allocated to
such Partner pursuant to this Section 7.1(B);
C. Third, to the General Partner to the extent that the
cumulative Losses allocated to the General Partner pursuant to Section
7.2(B) exceed the cumulative Profits allocated to the General Partner
pursuant to this Section 7.1(C);
D. Fourth, to each Partner to the extent of and in proportion to
the amount by which the cumulative Losses allocated to such Partner
pursuant to Section 7.2(A) exceed the cumulative Profits allocated to
such Partner pursuant to this Section 7.1(D); and
E. Thereafter, to the Partners in accordance with their
respective Percentage Interests.
7.2 Losses. After giving effect to the allocations set forth in
Sections 7.3 and 7.4, Losses for each fiscal year shall be allocated to the
Partners in the following order of priority:
A. First, to the Partners, in proportion to their respective
Percentage Interests; provided that Losses allocated pursuant to this
Section 7.2(A) shall not exceed the maximum amount of Losses that can
be allocated without causing any Partner to have an Adjusted Capital
Account Deficit (excluding for this purpose any increase to such
Adjusted Capital Account Deficit for a Partner's actual obligation to
fund a deficit Capital Account balance, including the obligation of an
Obligated Partner to fund a deficit Capital Account balance pursuant
to Section 3.6 hereof);
B. Second, to the General Partner, until the General Partner's
Adjusted Capital Account Deficit (excluding for this purpose any
increase to such Adjusted Capital Account Deficit for the obligation
of any General Partner to actually fund a deficit Capital Account
balance) equals the excess of (i) the amount of Recourse Liabilities
over (ii) the Aggregate Restoration Amount;
C. Third, to the Obligated Partners, in proportion to their
respective Restoration Amounts, until such time as the Obligated
Partners have been allocated in aggregate amount of Losses pursuant to
this Section 7.2(C) equal to the Aggregate Restoration Amount; and
D. Thereafter, to the General Partner.
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This Section 7.2 together with Section 7.1 shall control
notwithstanding any reallocation or adjustment of taxable income, loss or
other items by the IRS or any other taxing authority; provided, however,
that neither the Partnership nor the General Partner (nor any of their
respective affiliates) is required to indemnify any Obligated Partner (or
its affiliates) for the loss of any tax benefit resulting from any
reallocation or adjustment of taxable income, loss or other items by the
IRS or other taxing authority. The provisions of Section 7.1 and this
Section 7.2 shall not be amended in a manner which adversely affects an
Obligated Partner (without consent of such Obligated Partner), provided
that the General Partner may amend Schedule D to add additional Obligated
Partners.
7.3 Special Allocations. The following special allocations shall be
made in the following order:
A. Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding any other provision of
this Section 7, if there is a net decrease in Partnership Minimum Gain
during any fiscal year, each Partner shall be specially allocated
items of Partnership income and gain for such fiscal year (and, if
necessary, subsequent fiscal years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g). The
items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
7.3(A) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
B. Partner Minimum Gain Chargeback. Except as otherwise provided
in Regulations Section 1.704-2(i)(4), notwithstanding any other
provision of this Section 7, if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse
Debt during any Partnership fiscal year, each Partner who has a share
of the Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such fiscal year (and, if necessary,
subsequent fiscal years) in an amount equal to such Partner's share of
the net decrease in Partner Nonrecourse Debt Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4). The items to be so allocated shall
be determined in accordance with Regulations Sections 1.704-2(i)(4)
and 1.704-2(i)(2). This Section 7.3(B) is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-
2(i)(4) and shall be interpreted consistently therewith.
C. Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations, or distributions described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-
1(b)(2)(ii)(d)(5), or Section 1.704-1(b)(2)(ii)(d)(6), items of
Partnership income and gain shall be specially
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allocated to each such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Partner as quickly as possible,
provided that an allocation pursuant to this Section 7.3(C) shall be
made only if and to the extent that such Partner would have an
Adjusted Capital Account Deficit after all other allocations provided
for this Section 7 have been tentatively made, as if this Section
7.3(C) were not in the Agreement.
D. Gross Income Allocation. In the event any Partner has a
deficit Capital Account at the end of any Partnership fiscal year
which is in excess of the sum of (i) the amount such Partner is
obligated to restore pursuant to any provision of this Agreement, and
(ii) the amount such Partner is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.704-
2(g)(1) and 1.704-2(i)(5), each such Partner shall be specifically
allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to
this Section 7.3(D) shall be made only if and to the extent that such
Partner would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Section 7 have been
made as if Section 7.3(C) hereof and this Section 7.3(D) were not in
the Agreement.
E. Preferential Gross Income Allocations. If and to the extent
Partners receive distributions from the Partnership (other than (i)
distributions pursuant to Section 14.2(C) in final liquidation of the
Partnership), each such Partner shall be allocated an equal amount of
Partnership gross income prior to any allocations of Profit and Loss
pursuant to Sections 7.1 and 7.2 above. For purposes of this Section
7.3(E), any payment with respect to a Preference Unit that, under the
applicable Preference Unit Term Sheet or Other Securities Term Sheet,
as the case may be, constitutes a payment in redemption of such
Preference Unit shall not be considered a distribution except to the
extent such payment is specifically attributable to accrued and unpaid
preferred distributions with respect to such Preference Unit provided
for in such Term Sheet.
F. Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year shall be allocated among the Partners in accordance with their
respective Percentage Interests.
G. Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any fiscal year shall be specially allocated to the
Partner who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable, in accordance with Regulations Section 1.704-
2(i)(1).
H. Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704- 1(b)(2)(iv)(m)(2)
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or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into
account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest in
the Partnership, the amount of such adjustment to Capital Accounts
shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis)
and such gain or loss shall be specifically allocated to the Partners
in accordance with their respective Percentage Interests in the event
that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or the
Partner to whom such distribution was made in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
7.4 Curative Allocations. The allocations set forth in Sections
7.3(A), 7.3(B), 7.3(C), 7.3(D), 7.3(F), 7.3(G) and 7.3(H) above (the
"Regulatory Allocations") are intended to comply with certain requirements
of the Regulations under Sections 704(b) and 514(c)(9)(E) of the Code. It
is the intent of the Partners that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or
with special allocations of other items of Partnership income, gain, loss,
or deduction pursuant to this Section 7.4. Therefore, notwithstanding any
other provision of this Section 7 (other than the Regulatory Allocations),
the General Partner shall make such offsetting special allocations of
Partnership income, gain, loss, or deduction in whatever manner it
determines appropriate so that, after such offsetting allocations are made,
each Partner's Capital Account balance is, to the extent possible, equal to
the Capital Account balance such Partner would have had if the Regulatory
Allocations were not part of the Agreement and all Partnership items were
allocated pursuant to Sections 7.1 and 7.2(A) (subject, however, to Section
7.3(E) above), and so that, to the greatest extent possible, such
allocations comply with the Regulations under Code Section 514(c)(9)(E). In
exercising its discretion under this Section 7.4, the General Partner shall
take into account future Regulatory Allocations under Sections 7.3(A) and
7.3(B) that, although not yet made, are likely to offset other Regulatory
Allocations previously made under Sections 7.3(F) and 7.3(G).
7.5 Tax Allocations: Code Section 704(c).
A. Income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership shall, solely
for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property
to the Partnership for Federal income tax purposes and its initial
Gross Asset Value in accordance with any permissible manner or manners
under Code Section 704(c) and the Regulations thereunder.
B. In the event the Gross Asset Value of any Partnership asset
is adjusted pursuant to the definition of "Gross Asset Value"
contained in Section 2 above, subsequent allocations of income, gain,
loss, and deduction with respect to such asset shall take account of
any variation between the adjusted basis of such asset for Federal
income tax purposes and its Gross Asset Value in the same manner or
manners permitted under Code Section 704(c) and the Regulations
thereunder.
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C. Any elections or other decisions relating to such allocations
shall be made by the General Partner in any permissible manner under
the Code or the Regulations that the General Partner may elect in its
sole discretion. Allocations pursuant to this Section 7.5 are solely
for purposes of Federal, state, and local taxes and shall not affect,
or in any way be taken into account in computing, any Partner's
Capital Account or share of Profits, Losses, other items, or
distributions pursuant to any provision in this Agreement.
8. Cash Available For Distribution.
8.1 Operating Cash Flow. As used in this Agreement, "Operating Cash
Flow" shall mean and be defined as all cash receipts of the Partnership
from whatever source (but excluding Capital Cash Flow and excluding the
proceeds of any additional Capital Contributions to the Partnership
pursuant to Section 3.3 above) during the period in question in excess of
all items of Partnership expense (other than non-cash expenses such as
depreciation) and other cash needs of the Partnership, including, without
limitation, amounts paid by the Partnership as principal on debts and
advances, during such period, capital expenditures and any reserves (as
determined by the General Partner) established or increased during such
period. In the discretion of the General Partner, reserves may include cash
held for future acquisitions. Operating Cash Flow shall be distributed to
or for the benefit of the Partners of record as of the applicable Record
Date not less frequently than annually, and shall be distributed: first to
those Partners holding Preference Units to the extent of the respective
priorities (if any) established by the applicable Preference Unit Term
Sheets and Other Securities Term Sheets; and then the balance prorata among
the Partners holding OP Units and the Partners holding Preference Units
which, based on the provisions of the applicable Preference Unit Term
Sheets and Other Securities Term Sheets, entitle such Partners to
participate in such distributions on a pari passu basis with the holders of
OP Units (the "Residual Operating Cash Flow Preference Units"), to each
Partner based on the quotient (expressed as a percentage) arrived at by
dividing (i) the sum of the OP Unit Value of any Residual Operating Cash
Flow Preference Units held by that Partner and the number of OP Units held
by that Partner by (ii) the sum of the OP Unit Value of all Residual
Operating Cash Flow Preference Units issued and outstanding at the time and
the total number of OP Units issued and outstanding at the time.
Notwithstanding the foregoing, any incoming Limited Partners who were
admitted during the applicable quarter (but excluding any incoming Partners
who received Units from an existing Limited Partner) and who held Units as
of an applicable Record Date, but held such Units for less than the entire
period with respect to which an Operating Cash Flow distribution is to be
paid, shall be entitled to receive a pro-rated portion of such Operating
Cash Flow distribution otherwise payable to such Partner based on the
number of days such Units were outstanding during the applicable period, or
any other method of pro-ration deemed equitable by the General Partner, and
in such event, if the General Partner, in its sole discretion, deems it
necessary, the amount of the distribution payable to all other Partners
shall be adjusted accordingly.
8.2 Capital Cash Flow. As used in this Agreement, "Capital Cash
Flow" shall mean and be defined as collectively (a) gross proceeds realized
in connection with the sale of
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any assets of the Partnership, (b) gross financing or refinancing proceeds,
(c) gross condemnation proceeds (excluding condemnation proceeds applied to
restoration of remaining property) and (d) gross insurance proceeds
(excluding rental insurance proceeds or insurance proceeds applied to
restoration of property), less (a) closing costs, (b) the cost to discharge
any Partnership financing encumbering or otherwise associated with the
asset(s) in question, (c) the establishment of reserves (as determined by
the General Partner, and which may include cash held for future
acquisitions), and (d) other expenses of the Partnership then due and
owing. Subject to Section 14.2 below, if applicable, Capital Cash Flow
shall be distributed to or for the benefit of the Partners of record as of
the applicable Record Date not less frequently than annually and shall be
distributed: first to the Partners holding Preference Units to the extent
of the respective priorities (if any) established by the applicable
Preference Unit Term Sheets and Other Securities Term Sheets; and then the
balance prorata among those Partners holding OP Units and those Partners
holding Preference Units which, based on the provisions of the applicable
Preference Unit Term Sheets and Other Securities Term Sheets, entitle such
Partners to participate in such distributions on a pari passu basis with
the holders of OP Units (the "Capital Cash Flow Preference Units"), to each
Partner based on the quotient (expressed as a percentage) arrived at by
dividing (i) the sum of the OP Unit Value of any Capital Cash Flow
Preference Units held by that Partner and the number of OP Units held by
that Partner by (ii) the sum of the OP Unit Value of all Capital Cash Flow
Preference Units issued and outstanding at the time and the total number of
OP Units issued and outstanding at the time. Notwithstanding the foregoing,
the General Partner reserves the right to pro-rate distributions of Capital
Cash Flow to incoming Limited Partners who were admitted during the
applicable quarter (but excluding any incoming Partners who received Units
from an existing Limited Partner) and who held Units as of the applicable
Record Date but held such Units for less than the entire period with
respect to which the Capital Cash Flow distribution is to be paid, based on
the number of days such Units were outstanding during the applicable
period, or any other method of pro-ration deemed equitable by the General
Partner and, in such event, the amount of the distribution payable to all
other Partners shall be adjusted accordingly.
8.3 Consent to Distributions. Each of the Partners hereby consents
to the distributions provided for in this Agreement.
8.4 Right to Limit Distributions. The right of any Partner to
receive distributions of any nature pursuant to the terms of this Agreement
shall be subject to the terms of any agreement between such Partner and the
Partnership limiting, restricting or providing rights of set-off with
respect to such distributions.
9. Management of Partnership.
9.1 General Partner. The General Partner shall be the sole manager
of the Partnership business, and shall have the right and power to make all
decisions and take any and every action with respect to the property, the
business and affairs of the Partnership and shall have all the rights,
power and authority generally conferred by law, or necessary, advisable or
consistent with accomplishing the purposes of the Partnership. All such
decisions
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or actions made or taken by the General Partner hereunder shall be binding
upon all of the Partners and the Partnership. The powers of the General
Partner to manage the Partnership business shall include, without
limitation, the power and authority to, directly or indirectly:
(i) operate any business normal or customary for the owner of
or investor in multifamily residential property;
(ii) perform any and all acts necessary or appropriate to the
operation of the Partnership assets, including, but not limited to,
applications for rezoning, objections to rezoning of other property
and the establishment of bank accounts in the name of the Partnership;
(iii) procure and maintain with responsible companies such
insurance as may be available in such amounts and covering such risks
as are deemed appropriate by the General Partner;
(iv) take and hold all real, personal and mixed property of
the Partnership in the name of the Partnership or in the name of a
nominee;
(v) execute and deliver leases on behalf of and in the name
of the Partnership;
(vi) borrow money (whether on a secured or unsecured basis),
finance and refinance the assets of the Partnership or any part
thereof or interest therein, and in connection therewith, issue notes,
bonds, securities and other undertakings and evidences of indebtedness
and documents related thereto (including, without limitation,
guaranty, indemnities and similar undertakings to support loans
obtained or debt securities issued by the Company where the net
proceeds thereof are either loaned to the Partnership or contributed
to the Partnership as a Capital Contribution);
(vii) coordinate all accounting and clerical functions of the
Partnership and employ such accountants, lawyers, property managers,
leasing agents and other management or service personnel as may from
time to time be required to carry on the business of the Partnership;
(viii) acquire any assets, and encumber, sell, ground lease or
otherwise dispose of any or all of the assets of the Partnership
(including by way of merger, consolidation or other combination with
any other Person), or any part thereof or interest therein; and
(ix) organize one or more partnerships which are controlled,
directly or indirectly, by the Partnership (including, without
limitation, Equity Residential Properties Management Limited
Partnership) and make any capital contributions required pursuant to
the partnership agreements of any such partnerships.
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(x) establish the date (the "Record Date") for the purpose of
making any proper determination with respect to which Partners are
entitled to receive distributions, consent to any matter for which the
consent of Partners is permitted or required under any provision
hereof, or otherwise be allocated rights hereunder.
9.2 Limitations on Powers and Authorities of Partners.
Notwithstanding the powers of the General Partner set forth in Section 9.1
above, no Partner shall have the right or power to do any of the following:
(a) do any act in contravention of this Agreement, or any
amendment hereto;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership, except to the extent that such
act is specifically permitted by the terms hereof (it being understood
and agreed that, except as hereafter provided in this Section 9.2, a
sale of any or all of the assets of the Partnership, for example,
would be an ordinary part of the Partnership's business and affairs
and is specifically permitted hereby); or
(c) confess a judgment against the Partnership.
9.3 Limited Partners. The Limited Partners shall have no right or
authority to act for or to bind the Partnership and no Limited Partner
shall participate in the conduct or control of the Partnership's affairs or
business.
9.4 Liability of General Partner. The General Partner shall not be
liable or accountable, in damages or otherwise, to the Partnership or to
any other Partner for any error of judgment or for any mistakes of fact or
law or for anything which it may do or refrain from doing hereafter in
connection with the business and affairs of the Partnership except (i) in
the case of fraud, willful misconduct (such as an intentional breach of
fiduciary duty or an intentional breach of this Agreement) or gross
negligence, and (ii) for other breaches of this Agreement, but the
liability of the General Partner under this clause (ii) shall be limited to
its interest in the Partnership as more particularly provided for in
Section 9.8 below. The General Partner shall not have any personal
liability for the return of any Limited Partner's capital.
9.5 Indemnity. The Partnership shall indemnify and shall hold the
General Partner (and the officers and trustees thereof) harmless from any
loss or damage, including without limitation reasonable legal fees and
court costs, incurred by it by reason of anything it may do or refrain from
doing hereafter for and on behalf of the Partnership or in connection with
its business or affairs; provided, however, that (i) the Partnership shall
not be required to indemnify the General Partner (or any officer or trustee
thereof) for any loss or damage which it might incur as a result of its
fraud, willful misconduct or gross negligence in the performance of its
duties hereunder and (ii) this indemnification shall not relieve the
General Partner of its proportionate part of the obligations of the
Partnership as a Partner. In
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addition, the General Partner shall be entitled to reimbursement from the
Partnership for any amounts paid by it in satisfaction of indemnification
obligations owed by the General Partner to present or former trustees or
officers of the General Partner or its predecessors, or other Persons
indemnified by the General Partner, as provided for in or pursuant to the
Declaration of Trust and By-Laws of the General Partner or otherwise. The right
of indemnification set forth in this Section 9.5 shall be in addition to any
rights to which the person or entity seeking indemnification may otherwise be
entitled and shall inure to the benefit of the successors and assigns of any
such person or entity. No Partner shall be personally liable with respect to any
claim for indemnification pursuant to this Section 9.5, but such claim shall be
satisfied solely out of assets of the Partnership.
9.6 Other Activities of Partners and Agreements with Related Parties . The
General Partner shall devote its full-time efforts in furtherance of the
Partnership business, it being expressly understood that, except for (i) the
Company's ownership interest in a partnership or a limited liability company of
which the Partnership is a partner or a member, respectively; (ii) the Company's
ownership of any qualified REIT subsidiary (within the meaning of the Code) or
any other entity which is a partner of a partnership or a member of a limited
liability company having the Partnership as a partner or member, respectively;
(iii) the Company's ownership of any entity that owns no more than a one percent
(1%) interest in any partnership, limited liability company or other entity;
(iv) borrowing (including the issuance of debt securities) where the net
proceeds thereof are loaned or contributed to the Partnership; (v) any activity
which the Board of Trustees of the General Partner, in its sole discretion, has
determined will have a material benefit to the General Partner and will not have
a material adverse effect on the Partnership; and (vi) activities incidental to
the Company's status and existence as a real estate investment trust, the
General Partner shall conduct all of its activities with respect to the
multifamily residential property business exclusively through the Partnership
and shall not conduct or engage in any way in any other business.
9.7 Other Matters Concerning the General Partner.
A. The General Partner shall be protected in relying, acting or
refraining from acting on any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties.
B. The General Partner may exercise any of the powers granted or
perform any of the duties imposed by this Agreement either directly or
through agents. The General Partner may consult with counsel, accountants,
appraisers, management consultants, investment bankers and other
consultants selected by it, each of whom may serve as consultants for the
Partnership. An opinion by any consultant on a matter which the General
Partner believes to be within its professional or expert competence shall
be full and complete protection as to any action taken or omitted by the
General Partner based on the opinion and taken or omitted in good faith.
The General Partner shall not be responsible for the misconduct,
negligence,
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acts or omissions of any consultant or contractor of the Partnership
or of the General Partner, and shall assume no obligations other than
to use due care in the selection of all consultants and contractors.
C. No mortgagee, grantee, creditor or any other person dealing
with the Partnership shall be required to investigate the authority of
the General Partner or secure the approval of or confirmation by any
Limited Partner of any act of the General Partner in connection with
the conduct of the Partnership business.
D. The General Partner may retain such persons or entities as it
shall determine (including the General Partner or any entity in which
the General Partner shall have an interest or with which it is
affiliated) to provide services to or on behalf of the Partnership.
The General Partner shall be entitled to reimbursement from the
Partnership for its out-of-pocket expenses (including, without
limitation, amounts paid or payable to the General Partner or any
entity in which the General Partner shall have an interest or with
which it is affiliated) incurred in connection with Partnership
business. Such expenses shall be deemed to include those expenses
required in connection with the administration of the Partnership such
as the maintenance of Partnership books and records, management of the
Partnership property and assets and preparation of information
respecting the Partnership needed by the Partners in the preparation
of their individual tax returns.
E. The General Partner may loan to the Partnership the net
proceeds of loans obtained or debt securities issued by the Company so
long as the terms of such loan to the Partnership are substantially
equivalent to the corresponding loan obtained or debt securities
issued by the Company.
9.8 Partner Exculpation. Except for fraud, willful misconduct and
gross negligence, no Partner shall have any personal liability whatever,
whether to the Partnership or to the other Partner, for the debts or
liabilities of the Partnership or its obligations hereunder, and the full
recourse of the other Partner shall be limited to the interest of that
Partner in the Partnership. To the fullest extent permitted by law, no
officer, trustee or shareholder of the General Partner shall be liable to
the Partnership for money damages except for (i) active and deliberate
dishonesty established by a final judgment or (ii) actual receipt of an
improper benefit or profit in money, property or services. Without
limitation of the foregoing, and except for fraud, willful misconduct and
gross negligence, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other
judicial process) in favor of any other Partner(s) and arising out of, or
in connection with, this Agreement. This Agreement is executed by the
officers or general partners of each Partner solely as officers or partners
of the same and not in their own individual capacities. No advisor,
trustee, officer, partner, employee, beneficiary, shareholder, participant
or agent of any Partner (or of any partner of a Partner) shall be
personally liable in any matter or to any extent under or in connection
with this Agreement, and the Partnership, each Partner and their
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respective successors and assigns shall look solely to the interest of the
other Partner in the Partnership for the payment of any claim or for any
performance hereunder.
9.9 General Partner Expenses and Liabilities. All costs and
expenses incurred by the Company in connection with its activities as the
General Partner hereunder, all costs and expenses incurred by the Company
in connection with its continued corporate existence, qualification as a
real estate investment trust under the Code and otherwise, and all other
liabilities incurred or suffered by the General Partner in connection with
the pursuit of its business and affairs as contemplated hereunder and in
connection herewith, shall be paid (or reimbursed to the Company, if paid
by the Company) by the Partnership unless and to the extent that any such
costs were paid by the Company in connection with the issuance of
additional shares of beneficial interest of the Company as contemplated by
Section 3.3(B) above. Notwithstanding anything to the contrary contained
herein, this Section 9.9 shall apply only to the extent that such costs,
expenses or liabilities exceed any cash distributed to the General Partner
by any wholly-owned subsidiary of the General Partner.
10. Banking. The funds of the Partnership shall be kept in accounts
designated by the General Partner and all withdrawals therefrom shall be made on
such signature or signatures as shall be designated by the General Partner.
11. Accounting.
11.1 Fiscal Year. The fiscal year and taxable year of the
Partnership (the "fiscal year") shall end on the last day of December of
each year, unless another fiscal year end is selected by the General
Partner.
11.2 Books of Account. The Partnership books of account shall be
maintained at the principal office designated in Section 4 above or at such
other locations and by such person or persons as may be designated by the
General Partner. The Partnership shall pay the expense of maintaining its
books of account. Each Partner shall have, during reasonable business
hours and upon reasonable prior notice, access to the books of the
Partnership and in addition, at its expense, shall have the right to copy
such books. The General Partner, at the expense of the Partnership, shall
cause to be prepared and distributed to the Partners annual financial data
sufficient to reflect the status and operations of the Partnership and its
assets and to enable each Partner to file its federal income tax return.
11.3 Method of Accounting. The Partnership books of account shall
be maintained and kept, and its income, gains, losses and deductions shall
be accounted for, in accordance with sound principles of accounting
consistently applied, or such other method of accounting as may be adopted
hereafter by the General Partner. All elections and options available to
the Partnership for Federal or state income tax purposes shall be taken or
rejected by the Partnership in the sole discretion of the General Partner.
11.4 Section 754 Election. In case of a distribution of property
made in the manner provided in Section 734 of the Code (or any similar
provision enacted in lieu thereof),
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or in the case of a transfer of any interest in the Partnership permitted
by this Agreement made in the manner provided in Section 743 of the Code
(or any similar provision enacted in lieu thereof), the General Partner, on
behalf of the Partnership, will file an election under Section 754 of the
Code (or any similar provision enacted in lieu thereof) in accordance with
the procedures set forth in the applicable Regulations.
11.5 Tax Matters Partner. The General Partner is hereby designated
the Tax Matters Partner (hereinafter referred to as the "TMP") of the
Partnership and shall have all the rights and obligations of the TMP under
the Code.
11.6 Administrative Adjustments. If the TMP receives notice of a
Final Partnership Administrative Adjustment (the "FPAA") or if a request
for an administrative adjustment made by the TMP is not allowed by the
United States Internal Revenue Service (the "IRS") and the IRS does not
notify the TMP of the beginning of an administrative proceeding with
respect to the Partnership's taxable year to which such request relates (or
if the IRS so notifies the TMP but fails to mail a timely notice of an
FPAA), the TMP may, but shall not be obligated to, petition a Court for
readjustment of partnership items. In the case of notice of an FPAA, if
the TMP determines that the United States District Court or Claims Court is
the most appropriate forum for such a petition, the TMP shall notify each
person who was a Partner at any time during the Partnership's taxable year
to which the IRS notice relates of the approximate amount by which its tax
liability would be increased (based on such assumptions as the TMP may in
good faith make) if the treatment of partnership items on his return was
made consistent with the treatment of partnership items on the
Partnership's return, as adjusted by the FPAA. Unless each such person
deposits with the TMP, for deposit with IRS, the approximate amount of his
increased tax liability, together with a written agreement to make
additional deposits if required to satisfy the jurisdictional requirements
of the Court, within thirty days after the TMP's notice to such person, the
TMP shall not file a petition in such Court. Instead, the TMP may, but
shall not be obligated to, file a petition in the United States Tax Court.
12. Transfers of Partnership Interests.
A. General Partner. In no event may the General Partner at any time
assign, sell, transfer, pledge, hypothecate or otherwise dispose of all or
any portion of its Partnership Interest, except by operation of law.
B. Limited Partner.
(i) No Limited Partner or substituted Limited Partner shall,
without the prior written consent of the General Partner (which
consent may be given or withheld in the sole discretion of the General
Partner), sell, assign, distribute or otherwise transfer (a
"Transfer") all or any part of his interest in the Partnership, except
(w) by operation of law, testamentary disposition, gift (outright or
in trust) or by sale, in each case to or for the benefit of his
parent(s), spouse or descendants, (x) pledges or other collateral
transfers effected by a Limited Partner to secure the repayment of a
bona
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fide loan or other obligation (a "Pledge") and the subsequent
foreclosure or satisfaction thereof by transfer of such OP Units, (y)
the exchange of OP Units for shares of beneficial interest of the
Company, pursuant to Section 3.2(C) above, and (z) the distribution of
OP Units or Preference Units by a Limited Partner to any of its direct
or indirect constituent partners or owners. Notwithstanding the
foregoing, each such transfer shall be subject to compliance with
restrictions on transferability contained in any other applicable
agreement executed by the transferor and compliance with applicable
securities laws; the General Partner reserves the right to require an
opinion of counsel regarding such matters in form and substance
reasonably acceptable to the General Partner as a condition to any
such Transfer. Neither the conversion of a Preference Unit into one
or more OP Units nor the conversion of OP Unit into a Common Share
constitutes a Transfer. A Limited Partner shall notify the General
Partner of any Transfer of beneficial interest or other interest which
occurs without a transfer of record ownership, as well as any pledge
or other collateral transfer. No part of the interest of a Limited
Partner shall be subject to the claims of any creditor, any spouse for
alimony or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered except as may be specifically
provided for in this Agreement. A Limited Partner shall not be
permitted to retire or withdraw from the Partnership except as
expressly permitted by this Agreement.
(ii) An Assignee, legatee, distributee or other transferee
(whether by conveyance, operation of law or otherwise)(including any
pledgee upon realization of its rights as a secured creditor) (a
"Transferee") of all or any portion of a Limited Partner's interest in
the Partnership shall be entitled to receive Profits, Losses and
distributions hereunder attributable to such interest acquired by
reason of such Transfer, from and after the effective date of the
Transfer of such interest, and Assignees shall have the ability to
exercise the rights granted to Limited Partners under Section 3.2(C),
but shall not have any consent rights with respect to any matter
presented to Limited Partners for approval; provided, however,
anything in this Agreement to the contrary notwithstanding, (a) no
Transfer by a Limited Partner shall be effective until such Transfer
has been consented to by the General Partner except as provided in
Section 12(B)(i); (b) without the prior written consent of the General
Partner, no Transferee shall be considered a substituted Limited
Partner except as provided in Section 12(B)(i)(w) and (z) and, in any
event, until such Transferee shall have agreed to be bound by the
terms of this Agreement and shall have executed a counterpart hereof;
(c) the Partnership and the General Partner shall be entitled to treat
the transferor of such interest as the absolute owner thereof in all
respects, and shall incur no liability for the allocation of Profits
and Losses or distributions which are made to such transferor until
such time as the written instrument of Transfer has been received by
the General Partner and the "effective date" of the Transfer has
passed, (d) the General Partner shall have the right to require any
such transferor to exchange the OP Units to which such interest
relates for Common Shares, pursuant to Section 3.2(C) above, excluding
Pledges of OP Units but including any transfer of the pledged OP
Units, whether to the secured party or otherwise, pursuant to such
party's exercise of its remedies under the Pledge or the related loan
or obligation, and
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(e) an Assignee shall not be bound by any amendments, modifications or
changes to this Agreement that would adversely affect its rights under
Section 3.2(C) or this Section 12(B)(ii) without its consent. The
"effective date" of any Transfer shall be the last day of the month
set forth on the written instrument of Transfer or such other date
consented to in writing by the General Partner as the "effective
date".
(iii) Notwithstanding anything to the contrary contained in this
Section 12(B), (a) in the event a Limited Partner distributes in
dissolution and liquidation all or any portion of its interest in the
Partnership, the partners, shareholders or members (as the case may
be) in such Limited Partner receiving such interest shall become
substituted Limited Partners, and shall (upon agreeing to be bound by
the terms of this Agreement and executing a counterpart hereof and/or
any Preference Unit Terms Sheet or Other Securities Term Sheet)
succeed to the rights, interests and obligations of such Limited
Partner in the Partnership, in proportion to their respective
interests in such Limited Partner, and (b) no Transfer shall be
effective to the extent that such Transfer would, in the opinion of
the General Partner (y) by treating the interest in the Partnership so
transferred as if it had been exchanged for Common Shares in
accordance with Section 3.2(C) above, violate the limitations on
ownership of Common Shares contained in Article VII of the Declaration
of Trust of the Company, or (z) violate any State or Federal
securities laws.
C. Admission Adjustments. The General Partner shall, when necessary,
cause this Agreement to be amended from time to time to reflect the
addition or withdrawal of Partners, and the issuance, conversion and
redemption of any Preference Units and/or OP Units (including the
corresponding adjustments to Percentage Interests).
D. Limitation. Notwithstanding any other provision of this Agreement
to the contrary, no sale, exchange, assignment, or other transfer or
issuance of a Partnership Interest by or to any Partner shall be effective,
if the effect of such transaction would be to cause the General Partner's
Percentage Interest to decrease to a level of fifty percent (50%) or less.
13. Admission of New Partners. The General Partner shall admit to the
Partnership as Limited Partners those persons and entities who are not already
Partners and who receive OP Units and/or Preference Units in accordance with the
provisions of this Agreement.
14. Termination, Liquidation and Dissolution of Partnership.
14.1 Termination Events. The Partnership shall be dissolved and
its affairs wound up in the manner hereinafter provided upon the earliest
to occur of the following events:
(a) December 31, 2080; or
(b) the agreement of those Partners holding at least ninety
percent (90%) of the Percentage Interests of all of the Partners,
determining that the Partnership should be dissolved; or
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(c) subject to Section 14.4 below, the entry of a final judgment,
order or decree of a court of competent jurisdiction adjudicating as
bankrupt either the Partnership or the General Partner, and the
expiration without appeal of the period, if any, allowed by applicable
law to appeal therefrom.
14.2 Method of Liquidation. Upon the happening of any of the
events specified in Section 14.1 above, the General Partner (or if there be
no General Partner, a liquidating trustee selected by those Limited
Partners holding in the aggregate more than fifty percent 50% of the
Percentage Interests held by all Limited Partners) shall immediately
commence to wind up the Partnership's affairs and shall liquidate the
assets of the Partnership as promptly as possible, unless the General
Partner, or the liquidating trustee, shall determine that an immediate sale
of Partnership assets would cause undue loss to the Partnership, in which
event the liquidation may be deferred for a reasonable time. The Partners
shall continue to share Operating Cash Flow, Capital Cash Flow, Profits and
Losses during the period of liquidation in the same proportions as before
dissolution (subject to Section 14.2(C) below). The proceeds from
liquidation of the Partnership, including repayment of any debts of
Partners to the Partnership, shall be applied in the order of priority as
follows:
A. Debts of the Partnership, including repayment of principal
and interest on loans and advances made by the General Partner
pursuant to Sections 3.3 and/or 9.7 above; then
B. To the establishment of any reserves deemed necessary or
appropriate by the General Partner, or by the person(s) winding up the
affairs of the Partnership in the event there is no remaining General
Partner of the Partnership, for any contingent or unforeseen
liabilities or obligations of the Partnership. Such reserves
established hereunder shall be held for the purpose of paying any such
contingent or unforeseen liabilities or obligations and, at the
expiration of such period as the General Partner, or such person(s)
deems advisable, the balance of such reserves shall be distributed in
the manner provided hereinafter in this Section 14.2 as though such
reserves had been distributed contemporaneously with the other funds
distributed hereunder; then
C. To the Partners in accordance with their respective Capital
Account balances, after giving effect to all contributions,
distributions and allocations for all periods. In connection
therewith, the Company, as the holder of Preference Units, shall be
allocated gross income to the extent necessary to cause its Capital
Account balance to equal the amount established in the applicable
Other Securities Term Sheet upon any voluntary or involuntary
dissolution, liquidation or winding up of the Partnership; provided,
that no such gross income allocation shall be made to the Company to
the extent that such allocation would result in any additional Loss
(or item thereof) being allocated to any Obligated Partner.
14.3 Date of Termination. The Partnership shall be terminated when
all notes received in connection with such disposition have been paid and
all of the cash or property
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available for application and distribution under Section 14.2 above (including
reserves) shall have been applied and distributed in accordance therewith.
14.4 Reconstitution Upon Bankruptcy.
A. Notwithstanding any dissolution of the Partnership under
clause (c) of Section 14.1 above, if the Partnership is reconstituted
as set forth in this Section 14.4, then the business of the
Partnership shall be continued with the Partnership's property and the
Partnership's assets shall not be liquidated.
B. If the Partnership is dissolved by reason of the bankruptcy
of the General Partner, a successor general partner may be admitted
within 90 days after the dissolution, effective as of the date of
dissolution, as the General Partner hereunder, with the written
consent of those Limited Partners holding more than 50% of the
aggregate Percentage Interests of all Limited Partners. Upon the
admission of such successor general partner, without any further
consent or approval of any other Partner, the Partnership shall be
reconstituted as a successor limited partnership.
C. If the Partnership is dissolved by reason of the bankruptcy
of the Partnership in a proceeding for the reorganization (and not the
liquidation) of the Partnership, then, with the consent of the Company
and those Limited Partners holding at least fifty percent (50%) of the
Percentage Interests held by all Limited Partners, the Partnership may
be reconstituted within 90 days after dissolution, effective as of the
date of dissolution, whereupon the Partnership shall be reconstituted
as a successor limited partnership.
D. The successor limited partnership reconstituted in accordance
with the foregoing provisions of this Section 14.4 shall continue the
business of the Partnership with the Partnership's property. The
Percentage Interests of the Partners in the successor limited
partnership shall be in proportion to their respective Percentage
Interests in the dissolved Partnership. Such successor limited
partnership shall be governed by the terms and provisions of this
Agreement and references in this Agreement to the Partnership or to
the Partners or their rights and obligations shall be understood to
comprehend such successor limited partnership and the Partners thereof
and their rights and obligations.
14.5 Death, Legal Incompetency, Etc. of a Limited Partner. The
death, legal incompetency, insolvency, dissolution or bankruptcy of a
Limited Partner shall not dissolve or terminate the Partnership. Upon the
death or incapacity of an individual Limited Partner, such individual
Limited Partner's interest in the Partnership shall be transferred either
by will, the laws of intestacy or otherwise to the legal representative or
successor of such individual Limited Partner.
15. Power of Attorney. Each Limited Partner hereby irrevocably
constitutes and appoints the Chairman of the Board of the General Partner (or
the Co-Chairmen acting together if there be
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<PAGE>
more than one), with full power of substitution, its true and lawful attorney,
for him and in his name, place and stead and for his use and benefit, to sign,
swear to, acknowledge, file and record:
(i) this Agreement, and subject to Section 16 below, amendments to
this Agreement;
(ii) any certificates, instruments and documents (including assumed
and fictitious name certificates) as may be required by, or may be
appropriate under, the laws of the State of Illinois or any other State or
jurisdiction in which the Partnership is doing or intends to do business,
in order to discharge the purposes of the Partnership or otherwise in
connection with the use of the name or names used by the Partnership;
(iii) any other instrument which may be required to be filed or
recorded by the Partnership on behalf of the Partners under the laws of any
State or by any governmental agency in order for the Partnership to conduct
its business;
(iv) any documents which may be required to effect the continuation of
the Partnership, the admission of a substitute or additional Partner, or
the dissolution and termination of the Partnership, provided such
continuation, admission or dissolution and termination is not in violation
of any provision of this Agreement; and
(v) any documents which may be required or desirable to have the
General Partner appointed, and act as, the "Tax Matters Partner" as
described in the Code.
The foregoing grant of authority is a special power of attorney coupled with an
interest, is irrevocable and shall survive the death or incapacity of any
individual Limited Partner, and shall survive the delivery of any assignment by
a Limited Partner of the whole or any portion of his interest in the
Partnership.
16. Amendment of Agreement.
A. Each Limited Partner, by his execution of or joinder in this
Agreement, hereby irrevocably appoints the Chairman of the Board of the
General Partner (or the Co-Chairmen acting together if there be more than
one) with power of substitution, as his true and lawful attorney coupled
with an interest, in his name, place and stead to amend this Agreement in
any respect other than:
(i) to enlarge the obligation of any Partner to make
contributions to the capital of the Partnership, as provided for in
Section 3 above; or
(ii) except as otherwise provided for in this Agreement or as
required by law, to modify the allocation of Profits or Losses or
distributions among the Partners as provided for in Section 7 and 8
above, respectively; or
(iii) to amend Sections 1, 3.2, 9.2, or 12; or
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<PAGE>
(iv) to amend this Section 16.
B. With respect to amendments regarding Sections 16(A)(ii) or
16(A)(iii), this Agreement may be amended with the written consent of the
Company, the Zell Partners, and the Starwood Partners or their respective
successors in interest, as applicable, so long as they shall remain
Partners and those Limited Partners holding not less than 67% of the
aggregate of Percentage Interests held by all Limited Partners.
Notwithstanding the foregoing, the terms and conditions of a
particular series of Preference Units may not be changed without the
written consent of the holders of at least 67% of the Preference Units
within the class or series (or such greater percentage as may be provided
for in the applicable Preference Unit Term Sheet or Other Securities Term
Sheet, as the case may be).
C. With respect to amendments regarding Sections 16(A)(i) or (iv),
this Agreement may be amended only with the written consent of all
Partners.
In the event this Agreement shall be amended pursuant to this Section
16, the General Partner shall cause this Agreement to be amended to reflect
the amendment.
17. Miscellaneous.
17.1 Notices. Any notice, election or other communication provided
for or required by this Agreement shall be in writing and shall be deemed
to have been given when delivered by hand or by telecopy or other facsimile
transmission, the first business day after sent by overnight courier (such
as Federal Express), or on the second business day after deposit in the
United States Mail, certified or registered, return receipt requested,
postage prepaid, properly addressed to the Partner to whom such notice is
intended to be given at the address for the Partner set forth on the
signature pages of this Agreement, or at such other address as such person
may have previously furnished in writing to the Partnership and each
Partner with copies to:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza
Suite 1600
Chicago, Illinois 60606
Attention: William C. Hermann
17.2 Modifications. Except as otherwise provided in this
Agreement, no change or modification of this Agreement, nor any waiver of
any term or condition in the future, shall be valid or binding upon the
Partners unless such change or modification shall be in writing and signed
by all of the Partners or, in the case of a waiver of any term or
condition, such waiver shall be in writing and signed by all Partners who
were intended, as determined in the
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<PAGE>
reasonable judgment of the General Partner, to be the primary beneficiaries
of the waived term or condition.
17.3 Successors and Assigns. Any person acquiring or claiming an
interest in the Partnership, in any manner whatsoever, shall be subject to
and bound by all of the terms, conditions and obligations of this Agreement
to which his predecessor-in-interest was subject or bound, without regard
to whether such a person has executed a counterpart hereof or any other
document contemplated hereby. No person, including the legal
representative, heir or legatee of a deceased Partner, shall have any
rights or obligations greater than those set forth in this Agreement, and
no person shall acquire an interest in the Partnership or become a Partner
thereof except as expressly permitted by and pursuant to the terms of this
Agreement. Subject to the foregoing, and the provisions of Section 12
above, this Agreement shall be binding upon and inure to the benefit of the
Partners and their respective successors, assigns, heirs, legal
representatives, executors and administrators. Notwithstanding the
foregoing, the special voting and consent privileges granted to the Zell
Partners and the Starwood Partners contained in Section 3.2(B)(e) and
Article 16 shall be limited to the Zell Partners and the Starwood Partners
for such time as they remain Partners and any Person acquiring Units as a
result of the exercise of remedies by a pledgee of Units held by such
Partner and shall not be transferred to each Partners' respective
successor-in-interest.
17.4 Duplicate Originals. For the convenience of the Partners, any
number of counterparts hereof may be executed, and each such counterpart
shall be deemed to be an original instrument, and all of which taken
together shall constitute one agreement.
17.5 Construction. The titles of the Sections and subsections
herein have been inserted as a matter of convenience of reference only and
shall not control or affect the meaning or construction of any of the terms
or provisions herein.
17.6 Governing Law. This Agreement shall be governed by the laws
of the State of Illinois. Except to the extent the Act is inconsistent
with the provisions of this Agreement, the provisions of such Act shall
apply to the Partnership.
17.7 Other Instruments. The parties hereto covenant and agree that
they will execute such other and further instruments and documents as, in
the opinion of the General Partner, are or may become necessary or
desirable to effectuate and carry out the Partnership as provided for by
this Agreement.
17.8 General Partner with Interest as Limited Partner. If the
General Partner ever has an interest as a Limited Partner in the
Partnership, the General Partner shall, with respect to such interest,
enjoy all of the rights and be subject to all of the obligations and duties
of a Limited Partner.
17.9 Legal Construction. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision
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<PAGE>
hereof and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
17.10 Gender. Whenever the context shall so require, all words
herein in any gender shall be deemed to include the masculine, feminine or
neuter gender, all singular words shall include the plural, and all plural
words shall include the singular.
17.11 Prior Agreements Superseded. Except for joinders, term sheets
and/or addendums that have been made or will be made and are deemed to be
incorporated by reference herein and made a part hereof, this Agreement
supersedes any prior understandings or written or oral agreements amongst
the Partners, or any of them, respecting the within subject matter and
contains the entire understanding amongst the Partners with respect
thereto.
17.12 No Third Party Beneficiary. The terms and provisions of this
Agreement are for the exclusive use and benefit of General Partner and the
Limited Partners and shall not inure to the benefit of any other person or
entity.
17.13 Purchase for Investment. Each Partner represents, warrants and
agrees that it has acquired and continues to hold its interest in the
Partnership for its own account for investment only and not for the purpose
of, or with a view toward, the resale or distribution of all or any part
thereof, nor with a view toward selling or otherwise distributing such
interest or any part thereof at any particular time or under any
predetermined circumstances. Each Partner further represents and warrants
that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds it has invested in the Partnership in what
it understands to be a highly speculative and illiquid investment.
17.14 Waiver. No consent or waiver, express or implied, by any
Partner to or of any breach or default by any other Partner in the
performance by such other Partner of its obligations hereunder shall be
deemed or construed to be a consent to or waiver of any other breach or
default in the performance by such other Partner of the same or any other
obligations of such Partner hereunder. Failure on the part of any Partner
to complain of any act or failure to act on the part of any other Partner
or to declare any other Partner in default, irrespective of how long such
failure continues, shall not constitute a waiver by such Partner of its
rights hereunder.
17.15 Time of Essence. Time is hereby expressly made of the essence
with respect to the performance by the parties of their respective
obligations under this Agreement.
17.16 Counterparts. This Agreement may be executed in one or more
counterparts, which when taken together, shall constitute but one original.
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<PAGE>
IN WITNESS WHEREOF, the General Partner (on behalf of itself and as
attorney-in-fact for the Limited Partners pursuant to Section 16 hereof) has
executed this Amendment as of the date first written above.
GENERAL PARTNER:
EQUITY RESIDENTIAL PROPERTIES TRUST, a
Maryland real estate investment trust
By:
-------------------------------------
Douglas Crocker II
Title: Chief Executive Officer and
President
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<PAGE>
SCHEDULE A
----------
LIMITED PARTNER
515 Lake-Two Lakes General Partnership
E-BS Associates
E-FH-One, Inc.
E-FH-Two , Inc.
E-FH-Three, Inc.
E-G-Three Associates
E-QR Associates
E-SD Associates
E-V-One Associates
E-V-Two Associates
E-V-Three Associates
FC Partnership, Ltd.
FU Associates
Hidden Valley Joint Venture
Mallgate Investors
Maxwell Apartments Limited Partnership
SE Continental Villas Limited Partnership
SE Governor's Place Associates Limited Partnership
SE Plantation Limited Partnership
Southeastern Properties Associates
Arlington-Temple Terrace General Partnership
The Lakes, Ltd.
Valley Park South Apartments Investors
E-Chaparral, Inc.
E-Stonebrook, Inc.
E-G-One, Inc.
E-G-Two, Inc.
E-Lodge, Inc.
First Capital Grave Dancer I
Equity Financial Investment Company
Equity Properties Management Corp.
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<PAGE>
SCHEDULE B
----------
LIMITED PARTNER
Sofistar I Limited Partnership,
a Delaware limited partnership
SCP Nashville Partners, L.P.
- ----------------------------
Starwood Opportunity Fund I, L.P.,
- ----------------------------------
a Delaware limited partnership
- -------------------------------
Starwood Opportunity Fund IA, L.P.,
- -----------------------------------
a Delaware limited partnership
------------------------------
Starwood Mortgage Investors III, Inc.,
a Delaware corporation
Breton/Hammocks Limited Partnership,
a Delaware limited partnership
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<PAGE>
SCHEDULE C
----------
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<PAGE>
SCHEDULE D
----------
OBLIGATED PARTNERS
------------------
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<PAGE>
DETACH HERE
CONSENT OF LIMITED PARTNER OF
ERP OPERATING LIMITED PARTNERSHIP
This Consent is solicited on behalf of Equity Residential Properties Trust
("EQR"), the General Partner of ERP Operating Limited Partnership, an Illinois
limited partnership ("ERP"). To consent, withhold consent or abstain with
respect to all the Amendments (as defined on the reverse side), please use Box
I. To consent, withhold consent or abstain with respect to particular
Amendments, please use Box II.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE CONSENT SOLICITATION.
The undersigned hereby revokes any previous consent or consents given with
respect to the subject matter of this consent.
THIS CONSENT, WHEN PROPERLY EXECUTED, WILL BE ACTED UPON IN THE MANNER
DIRECTED HEREIN BY THE LIMITED PARTNER. A SIGNED BUT UNMARKED CONSENT CARD WILL
BE DEEMED TO CONSENT TO THE PROPOSAL SET FORTH ON THE REVERSE SIDE.
[SEE REVERSE CONTINUED TO BE SIGNED ON REVERSE SIDE [SEE REVERSE
SIDE] SIDE]
DETACH HERE
[X] Please mark
votes as in
this example.
- --------------------------------------------------------------------------------
1. To consent, withhold consent or abstain with respect to all the Amendments,
please check the appropriate box.
The undersigned, a holder of units of limited partnership interest of ERP
("OP Units"), acting with respect to all of the OP Units held by the
undersigned, hereby:
WITHHOLDS
CONSENTS CONSENTS ABSTAINS
[ ] [ ] [ ]
to all of the amendments requiring the consent of the limited partners of ERP
contained in the form of the Fifth Amended and Restated ERP Operating Limited
Partnership Agreement of Limited Partnership (the "Amendments"), as set forth
in Appendix A to the Consent Solicitation/Information Statement dated
June 30, 1998 (the "Consent Solicitation")
- --------------------------------------------------------------------------------
II. To consent, withhold consent or abstain with respect to particular
Amendments, please check the appropriate boxes. Do NOT check any boxes set
forth below if you have consented, withheld consent or abstained in the box
at left; in such case any checkmarks below will be invalid and disregarded.
WITHHOLDS
CONSENTS CONSENTS ABSTAINS
2. Deficit Restoration Amendments [ ] [ ] [ ]
3. Successor Amendments [ ] [ ] [ ]
4. Unit Calculation Amendments [ ] [ ] [ ]
5. Market Price Amendments [ ] [ ] [ ]
6. Shareholders' Rights Amendments [ ] [ ] [ ]
7. Pledgee Amendments [ ] [ ] [ ]
8. Assignee Amendments [ ] [ ] [ ]
Please sign exactly as you hold your OP Units. When signing as an attorney,
administrator, officer, partner, trustee or guardian, please give your full
title. If an interest is jointly held, each holder should sign.
Please sign and date and return promptly in the enclosed envelope. No postage
need be affixed if mailed in the United States.
Signature: Date:
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Signature: Date:
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