SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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ERP OPERATING LIMITED PARTNERSHIP
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PRELIMINARY COPY
[EQR LOGO]
June __, 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 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 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.
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,
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 , 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.
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 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.
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. 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.
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 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 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.
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 interest 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.
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 report 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 as the "Market Price Amendments."
REASONS. The General Partner believes that it is in the best interest
of the Limited Partners to provide more certainty as to the definition of the
Market Price for the purposes of Section 3.2(C). This amendment provides that
the 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."
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.
- - - 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 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.
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 , 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
Partners) (collectively, the "Required Consent"). On ,
1998, Limited Partners held a total of OP Units. Accordingly,
approval of the Amendments requires the affirmative consent of the Zell
Partners, the Starwood Partners and Limited Partners holding
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.
OP UNITS BENEFICIALLY OWNED
<TABLE>
<CAPTION>
NAME AND BUSINESS PERCENT OF CLASS
ADDRESS OF BENEFICIAL OWNER AMOUNT(1)
<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 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 McHugh, telephone (312) 474-1300. OP Units are not
listed or authorized for listing on any national or regional securities
exchange.
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 Definitions ............................................. 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-16
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-19
7.4 Curative Allocations .................................... A-21
7.5 Tax Allocations: Code Section 704(c) .................... A-22
8. Cash Available For Distribution. ............................. A-22
8.1 Operating Cash Flow ..................................... A-22
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-25
9.3 Limited Partners ........................................ A-26
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-26
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-28
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-29
11.6 Administrative Adjustments .............................. A-29
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-32
14.3 Date of Termination ..................................... A-33
14.4 Reconstitution Upon Bankruptcy ..................... A-33
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-35
17.1 Notices ................................................. A-36
17.2 Modifications ........................................... A-36
17.3 Successors and Assigns .................................. A-36
17.4 Duplicate Originals ..................................... A-36
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-37
17.11 Prior Agreements Superseded ............................ A-37
17.12 No Third Party Beneficiary ............................. A-37
17.13 Purchase for Investment ................................ A-37
17.14 Waiver ................................................. A-38
17.15 Time of Essence ........................................ A-38
17.16 Counterparts ........................................... A-38
SCHEDULE A - LIMITED PARTNER
SCHEDULE B - LIMITED PARTNER
SCHEDULE C -
SCHEDULE D - OBLIGATED PARTNERS
<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
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 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.
"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:
(i) 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;
(ii) 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;
(iii) 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
(iv) 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.
"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 Partnership
Interest of an Obligated Partner shall be considered an Obligated
Partner. A Partner shall not be an Obligated Partner without such
Partner's consent in writing.
"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.
"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.
"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.
"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.
"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 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). The Restoration Amount of a Partner shall
be only the amount to which the Obligated Partner has consented in
writing.
"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.
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:
(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;
(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 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 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
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 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.
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 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
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 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.
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 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) 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.
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 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 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.
(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 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, 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 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), 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 fide loan or other
obligation, (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,
(y) no Transferee shall be considered a substituted Limited
Partner except as provided in Section 12(B)(i)(w) and (z) 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, and (e) an Assignee
shall not be bound by any amendments, modifications or changes to
this Agreement that would adversely affect its rights under 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
(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.
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 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 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
(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 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
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.
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
<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.
<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
<PAGE>
SCHEDULE C
<PAGE>
SCHEDULE D
OBLIGATED PARTNERS
<PAGE>
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 BELOW), PLEASE USE
BOX I. TO CONSENT, WITHHOLD CONSENT OR ABSTAIN WITH RESPECT TO PARTICULAR
AMENDMENTS, PLEASE USE BOX II.
I. 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:
[ ] Consents
[ ] Withholds Consent
[ ] 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 May__, 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 ABOVE BOX.
The undersigned, acting with respect to all of the OP Units held by
the undersigned, hereby consents to the following Amendments, each
as defined in the Consent Solicitation:
<TABLE>
<S> Amendment Withholds Consents Abstains
Consent
<C> <C> <C> <C>
Deficit Restoration Amendments
Successor Amendments
Unit Calculation Amendments
Market Price Amendments
Shareholders' Rights Amendments
Assignee Amendments
Plegee Amendments
</TABLE>
<PAGE>
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.
Date: _______________, 1998 By: _______________________________________
_______________________________________
Please Print
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 ABOVE.
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.
