-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HThcxFlc0xprNVS1qHRIpdSDl8Vg8JoP2XitW7tCZxhB8dE2Zwa8T6+OiMgZNW9B bRsElMgPtQ7xP32NpqnOpg== 0000950131-97-001984.txt : 19970329 0000950131-97-001984.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950131-97-001984 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 DATE AS OF CHANGE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITY RESIDENTIAL PROPERTIES TRUST CENTRAL INDEX KEY: 0000906107 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 363877868 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12252 FILM NUMBER: 97560658 BUSINESS ADDRESS: STREET 1: TWO N RIVERSIDE PLZ STREET 2: STE 400 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124741300 MAIL ADDRESS: STREET 1: TWO N RIVERSIDE PLAZA STREET 2: SUITE 450 CITY: CHICAGO STATE: IL ZIP: 60606 10-K 1 FORM 10-K FOR EQUITY RESIDENTIAL PROPERTIES TRUST FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-12252 EQUITY RESIDENTIAL PROPERTIES TRUST (Exact Name of Registrant as Specified in Its Charter) MARYLAND 36-3877868 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) Two North Riverside Plaza, Chicago, Illinois 60606 (Address of Principal Executive Offices) (Zip Code) (312) 474-1300 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Common Shares of Beneficial Interest, New York Stock Exchange $0.01 Par Value (Name of Each Exchange (Title of Class) on Which Registered) Preferred Shares of Beneficial Interest, New York Stock Exchange $0.01 Par Value (Name of Each Exchange (Title of Class) on Which Registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting shares held by non-affiliates was approximately $2.4 billion based upon the closing price on March 19, 1997 of $47.50 using beneficial ownership of shares rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting shares owned by Trustees and Officers, some of whom may not be held to be affiliates upon judicial determination. At March 20, 1997 51,769,001 of the Registrant's Common Shares of Beneficial Interest were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part II incorporates by reference the Registrant's Current Report on Form 8-K dated March 1, 1996 and filed on March 7, 1996. Part IV incorporates by reference the following exhibits as filed with the Company's Form S-11 on May 21, 1993 (Registration No. 33-63158) and as amended thereafter: Exhibit 2.1, 2.2, 3.1, 3.2, 10.1, 10.1A, 10.2, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9, 10.11, 10.12, 10.14 and 10.15. Part IV incorporates by reference the following exhibits as filed with the Company's Form S-11 on November 23, 1993 (Registration No. 33-72080) and as amended thereafter: Exhibit 10.16, 10.16A, 10.17, and 10.17A. Part IV incorporates by reference the following exhibits as filed with the Company's Form S-11 on June 17, 1994 (Registration No. 33-80420) and as amended thereafter: Exhibit 10.10 and 10.14A. Part IV incorporates by reference the following exhibits as filed with the Operating Partnership's Form 10 on October 7, 1994 (Registration No. 0-24920) and as amended thereafter: Exhibit 4.1, 4.2, 10.1B, 10.13, 10.18 and 10.19. Part IV incorporates by reference the following exhibit as filed with the Operating Partnership's Form 10-Q for the quarter ended September 30, 1995 on November 9, 1995 and as amended thereafter: Exhibit 10.1C. Part IV incorporates by reference the following exhibits as filed with the Operating Partnership's Form 10-k on March 16, 1995 and as amended thereafter: Exhibit 3.1A and 10.3. Part IV incorporates by reference the following exhibit as filed with the Company's Form 10-K for the year ended December 31, 1995 on March 18, 1996 and as amended thereafter: Exhibit 4.3. 2 PART I EQUITY RESIDENTIAL PROPERTIES TRUST TABLE OF CONTENTS
PAGE ---- PART I. Item 1. Business 4 Item 2. Properties 11 Item 3. Legal Proceedings 27 Item 4. Submission of Matters to a Vote of Security Holders 27 PART II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 28 Item 6. Selected Financial Data 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Item 8. Financial Statements and Supplementary Data 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40 PART III. Item 10. Trustees and Executive Officers of the Registrant 41 Item 11. Executive Compensation 45 Item 12. Security Ownership of Certain Beneficial Owners and Management 52 Item 13. Certain Relationships and Related Transactions 56 PART IV. Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 60
3 PART I Item 1. Business General Equity Residential Properties Trust (the "Company") is a self-administered and self-managed equity real estate investment trust ("REIT"). The Company was organized in March 1993 and commenced operations on August 18, 1993 upon completion of its initial public offering (the "IPO") of 13,225,000 common shares of beneficial interest, $0.01 par value per share ("Common Shares"). The Company was formed to continue the multifamily property business objectives and acquisition strategies of certain affiliated entities controlled by Mr. Samuel Zell, Chairman of the Board of Trustees of the Company. These entities had been engaged in the acquisition, ownership and operation of multifamily residential properties since 1969. The Company, through its subsidiaries, which include ERP Operating Limited Partnership (the "Operating Partnership"), Equity Residential Properties Management Limited Partnership and Equity Residential Properties Management Limited Partnership II (collectively, the "Management Partnerships"), a series of partnerships (the "Financing Partnerships") and limited liability companies ("LLCs") which beneficially own certain properties encumbered by mortgage indebtedness, is the successor to the multifamily property business of Equity Properties Management Corp. ("EPMC"), an entity controlled by Mr. Zell, and a series of other entities which owned 69 of the multifamily properties contributed at the time of the Company's IPO (the "Initial Properties"). As of December 31, 1996, the Company owned or had interests in 239 multifamily properties of which it controlled a portfolio of 218 multifamily properties (individually, a "Property" and collectively, the "Properties") containing 67,705 units, including 61 of the Initial Properties. The remaining 21 properties represent an investment in partnership interests and subordinated mortgages collateralized by 21 properties (the "Additional Properties") containing 3,896 units, which units are property managed by a third party unaffiliated entity. The Company's Properties and the Additional Properties are located throughout the United States in the following states: Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, Nevada, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia and Washington. In addition, Equity Residential Properties Management Corp. ("Management Corp.") and Equity Residential Properties Management Corp. II ("Management Corp. II") also provide residential property and asset management services to 40 properties containing 13,054 units owned by affiliated entities. The Company is, together with the Operating Partnership, one of the largest publicly traded REITs based on the aggregate market value of its outstanding Common Shares) and is the largest publicly traded REIT owner of multifamily properties (based on the number of apartment units owned and total revenues earned.). Since the Company's IPO and through December 31, 1996, the Company, through the Operating Partnership, has acquired direct or indirect interests in 160 properties (which included the debt collateralized by six Properties) containing 49,679 units in the aggregate for a total purchase price of approximately $2.4 billion, including the assumption of approximately $554.2 million of 4 PART I mortgage indebtedness. The Company also made an $89 million investment in partnership interests and subordinated mortgages collateralized by the Additional Properties. Since the IPO, the Company has disposed of 11 of its properties containing 3,699 units for a total sales price of approximately $93.3 million and the release of mortgage indebtedness in the amount of $20.5 million. The Company's corporate headquarters and executive offices are located in Chicago, Illinois. In addition, the Company has regional operations centers in Chicago, Illinois; Dallas, Texas; Denver, Colorado; Seattle, Washington; Tampa, Florida and Bethesda, Maryland and area offices in Atlanta, Georgia; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; San Antonio and Houston, Texas; Ypsilanti, Michigan; Raleigh, North Carolina; Ft. Lauderdale, Florida and Irvine, California. The Company has 2,189 full-time employees (1,944 of which are on site at the Properties). Each of the Company's Properties is directed by an on-site manager, who supervises the on-site employees and is responsible for the day-to-day operations of the Property. The manager is generally assisted by a leasing administrator and/or property administrator. In addition, a maintenance director at each Property supervises a maintenance staff whose responsibilities include a variety of tasks, including responding to service requests, preparing vacant apartments for the next resident and performing preventive maintenance procedures year-round. Business Objectives and Operating Strategies The Company seeks to maximize both current income and long-term growth in income, thereby increasing: (i) the value of the Properties; (ii) distributions on a per Common Share basis; and (iii) shareholders' value. The Company's strategies for accomplishing these objectives are: . maintaining and increasing Property occupancy while increasing rental rates; . controlling expenses, providing regular preventive maintenance, making periodic renovations and enhancing amenities; . maintaining a ratio of consolidated debt-to-total market capitalization of less than 50%; and . pursuing acquisitions that: (i) are available at prices below estimated replacement costs; (ii) have potential for rental rate and/or occupancy increases; (iii) have attractive locations in their respective markets; and (iv) provide anticipated total returns that will increase the Company's distributions per Common Share and the Company's overall market value. The Company is committed to tenant satisfaction by striving to anticipate industry trends and implementing strategies and policies consistent with providing quality tenant services. In addition, the Company continuously surveys rental rates of competing properties and conducts satisfaction surveys of residents to determine the factors they consider most important in choosing a particular apartment unit. 5 PART I Acquisition Strategies The Company anticipates that future property acquisitions will be located in the continental United States. Management will continue to use market information to evaluate acquisition opportunities. The Company's market data base allows it to review the primary economic indicators of the markets where the Company currently manages Properties and where it expects to expand its operations. Acquisitions may be financed from various sources of capital, which may include undistributed funds from operations ("FFO"), issuance of additional equity securities, sales of Properties and collateralized and uncollateralized borrowings. In addition, the Company may acquire additional multifamily properties in transactions that include the issuance of limited partnership interests in the Operating Partnership ("OP Units") as consideration for the acquired properties. Such transactions may, in certain circumstances, partially defer the sellers' tax consequences. When evaluating potential acquisitions, the Company will consider: (i) the geographic area and type of community; (ii) the location, construction quality, condition and design of the property; (iii) the current and projected cash flow of the property and the ability to increase cash flow; (iv) the potential for capital appreciation of the property; (v) the terms of resident leases, including the potential for rent increases; (vi) the potential for economic growth and the tax and regulatory environment of the community in which the property is located; (vii) the occupancy and demand by residents for properties of a similar type in the vicinity (the overall market and submarket); (viii) the prospects for liquidity through sale, financing or refinancing of the property; and (ix) competition from existing multifamily properties and the potential for the construction of new multifamily properties in the area. The Company expects to purchase multifamily properties with physical and market characteristics similar to the Properties. Disposition Strategies Management will use market information to evaluate dispositions. Factors the Company considers in deciding whether to dispose of its Properties include the following: (i) the amount of increases in new construction; (ii) areas where the economy is expected to decline substantially; and (iii) markets where the Company does not intend to establish long-term concentrations. The Company will reinvest the proceeds received from property dispositions to fund property acquisitions. In addition, when feasible the Company will structure these transactions as tax deferred exchanges. Financing Strategies The Company intends to maintain a ratio of consolidated debt-to-total market capitalization of 50% or less. At December 31, 1996, the Company had a ratio of approximately 31% based on the closing price of the Company's Common Shares on the New York Stock Exchange and assuming conversion of all OP Units plus the liquidation preference of non-voting preferred shares of beneficial interest, $0.01 par value per share ("Preferred Shares"). 6 PART I Equity Offerings - - ---------------- In January 1994, the Company completed a public offering of 5,750,000 Common Shares (the "Second Public Offering") at $29.00 per share and received net proceeds of approximately $157.4 million in connection therewith. In June 1994, the Company concluded a private placement of 1,569,270 Common Shares to six accredited institutional investors (the "Private Equity Offering") and received net proceeds of approximately $47 million in connection therewith. The prices at which the Common Shares were sold ranged from $29.43 to $32.87. In July 1994, the Company completed a public offering of 9,200,000 Common Shares (the "Third Public Offering") at $31.25 per share and received net proceeds of approximately $271.7 million in connection therewith. In September 1994, the Company registered 5,000,000 Common Shares pursuant to an equity shelf registration statement (the "Equity Shelf Registration") of which 2,735,320 registered Common Shares were sold in separate transactions completed in October 1994 (collectively, the "Shelf Offering"). The Company received net proceeds of approximately $81 million in connection therewith. The prices at which the Common Shares were sold ranged from $29.34 to $30.17. In June 1995, the Company sold 6,120,000 of its 9 3/8% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share (liquidation preference $25 per share) (the "Series A Preferred Shares"), pursuant to a $250 million shelf registration (the "Preferred Shelf Registration"), at $25 per share. The Company raised gross proceeds of $153 million from this offering (the "Series A Preferred Share Offering"). On September 11, 1995, the Company filed with the Securities and Exchange Commission (the "SEC") a Form S-3 Registration Statement to register up to $500 million of Preferred Shares, Common Shares and depositary shares, pursuant to a shelf offering (the "Second Shelf Registration"). In November 1995, the Company sold 5,000,000 depositary shares (the "Series B Depositary Shares") pursuant to the Second Shelf Registration. Each Series B Depositary Share represents a 1/10 fractional interest in a 9 1/8% Series B Cumulative Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share (the "Series B Preferred Shares"). The liquidation preference of each of the Series B Preferred Shares is $250.00 (equivalent to $25 per Series B Depositary Share). The Company raised gross proceeds of approximately $125 million from the sale of the Series B Depositary Shares. In January 1996, the Company completed an offering of 1,725,000 registered Common Shares, which were sold at a net price of $29.375 per share (the "January 1996 Common Share Offering") and received net proceeds of approximately $50.7 million in connection therewith. In February 1996, the Company completed an offering of 2,300,000 registered Common Shares, which were sold at a net price of $29.50 per share (the "February 1996 Common Share Offering") and received net proceeds of approximately $67.8 million in connection therewith. 7 PART I On May 21, 1996, the Company completed an offering of 2,300,000 publicly registered Common Shares, which were sold at a net price of $30.50 per share. On May 28, 1996 the Company completed the sale of 73,287 publicly registered Common Shares to employees of the Company and to employees of Equity Group Investments, Inc. ("EGI") and certain of their respective affiliates and consultants at a net price equal to $30.50 per share. On May 30, 1996, the Company completed an offering of 1,264,400 publicly registered Common Shares, which were sold at a net price of $30.75 per share. The Company received net proceeds of approximately $111.3 million in connection with the sale of the 3,637,687 Common Shares mentioned above (collectively, the "May 1996 Common Share Offerings"). In September 1996, the Company sold 4,600,000 depositary shares (the "Series C Depositary Shares") pursuant to the Second Shelf Registration. Each Series C Depositary Share represents a 1/10 fractional interest in a 9 1/8% Series C Cumulative Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share (the "Series C Preferred Shares"). The liquidation preference of each of the Series C Preferred Shares is $250.00 (equivalent to $25 per Series C Depositary Share). The Company raised gross proceeds of $115 million from this offering (the "Series C Preferred Share Offering"). On September 18, 1996, the Company filed with the SEC a Form S-3 Registration Statement to register $500 million of equity securities (the "1996 Equity Shelf Registration"). Also in September 1996, the Company completed the sale of 2,272,728 publicly registered Common Shares which were sold at net price of $33 per share. The Company received net proceeds of approximately $75 million in connection with this offering (the "September 1996 Common Share Offering"). In November 1996, the Company issued 39,458 Common Shares pursuant to the 1996 Nonqualified Employee Share Purchase Plan at a net price of $30.44 and received net proceeds of approximately $1.2 million. In December 1996, the Company completed offerings of 4,440,000 publicly registered Common Shares, which were sold to the public at a price of $41.25 per share (the "December 1996 Common Share Offerings"). The Company received net proceeds of approximately $177.4 million. Debt Offerings - - -------------- In May 1994, the Operating Partnership issued $125 million of 8 1/2% unsecured notes due May 15, 1999 (the "1999 Notes") guaranteed by the Company in a private placement (the "Debt Offering") to qualified institutional buyers as defined in Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"). The Operating Partnership received net proceeds of $122.9 million in connection with the Debt Offering. 8 PART I In December 1994, the Operating Partnership registered $500 million in debt securities pursuant to a debt shelf registration statement (the "Debt Shelf Registration") of which $100 million of floating rate notes due December 22, 1997 (the "Floating Rate Notes") were issued by the Operating Partnership on December 21, 1994 (the "Public Debt Offering"). The Operating Partnership received net proceeds of $98.6 million in connection with the Public Debt Offering. The Floating Rate Notes bear interest at three month London Interbank Offered Rate ("LIBOR") plus 0.75%. In April 1995, the Operating Partnership issued $125 million of 7.95% unsecured fixed rate notes (the "2002 Notes") pursuant to the Debt Shelf Registration in a public debt offering (the "Second Public Debt Offering"). The Operating Partnership received net proceeds of approximately $123.1 million in connection with the Second Public Debt Offering. In August 1996, the Operating Partnership issued $150 million of 7.57% unsecured fixed rate notes (the "2026 Notes") in connection with the Debt Shelf Registration in a public debt offering (the "Third Public Debt Offering"). The Operating Partnership received net proceeds of approximately $149 million in connection with this issuance. On September 18, 1996, the Operating Partnership filed with the SEC a Form S-3 Registration Statement to register $500 million of debt securities (the "1996 Debt Shelf Registration"). Credit Facility The Company, through the Operating Partnership, had a $250 million unsecured line of credit with Wells Fargo Realty Advisors Funding Incorporated, as agent, through November 14, 1996. On November 15, 1996, the Company completed an agreement with Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and Bank of America Illinois ("Bank of America") to provide the Company a $250 million unsecured line of credit. This new line of credit matures in November 1999 and borrowings generally will bear interest at a per annum rate of one, two, three or six month LIBOR, plus 0.75%, and is subject to an annual facility fee of $500,000. As of December 31, 1996, there were no amounts outstanding on this line of credit. Recent Developments In January 1997, the Company acquired three properties from unaffiliated third parties for a total purchase price of approximately $44.6 million, which included the assumption of mortgage indebtedness of approximately $20.2 million. These properties were Town Center, a 258-unit property located in Kingwood, Texas; Harborview, a 160-unit property located in San Pedro, California and The Cardinal, a 256-unit property located in Greensboro, North Carolina. On January 16, 1997 the Company entered into an Agreement and Plan of Merger regarding the planned acquisition of the multifamily property business of Wellsford Residential Property Trust ("Wellsford"), a Maryland real estate investment trust, through the tax free merger of the Company and Wellsford (the "Merger"). The transaction is valued at approximately $1 billion and 9 PART I includes 75 multifamily properties containing 19,004 units. In the Merger, each outstanding common share of beneficial interest of Wellsford will be converted into .625 of a Common Share of the Company, assuming the market price of a Common Share remains in excess of $40. The Merger plans call for the issuance of approximately 10.7 million new common shares valued at approximately $464 million based on the Company's January 16, 1997 closing price of $43.375 and requires the assumption of all Wellsford outstanding debt of approximately $332 million and of approximately $158 million in preferred shares. In February 1997, the Company acquired four properties from unaffiliated third parties for a total purchase price of approximately $90.5 million, which included the assumption of mortgage indebtedness of approximately $30.6 million. These properties were Trails at Dominion, a 843-unit multifamily property located in Houston, Texas; Dartmouth Woods, a 201-unit property located in Denver, Colorado; Rincon Apartments, a 288-unit property located in Houston, Texas; and Waterford at the Lakes, a 344-unit property located in Kent, Washington. In March 1997, the Company acquired one property from an unaffiliated third party for a total purchase price of approximately $9.15 million. This property was Junipers at Yarmouth, a 225-unit property located in Yarmouth, Maine. As of March 20, 1997, the Company completed offerings of 938,800 publicly registered Common Shares, which were sold at a net price of $46 per share. The Company received net proceeds of approximately $43.2 million in connection with these offerings (the "March 1997 Common Share Offerings"). Competition All of the Properties are located in developed areas that include other multifamily properties. The number of competitive multifamily properties in a particular area could have a material effect on the Company's ability to lease units at the Properties or at any newly acquired properties and on the rents charged. The Company may be competing with other entities that have greater resources than the Company and whose managers have more experience than the Company's officers and trustees. In addition, other forms of multifamily properties, including multifamily properties and manufactured housing controlled by Mr. Zell, and single-family housing, provide housing alternatives to potential residents of multifamily properties. Tax Status The Company has elected to be taxed as a REIT under Section 856(c) of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its taxable year ending December 31, 1993. As a result, the Company generally will not be subject to Federal income tax to the extent it distributes 95% of its taxable income to its shareholders. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any year, its taxable income may be subject to income tax at regular corporate rates (including any applicable alternative minimum tax). Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and excise taxes on its undistributed income. 10 PART I Item 2. The Properties As of December 31, 1996, the Company controlled a portfolio of 218 multifamily properties located in 30 states consisting of 5,198 buildings containing 67,705 apartment units. The average number of units per Property was approximately 311. The units are typically contained in a series of two-story buildings. The Properties contain an aggregate of 59.5 million rentable square feet, with an average unit size of 878 square feet. The average rent per unit was $673 and the average rent per square foot was $0.77. As of December 31, 1996, the Properties had an average occupancy rate of 95%. Tenant leases are generally year-to-year and require security deposits. The Properties typically provide residents with attractive amenities, which may include a clubhouse, swimming pool, laundry facilities and cable television access. Certain Properties offer additional amenities such as saunas, whirlpools, spas, sports courts and exercise rooms. The Company believes that the Properties provide amenities and common facilities that create an attractive residence for tenants. It is management's role to monitor compliance with Property policies and to provide preventive maintenance of the Properties including common areas, facilities and amenities. The Company holds periodic meetings of its Property management personnel for training and implementation of the Company's strategies. The Company believes that, due in part to this strategy, the Properties historically have had high occupancy rates. The distribution of the Properties throughout the United States reflects the Company's belief that geographic diversification helps insulate the portfolio from regional and economic influences. At the same time, the Company has sought to create clusters of Properties within each of its primary markets in order to achieve economies of scale in management and operation; however, the Company may acquire additional multifamily properties located anywhere in the United States. The Company beneficially owns fee simple title to 211 of the Properties and holds a 73-year leasehold interest with respect to one Property (Mallgate). Direct fee simple title for certain of the Properties is owned by single-purpose nominee corporations or land trusts that engage in no business other than holding title to the Property for the benefit of the Company. Holding title in such a manner is expected to make it less costly to transfer such Property in the future in the event of a sale and should facilitate financing, since lenders often require title to a Property to be held in a single purpose entity in order to isolate that Property from potential liabilities of other Properties. Direct fee simple title for certain other Properties is owned by an LLC. In addition, with respect to two Properties, the Company owns the debt collateralized by such Properties and with respect to four Properties, the Company owns an interest in the debt collateralized by the Properties. As of December 31, 1996, the Company had an investment in partnership interests and subordinated mortgages collateralized by the Additional Properties. The Additional Properties consisted of 578 buildings containing 3,896 units, located in four states. The following two tables set forth certain information relating to the Properties and the Additional Properties: 11 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ ARIZONA Bay Club, Phoenix (1) 1976 22 13 420 257,790 614 96% $493 $0.80 Camellero, Scottsdale (1) 1979 33 15 344 311,526 906 94% $722 $0.80 Canyon Creek, Tuscan 1986 15 10 242 169,946 702 97% $473 $0.67 Canyon Sands, Phoenix (1) 1983 38 20 412 353,592 858 91% $560 $0.65 Chandler Court, Chandler 1987 33 20 311 263,338 847 95% $613 $0.72 Crystal Creek, Phoenix 1985 24 10 273 190,140 696 97% $559 $0.80 Del Coronado, Mesa (1) 1985 43 19 419 394,062 940 95% $609 $0.65 Desert Sands, Phoenix (1) 1982 39 20 412 353,592 858 91% $560 $0.65 Flying Sun, Phoenix (1) 1983 10 4 108 93,708 868 97% $553 $0.64 Fountain Creek, Phoenix 1984 20 9 186 144,374 776 94% $600 $0.77 Indian Bend, Scottsdale 1973 8 14 275 226,444 823 97% $675 $0.82 Southbank, Mesa 1985 13 5 113 99,448 880 98% $552 $0.63 Southcreek, Mesa (1) 1986-89 66 23 528 472,152 894 95% $650 $0.73 Via Ventura, Scottsdale 1980 22 19 320 279,187 872 71% $712 $0.82 Villa Madeira, Scottsdale 1971 39 17 332 291,280 877 95% $692 $0.79 Villa Manana, Phoenix 1971-85 13 8 260 212,150 816 96% $587 $0.72 ARKANSAS Fox Run, Little Rock (1) 1974 27 14 337 303,230 900 97% $536 $0.60
12 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ ARKANSAS, continued Greenwood Forest, Little Rock (1) 1975 23 10 239 191,062 799 98% $ 501 $0.63 Walnut Ridge, Little Rock (1) 1975 18 10 252 210,776 836 95% $ 477 $0.57 Williamsburg, Little Rock (1) 1974 21 10 211 184,348 874 99% $ 552 $0.63 CALIFORNIA Carmel Terrace, San Diego 1988-89 27 20 384 298,588 778 98% $ 771 $0.99 Casa Capricorn, San Diego 1981 24 10 192 178,320 929 96% $ 742 $0.80 Creekside Oaks, Walnut Creek (1) 1974 5 7 316 237,952 753 97% $ 724 $0.96 Deerwood, San Diego 1990 37 29 315 333,079 1,057 93% $ 987 $0.93 Eagle Canyon, Chino Hills 1985 34 32 252 252,493 1,002 95% $ 907 $0.90 Emerald Place, Bermuda Dunes 1988 27 17 240 214,072 892 98% $ 619 $0.69 Hathaway, Long Beach 1987 41 17 385 266,805 693 95% $ 843 $1.22 Lakeville Resort, Petaluma (1) 1984 84 45 492 461,798 939 99% $ 729 $0.78 Lands End, Pacifica 1974 11 7 260 161,121 620 98% $ 927 $1.50 Merrimac Woods, Costa Mesa 1970 19 39 123 88,160 717 97% $ 744 $1.04 Mountain Terrace, Stevenson Ranch 1992 19 39 510 425,612 835 77% $ 852 $1.02 Oak Park North, Agoura (1) 1990 31 12 220 180,600 821 94% $1,023 $1.25 Oak Park South, Agoura (1) 1989 31 12 224 188,000 839 93% $1,006 $1.20 Park West, Los Angeles 1990 1 4 444 315,588 711 95% $ 962 $1.35
13 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ----------------------------------------------------------------------------------------------------------------------------------- CALIFORNIA, CONTINUED Promenade Terrace, Corona Hills (1) 1990 38 27 330 360,838 1,093 96% $851 $0.78 Regency Palms, Huntington Beach 1969 39 14 310 261,634 844 97% $806 $0.95 Summer Ridge, Riverside 1985 9 6 136 104,832 771 98% $660 $0.86 Summerset Village, Chatsworth 1985 29 29 280 286,752 1,024 98% $1,067 $1.04 Villa Solana, Laguna Hills 1984 17 13 272 245,104 901 97% $827 $0.92 Vista Del Lago, Mission Viejo (1) 1986-88 51 29 608 512,200 842 98% $864 $1.03 Windridge, Laguna Niguel (1) 1989 22 19 344 375,312 1,091 92% $948 $0.87 COLORADO Cheyenne Crest, Colorado Springs (1) 1984 13 9 208 175,424 843 94% $640 $0.76 Glenridge, Colorado Springs (1) 1985 12 8 220 176,792 804 96% $641 $0.80 Indian Tree, Arvada (1) 1983 7 8 168 140,000 833 99% $641 $0.77 Trails, Aurora (1) 1986 17 11 351 286,964 818 95% $614 $0.75 Willow Glen, Aurora 1983 22 20 384 302,944 789 90% $597 $0.76 Windmill, Colorado Springs (1) 1985 15 11 304 180,640 594 97% $503 $0.85 Yuma Court, Colorado Springs 1985 10 5 40 37,400 935 95% $597 $0.64 FLORIDA Brierwood, Jacksonville 1974 22 17 196 263,052 1,342 97% $620 $0.46 Casa Cordoba, Tallahassee 1972-73 32 12 168 164,336 978 99% $615 $0.63 Casa Cortez, Tallahassee 1970 13 4 66 74,916 1,135 97% $613 $0.54
14 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ FLORIDA, CONTINUED Chaparral, Largo (1) 1976 52 23 444 451,420 1,017 95% $582 $0.57 Gatehouse on the Green, Pambroke Pines 1990 12 21 312 310,140 994 98% $908 $0.91 Gatehouse at Pine Lake, Plantation 1990 11 25 296 293,792 993 92% $908 $0.92 Habitat, Orlando 1974 26 17 344 334,352 972 95% $556 $0.57 Hammock's Place, Miami (1) 1986 11 15 296 307,900 1,040 97% $739 $0.71 Heron Cove, Coral Springs 1987 13 12 198 189,932 959 96% $754 $0.79 Heron Landing, Lauderhill 1988 13 11 144 151,684 1,053 92% $769 $0.73 Heron Run, Plantation 1987 13 13 198 185,504 937 96% $793 $0.85 La Costa Brava, Orlando 1967 17 10 194 190,780 983 96% $615 $0.63 La Costa Brava, Jacksonville (1)(2) 1970-73 46 30 464 441,268 951 95% $530 $0.56 Marbrisa, Tampa 1984 16 37 224 188,544 842 98% $565 $0.67 Oaks of Lakebridge, Ormond Beach 1984 13 12 170 120,792 711 97% $578 $0.81 Paradise Point, Dania 1987-90 13 13 260 226,980 873 96% $810 $0.93 Pine Harbour, Orlando 1991 18 20 366 344,204 940 93% $654 $0.70 Pines of Springdale, W. Palm Beach 1986 3 5 151 126,975 841 95% $616 $0.73 The Place, Fort Meyers 1986 15 9 230 183,588 798 94% $544 $0.68 Port Royale, Fort Lauderdale 1988 10 17 252 182,380 724 98% $855 $1.18 Port Royale II, Fort Lauderdale 1991 3 5 161 115,025 714 99% $883 $1.24
15 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ FLORIDA, CONTINUED River Bend, Tampa 1971 32 15 296 333,580 1,127 95% $558 $0.50 Sabal Pointe, Coral Springs 1995 11 14 275 355,575 1,293 97% $895 $0.69 Sawgrass Cove, Bradenton 1991 21 28 336 342,880 1,020 93% $664 $0.65 Springs Colony, Altamonte Springs 1986 9 10 188 161,168 857 98% $573 $0.67 Stonelake Club, Ocala (1) 1986 31 15 240 194,320 810 95% $501 $0.62 Woodlake at Killearn, Tallahassee 1986-90 18 25 352 305,480 868 91% $615 $0.71 GEORGIA Frey, Atlanta (1) 1985 29 44 489 453,760 928 95% $697 $0.75 Governor's Place, Augusta 1972 20 9 190 191,580 1,008 94% $448 $0.44 Greengate, Marietta 1971 11 11 152 157,808 1,038 92% $621 $0.60 Holcomb Bridge, Atlanta (1) 1985 34 36 437 419,150 959 95% $695 $0.72 Ivy Place, Atlanta 1978 17 15 122 180,830 1,482 94% $918 $0.62 Longwood, Decatur 1992 9 9 268 216,970 810 96% $747 $0.92 Maxwell House, Augusta 1951 1 1 216 97,173 450 94% $370 $0.82 Park Knoll, Marietta 1983 51 41 484 587,250 1,213 95% $828 $0.68 Preston Lake, Tucker 1984-86 9 32 320 338,130 1,057 93% $708 $0.67 Roswell, Atlanta (1) 1985 23 30 236 225,598 956 93% $720 $0.75 Terraces at Peachtree, Atlanta 1987 1 1 96 86,800 904 93% $928 $1.03
16 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ GEORGIA, CONTINUED Woodland Hills, Decatur 1985 25 19 228 266,304 1,168 91% $790 $0.68 IDAHO The Seasons, Boise 1990 10 6 120 108,460 904 94% $623 $0.69 ILLINOIS Bourbon Square, Palatine (1) 1984-87 102 47 612 875,160 1,430 90% $1,018 $0.71 Four Lakes III-IV, Lisle (1) 1968 31 92 942 798,245 847 92% $828 $0.98 Four Lakes V, Lisle (1) 1988 2 15 478 310,208 649 90% $735 $1.13 Spice Run, Naperville 1988 20 32 400 396,320 991 88% $872 $0.88 INDIANA Diplomat South, Beech Grove (1) 1970 16 15 272 254,528 936 93% $502 $0.54 IOWA 3000 Grand, Des Moines 1970 1 6 186 199,530 1,073 84% $876 $0.82 KANSAS Cedar Crest, Overland Park 1986 38 30 466 430,034 923 96% $610 $0.66 Essex Place, Overland Park (1) 1970-84 32 34 352 429,048 1,219 94% $767 $0.63 Rosehill Pointe, Lenexa 1984 32 35 498 459,318 922 88% $590 $0.64 Silverwood, Mission (1) 1986 20 15 280 234,876 839 98% $603 $0.72 Sunnyoak Village, Overland Park 1984 55 46 548 492,700 899 93% $578 $0.64 KENTUCKY Cloisters on the Green, Lexington (1) 1974 6 12 228 196,560 862 97% $551 $0.64 Doral, Louisville (1) 1972 19 10 228 293,106 1,286 94% $600 $0.47
17 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ KENTUCKY, CONTINUED Mallgate, Louisville 1969 46 24 540 535,444 992 92% $534 $0.54 Sonnet Cove I-II, Lexington (1) 1972-1974 11 14 331 346,675 1,047 97% $611 $0.58 LOUISIANA Plantation, Monroe 1972 6 10 200 180,416 902 92% $437 $0.48 MARYLAND Canterbury, Germantown (1) 1986 37 23 544 481,083 884 92% $710 $0.80 Country Club I & II, Silver Spring (1) 1980-1982 24 20 376 371,296 987 94% $779 $0.79 Georgian Woods II, Wheaton (1) 1967 21 17 371 305,693 824 95% $766 $0.93 Greenwich Woods, Silver Spring (1) 1967 47 12 564 514,318 912 96% $792 $0.87 Marymont, Laurel 1987-88 12 10 308 251,264 816 94% $759 $0.93 Northhampton I & II, Largo (1) 1977-1988 47 58 620 564,399 910 96% $792 $0.87 Oak Mill II, Germantown (1) 1985 16 8 192 165,611 863 92% $712 $0.83 Town Centre III & IV, Laurel (1) 1968-1969 49 30 562 553,083 984 96% $731 $0.74 Yorktowne at Olde Mill, Millersville 1974 18 21 216 195,100 903 96% $681 $0.75 MICHIGAN Country Ridge, Farmington Hills 1986 26 18 252 278,060 1,103 94% $850 $0.77 Hidden Valley, Ann Arbor 1973 6 28 324 237,348 733 97% $695 $0.95 Lake in the Woods, Ypsilanti 1969 40 175 1,028 971,873 945 89% $728 $0.77 Pines of Cloverlane, Pittsfield Township 1975-79 59 63 582 471,966 811 94% $633 $0.78
18 Item 2. PROPERTIES PROPERTIES-CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ----------------------------------------------------------------------------------------------------------------------------------- MICHIGAN, CONTINUED Walden Wood, Southfield(1) 1972 23 20 210 295,080 1,405 98% $847 $0.60 MINNESOTA Park Place I & II, Plymouth(1) 1986 4 60 500 569,768 1,140 98% $768 $0.67 MISSOURI Hunters Glen, Chesterfield 1985 8 19 192 156,489 815 97% $626 $0.77 Sleepy Hollow, Kansas City(1) 1987 26 33 388 325,486 839 98% $546 $0.65 NEVADA Catalina Shores, Las Vegas 1989 15 13 240 211,200 880 92% $709 $0.81 Cypress Point, Las Vegas(1) 1989 19 9 212 179,800 848 88% $675 $0.80 Desert Park, Las Vegas 1987 23 15 368 172,513 469 92% $508 $1.08 Fountains at Flamingo, Las Vegas 1989-91 34 30 521 417,870 802 96% $679 $0.85 Newport Cove, Henderson 1983 35 10 140 152,600 1,090 94% $771 $0.71 Silver Shadow, Las Vegas 1992 13 9 200 194,656 973 93% $723 $0.74 Sunrise Springs, Las Vegas 1989 18 10 192 164,424 856 94% $678 $0.79 Trails, Las Vegas 1988 38 28 440 453,656 1,031 93% $755 $0.73 NEW HAMPSHIRE Wellington Hill, Manchester(1) 1987 55 40 390 394,627 1,012 94% $729 $0.72 NEW JERSEY Raven's Crest, Plainsboro(1) 1984 37 19 704 583,176 828 96% $822 $0.99 NEW MEXICO Pueblo Villas, Albuquerque 1975 17 12 232 173,118 746 92% $559 $0.75
19 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ NORTH CAROLINA Bainbridge, Durham 1984 15 24 216 191,240 885 90% $692 $0.78 Bridgeport, Raleigh 1990 13 17 276 252,190 914 92% $714 $0.78 Deerwood Meadows, Greensboro (1) 1986 49 44 297 217,757 733 93% $572 $0.78 East Pointe, Charlotte (1) 1987 22 29 310 301,560 973 95% $629 $0.65 Laurel Ridge, Chapel Hill 1975 28 13 160 158,964 994 99% $719 $0.72 McAlpine Ridge, Charlotte 1989-90 16 15 320 238,125 744 93% $582 $0.78 Pine Meadow, Greensboro (1) 1974 29 14 204 226,600 1,111 92% $593 $0.53 Rock Creek, Corrboro 1986 20 16 188 153,548 817 89% $673 $0.82 Winterwood, Charlotte (1) 1986 22 23 384 369,260 962 91% $658 $0.68 Woodbridge, Cary (1) 1993-95 16 28 344 315,624 918 92% $719 $0.78 Woodscape, Raleigh 1979 21 25 240 186,192 776 95% $570 $0.73 Woods of North Bend, Raleigh 1983 22 30 235 243,975 1,038 98% $673 $0.65 OHIO Olentangy Commons, Columbus (1) 1972 95 76 827 981,190 1,186 93% $747 $0.63 Reserve Square, Cleveland 1973 1 4 765 631,803 826 78% $853 $1.03 University Park, Toledo 1965 1 2 99 49,950 505 99% $433 $0.86 Village of Hampshire Heights, Toledo 1950 92 10 392 241,920 617 99% $416 $0.67 OKLAHOMA Brittany Square, Tulsa 1982 13 8 212 170,516 804 96% $508 $0.63
20 Item 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ----------------------------------------------------------------------------------------------------------------------------------- OKLAHOMA, CONTINUED Quail Run, Oklahoma City 1978-83 13 9 208 149,408 718 99% $385 $0.54 Stonebrook, Oklahoma City 1983 21 8 360 247,088 686 93% $408 $0.59 The Lodge, Tulsa 1979 13 11 208 152,240 732 99% $413 $0.56 OREGON Bridgecreek, Wilsonville 1987 26 22 315 274,236 871 95% $647 $0.74 Kempton Downs, Gresham 1990 17 12 278 277,536 998 95% $679 $0.68 Meadowcreek, Tigard (1) 1985 19 15 304 247,690 815 97% $628 $0.77 Tanasbourne Terrace, Hillsboro 1986-89 29 18 373 363,758 975 95% $734 $0.75 Tanglewood, Lake Oswego 1976 35 8 158 200,660 1,270 97% $798 $0.63 Woodcreek, Beaverton (1) 1982-84 28 22 440 335,120 762 96% $584 $0.77 SOUTH CAROLINA Mallard Cove, Greenville 1983 3 14 211 264,187 1,252 88% $602 $0.48 TENNESSEE Arbors of Hickory Hollow, Nashville (1) 1986 17 31 336 337,260 1,004 96% $634 $0.63 Arbors of Brentwood, Nashville (1) 1986-87 20 41 346 320,993 928 94% $691 $0.74 Brixworth, Nashville 1985 5 6 216 144,912 671 92% $728 $1.09 Canterchase, Nashville (1) 1985 12 22 235 170,140 724 97% $567 $0.78 TEXAS 7979 Westheimer, Houston 1973 30 15 459 401,571 875 95% $625 $0.71 Altamonte, San Antonio (1) 1985 29 17 432 322,928 748 93% $536 $0.72
21 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ TEXAS, CONTINUED Arbors of Las Colinas, Irving 1985 21 15 408 334,556 820 96% $676 $0.82 Breton Mill, Houston (1) 1986 21 14 392 294,152 750 98% $533 $0.71 Celebration at Westchase, Houston (1) 1979 27 13 367 305,609 833 96% $545 $0.65 Champion Oaks, Houston (1) 1984 20 10 252 190,628 756 97% $531 $0.70 Dawntree, Carrollton 1982 53 23 400 370,152 925 96% $577 $0.62 Forest Ridge, Arlington 1984-85 34 29 660 555,364 841 93% $600 $0.71 Fountainhead I-III, San Antonio (1) 1985-87 55 23 688 457,616 665 92% $520 $0.78 Harbour Landing, Corpus Christi 1985 22 11 284 193,288 681 96% $525 $0.77 Hampton Green, San Antonio (1) 1979 32 11 293 222,341 759 94% $486 $0.64 Hearthstone, San Antonio (1) 1982 17 11 252 167,464 665 96% $440 $0.66 Hunter's Green, Fort Worth (1) 1981 17 10 248 188,720 761 92% $486 $0.64 Keystone, Austin (1) 1981 13 6 166 111,440 671 92% $573 $0.85 Kingswood Manor, San Antonio (1) 1983 12 6 129 109,996 853 98% $507 $0.59 Lakewood Oaks, Dallas 1987 26 12 352 257,606 732 98% $647 $0.88 Lincoln Green I-III, San Antonio 1984-86 54 24 680 465,664 685 96% $478 $0.70 Marina Club, Ft. Worth 1987 19 14 387 265,475 686 94% $478 $0.70 Northgate Village, San Antonio (1) 1984 23 10 264 214,928 814 94% $523 $0.64 Parkwest, Austin (1) 1985 50 15 196 179,046 914 90% $759 $0.83
22 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ TEXAS, CONTINUED Preston in Willow Bend, Plano 1985 23 13 229 233,893 1,021 97% $740 $0.72 Ridgetree, Dallas 1983 38 17 798 597,642 749 95% $502 $0.67 Saddle Creek, Carrollton 1980 18 16 238 244,488 1,027 95% $681 $0.66 Songbird, San Antonio (1) 1981 29 15 262 277,720 1,060 93% $643 $0.61 Sutton Place, Dallas 1985 16 10 456 301,440 661 94% $568 $0.86 The Lodge, San Antonio 1979 20 10 384 259,512 676 93% $494 $0.73 The Trails, Arlington 1984 10 9 208 141,696 681 99% $518 $0.76 Village Oaks, Austin (1) 1984 25 13 280 199,152 711 97% $660 $0.93 Woodmoor, Austin 1981 16 9 208 151,348 728 90% $592 $0.81 VIRGINIA Amberton, Manassas (1) 1986 16 7 190 143,402 755 100% $682 $0.90 Kingsport, Alexandria 1985 73 13 416 285,793 687 97% $687 $1.00 Saddle Ridge, Ashburn 1989 25 14 216 194,142 899 94% $837 $0.93 Sheffield Court, Arlington 1986 36 14 597 356,822 598 97% $793 $1.33 Tanglewood, Manassas (1) 1987 36 29 432 388,704 900 99% $697 $0.77 Wilde Lake, Richmond (1) 1989 8 18 189 172,980 915 91% $672 $0.73 Woodside, Lorton 1987 21 13 252 231,781 920 96% $757 $0.82 WASHINGTON 2900 on First, Seattle 1989-91 1 1 135 87,320 647 99% $837 $1.29
23 ITEM 2. PROPERTIES PROPERTIES- CONTINUED
Occupancy December, 1996 Acreage Average As of Avg. Monthly Year(s) (approx- Square Square Footage December Rental Rate Per Property Constructed Buildings imate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ------------------------------------------------------------------------------------------------------------------------------------ WASHINGTON, CONTINUED Brentwood, Vancouver 1990 28 14 296 286,132 967 95% $640 $0.66 Chandler's Bay I, Kent 1989 27 36 293 278,874 952 98% $680 $0.71 Charter Club, Everett 1991 17 12 201 172,773 860 99% $681 $0.79 Creekside, Mountlake Terrace (1) 1987 24 43 512 407,296 796 99% $656 $0.83 Eagle Rim, Redmond 1986-88 39 20 156 137,920 884 96% $743 $0.84 Edgewood, Woodinville (1) 1986 15 10 203 166,299 819 98% $693 $0.85 Fox Run, Federal Way 1988 9 5 143 127,960 895 100% $626 $0.70 Huntington Park, Everett 1991 27 14 381 307,793 808 100% $653 $0.81 Newport Heights, Seattle (1) 1985 12 5 80 59,056 738 99% $674 $0.91 Orchard Ridge, Lynnwood 1988 9 6 104 86,548 832 99% $649 $0.78 Pointe East, Redmond 1988 19 6 76 83,280 1,096 96% $944 $0.86 Village of Newport, Federal Way (1) 1987 7 4 100 76,890 769 98% $582 $0.76 Waterstone Place, Federal Way 1990 72 37 750 616,436 822 92% $571 $0.69 Wellington, Silverdale (1) 1990 17 11 240 214,024 892 80% $641 $0.72 ------------------------------------------------------------------------------------ TOTAL PROPERTIES: 5,198 4,055 67,705 59,472,576 ------------------------------------------------------------------------------------ AVERAGE: 24 19 311 272,810 878 95% $673 $0.77 ====================================================================================
(1) Encumbered by a third party mortgage. (2) Includes La Costa Brava (JAX) and Cedar Cove. 24 ITEM 2. PROPERTIES (CONTINUED) ADDITIONAL PROPERTIES
Occupancy December, 1996 Average As of Avg. Monthly Years(s) Acreage Square Square Footage December Rental Rate Per Property Constructed Buildings (approximate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ----------------------------------------------------------------------------------------------------------------------------------- CALIFORNIA Brookside Place, Stockton 1981 28 10 90 96,664 1,074 96% $740 $0.69 Canyon Creek, San Ramon 1984 27 13 268 257,676 961 94% $1,055 $1.10 Cobblestone Village, Fresno 1983 33 15 162 153,118 945 94% $563 $0.60 Country Oaks, Agoura 1985 38 15 256 258,558 1,010 93% $1,184 $1.17 Edgewater, Bakersfield 1984 35 15 258 240,322 931 93% $638 $0.68 Feather River, Stockton 1981 16 8 128 97,328 760 95% $547 $0.72 Hidden Lake, Sacramento 1985 27 17 272 261,808 963 93% $677 $0.70 Lakeview, Lodi 1983 25 9 138 136,972 993 95% $682 $0.69 Lantern Cove, Foster City 1985 29 17 232 228,432 985 94% $1,524 $1.55 Schooner Bay I, Foster City 1985 21 12.5 168 167,345 996 95% $1,583 $1.59 Schooner Bay II, Foster City 1985 18 12.5 144 143,442 996 97% $1,570 $1.58 South Shore, Stockton 1979 24 8 129 141,055 1,093 93% $749 $0.69 Waterfield Square I, Stockton 1984 22 10 170 160,100 942 95% $580 $0.62 Waterfield Square II, Stockton 1984 24 9 158 151,488 959 96% $597 $0.62 Willow Brook, Pleasant Hill 1985 38 12 228 234,840 1,030 95% $1,209 $1.17 Willow Creek, Fresno 1984 15 7 116 118,422 1,021 91% $668 $0.65 COLORADO
25 ITEM 2. PROPERTIES (CONTINUED) ADDITIONAL PROPERTIES
Occupancy December, 1996 Average As of Avg. Monthly Years(s) Acreage Square Square Footage December Rental Rate Per Property Constructed Buildings (approximate) Units Footage Per Unit 31, 1996 Unit Square Foot - - ----------------------------------------------------------------------------------------------------------------------------------- Deerfield, Denver 1983 22 9 158 146,380 926 94% $705 $0.76 COLORADO, continued Foxridge, Englewood 1984 27 15 300 292,992 977 92% $764 $0.78 NEW MEXICO Mesa Del Oso, Albuquerque 1983 69 25 221 252,169 1,141 99% $893 $0.78 Tierra Antigua, Albuquerque 1985 19 9 148 152,241 1,029 93% $796 $0.77 OKLAHOMA Lakewood, Tulsa 1985 21 9 152 157,372 1,035 95% $670 $0.65 ----------------------------------------------------------------------------------------------- TOTAL ADDITIONAL PROPERTIES: 578 257 3,896 3,848,724 ----------------------------------------------------------------------------------------------- AVERAGE: 28 12 186 183,273 988 94% $899 $0.91 ===============================================================================================
Note: All of these Additional Properties are encumbered by mortages, of which the Company has an investment in the second and third mortgages (which are subordinate to first mortgages owned by third party unaffiliated entities). 26 PART I Item 3. Legal Proceedings Richard M. Perlman, a former employee of companies controlled by Mr. Zell, filed a legal proceeding against Mr. Zell and various partnerships and corporations controlled by Mr. Zell claiming, inter alia, that he had an ---------- interest in 20 of 46 of the Initial Properties (the "Zell Properties") and that he suffered damages when those Properties were transferred into the REIT. The proceeding was filed on July 21, 1995 (Richard M. Perlman et al. v. Samuel Zell, ---------------------------------------- et al.) (United States District Court for the Northern District of Illinois- - - ------ Eastern Division, Case No. 95 C 4242). Mr. Perlman voluntarily dismissed the action that he previously filed in the Circuit Court of Cook County, Illinois, which was known as Richard M. Perlman v. Samuel Zell, et al, Case No. 92 CH ---------------------------------------- 19915. Mr. Zell believes such claims lack merit and is vigorously contesting the claims. The Company is not currently a party to this lawsuit. Discovery is currently proceeding and trial is currently anticipated to commence in June, 1997. Because Mr. Perlman's entire claimed interest in these Properties, based on Mr. Perlman's pleadings, does not exceed 1% of the value of these Properties, the Company has title insurance coverage, and the Company has been indemnified by Mr. Zell and certain of his affiliates for any actual losses incurred in connection with such matters, the Company believes no material loss to the Company could occur. On March 20, 1996, a legal proceeding (Nick J. Miletich, Administrator of the Estates of Dorothy Miletich and Madelyne Miletich, deceased, v. Equity Residential Properties Trust, Equity Residential Properties Management Corporation, Curt Vajgrt, Raymond Countryman and Darla Countryman) (Iowa District Court, Polk County, Iowa, Law Case No. CL 68908) was filed against the Company. This legal proceeding arises out of the Company's ownership and management of the apartment building known as 3000 Grand Ave. in Des Moines, Iowa and alleges that Raymond and Darla Countryman murdered Dorothy Miletich and Madelyne Miletich, who were residents of the apartment complex, on June 15, 1995. Raymond Countryman is a former employee of the Company. The plaintiff alleges, inter alia, that had the Company learned of the background of Mr. ---------- Countryman prior to his employment, the Company would not have hired him and the deaths of the Miletichs would have been avoided. The Company is vigorously contesting these claims and believes it has strong defenses to these claims, nevertheless, there is no assurance that the Company will not be held liable for said deaths and there is no assurance that its insurance coverage will cover all damages that may be awarded against it. In addition, only ordinary routine litigation incidental to the business which is not deemed material was initiated during the year ended December 31, 1996. The Company does not believe there is any other litigation, except as mentioned in the previous paragraph, threatened against the Company other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by liability insurance, none of which is expected to have a material adverse effect on the consolidated financial statements of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. 27 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters The following table sets forth for the periods indicated, the high and low sales prices for and the distributions paid on the Company's Common Shares which trade on the New York Stock Exchange under the trading symbol EQR.
Sales Price ----------------- High Low Distributions ------- ------- ------------- Fiscal Year 1996 Fourth Quarter Ended December 31, 1996 $43 1/2 $35 5/8 $0.625 Third Quarter Ended September 30, 1996 $36 1/8 $32 7/8 $ 0.59 Second Quarter Ended June 30, 1996 $33 1/2 $30 7/8 $ 0.59 First Quarter Ended March 31, 1996 $33 3/4 $28 1/4 $ 0.59 Sales Price ----------------- High Low Distributions ------- ------- ------------- Fiscal Year 1995 Fourth Quarter Ended December 31, 1995 $31 7/8 $27 3/4 $ 0.59 Third Quarter Ended September 30, 1995 $31 1/4 $27 3/4 $ 0.53 Second Quarter Ended June 30, 1995 $29 3/4 $24 7/8 $ 0.53 First Quarter Ended March 31, 1995 $29 1/8 $25 5/8 $ 0.53
In addition, on February 25, 1997, the Company declared a $0.625 distribution per Common Share payable on April 11, 1997 to shareholders of record on March 28, 1997. The number of beneficial holders of Common Shares at December 31, 1996 was approximately 18,400. The number of outstanding Common Shares as of December 31, 1996 was 51,154,836. Item 6. Selected Financial Data The following table sets forth selected financial and operating information on a historical basis for the Company and the Predecessor Business. The following information should be read in conjunction with all of the financial statements and notes thereto included elsewhere in this Form 10-K. The historical operating data for the years ended December 31, 1995, 1994, 1993, and 1992 have been derived from the historical Financial Statements of the Company and the Predecessor Business audited by Grant Thornton L.L.P., independent accountants. The historical operating data for the year ended December 31, 1996 has been derived from the historical Financial Statements of the Company audited by Ernst & Young LLP, independent auditors. Certain capitalized terms as used herein, are defined in the Notes to the Consolidated Financial Statements as included elsewhere in this Form 10-K. 28 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED AND COMBINED HISTORICAL, INCLUDING PREDECESSOR BUSINESS (AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE AND PROPERTY DATA)
YEAR ENDED DECEMBER 31, (1) ------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ---------- ---------- ----------- ---------- OPERATING DATA: Total revenues $ 478,385 $ 390,384 $ 231,034 $ 112,070 $ 92,973 ========= ========= ========= ========= ========= Income (loss) before gain on disposition of properties, extraordinary items and allocation to Minority Interests/Predecessor Business $ 97,033 $ 59,738 $ 45,988 $ 8,137 $ (3,281) ========= ========= ========= ========= ========= Net income $ 101,624 $ 67,719 $ 34,418 $ 6,095 $ - ========= ========= ========= ========= ========= Net income available to Common Shares $ 72,609 $ 57,610 $ 34,418 $ 6,095 $ - ========= ========= ========= ========= ========= Net income per weighted average Common Share outstanding $ 1.70 $ 1.68 $ 1.34 $ 0.42 $ - ========= ========= ========= ========= ========= Weighted average Common Shares outstanding 42,586 34,358 25,621 14,601 $ - ========= ========= ========= ========= ========= Distributions declared per Common Share outstanding $ 2.40 $ 2.18 $ 2.01 $ 0.68 $ - ========= ========= ========= ========= ========= BALANCE SHEET DATA (at end of period): Real estate, before accumulated depreciation $2,983,510 $2,188,939 $ 1,963,476 $ 634,577 $ 358,212 Real estate, after accumulated depreciation $2,681,998 $1,970,600 $ 1,770,735 $ 478,210 $ 218,825 Total assets $2,986,127 $2,141,260 $ 1,847,685 $ 535,914 $ 238,878 Total debt $1,254,274 $1,002,219 $ 994,746 $ 278,642 $ 343,282 Minority Interests $ 150,637 $ 168,963 $ 177,438 $ 83,159 $ - Shareholders' equity $1,458,830 $ 884,517 $ 609,936 $ 146,485 $ - OTHER DATA: Total properties (at end of period) (2) 218 174 163 79 46 Total apartment units (at end of period) (2) 67,705 53,294 50,704 24,419 15,732 Funds from operations available to Common Shares (unaudited)(3) $ 160,267 $ 120,965 $ 83,886 $ 30,127 $ 11,975 Cash flow provided by (used for): Operating activities $ 210,930 $ 141,534 $ 93,997 $ 25,582 $ 10,871 Investing activities $ (635,655) $ (324,018) $ (896,515) $(106,543) $ (5,917) Financing activities $ 558,568 $ 175,874 $ 808,495 $ 94,802 $ (4,945)
29 PART II ITEM 6. SELECTED FINANCIAL AND OPERATING INFORMATION (COMBINED HISTORICAL (CONTINUED)) (1) Historical results for the year ended December 31, 1992 represented the combined results of the Predecessor Business. Historical results for the year ended December 31, 1993 included combined results of the Predecessor Business for the period January 1, 1993 through August 17, 1993. (2) In August 1995 the Company also made an $89 million investment in partnership interests and subordinated mortgages collateralized by the Additional Properties. The Additional Properties consist of 3,896 units. (3) The Company generally considers FFO to be one measure of the performance of real estate companies, including an equity REIT. The new definition of FFO adopted in March 1995 by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities, it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. FFO does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. The Company's calculation of FFO represents net income available to Common Shares, excluding gains on dispositions of properties, gains on early extinguishment of debt, and write-off of unamortized costs on refinanced debt, plus depreciation on real estate assets, income allocated to Minority Interests and amortization of deferred financing costs related to the Predecessor Business. The Company's calculation of FFO may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to such other REITs. The Company's calculation of FFO for 1995 and 1994 has been restated to reflect the effects of the new definition as mentioned above. FFO for the year ended December 31, 1994 includes the effect of a one-time charge of approximately $879,000 for the relocation of the property management headquarters to Chicago. In addition, FFO for the year ended December 31, 1993 excludes the effect of refinancing costs of approximately $3.3 million which represented costs associated with the prepayment of certain mortgage loans. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7. OVERVIEW The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with "Selected Financial Data" and the historical Consolidated Financial Statements thereto appearing elsewhere in this Form 10-K. Due to the Company's ability to control the Operating Partnership, the Management Partnerships, the Financing Partnerships and the LLCs, each entity has been consolidated with the Company for financial reporting purposes. RESULTS OF OPERATIONS Since the Company's IPO, the Company has acquired direct or indirect interests in 160 properties (the "Acquired Properties"), containing 49,679 units in the aggregate for a total purchase price of approximately $2.4 billion, including the assumption of approximately $554.2 million of mortgage indebtedness. The Company's interest in six of the Acquired Properties at the time of acquisition thereof consisted solely of ownership of the debt collateralized by such Acquired Properties. The Company purchased ten of such Acquired Properties or 2,694 units between the IPO and December 31, 1993 (the "1993 Acquired Properties"); 84 of such Acquired Properties or 26,285 units in 1994 (the "1994 Acquired Properties"); 17 of such Acquired Properties or 5,035 units in 1995 (the "1995 Acquired Properties") and 49 of such Acquired Properties consisting of 15,665 units in 1996 (the "1996 Acquired Properties"). In addition, in August 1995, the Company made an investment in partnership interests and subordinated mortgages collateralized by the 21 Additional Properties. The Acquired Properties were presented in the Consolidated and Combined Financial Statements of the Company from the date of each acquisition. During 1995, the Company also disposed of six properties containing 2,445 units (the "1995 Disposed Properties") for a total sales price of approximately $52 million and the release of mortgage indebtedness of $20.5 million. During 1996, the Company disposed of five properties containing 1,254 units (the "1996 Disposed Properties ") for a total sales price of approximately $41.3 million. The Company's overall results of operations for the three years ended December 31, 1996 have been significantly impacted by the Company's acquisition activity. The significant changes in rental revenues, property and maintenance expenses, real estate taxes and insurance, depreciation expense, property management and interest expense can all primarily be attributed to the acquisition of the Acquired Properties. The impact of the Acquired Properties is discussed in greater detail in the following paragraphs. Properties that the Company owned for all of both 1996 and 1995 (the "1996 Same Store Properties") and Properties that the Company owned for all of both 1995 and 1994 (the "1995 Same Store Properties") also impacted the Company's results of operations and are discussed as well in the following paragraphs. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995 For the year ended December 31, 1996, income before gain on disposition of properties, extraordinary items and allocation to Minority Interests increased by $37.3 million when compared to the year ended December 31, 1995. This increase was primarily due to increases in rental revenues net of increases in property and maintenance expenses, real estate taxes and insurance, property management expenses, depreciation, interest expense and general and administrative expenses. All of the increases in the various line item accounts mentioned above can be primarily attributed to the 1996 Acquired Properties and 1995 Acquired Properties. These increases were partially offset by the 1996 Disposed Properties and the 1995 Disposed Properties. Interest income earned on the Company's mortgage note investment increased by approximately $8 million and was an additional factor that impacted the year to year changes. In regard to the 1996 Same Store Properties, rental revenues increased by approximately $15.9 million or 4.8 % primarily as a result of higher rental rates charged to new tenants and tenant renewals and higher average occupancy levels. Overall property operating expenses which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses increased approximately $1.7 million or 1.2%. This increase was primarily the result of higher payroll expenses and utilities costs. For 1996 the Company also increased its per unit charge for property level insurance which increased insurance expense by approximately $0.7 million. In addition, real estate taxes increased due to reassessments on certain of the 1996 Same Store Properties. Property management represents expenses associated with the management of the Company's Properties. These expenses increased by approximately $2.3 million primarily as a result of the expansion of the Company's property management business with the addition of a regional operations center ("ROC") in Seattle, Washington and during the third quarter of 1996 the addition of two new area offices located in Raleigh, North Carolina and Ft. Lauderdale, Florida. Other factors that impacted this increase were higher payroll and travel costs and legal and professional fees. Fee and asset management revenues and fee and asset management expenses are associated with the management of properties not owned by the Company that are managed for affiliates. These revenues decreased by $0.3 million primarily due to the disposition of certain of these properties. Interest expense, including amortization of deferred financing costs, increased by approximately $3.8 million. This increase was primarily the result of an increase in the Company's average indebtedness outstanding which increased by $75.8 million. However, the Company's effective interest cost decreased from 8.09% in 1995 to 7.87% in 1996. 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) General and administrative expenses, which include corporate operating expenses, increased approximately $1.7 million between the years under comparison. This increase was primarily due to adding corporate personnel, higher salary costs and shareholder reporting costs as well as an increase in professional fees. General and administrative expenses as a percentage of total revenues were 2.06% for the year ended December 31, 1996, which was a slight decrease from 2.08% in 1995. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994 For the year ended December 31, 1995, income before gain from disposition of properties, extraordinary items and allocation to Minority Interest increased by $13.8 million when compared to the year ended December 31, 1994. This increase was primarily due to increases in rental revenues net of increases in interest expense, property and maintenance expenses, real estate taxes and insurance, property management expenses, depreciation expense and general and administrative expenses. All of the increases in the various line item accounts mentioned above can be primarily attributed to the 1995 Acquired Properties and 1994 Acquired Properties which was partially offset by the 1995 Disposed Properties. Increases in fee and asset management revenues, net of fee and asset management expenses as well as interest income of approximately $4.9 million earned on the Company's mortgage note investment were additional factors that impacted the change from 1994 to 1995. In regard to the 1995 Same Store Properties, rental revenues increased by approximately $5.5 million or 4% as a result of higher rental rates charged to new tenants and tenant renewals. Overall property operating expenses which include property and maintenance, real estate taxes and insurance and an allocation of property management expenses increased approximately $0.9 million or 1.5%. This increase was the result of higher leasing and advertising costs, repair and maintenance and real estate taxes for certain of the 1995 Same Store Properties located in Texas. Property management represents expenses associated with the management of the Company's Properties. These expenses increased by approximately $5 million primarily as a result of the expansion of the Company's property management with the addition of ROCs in Bethesda, Maryland, Denver, Colorado and Seattle, Washington. These new ROCs were the result of acquiring Artery Property Management, Inc. ("Artery") in December 1994 and assuming property management for 31 Properties in January and February, 1995. Fee and asset management revenues and fee and asset management expenses are associated with the management of properties not owned by the Company that are managed for affiliates. These revenues increased by $2.3 million and expenses increased by $1.8 million, primarily due to the management of an additional 6,213 units for certain properties owned by various Artery entities. 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Interest expense, including amortization of deferred financing costs, increased by approximately $42.8 million. Of this increase, $18.1 million was due to the interest associated with the debt assumed on the 1994 Acquired Properties and 1995 Acquired Properties, $4.1 million was due to the 1999 Notes, $7.3 million was due to the Floating Rate Notes, $8 million was due to the Company's line of credit and $7.3 million was due to the 2002 Notes. This increase was partially offset by a decrease of approximately $2 million in interest expense due to repayment of mortgage indebtedness in the amount of $45.5 million on seven of the Company's Properties at various times in 1995. General and administrative expenses, which include corporate operating expenses, increased by approximately $2.1 million, primarily due to an increase in state and local income and franchise taxes as well as adding corporate personnel and incurring higher administrative costs associated with increasing the size of the Company. However, general and administrative expenses as a percentage of total revenues decreased from 2.6% in 1994 to 2.1% in 1995. LIQUIDITY AND CAPITAL RESOURCES As of January 1, 1996, the Company had approximately $13.4 million of cash and cash equivalents and $158 million available on its line of credit. After taking into effect the various transactions discussed in the following paragraphs, cash and cash equivalents at December 31, 1996 was approximately $147.3 million and the amounts available on the Company's line of credit were $250 million. In addition, the Company had $3.6 million of proceeds from a property sale included in deposits-restricted. The following discussion also explains the changes in net cash provided by operating activities, net cash (used for) investing activities and net cash provided by financing activities, all of which are presented in the Company's Consolidated Statements of Cash Flows. Part of the Company's strategy in funding the purchase of multifamily properties is to utilize its line of credit and to subsequently repay the line of credit from the issuance of additional equity or debt securities. Continuing to employ this strategy, during 1996 the Company and/or the Operating Partnership: (i) issued a total of approximately 14.4 million Common Shares through various offerings and received total net proceeds of $483 million, (ii) completed the offering of the Series C Preferred Shares and received net proceeds of $111.4 million, (iii) issued the 2026 Notes and received net proceeds of $149 million and (iv) refinanced certain of its tax-exempt bonds in two separate transactions for a total of $112.2 million of net proceeds. All of these proceeds have been or will be utilized to purchase additional properties and/or repay the line of credit and mortgage indebtedness on certain properties. With respect to Property acquisitions during the year, the Company purchased 49 Properties containing 15,665 units for a total acquisition cost of $778.2 million, which included the assumption of $142.2 million of mortgage indebtedness, the forgiveness of debt of $2.7 million and the issuance of OP Units having a value of approximately $0.4 million. These 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) acquisitions were primarily funded from amounts drawn on the Company's line of credit and a portion of the proceeds received in connection with the transactions mentioned in the previous paragraph. During the year ended December 31, 1996, the Company also disposed of five properties which generated net proceeds of approximately $40 million. Proceeds from four of the dispositions were ultimately applied to purchase additional Properties and the remaining proceeds have been set aside for future property acquisitions. As of December 31, 1996, the Company had total indebtedness of approximately $1.3 billion, which included mortgage indebtedness of $755.4 million, of which $274 million represented tax exempt bond indebtedness, and unsecured debt of $498.8 million (net of a $1.2 million discount). During the year, the Company repaid an aggregate of $57 million of mortgage indebtedness on eight of its Properties. These repayments were funded from the Company's line of credit or from proceeds received from the various capital transactions mentioned in previous paragraphs. The Company has, from time to time, entered into interest rate protection agreements, financial instruments, to reduce the potential impact of increases in interest rates but has limited exposure to the extent of non-performance by the counterparties of each protection agreement since each counterparty is a major U.S. financial institution, and the Company does not anticipate their non-performance. No such financial instrument has been used for trading purposes. On February 12, 1996, the Company entered into two interest rate protection agreements that will hedge the Company's interest rate risk at maturity of $175 million of indebtedness. The first agreement hedged the interest rate risk of $50 million of mortgage loans scheduled to mature in September 1997 by locking the five year Treasury Rate, commencing October 1, 1997. The second agreement hedged the interest rate risk of the Operating Partnership's 1999 Notes by locking the effective four year Treasury Rate commencing May 15, 1999. There was no current cost to the Company for entering into these agreements. The Company has a policy of capitalizing expenditures made for new assets, including newly acquired properties and the costs associated with placing these assets into service. Expenditures for improvements and renovations that significantly enhance the value of existing assets or substantially extend the useful life of an asset are also capitalized. Capital spent for replacement- type items such as appliances, draperies, carpeting and floor coverings, mechanical equipment and certain furniture and fixtures is also capitalized. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. With respect to acquired properties, the Company has determined that it generally spends $1,000 per unit during its first three years of ownership to fully improve and enhance these properties to meet the Company's standards. In regard to replacement-type items described above, the Company generally expects to spend $300 per unit on an annual recurring basis. During the year ended December 31, 1996, total capital expenditures for the Company approximated $45.9 million. Of this amount, approximately $10.6 million related to capital 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) improvements and major repairs for certain of the 1994, 1995 and 1996 Acquired Properties. Capital improvements and major repairs for all of the Company's pre- IPO properties and certain Acquired Properties approximated $13.8 million, or $232 per unit. Capital spent for replacement-type items approximated $16.3 million, or $276 per unit, which is in line with the Company's expected annual recurring per unit cost. In regard to capital spent for upgrades at certain properties and tenant improvements with respect to the retail and commercial office space at one Property, the amount was approximately $2.9 million. Also included in total capital expenditures was approximately $2.3 million expended for non-real estate additions such as computer software, computer equipment, furniture and fixtures and leasehold improvements for the Company's ROCs and its corporate headquarters. Such capital expenditures were primarily funded from working capital reserves and from net cash provided by operating activities. Total capital expenditures for 1997 are budgeted to be approximately $48 million. Minority Interests as of December 31, 1996 decreased by $18.3 million when compared to December 31, 1995. The primary factors that impacted this account during the year were distributions declared to Minority Interests, which amounted to $20.5 million for the year, the allocation of its income from operations in the amount of $14.3 million, the conversion of OP Units into Common Shares and issuances of Common Shares during the year. Total distributions paid in 1996 amounted to $142.3 million, which included the distribution declared in the fourth quarter of 1995. The fourth quarter of 1996 distributions were paid on January 10, 1997 and approximated $45.9 million. On February 25, 1997, the Company declared a $0.625 distribution per Common Share, $0.585938 per Series A Preferred Share, $0.570313 per Series B Depositary Share and $0.570313 per Series C Depositary Share payable to shareholders of record on March 28, 1997. The Common Share distributions will be paid on April 11, 1997 and the Preferred and Depositary Share distributions will be paid on April 15, 1997. In January 1997 the Company announced its planned Merger with Wellsford and, upon shareholder approval by both companies, anticipates the consummation of such Merger on or around June 1, 1997. In connection with the Merger, the Company may have to fund up to $67 million to cover certain transaction and termination costs, repay Wellsford's line of credit balance and fund an investment in a company to be spun off from Wellsford. Subsequent to December 31, 1996, the Company acquired eight additional properties representing 2,575 units for a total purchase price of approximately $144.2 million, including the assumption of approximately $50.8 million of mortgage indebtedness. These acquisitions were funded from proceeds of the December 1996 Common Share Offering. The Company is actively seeking to acquire additional multifamily properties with physical and market characteristics similar to the Properties. During the remainder of 1997, the Company expects to acquire between 10,000 to 15,000 multifamily units, in addition to the Merger mentioned above. However, there is no assurance that this level of property acquisitions can be achieved since the 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Company is dependent on the capital markets in order to issue additional equity and debt securities to permanently finance such acquisitions. In March 1997, the Company received proceeds of $43.2 million from the March 1997 Common Share Offerings. These proceeds will be utilized to purchase additional properties and/or repay mortgage indebtedness on certain properties. The Company anticipates that it may sell certain Properties in the portfolio and may sell up to 2,500 multifamily units during 1997. However, there is no assurance that this level of property dispositions may be achieved. The Company expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operating activities. The Company considers its cash provided by operating activities to be adequate to meet operating requirements and payments of distributions. The Company also expects to meet its long-term liquidity requirements, such as scheduled mortgage debt maturities, reduction of outstanding amounts under its line of credit, property acquisitions and capital improvements through the issuance of unsecured notes and equity securities including additional OP Units as well as from undistributed FFO and proceeds received from the disposition of certain Properties. In addition, the Company has certain uncollateralized Properties available for additional mortgage borrowings in the event that the public capital markets are unavailable to the Company or the cost of alternative sources of capital to the Company is too high. In November 1996, the Company reached an agreement with Morgan Guaranty and Bank of America to provide the Company with a new credit facility with potential borrowings of up to $250 million. This new line of credit matures in November 1999 and will continue to be used for property acquisitions and for any working capital needs. As of March 20, 1997, no amounts were outstanding under this facility. As of January 1, 1995, the Company had approximately $20 million of cash and cash equivalents and $88 million available on its line of credit. After taking into effect the various transactions discussed in the following paragraphs, the Company's cash and cash equivalents balance at December 31, 1995 was approximately $13.4 million and the amounts available on the Company's line of credit were $158 million. In addition, the Company had $15 million of proceeds from various property sales included in deposits-restricted. The following discussion also explains the changes in net cash provided by operating activities, net cash (used for) investing activities and net cash provided by financing activities, all of which are presented in the Company's Statements of Cash Flows. The Company completed its Second Public Debt Offering in April 1995 and received net proceeds of approximately $123.1 million, substantially all of which were applied to repay a portion of the outstanding balance on the Company's line of credit. In May 1995, the Company completed its offering of the Series A Preferred Shares and received net proceeds of approximately $148.2 million. Of these proceeds, $95 million were applied to repay the remaining outstanding balance on the Company's line of credit. The remaining proceeds were subsequently used to purchase additional Properties and pay off scheduled debt maturities. In 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) November 1995, the Company completed its offering of the Series B Depositary Shares and received net proceeds of approximately $121.1 million, all of which were once again applied to repay a portion of the outstanding balance on the Company's line of credit. With respect to property acquisitions during 1995, the Company purchased 17 Properties containing 5,035 units for a total of $263.8 million, which included the assumption of $23.6 million of mortgage indebtedness and the issuance of OP Units having a value of approximately $17.8 million. The Company also made an $89 million investment in partnership interests and subordinated mortgages collateralized by 21 properties containing 3,896 units. These acquisitions were primarily funded from amounts drawn on the Company's line of credit and a portion of the proceeds received in connection with the Series A Preferred Shares as mentioned in the previous paragraph. During 1995, the Company disposed of six properties which generated net proceeds of $46.4 million and reduced mortgage indebtedness by $20.5 million. As of December 31, 1995, approximately $15 million of such proceeds were included in the Company's balance sheet in its deposits-restricted account. As of December 31, 1995, the Company had total indebtedness of approximately $1 billion, which included conventional mortgages of $399.2 million, unsecured debt of $348.5 million (net of a $1.5 million discount), tax exempt bond indebtedness of $162.5 million and $92 million outstanding on the Company's line of credit. During the year, the Company repaid mortgage indebtedness on seven of its Properties, which aggregated $45.5 million. These repayments were funded from the Company's line of credit or from proceeds received from the various capital transactions mentioned in previous paragraphs. During the year ended December 31, 1995, total capital expenditures for the Company approximated $49.8 million. Of this amount, approximately $14.2 million, or $256 per unit, related to capital improvements and major repairs for the Acquired Properties. Capital improvements and major repairs for all of the Company's pre-IPO Properties approximated $13.7 million, or $247 per unit. Capital spent for replacement-type items approximated $16.4 million, or $296 per unit, which is in line with the Company's expected annual recurring per unit cost. In regard to capital spent for upgrades at certain properties and tenant improvements with respect to the retail and commercial office space at one Property, the amount was approximately $5.5 million. Also included in total capital expenditures was approximately $3.7 million expended for non-real estate additions such as computer software, computer equipment and furniture and fixtures for the Company's regional operation centers and its corporate headquarters. Such capital expenditures were primarily funded from working capital reserves and from net cash provided by operating activities. Minority Interests as of December 31, 1995 decreased by $8.5 million when compared to December 31, 1994. The primary factors that impacted this account during the year were 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) distributions declared to Minority Interests, which amounted to $18.8 million for the year, the allocation of its income from operations in the amount of $15.6 million and the conversion of OP Units into Common Shares. FUNDS FROM OPERATIONS Commencing in 1996, the Company implemented the new definition of FFO adopted by the Board of Governors of NAREIT in March 1995. The new definition primarily eliminates the amortization of deferring financing costs and depreciation of non-real estate assets as items added back to net income when calculating FFO. The Company generally considers FFO to be one measure of the performance of real estate companies including an equity REIT. The resolution adopted by the Board of Governors of NAREIT defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. FFO in and of itself does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indication of the Company's performance or to net cash flows from operating activities as determined by GAAP as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs. The Company's calculation of FFO represents net income available to Common Shares, excluding gains on dispositions of properties, gains on early extinguishment of debt, and write-off of unamortized costs on refinanced debt, plus depreciation on real estate assets, income allocated to Minority Interests and amortization of deferred financing costs related to the Predecessor Business. The Company's calculation of FFO may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to such other REITs. For the year ended December 31, 1996, FFO increased $39.3 million representing a 32.5% increase when compared to the year ended December 31, 1995. For the year ended December 31, 1995, FFO, based on the Company's calculation of FFO, increased by $37.1 million representing a 44.2% increase when compared to the year ended December 31, 1994. 39 PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On March 7, 1996, the Company filed a Current Report on Form 8-K, as amended, reporting the dismissal of Grant Thornton L.L.P. as its independent public accountants that is incorporated herein by reference. 40 PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT (a,b,c,d,e & f) TRUSTEES AND EXECUTIVE OFFICERS ------------------------------- The following table sets forth certain information with respect to the trustees and executive officers of the Company as of March 1, 1997:
NAME AGE POSITIONS AND OFFICES HELD - - ------------------------------------------------- --- --------------------------------------------------------------- Samuel Zell 55 Chairman of the Board of Trustees (term expires in 1999) Douglas Crocker II 56 President, Chief Executive Officer and Trustee (term expires in 1998) David J. Neithercut 41 Executive Vice President and Chief Financial Officer Bruce C. Strohm 42 Executive Vice President, General Counsel and Secretary Gregory H. Smith 46 Executive Vice President--Asset Management Gerald A. Spector 50 Executive Vice President, Chief Operating Officer and Trustee (term expires in 1997) Frederick C. Tuomi 42 Executive Vice President--Property Management Michael J. McHugh 41 Senior Vice President, Chief Accounting Officer and Treasurer Alan W. George 39 Executive Vice President--Acquisitions John W. Alexander 50 Trustee (term expires in 1999) Henry H. Goldberg 58 Trustee (term expires in 1999) Errol R. Halperin 56 Trustee (term expires in 1999) James D. Harper, Jr. 63 Trustee (term expires in 1998) Sheli Z. Rosenberg 55 Trustee (term expires in 1998) Barry S. Sternlicht 36 Trustee (term expires in 1997) B. Joseph White 49 Trustee (term expires in 1997)
Samuel Zell. Mr. Zell has been Chairman of the Board of Trustees of the Company since March 1993. Mr. Zell is chairman of the board of directors of Equity Group Investments, Inc., an owner, manager and financier of real estate and corporations ("EGI"), American Classic Voyages Co., an owner and operator of cruise lines ("American Classic"), and Anixter International Inc., a provider of integrated network and cabling systems ("Anixter"). Mr. Zell is chairman of the board and chief executive officer of both Capsure Holdings Corp., a holding company whose principal subsidiaries are specialty property and casualty insurers ("Capsure") and Manufactured Home Communities, Inc., a REIT specializing in ownership and management of manufactured home communities ("MHC"). He is co-chairman of the board of directors of Revco D.S., Inc., a drugstore chain ("Revco"), and is a director of Quality Food Centers, Inc., an owner and operator of supermarkets, Sealy Corporation, a bedding manufacturer ("Sealy"), Ramco Energy PLC, an independent oil company based in the United Kingdom, and TeleTech Holdings, Inc., a provider of telephone and computer based customer care solutions. Douglas Crocker II. Mr. Crocker has been President, Chief Executive Officer and Trustee of the Company since March 1993. Mr. Crocker is a director of Horizon Group, Inc., an owner, developer and operator of outlet retail properties. Mr. Crocker has been president and chief 41 PART III executive officer of First Capital Financial Corporation, a sponsor of public limited real estate partnerships ("First Capital"), since December 1992 and a director since January 1993. He has been an executive vice president of Equity Financial and Management Company ("EF & M"), a subsidiary of EGI, providing strategic direction and services for EGI's real estate and corporate activities since November 1992. From September 1992 until November 1992, Mr. Crocker was a managing director of investment banking with Prudential Securities, an investment banking firm. He was a director and president of Republic Savings Bank, a national chartered savings and loan association ("Republic"), from December 1988 to June 1992, at which time the Resolution Trust Corporation took control of Republic. David J. Neithercut. Mr. Neithercut has been Executive Vice President and Chief Financial Officer of the Company since February 1995. Mr. Neithercut had been Vice President-Financing of the Company from September 1993 until February 1995. Mr. Neithercut was senior vice president-finance of EGI from January 1995 until February 1995. He was vice president-finance of Equity Assets Management, Inc., a subsidiary of EGI providing real estate ownership services ("EAM"), from October 1990 until December 1994. Bruce C. Strohm. Mr. Strohm has been Executive Vice President and General Counsel of the Company since March 1995 and Secretary since November 1995. Mr. Strohm was an Assistant Secretary since March 1995 and Vice President of the Company since its formation. From January 1988 until March 1995, Mr. Strohm was a vice president of Rosenberg & Liebentritt, a law firm ("R & L"), most recently serving as a member of the firm's management committee. Gregory H. Smith. Mr. Smith has been Executive Vice President-Asset Management of the Company since December 1994. Mr. Smith was a senior vice president of Strategic Realty Advisors, Inc., a real estate and advisory company, from January 1994 until December 1994. Mr. Smith had been employed at VMS Realty Partners, a sponsor of public and private real estate limited partnerships from June 1989 until December 1993, most recently serving as first vice president. Gerald A. Spector. Mr. Spector has been the Executive Vice President and Trustee of the Company since March 1993 and Chief Operating Officer of the Company since February 1995. Mr. Spector was the Treasurer of the Company from March 1993 through February 1995. Mr. Spector had been an officer of EF&M since January 1973, most recently serving as vice president from November 1994 through January 1996. Mr. Spector was executive vice president and chief operating officer of EF&M from September 1990 through November 1994. Mr. Spector had been an officer of EGI since January 1988, most recently serving as vice president from November 1994 through January 1996. Mr. Spector was executive vice president chief operating officer of EGI from January 1991 through January 1994. Frederick C. Tuomi. Mr. Tuomi has been Executive Vice President--Property Management of the Company since January 1994. Mr. Tuomi had been president of RAM Partners, Inc., a subsidiary of Post Properties, Inc., a REIT, from March 1991 until January 1994. Mr. Tuomi was 42 PART III president of Pilot Property Company, a property management company, from July 1988 until March 1991. Michael J. McHugh. Mr. McHugh has been Senior Vice President of the Company since November 1994 and Chief Accounting Officer and Treasurer of the Company since February 1995. From May 1990 to January 1995, Mr. McHugh was senior vice president and chief financial officer of First Capital. Alan W. George Mr. George has been Executive Vice President-Acquisitions of the Company since February 1997, Senior Vice President - Acquisitions of the Company from December 1995 until February 1997 and Vice President-Acquisitions and asset manager of the Company from December 1993 to December 1995. Mr. George was vice president-asset management of EAM from June 1992 until December 1993. He was vice president-asset management for American Real Estate Group, a real estate investment company, from 1990 to 1992. John W. Alexander. Mr. Alexander became a Trustee of the Company in May 1993. He has been the president of Mallard Creek Capital Partners, Inc., primarily an investment company with interests in real estate and development entities, since February 1994. He has been a partner of Meringoff Equities, a real estate investment company and is a director of Jacor Communications, Inc., an owner and operator of radio stations ("Jacor"). Henry H. Goldberg. Mr. Goldberg has been a Trustee of the Company since January 1995. Mr. Goldberg is chairman of the board, chief executive officer and founder of Artery Properties, Inc. Founded in 1959, Artery Properties, Inc. is a diversified real estate company. Mr. Goldberg was the direct or indirect general partner (or an executive thereof) of seven partnerships owning residential apartment communities and one commercial office building, each of which filed petitions under Federal bankruptcy laws during 1992 through 1993. Each of the partnerships is now out of bankruptcy through a reorganization plan agreed to by the project lender. Errol R. Halperin. Mr. Halperin became a Trustee of the Company in May 1993. Mr. Halperin has been an attorney at Rudnick and Wolfe, a law firm, since 1979, serving as a senior partner and a member of such firm's policy committee since 1981, specializing in Federal income tax counseling and real estate and corporate transactions. James D. Harper, Jr. Mr. Harper became a Trustee of the Company in May 1993. Since 1982, Mr. Harper has been president of JDH Realty Co., a real estate development and investment company. Since 1988 he has been a co-managing partner in AH Development, S.E. and AH HA Investments, S.E., special limited partnerships formed to develop over 400 acres of land in Puerto Rico. Sheli Z. Rosenberg. Ms. Rosenberg has been a Trustee of the Company since March 1993. She is a principal of the law firm of R&L. Ms. Rosenberg is chief executive officer, president and a director of EGI. Ms. Rosenberg has been a director of Jacor since 1994 and has been chairman of its board of directors since February 1996. Ms. Rosenberg is a director of Capsure, Falcon 43 PART III Building Products, Inc., a manufacturer and supplier of building products ("Falcon"), American Classic, MHC, Anixter, Revco and Sealy. Barry S. Sternlicht. Mr. Sternlicht became a Trustee of the Company in May 1993. Mr. Sternlicht has been chief executive officer and president of Starwood Capital Group, L.P. since 1993 and president of Starwood Capital Partners, L.P., a privately owned real estate investment firm, since its formation in 1991. Mr. Sternlicht is chairman of the board and chief executive officer of Starwood Lodging Trust, a REIT specializing in the ownership of hotels and co-chairman of the board of Westin Hotels and Resorts Company, an owner and operator of hotels. Mr. Sternlicht is a trustee of Angeles Participating Mortgage Trust, a mortgage REIT, U.S. Franchise Systems, a hotel franchise company and Starwood Lodging Corporation, which manages hotels owned by Starwood Lodging Trust. B. Joseph White. Mr. White became a Trustee of the Company in May 1993. He has been a professor at the University of Michigan Business School since 1987 and has served as Dean since 1991. Mr. White is a director of Falcon, Union Pump Company, a manufacturer of pumps, and Kelly Services, Inc., an employment agency. Pursuant to the Company's declaration of trust, the trustees are divided into three classes as nearly equal in number as possible, with each class having a term of three years. Business Meetings and Committees of the Board of Trustees Meetings: During the year ended December 31, 1996, the Board held twenty-one meetings. Each of the present trustees attended over 75% of the total number of meetings of the Board and of its committees which they were eligible to attend except for Mr. Sternlicht who attended approximately 50% of the meetings. There are three standing committees of the Board: the Executive Committee, the Compensation Committee and the Audit Committee, which are described below. Executive Committee: The Executive Committee of the Board is comprised of Messrs. Alexander, Crocker and Zell. The Executive Committee has the authority within certain parameters to acquire, dispose of and finance investments for the Company (including the issuance of OP Units in the Operating Partnership) and execute contracts and agreements, including those related to the borrowing of money by the Company, and generally exercise all other powers of the Board, except as prohibited by law. The Executive Committee held one meeting in 1996. Compensation Committee: The Compensation Committee of the Board is composed of Messrs. Halperin and Harper and Ms. Rosenberg. Mr. Harper is the chairman. The Compensation Committee reviews and makes recommendations concerning proposals by management with respect to compensation, bonuses, employment agreements and other benefits and policies respecting such matters for the executive officers of the Trust. The Compensation Committee held five meetings in 1996. Audit Committee: The Audit Committee of the Board is comprised of Messrs. White, Alexander, Halperin, Sternlicht and Goldberg. Mr. White is the chairman. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews the plans and results of the audit engagement with the independent public accountants, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of the Company's internal accounting controls. The Audit Committee held four meetings in 1996. Compensation of Trustees Trustees who are not employees of the Company received an annual fee in 1996 of $20,000 for serving as trustees. Effective January 1, 1997, this annual fee was increased to $40,000. In addition, trustees who serve on the Audit Committee, the Executive Committee or the Compensation Committee receive an additional $1,000 per annum for each committee on which they serve. Committee chairs receive an additional $500 per annum. The Company also reimburses the trustees of each committee for travel expenses incurred in connection with their activities on behalf of the Company. Each trustee is also granted options to purchase 5,000 Common Shares at the fair market value of the Company's Common Shares at the close of business on the date of the first trustees' meeting following each annual meeting of shareholders. The Company has adopted an optional deferred compensation plan for its non- employee trustees, pursuant to which the trustees may take any percentage of their annual trustees' compensation they desire in the form of cash, which is placed in a Supplemental Retirement Savings Plan on a tax deferred basis and used to purchase Common Shares under the Company's 1996 Non-Qualified Employee Share Purchase Plan. Any distributions paid on the Common Shares are automatically reinvested in additional Common Shares. Each trustee would be immediately 100% vested in his/her Common Shares and would be allowed to commence withdrawals over a 1-10 year period following termination of his/her trusteeship. Each trustee has elected to join the deferred compensation plan in order to take all of the trustee's fees they otherwise would have received in cash to purchase Common Shares under the Supplemental Retirement Savings Plan. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires the Company to report, based on its review of reports to the SEC about transactions in its Common Shares furnished to the Company and written representations of its trustees, executive officers and 10% Common Shareholders, that for 1996: Mr. Alexander filed a Form 4 late to report the sale of 2,000 Common Shares; Mr. Goldberg filed a Form 4 late to report the redemption of 300 Preference Units of the Operating Partnership; Mr. Halperin filed a Form 4 late to report the acquisition of 300 Common Shares; Mr. Sternlicht filed a Form 4 late to report the exchange of 325,000 OP Units for 325,000 Common Shares and the distribution of such Common Shares to the beneficial owners thereof; Mr. McHugh filed a Form 4 late to report the acquisition of 200 Common Shares and Mr. Zell filed a Form 4 late to report the acquisition of 30,000 Common Shares by the Samuel Zell Foundation. 44 PART III ITEM 11. EXECUTIVE COMPENSATION The following tables show information with respect to the annual compensation (including option grants) for services rendered to the Company for the fiscal years ended December 31, 1994, December 31, 1995 and December 31, 1996 by the chief executive officer and those persons who were, at December 31, 1996, the other four most highly compensated executive officers of the Company. SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation ------------------- ------------------------------------- Awards Payouts ------------------------ ---------- Other Restricted Securities Long-Term Annual Share Underlying Incentive All Other Name and Salary Bonus Compens. Award(s) Options Payouts Compensation Principal Position Year ($)(1) ($)(2) ($) ($)(4) Granted ($) ($)(6) - - ----------------------------- ---- ------- ------- --------- ---------- ----------- ---------- ------------ Douglas Crocker II, 1996 500,000 325,013 4,050 324,987 105,000 0 9,000 President and Chief 1995 401,346 200,020 0 199,980 30,000 0 8,955 Executive Officer 1994 298,654 100,015 0 99,985 30,000 0 8,040 Gerald A. Spector, Executive 1996 360,000 200,011 1,786 199,989 80,000 0 9,000 Vice President and Chief 1995 300,000 100,010 0 99,990 55,000 0 6,528 Operating Officer 1994 200,000 0 0 0 8,500 0 0 Frederick C. Tuomi, 1996 235,000 62,501 377 62,499 40,000 0 9,000 Executive Vice President- 1995 225,000 40,016 0 39,984 25,000 0 8,192 Property Management 1994 170,269 38,012 62,000(3) 37,988 25,000 0 0 David J. Neithercut, 1996 225,000 69,969 357 69,969 50,000 0 9,000 Executive Vice President and 1995 161,539(7) 45,018 0 44,982 40,000 0 8,955 Chief Financial Officer 1994 0 0 0 0 30,000 0 0 Gregory H. Smith, Executive 1996 225,000 62,501 609 62,499 40,000 0 9,000 Vice President--Asset 1995 196,827 31,000 0 31,000 15,000 0 0 Management 1994 9,250 0 0 0 10,000 0 0 - - -----------------------
(1) Amounts shown include cash compensation earned and received by executive officers as well as amounts earned but deferred at the election of these officers. (2) Cash bonuses are reported in the year earned, even if paid in a subsequent year. (3) Includes $24,083 amounts paid for relocation. (4) The named executives received restricted Common Shares as one-half of their annual bonuses, which Common Shares vest upon completion of two years of continuous employment following the date of grant. The dollar amount shown equals the number of restricted Common Shares granted multiplied by the fair market value of the Common Shares on the grant date (i.e., 1996-$41.50; 1995-$29.75 and 1994-$30.12). This valuation does not take into account the diminution in value attributable to the restrictions applicable to the Common Shares. Distributions are paid on all restricted Common Shares at the same rate as on unrestricted Common Shares. The total number of restricted Common Shares awarded each named executed officer in January 1997 based on their 45 PART III performance for the 1996 year is as follows: Douglas Crocker-7,831; Gerald A. Spector-4,819; Frederick C. Tuomi-1,506; David J. Neithercut-1,686; and Gregory H. Smith-1,506. The total number of restricted Common Shares awarded each named executed officer in January 1996 based on their performance for the 1995 year is as follows: Douglas Crocker-6,722; Gerald A. Spector-3,361; Frederick C. Tuomi-1,344; David J. Neithercut 1,512; and Gregory H. Smith- 1,042. The total value of the restricted Common Shares as of December 31, 1996 is $277,282.50, $138,641.25, $55,440.00, $62,370.00 and $42,982.50, respectively. Messrs. Crocker and Tuomi received 3,319 and 1,261 restricted Common Shares in December 1994 for services rendered during the 1994 calendar year. In December 1996, the restrictions on these Common Shares lapsed. (5) Securities underlying options are reported in the year granted. (6) Includes employer matching and profit-sharing contributions to the Company's 401(k) Advantage Retirement Savings Plan. (7) As Mr. Neithercut became employed by the Company on February 28, 1995, the salary shown for 1995 reflects the salary paid to him between February 28, 1995 and December 31, 1995. Mr. Neithercut's annualized salary in 1995 was $200,000. OPTIONS GRANTED IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Share Price Appreciation Individual Grants for Option Term(1) ------------------------------------------------------------ -------------------------------- Number of Percent of Securities Total Options underlying Granted to Exercise or Options Employees in Base Price Expiration Name Granted (#)(2) Fiscal Year ($/Sh) Date 5%($)(3) 10%($)(4) ---- -------------- ------------- ----------- ---------- ------------ ------------- Douglas Crocker II 100,000 10.30 29.75 01/18/06 1,870,961 4,741,383 5,000 .5 32.75 05/10/06 102,981 260,975 Gerald A. Spector 75,000 7.7 30.375 02/26/06 1,432,700 3,630,744 5,000 .5 32.75 05/10/06 102,981 260,975 Frederick C. Tuomi 40,000 4.1 30.375 02/26/06 764,106 1,936,397 David J. Neithercut 50,000 5.1 30.375 02/26/06 955,133 2,420,496 Gregory H. Smith 40,000 4.1 30.375 02/26/06 764,106 1,936,397 - - ------------------------------------------------------------------
(1) The dollar amounts under these columns are the result of calculations projected as of the year 2006, assuming the 5% and 10% rates of compounded annual appreciation set by SEC, and are not intended to forecast possible future appreciation, if any, of the Company's Common Share price. No gain to the optionee is possible without an increase in Common Share price, which would benefit all shareholders commensurately. (2) All options are granted at the fair market value of the Common Shares at the date of grant. Options granted are for a term of not more than ten years from the date of grant and vest in equal amounts over three years, with the exception of the 5,000 options granted annually to each trustee, which vest 1,667 shares six months after the grant date, 1,667 shares one year after the grant date and 1,666 shares two years after the grant date. (3) A 5% per year compounded appreciation in Common Share price from $29.75 per share 46 PART III yields $48.46 per Common Share, from $32.75 per Common Share yields $53.35 per Common Share, and from $30.375 per Common Share yields $49.48 per Common Share. (4) A 10% per year compounded appreciation in Common Share price from $29.75 per Common Share yields $77.16 per Common Share, from $32.75 per Common Share yields $84.95 per Common Share, and from $30.375 per Common Share yields $78.78 per Common Share. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Value of Securities Underlying Unexercised Unexercised In-the-Money Options at Options at Shares Fiscal Year-End(#) Fiscal Year-End($) Acquired on Value Exercisable/ Exercisable/ Name Exercise (#) Realized($) Unexercisable Unexercisable(1) - - -------------- ------------ ----------- ---------------------- ------------------- Douglas Crocker II 0 0 141,666/88,334 1,871,035/1,067,089 Gerald A. Spector 0 0 45,166/113,334 606,679/1,368,132 Frederick C. Tuomi 0 0 33,333/56,667 429,161/687,088 David J. Neithercut 0 0 26,333/76,667 388,286/947,088 Gregory H. Smith 0 0 11,666/53,334 163,949/630,425 - - --------------------------
(1) Represents the market value of one Common Share at December 31, 1996 ($41.25) less the exercise price of in-the-money options. LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
- - -------------------------------------------------------------------------------- Number of Performance Or Shares, Units Or Other Period Other Rights Until Maturation Name (#) Or Payout - - -------------------------------------------------------------------------------- Douglas Crocker 14,000 1/28/00 - - -------------------------------------------------------------------------------- Gerald A. Spector 8,500 1/28/00 - - -------------------------------------------------------------------------------- Frederick C. Tuomi 5,700 1/28/00 - - -------------------------------------------------------------------------------- David J. Neithercut 5,100 1/28/00 - - -------------------------------------------------------------------------------- Gregory H. Smith 5,700 1/28/00 - - --------------------------------------------------------------------------------
47 PART III The named executives received restricted Common Shares in 1997 as part of the Company's performance-based restricted share plan (the "Performance-Based Plan"), for services rendered during the 1996 fiscal year. Fifty percent of the Common Shares to which an executive under the Performance Based Plan may be entitled will vest on the third anniversary of the award; twenty-five percent of the Common Shares will vest on the fourth anniversary and the remaining twenty- five percent will vest on the fifth anniversary. However, the executive's rights under the Common Shares will fully vest upon the employee's death, disability or upon the change of control of the Company. Distributions will be paid on all restricted Common Shares at the same rate as on unrestricted Common Shares commencing on the third anniversary of the award date. The number of Common Shares the employee receives on the third anniversary will be calculated based upon the following schedule: If the Company's Average Return for the period from the date of the award to the third anniversary is: 0-9% 9% 10% 11% 12% 13% 14% 15% The executive will receive Common Shares equal to the target number of Common Shares times the following payment percentage: 0% 50% 100% 115% 135% 165% 190% 225%
The Company's Average Return will be expressed as a percentage determined by dividing (a) an amount equal to the sum of (i) the increase in the price of the Common Shares from the date the award is made to the executive to the third anniversary of the award, divided by three, plus (ii) the amount of the distributions paid during such three year period divided by three, by (b) the price of the Common Shares on the date of the award. Notwithstanding anything to the contrary set forth in any of the Company's filings under the Securities Act of 1933, as amended, or the Exchange Act, that might incorporate future filings, including this Annual Report on Form 10-K, in whole or in part, the Compensation Committee Report on Executive Compensation presented below and the Performance Graph following such report shall not be incorporated by reference into any such future filings. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board consists of the independent trustees of the Company listed below. The Compensation Committee's functions include the review and approval of the Company's executive compensation structure and overall benefits program. The purpose of the Company's executive compensation program is to establish and maintain a performance and achievement oriented environment throughout the Company. The program emphasizes the development of the Company so as to achieve and sustain above average growth in earnings with excellence in management. With this emphasis in mind, the program is designed so that executives may earn higher than average total compensation (base salary plus bonus) for an above-average job performance. At the end of 1996, the Company engaged the services of two independent compensation consulting firms, Ferguson FLT and Hay Associates, to advise the Company as to the appropriate methods and amounts of compensation for its executive officers. There are three major components of executive compensation: base salary, bonuses and performance based shares and share option awards granted under the Company's Second Amended and Restated 1993 Share Option and Share Award Plan (the "Award Plan"). Each of these components is further discussed below. Base Salary. The Company's overall salary structure is reviewed annually, using outside executive compensation surveys of the (i) real estate industry in general and (ii) REITs in particular, to ensure that it remains competitive. Positions are classified within the salary structure on the basis of assigned responsibilities and on an evaluation of the latest survey information available, as to appropriate compensation levels. Where salary information is unavailable for a particular position, salary grade assigned is based on other positions having similar responsibilities within the Company and in companies with comparable revenues. Individual base salaries are reviewed at least annually. Decisions relating to salary increases are based upon guidelines furnished by senior management. Salary increases are granted based on each executive's performance as well as such executive's position in the applicable salary range. Bonus. The objectives underlying the Company's bonus program are to: (i) more closely link bonus awards to value added for the Company's Shareholders, and (ii) promote a culture of performance and ownership among the Company's managers. During 1996, the target bonuses were 100% for Messrs. Crocker and Spector and 50% for all other Executive Vice Presidents. A bonus is typically paid in excess of target levels only when Company performance for the year is at the upper level within its peer group. Executive officers' mid-term incentives are accomplished by tying the executive officers' performance to the continued performance of the Company. The Company accomplishes this by awarding the Chief Executive Officer and each other executive officer some or all of his or her bonus, as determined by the Compensation Committee, in restricted Common Shares or Common Share equivalents, which shares vest two years from the date of grant. The Compensation Committee believes that having its executive officers "invest" a portion of their bonuses in Common Shares or Common Share equivalents facilitates better alignment of the executive officer's compensation with the performance of the Company's Common Shares. The long-term incentives for executive officers are in the form of performance-based restricted shares and share option grants. Performance Based Restricted Share Plan. The Performance Based Plan is designed to focus the Company's key employees eligible under this plan on achieving a high level of total return (i.e., share appreciation and distributions) to the Company's shareholders, and to encourage such key employees to continue their employment with the Company. Under this plan, awards will be made to the President and Chief Executive Officer and to all Executive Vice Presidents on an annual basis by setting a target number of Common Shares for each executive. The employee will be eligible to receive from fifty percent (50%) to two-hundred twenty-five percent (225%) of the target number of Common Shares, or not receive any Common Shares at all, based on the Company's Average Return (as heretofore described), received by shareholders during the 3 year period following the award. The number of Common Shares an executive will receive will be fixed and determined and then issued (subject to the vesting formula previously discussed) to the executive beginning on the third anniversary of the grant of award. It is anticipated that awards will be made on an annual basis so that by the fifth year of an award, each executive will have vested and unvested rights in each of the previous five awards. Share Options. The Compensation Committee recognizes that while the bonus program provides rewards for positive short-term and mid-term performance, the interests of shareholders are best served by giving key employees the opportunity to participate in the appreciation of the Company's Common Shares through the granting of share options. The Compensation Committee believes that, over an extended period of time, share performance will, to a meaningful extent, reflect executive performance and that such arrangements further reinforce management goals and incentives to achieve shareholder objectives. The Share Options vest over a period of three years at a rate of 33 1/3% of such grant each year, thereby encouraging the retention of key employees who receive awards. The amount of Share Options awarded each executive was determined utilizing the aforementioned executive compensation surveys and an assessment of the executive officer's achieved performance goals and objectives. Deferred Compensation Agreements. To encourage Mr. Crocker and Mr. Spector to remain in the employ of the Company, the Board has entered into Deferred Compensation Agreements with Mr. Crocker and Mr. Spector. Mr. Crocker's Deferred Compensation Agreement, entered into in 1996, provides Mr. Crocker with a salary benefit after his termination of employment with the Company. If Mr. Crocker's employment is terminated without cause, he would be entitled to annual deferred compensation for a 10-year period commencing on the termination date in an amount equal to his average annual base compensation (before bonus) for the prior five calendar years, multiplied by a percentage equal to 10% per each year since December 31, 1995. In the event Mr. Crocker's employment is terminated as a result of his death, permanent disability or incapacity, he would be entitled to a similar amount except that the annual percentage would be 15% and the maximum amount paid per year would not exceed 100% of his average base salary. Should Mr. Crocker be terminated for cause or should he choose to leave voluntarily without good reason, he would not be entitled to any deferred compensation. Mr. Spector's Deferred Compensation Agreement, entered into in 1997, provides Mr. Spector with a salary benefit after his termination of employment with the Company. If Mr. Spector's employment is terminated without cause, he would be entitled to annual deferred compensation for a 15-year period commencing on the termination date in an amount equal to 75% of his average annual base compensation (before bonus) for the prior five calendar years, multiplied by a percentage equal to 6.67% per each year since December 31, 1996. In the event Mr. Spector's employment is terminated as a result of his death, permanent disability or incapacity, he would be entitled to a similar amount except that the annual percentage would be 10% and the maximum amount paid per year would not exceed 75% of his average base salary. Should Mr. Spector be terminated for cause or should he choose to leave voluntarily without good reason, he would not be entitled to any deferred compensation. In January 1996, Mr. Crocker was issued options to purchase 100,000 Common Shares, which options vest over a 3-year period and are effective for 10 years. The Board also approved a Share Distributions Agreement with respect to such options for Mr. Crocker in 1996. Pursuant to the terms of the Share Distribution Agreement, upon the exercise of any of these options, Mr. Crocker would be entitled to in a cash payment in an amount equal to the total amount of Common Share distributions that would have been paid on said Common Shares being exercised had he owned said Common Shares for the period from January 18, 1996 until the date of the exercise of the options in question. This agreement is not affected by Mr. Crocker's death or termination of employment with the Company. Based on the executive compensation surveys and the Company's financial performance in 1996, the Compensation Committee believes that the salary, bonus, performance shares and option grants of Mr. Crocker, the Chief Executive Officer and President of the Company, are fair and competitive and that the Company's overall executive compensation ranks in the upper quartile among the general real estate industry and among REITs. This ranking correlates with the excellent financial performance of the Company in 1996 when compared against that of other REITs. The Company accomplished its main goals in 1996 by increasing its net income and funds from operations per Common Share, strengthening its balance sheet and diversifying its portfolio across the United States, which provides stability in cash flows and insulation against regional economic downturns. During Mr. Crocker's tenure as Chief Executive Officer and President, the Company has become the largest REIT owner and operator of apartment properties and has the largest market capitalization of all multifamily REITs and second largest market capitalization among all REITs. The key performance measure the Compensation Committee used to determine Mr. Crocker's 1996 compensation was that the Company's financial performance in 1996 was in the top quartile in almost every financial category as compared to other REITs, due in large part to Mr. Crocker's leadership, foresight and experience. The Compensation Committee noted the following factors in support of its conclusion: . A 13% increase in funds from operations per Common Share over 1995; . Excellent "same store" operating results with a 7.5% increase in net operating income; . Distributions per Common Share of $2.40, a 9.9% increase over 1995; . Continued superior return to the Company's shareholders as the price of the Company's Common Shares appreciated 35% during 1996; . Successful equity and debt offerings in 1996 of $754 million; . Total market capitalization of $4.2 billion, an increase of 51% over 1995; and . Acquisition of 48 properties in 1996, consisting of 15,297 units representing a $754 million investment. Based on the Company's excellent corporate performance in 1996, the Compensation Committee believes that the compensation program properly rewards its executive officers for achieving improvements in the Company's performance and serving the interest of its shareholders. Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code"), generally disallows a Federal income tax deduction for compensation in excess of $1 million paid in any year to any of the Company's executive officers listed in the Summary Compensation Table who are employed by the Company on the last day of a taxable year. Section 162(m), however, does allow a deduction for payments of "performance based" compensation, the material terms of which have been approved by shareholders. Awards under the Company's Award Plan may, but need not, satisfy the requirements of Section 162(m). The Company believes that because it qualifies as a REIT under the Code and therefore is not subject to Federal income taxes, the payment of compensation that does not satisfy the requirements of Section 162(m) will not affect the Company's taxable income, although to the extent that compensation does not qualify for deduction under Section 162(m), a larger portion of shareholder distributions may be subject to Federal income taxation as dividend income rather than return of capital. The Company does not believe that Section 162(m) will materially affect the taxability of shareholder distributions, although no assurance can be given in this regard due to the variety of factors that affect the tax portion of individual shareholders. PERFORMANCE GRAPH The following Common Share price performance graph compares shareholders' return on the Company's Common Shares since August 11, 1993, the date of commencement of the Company's initial public offering, with the Standard and Poors ("S&P") 500 Stock Index and the index of equity REITs prepared by the NAREIT. The Common Share price performance graph assumes an investment of $100 in each of the Company and the two indexes on August 11, 1993 and the reinvestment of all dividends. Equity REITs are defined as those trusts which derive more than 75% of their income from equity investments in real estate assets. The NAREIT equity index includes all tax qualified REITs listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market. Common Share price performance presented for the period from August 11, 1993 through December 31, 1996 is not necessarily indicative of future results.
August 1993 Dec. 1993 Dec. 1994 Dec. 1995 Dec. 1996 COMPANY 100.00 125.24 125.84 138.54 199.73 S&P 500 Stock Index 100.00 105.39 106.78 146.91 180.64 NAREIT Equity Index 100.00 97.14 100.23 129.69 156.26
Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of March 1, 1997, information regarding the beneficial ownership of the Company's Common Shares by each trustee of the Company, the Company's five most highly compensated executive officers at year end, and the trustees and named executive officers as a group.
Shares Upon Number of Exercise of Percent of Name Common Shares/(1)/ Options/(2)/ Total/(1)/ Class/(1)/ - - ---- ------------------ ------------ -------------- ---------- John W. Alexander 154 15,001 15,555 * Douglas Crocker II 204,344/(3)/ 183,333 387,677 * Henry H. Goldberg 396,087/(4)/ 5,001 401,088 * Errol R. Halperin 2,334/(5)/ 15,001 17,335 * James D. Harper, Jr. 2,150 15,001 17,151 * Sheli Z. Rosenberg 15,488/(6)/ 62,001 77,489 * Gerald A. Spector 52,803/(7)/ 86,834 139,637 * Barry S. Sternlicht 1,900,143/(8)/ 15,001 1,915,144 3.29% B. Joseph White 3,439 15,001 18,440 * Samuel Zell 4,679,645/(9)/ 148,334 4,827,979 8.29% Frederick C. Tuomi 13,457 54,999 68,456 * David J. Neithercut 14,289/(10)/ 56,332 70,621 * Gregory Smith 4,475 29,999 34,474 * All trustees and executive officers as a group including the above-named persons (16 persons) 7,306,814 814,335 8,121,149 13.96%
*Less than 1%. (1) The amount of Common Shares beneficially owned is reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. The percentage of Common Shares beneficially owned by a person assumes that all OP Units held by the person are exchanged for Common Shares, that none of the OP Units held by other persons are so exchanged, that all options exercisable within sixty days of March 1, 1997 to acquire Common Shares held by the person are exercised and that no options to acquire Common Shares held by other persons are exercised. (2) The amounts shown in this column reflect Common Shares subject to options granted under the Award Plan which are currently exercisable or exercisable within 60 days of the date of this table. (3) Includes 8,200 Common Shares beneficially owned by Mr. Crocker's spouse. Mr. Crocker disclaims beneficial ownership of the 8,200 Common Shares. Also includes 175,000 Common Shares beneficially owned by MWC Partners, L.P., an Illinois limited partnership ("MWC"). Mr. Crocker is sole general partner of MWC. The sole limited partner is a trust created for the benefit of Mr. Crocker's wife and Mr. Crocker's children. (4) Includes 263,347 OP Units held by Mr. Goldberg, which are exchangeable on a one-for-one basis into 263,347 Common Shares; 48,078 OP Units held by Mr. Goldberg's spouse, which are exchangeable on a one-for-one basis into 48,078 Common Shares; and 75,714 OP Units held by GGL Investment Partners #1 ("GGL"), a Maryland general partnership, which are exchangeable on a one-for-one basis into 75,714 Common Shares,. Mr. Goldberg is a general partner of GGL with a 66.67% percentage interest. Mr. Goldberg disclaims beneficial ownership of the interests held by his spouse and 33.33% of the interests held by GGL. (5) Includes 1,000 Common Shares beneficially owned by Mr. Halperin's spouse. Mr. Halperin disclaims beneficial ownership of the 1,000 shares. (6) Includes 1,528 OP Units which are exchangeable on a one-for-one basis into 1,528 Common Shares. Ms. Rosenberg may be deemed to control or share control of the power to invest such Common Shares (assuming exchange into Common Shares). Ms. Rosenberg is a trustee or co-trustee of certain trusts created for the benefit of Mr. Zell and his family and trusts created for the benefit of the family of Mr. Robert Lurie, a deceased partner of Mr. Zell. Such trusts are indirect owners of certain partnerships which own Common Shares and indirect partners of the Operating Partnership. Ms. Rosenberg disclaims beneficial ownership of all such Common Shares and OP Units. (7) Includes 33,500 Common Shares beneficially owned by Mr. Spector's spouse. Also includes 2,200 Common Shares beneficially owned by Mr. Spector, as custodian for his minor children and 1,150 Common Shares beneficially owned by Mr. Spector as trustee of his daughter's trust. Mr. Spector disclaims beneficial ownership of the 36,850 Common Shares. Also includes 1,683 OP Units which are exchangeable on a one-for-one basis into 1,683 Common Shares. (8) Includes 1,899,996 OP Units which are exchangeable on a one-for-one basis into 1,899,996 Common Shares. Mr. Sternlicht may be deemed to be the beneficial owner of the 1,899,996 Common Shares (assuming exchange of 1,899,996 OP Units) because Mr. Sternlicht controls or shares control of the power to vote and invest such Common Shares. Mr. Sternlicht disclaims beneficial ownership of 1,601,665 Common Shares (assuming the exchange of 1,601,665 OP Units) because the economic benefits with respect to such Common Shares are attributable to other persons. (9) Includes 3,436,060 Common Shares (assuming exchange of 3,436,060 OP Units). Mr. Zell may be deemed to be the beneficial owner of these 3,436,060 Common Shares (assuming the exchange of 3,436,060 OP Units) because Mr. Zell controls or shares control of the power to vote and invest such Common Shares, either directly, or as the general partner of partners of the Operating Partnership or as a Shareholder of a corporate general partner which owns Common Shares. Mr. Zell disclaims beneficial ownership of 2,191,045 Common Shares (assuming the exchange of 1,557,561 OP Units) because the economic benefits with respect to such Common Shares are attributable to other persons. (10) Includes 2,000 Common Shares beneficially owned by Mr. Neithercut, as custodian for his minor children. Mr. Neithercut disclaims beneficial ownership of the 2,000 Common Shares. SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS The following table sets forth information as of March 1, 1997 (except as otherwise noted), with respect to persons who are known by the Company to be the beneficial owner of more than 5% of the Company's outstanding Common Shares.
Amount and Nature of Beneficial Name and Address of Beneficial Owner Ownership/(1)/ Percent of Class/(1)/ - - ---------------------------------------------------------------------------------- FMR Corp./(2)/ 82 Devonshire Street Boston, MA 02109-3614 6,551,185 11.26% Samuel Zell and entities controlled by Samuel Zell and Ann Lurie/(3)/ Two North Riverside Plaza 4,827,979 8.30% Chicago, IL 60606 The Prudential Insurance Company of America/(4)/ Prudential Plaza 751 Broad Street Newark, NJ 07102-3777 3,816,500 6.56% Merrill Lynch & Co., Inc./ (5)/ 800 Scudders Mill Road Plainsboro, NY 08536 3,220,425 5.54% - - ------------------------
(1) The amount of Common Shares beneficially owned is reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. The percentage of Common Shares beneficially owned by a person assumes that all OP Units held by the person are exchanged for Common Shares, that none of the OP Units held by other persons are so exchanged, that all options exercisable within sixty days of March 1, 1997 to acquire Common Shares held by the person are exercised and that no options to acquire Common Shares held by other persons are exercised. (2) Pursuant to a Schedule 13G filed with the SEC, as of December 31, 1996, FMR Corp. ("FMR") may have direct or indirect voting and/or investment discretion over these Common Shares which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. FMR is reporting the combined holdings of the entities for the purpose of administrative convenience. (3) Includes 3,436,060 OP Units which are exchangeable on a one-for-one basis into 3,436,060 Common Shares. Also included are options to purchase 148,334 Common Shares which are currently exercisable or exercisable within sixty days and beneficially owned by Mr. Zell. Also includes 30,000 Common Shares beneficially owned by the Samuel Zell Foundation. Mr. Zell disclaims beneficial ownership of 2,191,045 Common Shares (assuming the exchange of 1,557,561 Units) because the economic benefits with respect to such Common Shares are attributable to other persons. Ms. Lurie disclaims beneficial ownership of 2,518,600 Common Shares (assuming the exchange of 1,878,499 OP Units). (4) Pursuant to a Schedule 13G filed with the SEC, as of December 31, 1996, The Prudential Insurance Company of America ("Prudential") may have direct or indirect voting and/or investment discretion over these Common Shares which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. Prudential is reporting the combined holdings of the entities for the purpose of administrative convenience. (5) Pursuant to a Schedule 13G filed with the SEC for February 14, 1997, Merrill Lynch and Co., Inc. ("Merrill Lynch") may have direct or indirect voting and/or investment discretion over these Common Shares which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. Merrill Lynch is reporting the combined holdings of the entities for the purpose of administrative convenience. Item 13. Certain Relationships and Related Transactions (a) Pursuant to the terms of the partnership agreement for the Operating Partnership, the Operating Partnership is required to reimburse the Company for all expenses incurred by the Company in excess of income earned by the Company through its indirect 1% ownership of various Financing Partnerships. Amounts paid on behalf of the Company are reflected in the Consolidated Statement of Operations as general and administrative expenses. During 1996, certain related entities provided services to the Operating Partnership and the Company. These included, but were not limited to, Rosenberg & Liebentritt, P.C., which provided legal services; Greenberg & Pociask, Ltd., which provided tax and accounting services; and First Capital Financial Corporation, which provided accounting services. Fees paid to Rosenberg & Liebentritt, P.C., of which Ms. Rosenberg has been chairman of the board since March 1995 and was president from 1980 until March 1995, amounted to approximately $0.7 million for the year ended December 31, 1996. Fees paid to the other affiliates mentioned above amounted in the aggregate to approximately $4,400 for the year ended December 31, 1996. In addition, The Riverside Agency, Inc., which provided insurance brokerage services, was paid fees and reimbursed premiums and loss claims in the amount of $4.1 million for the year ended December 31, 1996. As of December 31, 1996, no amounts were owed to The Riverside Agency, Inc. As of December 31, 1996, $315,700 was owed to Rosenberg & Liebentritt, P.C. for legal fees incurred in connection with property acquisitions and securities matters. Equity Group Investments, Inc. ("EGI") and certain of its subsidiaries, including EAM, Eagle Flight Services, Equity Properties & Development, L.P. and EPMC have provided certain services to the Operating Partnership and the Company which include, but are not limited to, investor relations, corporate secretarial, computer and support services, real estate tax evaluation services, financial services, telecommunication services, information systems services and property development services. Fees paid to EGI for these services amounted to $1.3 million for the year ended December 31, 1996. Amounts due to EGI were approximately $0.3 million as of December 31, 1996. Artery Property Management, Inc. ("Artery") provided consulting services with regard to property acquisitions and additional business opportunities and was paid approximately $0.2 million for the year ended December 31, 1996. During 1995, the Operating Partnership engaged Rudnick & Wolfe, a law firm in which Mr. Halperin is a partner, to perform legal services. Fees paid to this firm amounted to approximately $4,300 for the year ended December 31, 1996. Management Corp. has lease agreements with affiliated parties covering office space occupied by regional operation centers located in Chicago, Illinois ("Midwest ROC") and Tampa, Florida ("Southeast ROC") and the corporate headquarters located in Chicago, Illinois. In connection with these affiliated lease agreements, Management Corp. paid Equity Office Holdings, L.L.C. ("EOH") $118,919 in connection with the Midwest ROC, $137,638 in connection with the Southeast ROC and $409,392 in connection with the space occupied by the corporate headquarters for the year ended December 31, 1996. As of December 31, 1996, $46,435 was owed to EOH. In addition, the Operating Partnership and the Company have provided acquisitions, asset and property management services to certain related entities for properties not owned by the Company. Fees received for providing such services were approximately $6.7 million for the year ended December 31, 1996. Mr. Goldberg is a two-thirds owner and chairman of the board of directors of Artery Property Management, Inc. ("APMI"), a real estate property management company. In connection with the acquisition of certain properties from Mr. Goldberg and his affiliates during 1995, the Operating Partnership made a loan of $15,212,000 evidenced by two notes and secured by 465,545 OP Units. Mr. Goldberg estimates that his interest in this transaction equaled $26,000,000. The largest aggregate amount of indebtedness outstanding under the loan at any time during 1996 and the amount outstanding as of December 31, 1996 was $15,212,000. The first note issued in the amount of $1,056,000 accrues interest at the prime rate plus 3-1/2% per annum. The second note issued in the amount of $14,156,000 bears interest equal to approximately $300,000 per year plus the amount of distributions payable on 433,230 of the OP Units pledged as collateral for this loan. Mr. Tuomi borrowed $100,000 from the Company in 1994 related to his purchase of a home in the Chicago area. The loan bears interest at 30-day LIBOR plus 2% with interest due quarterly. The largest principal amount owed in 1996 was $90,000 and the principal balance at December 31, 1996 was $72,000. The loan is payable in equal principal installments of $18,000 over five years. Mr. Tuomi borrowed $40,000 from the Company in 1996 related to the payment of a tax liability incurred when the restrictions relating to 1,261 Common Shares lapsed on December 16, 1996. The loan carried interest at the rate of 8- 1/2% with the outstanding principal balance, together with any accrued and unpaid interest due on the earlier of March 31, 1997 or the sale of Mr. Tuomi's 1,261 Common Shares. The largest principal amount owed in 1996 was $40,000 and the principal balance at December 31, 1996 was $40,000. Payment was secured by a pledge of Mr. Tuomi's 1,261 Common Shares. The loan was paid in full on March 5, 1997. Mr. Crocker borrowed $78,000 from the Company in December 1995. The loan bears interest at 30 day LIBOR plus 2%. The largest principal amount owed in 1996 was $78,000 and the principal balance at December 31, 1996 was $78,000. Interest is due monthly with the outstanding balance due on March 31, 1997. Payment was secured by a pledge of Mr. Crocker's restricted share awards issued in January 1996. The loan was paid in full on March 3, 1997. Mr. Crocker borrowed $140,000 from the Company in April 1996 related to the payment of a tax liability incurred. The loan bears interest at 30-day LIBOR plus 2%. The largest principal amount owed in 1996 was $140,000 and the principal balance at December 31, 1996 was $140,000. Interest is due monthly with the outstanding balance due on March 1, 1998. Payment was secured by a pledge of Mr. Crocker's restricted share awards issued in January 1996. Mr. Crocker borrowed $564,000 from the Company during 1996. The loan bears interest at monthly LIBOR plus 2% with interest due quarterly. The largest principal amount owed in 1996 was $564,000 and the principal balance at December 31, 1996 was $564,000. Payment is secured by a pledge of Mr. Crocker's Common Shares. Payments of principal shall be payable annually in the amount of $80,580 on March 15, 1997 and in the amounts $80,570 on March 15th of each of the next six succeeding years. A payment in the amount of $80,580 was received in February 1997 and the principal balance now is $483,420. The executive officers listed below are indebted to the Company as a result of purchasing Common Shares from the Company in June 1994. The loans accrue interest, payable quarterly in arrears, at the applicable federal rate, as defined in the Internal Revenue Code of 1986, as amended, in effect at the date of each loan. The loans are due and payable on the first to occur of the date in which the individual leaves the Company, other than by reason of death or disability, or the respective loan's due date. The loans are with recourse to the respective individuals and are collateralized by a pledge of the Common Shares purchased. All dividends paid on pledged Common Shares in excess of the then marginal tax rate on the taxable portion of such dividends are used to pay interest and principal on the loans.
Largest Principal Principal Amount Owed Balance at Interest Name in 1996 December 31, 1996 Rate - - -------------------------------------------------------------------- Douglas Crocker II $ 878,776 $ 850,318 6.21% Douglas Crocker II 983,171 960,748 6.15% Douglas Crocker II 944,584 944,584 7.26% Douglas Crocker II 1,901,807 1,901,807 7.93% Frederick C. Tuomi 314,861 314,861 7.26% Alan George 79,063 79,063 7.26%
Rosenberg and Liebentritt, P.C. provides legal services to the Operating Partnership and the Company. Sheli Z., Rosenberg, a Trustee of the Company, is a principal of this firm. The Operating Partnership has also engaged Seyfarth, Shaw, Fairweather & Geraldson, a law firm in which Ms. Rosenberg's husband is a partner, to provide legal services from time to time relating to employee benefit issues. 48 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) (1 & 2) See Index to Financial Statements and Schedules on page F-1 of this Form 10-K. (3) Exhibits: 2.1* Property Contribution Agreement (Zell Properties and EPMC) 2.2* Property Contribution Agreement (Starwood Properties) 3.1* Amended and Restated Declaration of Trust of Equity Residential Properties Trust, dated August 10, 1993 3.1A+ Amended and Restated Declaration of Trust of Equity Residential Properties Trust dated February 3, 1995 3.2* Bylaws of Equity Residential Properties Trust 4.1**** Indenture, dated as of May 16, 1994, by and among the Operating Partnership, as obligor, the Company, as guarantor and The First National Bank of Chicago, as trustee in connection with 81/2% senior notes due May 15, 199 9 4.2**** Indenture, dated October 1, 1994, between the Operating Partnership, as obligor and The First National Bank of Chicago, as trustee in connection with up to $500 million of debt securities 4.3 ++ Registration Rights and Lock-Up Agreement Beauchamp 10.1* Agreement of Limited Partnership of ERP Operating Limited Partnership 10.1A* Second Amended and Restated Agreement of Limited Partnership of ERP Operating Limited Partnership 10.1B**** Third Amended and Restated Agreement of Limited Partnership of ERP Operating Limited Partnership 10.1C***** Fourth Amended and Restated Agreement of Limited Partnership of ERP Operating Limited Partnership 10.2* Agreement of Limited Partnership of Equity Residential Properties Management Limited Partnership 10.3+ Agreement of Limited Partnership of Equity Residential Properties Management Limited Partnership II 10.4* Noncompetition Agreement (Zell) 10.5* Noncompetition Agreement (Crocker) 10.6* Noncompetition Agreement (Spector) 10.7* Form of Noncompetition Agreement (other officers) 10.8* Registration Rights and Lock-Up Agreement with the Company (Zell) 10.9* Registration Rights and Lock-Up Agreement with the Company (Starwood) 10.10*** Form of Registration Rights Agreement with purchasers in the Private Equity Offering 10.11* Services Agreement between Equity Residential Properties Trust and Equity Group Investments, Inc. 10.12* Form of Property Management Agreement (REIT properties) 10.13**** Form of Property Management Agreement (Non-REIT properties) 10.14* 1993 Share Option Plan 10.14A*** Amended and Restated 1993 Share Option and Share Award Plan 53 PART IV 10.15* Form of Contribution Agreement dated as of August 11, 1993 10.16** Revolving Credit Agreement by and among the Operating Partnership, the Company, NationsBank of Texas, N.A. and Wells Fargo Realty Advisors Funding, Incorporated 10.16A** First Amendment to Revolving Credit Agreement by and among the Operating Partnership, the Company, Nations Bank of Texas, N.A. and Wells Fargo Realty Advisors Funding, Incorporated 10.17** Revolving Credit Agreement by and among the Operating Partnership, the Company, The First National Bank of Chicago and First National Bank Association, and First Amendment to Revolving Credit Agreement 10.17A** Second Amendment to Revolving Credit Agreement by and among the Operating Partnership, the Company, The First National Bank of Chicago, First National Bank Association and the First National Bank of Boston 10.18**** Credit Agreement by and among the Operating Partnership, as borrower, the Company, Wells Fargo Realty Advisors Funding, Incorporated, as lender, Wells Fargo Realty Advisors Funding, Incorporated, as agent, and The First National Bank of Chicago and Nations Bank of Texas, N.A., as co-agents, dated November 14, 1994 10.19**** Purchase and Sale Agreement by and among Real Estate Equities Joint Venture as Sellers and EQR-EXL Vistas, Inc. and Executive Life Insurance Company in Rehabilitation/Liquidation, date August 17, 1994. 10.20 Revolving Credit Agreement, dated as of November 15, 1996 among the Operating Partnership and Morgan Guaranty Trust Company of New York, as lead agent and Bank of America Illinois, as co-lead agent 10.21 Amended and Restated Master Reimbursement Agreement, dated as of November 1, 1996 by and between Federal National Mortgage Association and EQR-Bond Partnership 12 Computation of Ratio of Earnings to Fixed Charges 21 List of Subsidiaries of Equity Residential Properties Trust 23.1 Consent of Grant Thornton L.L.P. 23.2 Consent of Ernst & Young LLP. 24.1 Power of Attorney for John Alexander dated February 24, 1997 24.2 Power of Attorney for James D. Harper, Jr. dated February 24, 1997 24.3 Power of Attorney for Errol R. Halperin dated February 24, 1997 24.4 Power of Attorney for B. Joseph White dated February 24, 1997 24.5 Power of Attorney for Barry S. Sternlicht dated February 24, 1997 24.6 Power of Attorney for Henry H. Goldberg dated February 24, 1997 - - ----------------------------------------- * Included as an exhibit to the Company's Form S-11 Registration Statement, File No. 33-63158, and incorporated herein by reference. Included as an exhibit to the Company's Form S-11 Registration Statement, File No. 33-72080, and incorporated herein by reference . *** Included as an exhibit to the Company's Form S-11 Registration Statement, File No. 33-80420, and incorporated herein by reference. **** Included as an exhibit to the Operating Partnership's Form 10/A, dated December 12, 1994, File No. 0-24920, and incorporated herein by reference. 54 PART IV ***** Included as an exhibit to the Operating Partnership's Form 10-Q for the quarter ended September 30, 1995, dated November 7, 1995, and incorporated herein by reference. + Included as an exhibit to the Company's Form 10-K for the year ended December 31, 1994. ++ Included as an exhibit to the Company's Form 10-K for the year ended December 31, 1995. 55 PART IV (b) Reports on Form 8-K: A Report on Form 8-K dated November 15, 1996, reporting information for property acquisitions. A Report on Form 8-K dated December 5, 1996 reporting information in connection with the December 1996 Common Share Offerings. A Report on Form 8-K dated December 13, 1996 reporting information in connection with the December 1996 Common Share Offerings. (c) Exhibits: See Item 14(a)(3) above. (d) Financial Statement Schedules: See Index to Financial Statements attached hereto on page F-1 of this Form 10-K. 56 PART IV SIGNATURES ---------- Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. EQUITY RESIDENTIAL PROPERTIES TRUST Date: March 20, 1997 By: /s/ Douglas Crocker II -------------- ------------------------------------------ Douglas Crocker II President, Chief Executive Officer, Trustee and *Attorney-in-Fact Date: March 20, 1997 By: /s/ David J. Neithercut -------------- ------------------------------------------ David J. Neithercut Executive Vice-President and Chief Financial Officer Date: March 20, 1997 By: /s/ Michael J. McHugh -------------- ------------------------------------------ Michael J. McHugh Senior Vice-President, Chief Accounting Officer, Treasurer and *Attorney-in-fact Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 20, 1997 By: /s/ Samuel Zell -------------- ------------------------------------------ Samuel Zell Chairman of the Board of Trustees Date: March 20, 1997 By: /s/ Gerald A. Spector -------------- ------------------------------------------ Gerald A. Spector Executive Vice-President, Chief Operating Officer and Trustee Date: March 20, 1997 By: /s/ Sheli Z. Rosenberg -------------- ------------------------------------------ Sheli Z. Rosenberg Trustee 57 PART IV SIGNATURES-CONTINUED -------------------- Date: March 20, 1997 By: /s/ James D. Harper -------------- ------------------------------------------- James D. Harper Trustee Date: March 20, 1997 By: /s/ Errol R. Halperin -------------- ------------------------------------------- Errol R. Halperin Trustee Date: March 20, 1997 By: /s/ Barry S. Sternlicht -------------- ------------------------------------------- Barry S. Sternlicht Trustee Date: March 20, 1997 By: /s/ John W. Alexander -------------- ------------------------------------------- John W. Alexander Trustee Date: March 20, 1997 By: /s/ B. Joseph White -------------- ------------------------------------------- B. Joseph White Trustee Date: March 20, 1997 By: /s/ Henry H. Goldberg -------------- ------------------------------------------- Henry H. Goldberg Trustee 58 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE EQUITY RESIDENTIAL PROPERTIES TRUST
PAGE ---- FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT Report of Independent Auditors............................ F-2 Report of Independent Accountants......................... F-3 Consolidated Balance Sheets as of December 31, 1996 and 1995............................. F-4 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994....... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994....... F-6 to F-7 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994....................... F-8 Notes to Consolidated Financial Statements................ F-9 to F-37 SCHEDULE FILED AS PART OF THIS REPORT Report of Independent Accountants......................... S-1 Schedule III - Real Estate and Accumulated Depreciation... S-2 to S-9
F-1 REPORT OF INDEPENDENT AUDITORS To the Board of Trustees and Shareholders Equity Residential Properties Trust We have audited the accompanying consolidated balance sheet of Equity Residential Properties Trust (the "Company") as of December 31, 1996 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equity Residential Properties Trust at December 31, 1996, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Chicago, Illinois February 12, 1997 except for Note 19, as to which the date is March 20, 1997 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees Equity Residential Properties Trust We have audited the accompanying consolidated balance sheet of Equity Residential Properties Trust (the "Company") as of December 31, 1995 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equity Residential Properties Trust as of December 31, 1995, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ GRANT THORNTON LLP GRANT THORNTON LLP Chicago, Illinois February 14, 1996 F-3 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (Amounts in thousands except for share amounts)
DECEMBER 31, DECEMBER 31, 1996 1995 ----------- ------------ ASSETS Investment in rental property Land $ 284,879 $ 210,439 Depreciable property 2,698,631 1,978,500 ---------- ---------- 2,983,510 2,188,939 Accumulated depreciation (301,512) (218,339) ---------- ---------- Investment in rental property, net of accumulated depreciation 2,681,998 1,970,600 Cash and cash equivalents 147,271 13,428 Investment in mortgage notes, net 86,596 87,154 Rents receivable 1,450 1,073 Deposits - restricted 20,637 18,272 Escrow deposits - mortgage 15,434 16,745 Deferred financing costs, net 14,555 12,653 Other assets 18,186 21,335 ---------- ---------- TOTAL ASSETS $2,986,127 $2,141,260 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 755,434 $ 561,695 Notes, net 498,840 348,524 Line of credit - 92,000 Accounts payable and accrued expenses 33,117 23,544 Accrued interest payable 12,737 8,354 Due to affiliates 628 1,568 Rents received in advance and other liabilities 15,838 11,138 Security deposits 14,128 10,131 Distributions payable 45,938 30,826 ---------- ---------- TOTAL LIABILITIES 1,376,660 1,087,780 ---------- ---------- Commitments and contingencies Minority Interests 150,637 168,963 ---------- ---------- Shareholders' equity: Preferred Shares of beneficial interest, $.01 par value; 10,000,000 shares authorized: 9 3/8% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25 per share, 6,120,000 shares issued and outstanding 153,000 153,000 9 1/8% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $250 per share, 500,000 shares issued and outstanding 125,000 125,000 9 1/8% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $250 per share, 460,000 shares issued and outstanding 115,000 - Common Shares of beneficial interest, $.01 par value, 100,000,000 shares authorized, 51,154,836 shares issued and outstanding as of December 31, 1996 and 35,011,715 shares issued and outstanding as of December 31, 1995 512 350 Paid in capital 1,147,214 652,829 Employee notes (5,255) (5,331) Distributions in excess of accumulated earnings (76,641) (41,331) ---------- ---------- Total shareholders' equity 1,458,830 884,517 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,986,127 $2,141,260 ========== ==========
See accompanying notes. F-4 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except for per share data)
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 -------------------------------------- REVENUES Rental income $ 454,412 $ 373,919 $ 220,727 Fee and asset management 6,749 7,030 4,739 Interest income - investment in mortgage notes 12,819 4,862 - Interest and other income 4,405 4,573 5,568 ---------- ---------- ---------- Total revenues 478,385 390,384 231,034 ---------- ---------- ---------- EXPENSES Property and maintenance 127,172 112,186 66,534 Real estate taxes and insurance 44,128 37,002 23,028 Property management 17,512 15,213 10,249 Property management - non-recurring - - 879 Fee and asset management 3,837 3,887 2,056 Depreciation 93,253 72,410 37,273 Interest: Expense incurred 81,351 78,375 37,044 Amortization of deferred financing costs 4,242 3,444 1,930 General and administrative 9,857 8,129 6,053 ---------- ---------- ---------- Total expenses 381,352 330,646 185,046 ---------- ---------- ---------- Income before gain on disposition of properties, extraordinary items and allocation to Minority Interests 97,033 59,738 45,988 Gain on disposition of properties 22,402 21,617 - ---------- ---------- ---------- Income before extraordinary items and allocation to Minority Interests 119,435 81,355 45,988 Extraordinary items: Write-off of unamortized costs on refinanced debt (3,512) - - Gain on early extinguishment of debt - 2,000 - ---------- ---------- ---------- Income before allocation to Minority Interests 115,923 83,355 45,988 Income allocated to Minority Interests (14,299) (15,636) (11,570) ---------- ---------- ---------- Net income 101,624 67,719 34,418 Preferred distributions (29,015) (10,109) - ---------- ---------- ---------- Net income available to Common Shares $ 72,609 $ 57,610 $ 34,418 ========== ========== ========== Net income per weighted average Common Share outstanding $ 1.70 $ 1.68 $ 1.34 ========== ========== ========== Weighted average Common Shares outstanding 42,586 34,358 25,621 ========== ========== ========== Distributions declared per Common Share outstanding $ 2.40 $ 2.18 $ 2.01 ========== ========== ========== Tax treatment of distributions (unaudited) Ordinary income $ 1.88 $ 1.70 $ 1.66 ========== ========== ========== Return of Capital $ 0.43 $ 0.48 $ 0.35 ========== ========== ========== Long-Term Capital Gain $ 0.09 $ - $ - ========== ========== ==========
See accompanying notes. F-5 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 -------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 101,624 $ 67,719 $ 34,418 Adjustments to reconcile net income to net cash provided by operating activities: Income allocated to Minority Interests 14,299 15,636 11,570 Depreciation 93,253 72,410 37,273 Amortization of deferred financing costs (including discount on 1999 and 2002 Notes) 4,558 3,717 2,039 Amortization of discount on investment in mortgage notes (613) - - Gain on disposition of properties (22,402) (21,617) - Write-off of unamortized costs on refinanced debt 3,512 - - Gain on early extinguishment of debt - (2,000) - Changes in assets and liabilities: (Increase) in rents receivable (409) (259) (641) (Increase) in deposits - restricted (556) (218) (1,849) Decrease (increase) in other assets 158 1,913 (7,906) (Decrease) increase in due to affiliates (857) (2,305) 1,261 Increase in accounts payable and accrued expenses 9,901 3,765 9,286 Increase in accrued interest payable 4,383 2,616 4,483 Increase in rents received in advance and other liabilities 4,079 157 4,063 ---------- ---------- ---------- Net cash provided by operating activities 210,930 141,534 93,997 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in rental properties, net (641,015) (239,964) (855,156) Improvements to rental property (33,001) (32,800) (16,721) Additions to non-rental property (2,347) (3,669) (2,417) Proceeds from disposition of rental property, net 40,093 46,426 - Purchase of contract rights - - (5,836) Decrease (increase) in mortgage deposits 1,311 (1,299) (3,541) Deposits (made) on rental property acquisitions (16,916) (15,107) (5,200) Deposits applied on rental property acquisitions 15,107 5,200 - Decrease (increase) in investment in mortgage notes 1,171 (87,154) - Other investing activities (58) 4,349 (7,644) ---------- ---------- ---------- Net cash (used for) investing activities (635,655) (324,018) (896,515) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of Common Shares 489,139 - 583,829 Proceeds from sale of Preferred Shares 115,000 278,000 - Proceeds from exercise of options 4,028 2,664 251 Proceeds from sale of 1999 Notes, net of discount - - 124,131 Proceeds from sale of Floating Rate Notes - - 100,000 Proceeds from sale of 2002 Notes, net of discount - 124,011 - Proceeds from sale of 2026 Notes 150,000 - - Redemption of Preference Units (1,083) (1,352) - Payment of offering costs (10,415) (10,353) (26,738) Distributions to Common Share and Preferred Share owners (121,860) (77,081) (43,432) Distributions to Minority Interests (20,444) (18,794) (16,348) Principal receipts on employee notes 76 143 29 Loan to seller - - (15,212) Proceeds from refinancing of tax-exempt bonds, net 112,209 - - Proceeds from line of credit 250,000 317,000 376,800 Repayments on line of credit (342,000) (387,000) (247,400) Principal payments on mortgage notes payable (60,706) (47,787) (25,872) Loan and bond acquisition costs (9,111) (4,558) (7,026) Increase in security deposits 3,735 948 5,125 Other financing activities - 33 358 ---------- ---------- ---------- Net cash provided by financing activities 558,568 175,874 808,495 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 133,843 (6,610) 5,977 Cash and cash equivalents, beginning of year 13,428 20,038 14,061 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 147,271 $ 13,428 $ 20,038 ========== ========== ==========
See accompanying notes. F-6 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (AMOUNTS IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 -------------------------------------- Supplemental information: Cash paid during the period for interest $ 76,968 $ 75,759 $ 32,561 ========== ========== ========== Mortgage loans assumed through acquisitions of rental properties $ 142,237 $ 23,554 $ 388,357 ========== ========== ========== Rental property assumed through foreclosure $ 10,854 $ - $ - ========== ========== ========== Net rental properties contributed in exchange for OP units $ 440 $ 18,811 $ - ========== ========== ========== Rental property conveyed in exchange for release of mortgage indebtedness $ - $ 20,500 $ - ========== ========== ========== Stated value of Preference Units issued for rental properties $ - $ - $ 41,213 ========== ========== ========== Conversion of mortgage note receivable $ - $ - $ 25,000 ========== ========== ==========
See accompanying notes. F-7 EQUITY RESIDENTIAL PROPERTIES TRUST CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Amounts in thousands)
YEAR ENDED DECEMBER 31, 1996 1995 1994 -------------------------------------- PREFERRED SHARES Balance, beginning of year $ 278,000 $ - $ - 9 3/8% Series A Cumulative Redeemable - 153,000 - 9 1/8% Series B Cumulative Redeemable - 125,000 - 9 1/8% Series C Cumulative Redeemable 115,000 - ---------- ---------- ---------- Balance, end of year $ 393,000 $ 278,000 $ - ========== ========== ========== COMMON SHARES, $.01 PAR VALUE Balance, beginning of year $ 350 $ 340 $ 146 Issuance through proceeds from offerings 144 - 193 Conversion of OP Units into Common Shares 16 9 - Issuance through exercise of options and restricted share grants 2 1 1 ---------- ---------- ---------- Balance, end of year $ 512 $ 350 $ 340 ========== ========== ========== PAID IN CAPITAL Balance, beginning of year $ 652,829 $ 636,751 $ 151,082 Sale of Common Shares, net 482,591 - 556,142 Issuance of Common Shares through conversion of OP Units into Common Shares 27,651 15,664 - Issuance of Common Shares for employee notes - 1,959 2,635 Issuance of Common Shares through exercise of options and restricted share grants 4,353 2,881 609 Offering costs associated with Preferred Shares (4,011) (9,422) - Adjustments for Minority Interests ownership in Operating Partnership (16,199) 4,996 (73,717) ---------- ---------- ---------- Balance, end of year $1,147,214 $ 652,829 $ 636,751 ========== ========== ========== EMPLOYEE NOTES Balance, beginning of year $ (5,331) $ (3,515) $ (909) Notes received for issuance of Common Shares - (1,959) (2,635) Principal receipts 76 143 29 ---------- ---------- ---------- Balance, end of year $ (5,255) $ (5,331) $ (3,515) ========== ========== ========== DISTRIBUTION IN EXCESS OF ACCUMULATED EARNINGS Balance, beginning of year $ (41,331) $ (23,640) $ (3,834) Net income 72,609 57,610 34,418 Distributions on Common Shares (107,919) (75,301) (54,224) ========== ========== ========== Balance, end of year $ (76,641) $ (41,331) $ (23,640) ========== ========== ==========
See accompanying notes F-8 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Formation of the Company Equity Residential Properties Trust, formed in March 1993, and its subsidiaries (collectively, the "Company"), is a self-administered and self- managed equity real estate investment trust ("REIT"). The Company has elected to be taxed as a REIT under Section 856(c) of the Internal Revenue Code 1986, as amended (the "Code"), commencing with its taxable year ending December 31, 1993. As a result, the Company generally will not be subject to Federal income tax to the extent it distributes 95% of its taxable income to its shareholders. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any year, its taxable income may be subject to income tax at regular corporate rates (including any applicable alternative minimum tax). Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and excise taxes on its undistributed income. The Company is the successor to the multifamily property business of Equity Properties Management Corp. ("EPMC"), an entity controlled by Mr. Samuel Zell, Chairman of the Board of Trustees of the Company, and a series of other entities which owned 69 of the multifamily properties contributed to the Company at the time of the Company's initial public offering (the "Initial Properties"). Forty- six of the Initial Properties (the "Zell Properties") were contributed or sold by entities substantially controlled by Mr. Zell and primarily owned by Mr. Zell and trusts for the benefit of Mr. Robert Lurie, a deceased partner of Mr. Zell. The remaining 23 of the Initial Properties (the "Starwood Properties") were acquired from entities controlled by Starwood Capital Partners, L.P. ("Starwood") and its affiliates ("Starwood Original Owners"). Prior to the completion of the Company's initial public offering (the "IPO") of 13,225,000 common shares of beneficial interest, $.01 par value per share ("Common Shares"), EPMC provided multifamily residential management services (the "Management Business") to the Zell Properties. The Company is engaged in the acquisition, disposition, ownership, management and operation of multifamily properties. As of December 31, 1996, the Company controlled a portfolio of 218 multifamily properties (individually a "Property" and collectively the "Properties") containing 67,705 apartment units. The Company's interest in six of these Properties at the time of acquisition thereof consisted solely of ownership of debt collateralized by such Properties. The Company also has an investment in partnership interests and subordinated mortgages collateralized by 21 properties (the "Additional Properties"). The Properties and Additional Properties are located throughout the United States in the following 30 states: Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, Nevada, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia and Washington. F-9 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In exchange for contributing 33 of the Zell Properties and the Management Business and the Starwood Properties, the 33 existing entities (the "Zell Original Owners"), and entities controlled by Starwood and EPMC received a total of 8,433,238 partnership interests ("OP Units") (including an additional 93,639 OP Units issued in August 1994 and 1,835 OP Units issued in September 1995) in ERP Operating Limited Partnership (the "Operating Partnership"). The OP Units are exchangeable on a one-for-one basis into Common Shares. The other 13 Zell Properties were acquired from 13 existing partnerships (the "Zell Sellers") for $43.5 million in cash. The Management Business, the Zell Original Owners and the Zell Sellers are collectively the "Predecessor Business". The Company has formed a series of partnerships (the "Financing Partnerships") which beneficially own certain Properties encumbered by mortgage indebtedness. The Operating Partnership owns a 1% limited partner interest and a 98% general partner interest in each Financing Partnership. The remaining 1% general partner interest in each Financing Partnership is owned by various qualified REIT subsidiaries wholly owned by the Company (each a "QRS Corporation"). Rental income from the Properties that are beneficially owned by a Financing Partnership is used first to service the applicable mortgage debt and pay other operating expenses and any excess is then distributed 1% to the applicable QRS Corporation, as the general partner of such Financing Partnership, and 99% to the Operating Partnership, as the sole 1% limited partner and as the 98% general partner. The Company has also formed a series of limited liability companies (the "LLCs") which own certain Properties and one such LLC which has an investment in partnership interests and subordinated mortgages collateralized by the Additional Properties. The Operating Partnership is a 99% managing member of each LLC and a QRS Corporation is a 1% member of each LLC. As of December 31, 1996, all of the Properties were managed by either Equity Residential Properties Management Limited Partnership, the successor to the Management Business contributed by EPMC contemporaneously with the IPO or Equity Residential Properties Management Limited Partnership II (collectively, the "Management Partnerships"). The Management Partnerships collect a property management fee consistent with a reasonable arms-length charge for the performance of such services. The sole general partner of the Management Partnerships with a 1% interest is the Operating Partnership. The sole limited partners of the Management Partnerships are Equity Residential Properties Management Corp. ("Management Corp.") and Equity Residential Properties Management Corp. II ("Management Corp. II"), respectively, and each have a 99% interest in the respective partnership. F-10 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Basis of Presentation The balance sheets as of December 31, 1996 and 1995 and the statements of operations, cash flows and changes in shareholders' equity for the years ended December 31, 1996, 1995 and 1994 represented the consolidated financial information of the Company and its subsidiaries. Due to the Company's ability as general partner to control either through ownership or by contract the Operating Partnership, the Management Partnerships and the Financing Partnerships and the LLCs, each such entity has been consolidated with the Company for financial reporting purposes. In regard to Management Corp. and Management Corp. II, the Company does not have legal control; however, these entities are consolidated for financial reporting purposes, the effects of which are immaterial. Certain reclassifications have been made to the prior year's financial statements in order to conform with the current year presentation. 3. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS On January 26, 1994, the Company completed a second public offering of 5,750,000 additional Common Shares (the "Second Public Offering"). The Second Public Offering price was $29 per Common Share resulting in gross proceeds of $166.8 million. Proceeds to the Company, net of underwriters' discount and estimated offering expenses, were approximately $157.4 million. Between April 1994 and June 1994, the Company sold 1,569,270 unregistered Common Shares to six accredited institutional investors (the "Private Equity Offering") and received net proceeds of approximately $47 million. On July 27, 1994, the Company completed a third public offering of 9,200,000 additional Common Shares (the "Third Public Offering"). The Third Public Offering price was $31.25 per Common Share resulting in net proceeds of $271.7 million. In September 1994, the Company registered 5,000,000 Common Shares pursuant to an equity shelf registration statement (the "Equity Shelf Registration") of which 2,735,320 registered Common Shares were sold in separate transactions completed in October 1994 (collectively, the "Shelf Offering"). The Company received net proceeds of approximately $81 million in connection therewith. The prices at which the Common Shares were sold ranged from $29.34 to $30.17. On September 11, 1995, the Company filed with the Securities and Exchange Commission (the "SEC") a Form S-3 Registration Statement to register up to $500 million of its non-voting preferred shares of beneficial interest, $0.01 par value per share ("Preferred Shares"), Common Shares and depositary shares, pursuant to a shelf offering (the "Second Shelf Registration"). In January 1996, the Company completed an offering of 1,725,000 registered Common Shares, which were sold at a net price of $29.375 per share (the "January 1996 Common Share Offering") and received net proceeds of approximately $50.7 million in connection therewith. F-11 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Also in January 1996, the Company filed with the SEC a Form S-3 Registration Statement to register 1,676,423 Common Shares which may be sold by the holders thereof or by holders of OP Units upon the issuance of Common Shares in exchange for such OP Units. In February 1996, the Company completed an offering of 2,300,000 registered Common Shares, which were sold at a net price of $29.50 per share (the "February 1996 Common Share Offering") and received net proceeds of approximately $67.8 million in connection therewith. On May 21, 1996, the Company completed an offering of 2,300,000 publicly registered Common Shares, which were sold at a net price of $30.50 per share. On May 28, 1996, the Company completed the sale of 73,287 publicly registered Common Shares to employees of the Company and to employees of Equity Group Investments, Inc. and certain of its subsidiaries ("EGI") and certain of their respective affiliates and consultants at a net price equal to $30.50 per share. On May 30, 1996, the Company completed an offering of 1,264,400 publicly registered Common Shares, which were sold at a net price of $30.75 per share. The Company received net proceeds of approximately $111.3 million in connection with the sale of the 3,637,687 Common Shares mentioned above (collectively, the "May 1996 Common Share Offerings") . On June 26, 1996, the Company filed with the SEC a Form S-3 Registration Statement to register 608,665 Common Shares which may be issued by the Company to holders of 608,665 OP Units. The SEC declared this Registration effective on September 6, 1996. On September 18, 1996, the Company filed with the SEC a Form S-3 Registration Statement to register $500 million of equity securities (the "1996 Equity Shelf Registration"). The SEC declared this Registration effective on September 23, 1996. In September 1996, the Company completed the sale of 2,272,728 publicly registered Common Shares which were sold at a net price of $33 per share. The Company received net proceeds of approximately $75 million in connection with this offering (the "September 1996 Common Share Offering"). On September 27, 1996, the Company filed with the SEC a Form S-3 Registration Statement to register 1,182,835 Common Shares which may be issued by the Company to holders of 1,182,835 OP Units. The SEC declared this Registration effective on October 3, 1996. In November 1996, the Company issued 39,458 Common Shares pursuant to the 1996 Non-qualified Employee Share Purchase Plan (the "Employee Share Purchase Plan") at a net price of $30.44 per share and received net proceeds of approximately $1.2 million. In December 1996, the Company completed offerings of 4,440,000 publicly registered Common Shares, which were sold to the public at a price of $41.25 per share (the "December 1996 Common Share Offerings"). The Company received net proceeds of approximately $177.4 million F-12 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) in connection therewith. The following table presents the changes in the Company's issued and outstanding Common Shares for the years ended December 31, 1996, 1995 and 1994 (excluding OP Units of 7,858,228, 8,208,882, and 8,431,403 outstanding at December 31, 1996, 1995 and 1994, respectively):
1996 1995 1994 ----------- ----------- ---------- Common Shares outstanding at January 1, 35,011,715 33,963,655 14,601,000 Common Shares issued through January 1996 Common Share Offering 1,725,000 Common Shares issued through February 1996 Common Share Offering 2,300,000 Common Shares issued through May 1996 Common Share Offerings 3,637,687 Common Shares issued through September 1996 Common Share Offering 2,272,728 Common Shares issued through December 1996 Common Share Offerings 4,440,000 Common Shares issued through Employee Share Purchase Plan 39,458 Common Shares issued through Second Public Offering - - - - 5,750,000 Common Shares issued through Third Public Offering - - - - 9,200,000 Common Shares issued through Private Equity Offering - - - - 1,569,270 Common Shares issued through Shelf Offering - - - - 2,735,320 Common Shares issued for employee notes - - 75,000 86,500 Common Shares issued through exercise of options 150,840 100,966 9,664 Common Shares issued through restricted share grants 21,879 - - 11,901 Common Shares issued through conversion of OP units 1,545,866 865,174 - - Common Shares issued for profit-sharing contribution 10,001 7,997 - - Common Shares held in treasury (338) (1,077) - - ---------- ---------- ---------- Common Shares outstanding at December 31, 51,154,836 35,011,715 33,963,655 ========== ========== ==========
The declaration of trust of the Company provides that the Company may issue up to 10,000 Preferred Shares with specific rights, preferences and other attributes as the Board of Trustees may determine, which may include preferences, powers and rights that are senior to the rights of holders F-13 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) of the Company's Common Shares. Under certain circumstances, the issuance of Preferred Shares may require shareholder approval pursuant to the rules and the regulations of the New York Stock Exchange. In June 1995, the Company sold 6,120,000 of its 9 3/8% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share (liquidation preference $25 per share) (the "Series A Preferred Shares"), pursuant to a $250 million shelf registration (the "Preferred Shelf Registration"), at $25 per share. The Company raised gross proceeds of $153 million from this offering (the "Series A Preferred Share Offering"). The net proceeds of approximately $148.2 million from the Series A Preferred Share Offering were contributed by the Company to the Operating Partnership in exchange for 6,120,000 of the Operating Partnership's 9 3/8% Series A cumulative redeemable preference units. The Series A Preferred Shares are cumulative from the date of original issue and are payable quarterly on or about the fifteenth day of January, April, July and October of each year, at the annual rate of 9 3/8% of the liquidation preference of $25 per share. The Series A Preferred Shares are not redeemable prior to June 1, 2000. On or after June 1, 2000, the Preferred Shares may be redeemed for cash at the option of the Company in whole or in part, at a redemption price of $25 per share, plus accrued and unpaid distributions, if any, thereon. In November 1995, the Company sold 5,000,000 depositary shares (the "Series B Depositary Shares") pursuant to the Preferred Shelf Registration and the Second Shelf Registration. Each Series B Depositary Share represents a 1/10 fractional interest in a 9 1/8% Series B Cumulative Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share (the "Series B Preferred Shares"). The liquidation preference of each of the Series B Preferred Shares is $250.00 (equivalent to $25 per Series B Depositary Share). The Company raised gross proceeds of $125 million from this offering (the "Series B Preferred Share Offering"). The net proceeds of approximately $121 million from the Series B Preferred Share Offering were contributed by the Company to the Operating Partnership in exchange for 500,000 of the Operating Partnership's 9 1/8% Series B cumulative redeemable preference units. The Series B Preferred Shares are cumulative from the date of original issue and are payable quarterly on or about the fifteenth day of January, April, July and October of each year, commencing on January 15, 1996, at the annual rate of 9 1/8% of the liquidation preference of $25 per Depositary Share. The Series B Preferred Shares are not redeemable prior to October 15, 2005. On and after October 15, 2005, the Series B Preferred Shares may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price of $250 per share (equivalent to $25 per Series B Depositary Share), plus accrued and unpaid distributions, if any, thereon. In September 1996 the Company sold 4,600,000 depositary shares (the "Series C Depositary Shares") pursuant to the Second Shelf Registration. Each Series C Depositary Share represents a 1/10 fractional interest in a 9 1/8% Series C Cumulative Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share (the "Series C Preferred Shares"). The liquidation preference of each of the Series C Preferred Shares is $250.00 (equivalent to $25 per Series C Depositary Share). The Company raised gross proceeds of $115 million from this offering (the "Series C Preferred F-14 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Share Offering"). The net proceeds of approximately $111.4 million from the Series C Preferred Share Offering were contributed by the Company to the Operating Partnership in exchange for 460,000 of the Operating Partnership's 9 1/8% Series C cumulative redeemable preference units. The Series C Preferred Shares are cumulative from the date of original issue and are payable quarterly on or about the fifteenth day of January, April, July and October of each year, commencing on October 15, 1996, at the annual rate of 9 1/8% of the liquidation preference of $25 per 1996 Depositary Share. The Series C Preferred Shares are not redeemable prior to September 9, 2006. On and after September 9, 2006, the Series C Preferred Shares may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price of $250 per share (equivalent to $25 per Series C Depositary Share), plus accrued and unpaid distributions, if any, thereon. In connection with the acquisition of seven of the Properties, which closed in December, 1994, the Company, through the Operating Partnership, issued 41,213 preferred interests ("Preference Units") to certain sellers of these Properties. The Preference Units had a stated value of $1,000 and entitled the holders thereof to preferential distributions from the Operating Partnership (other than liquidating distributions) before distributions to the holders of the OP Units and the Company (provided that the Company shall be entitled to receive distributions necessary to maintain its REIT status under U.S. tax laws). On March 1, 1996, the Operating Partnership exercised its option to convert all of the remaining Preference Units into OP Units. This conversion resulted in 1,182,835 OP Units being issued. The Operating Partnership also made loans to certain of these sellers in the aggregate amount of $15.2 million, which loans are fully collateralized by 465,545 OP Units. Net proceeds from the Company's Common Share offerings are contributed by the Company to the Operating Partnership in return for an increased ownership percentage and are treated as capital transactions in the Company's Consolidated Financial Statements. As a result, the net offering proceeds are allocated between shareholders' equity and the equity position of various limited partners of the Operating Partnership (collectively, the "Minority Interests") (to the extent represented by OP Units), to account for the change in their respective percentage ownership of the underlying equity of the Operating Partnership. Assuming conversion of all OP Units, total Common Shares outstanding at December 31, 1996 would have been 59,013,064. As of December 31, 1996, the Minority Interests held 7,858,228 OP Units which represented a 13.32% interest in the Operating Partnership. The Company paid a $0.59, $0.59, $0.59 and $0.625 per Common Share distribution on April 12, July 12, and October 11, 1996 and January 10, 1997, respectively, for the quarters ended March 31, June 30, September 30 and December 31, 1996, to Common Share holders of record on March 29, June 28, September 27 and December 27, 1996, respectively. F-15 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company also paid a $0.5859, $0.5859, $0.5859 and $0.58605 per share distribution on April 15, July 15, October 15, 1996 and January 15, 1997, respectively for the quarters ended March 31, June 30, September 30 and December 31, 1996 to Series A Preferred Share holders of record on March 29, June 28, September 27 and December 27, 1996, respectively. In addition, the Company paid a $0.5703, $0.5703, $0.5703 and $0.57035 per share distribution on April 15, July 15, October 15, 1996 and January 15, 1997, respectively for the quarters ended March 31, June 30, September 30 and December 31, 1996 to Series B Depositary Share holders of record on March 29, June 28, September 27 and December 27, 1996, respectively. In addition, the Company paid $0.1394, covering the period September 9 through September 30, 1996 and $0.5703 per share distribution on October 15, 1996 and January 15, 1997, respectively, for the quarters ended September 30 and December 31, 1996 to Series C Depositary Share holders of record on September 27 and December 27, 1996, respectively. F-16 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Summary of Significant Accounting Policies (a) Rental Property Rental property is recorded at cost less accumulated depreciation less an adjustment, if any, for impairment. Rental properties intended to be held and operated by the Company over their remaining useful life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the particular rental property may not be recoverable. If these events or changes in circumstances are present, the Company estimates the sum of the expected future cash flows (undiscounted) to result from the operations and eventual disposition of the particular rental property, and if less than the carrying amount of the rental property, the Company will recognize an impairment loss. Upon recognition of any impairment loss the Company measures that loss based on the amount by which the carrying amount of the rental property exceeds the estimated fair value of the rental property. For rental properties to be disposed of, an impairment loss is recognized when the fair value of the rental property, less the estimated cost to sell, is less than the carrying amount of the rental property measured at the time the Company has a commitment to sell the property and/or is actively marketing the property for sale. Rental property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Depreciation is not recorded during the period in which assets are held for disposal. There were no Properties held for sale as of December 31, 1996. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. The Company uses a 30-year estimated life for buildings, a 10-year estimated life for land improvements and up to a seven-year estimated life for furniture, fixtures and equipment. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and significant renovations and improvements that improve and/or extend the useful life of the asset are capitalized over their estimated useful life. Initial direct leasing costs are expensed as incurred and such expense approximates the deferral and amortization of initial direct leasing costs over the lease terms. Property sales or dispositions are recorded when title transfers and sufficient consideration has been received by the Company. Upon disposition, the related costs and accumulated deprecation are removed from the respective accounts. Any gain or loss on sale or disposition is recognized in accordance with generally accepted accounting principles. (b) Cash and Cash Equivalents The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of four months or less, at the date of purchase, to be cash equivalents. The Company maintains its cash and cash equivalents at financial institutions. The combined account balances at each institution periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance F-17 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) coverage. The Company believes that the risk is not significant as the Company does not anticipate their non-performance. (c) Deferred Financing Costs Deferred financing costs include fees and costs incurred to obtain the Company's lines of credit, long-term financing and costs for certain interest rate protection agreements. These costs are amortized over the terms of the related debt. Unamortized financing costs are written-off when debt is retired before the maturity date. As of December 31, 1996 and 1995, the accumulated amortization of such deferred financing costs was $3.8 million and $6.4 million, respectively. (d) Interest Rate Protection Agreements The Company from time to time enters into interest rate protection agreements to effectively convert floating rate debt to a fixed rate basis, as well as to hedge anticipated financing transactions. Net amounts paid or received under these agreements are recognized as an adjustment to interest expense when such amounts are incurred or earned. Settlement amounts paid or received in connection with terminated interest rate protection agreements are deferred and amortized over the remaining term of the related financing transaction on the straight-line method. The Company believes it has limited exposure to the extent of non-performance by the counterparties of each protection agreement since each counterparty is a major U.S. financial institution, and the Company does not anticipate their non-performance. (e) Fair Value of Financial Instruments The fair values of the Company's financial instruments, including cash and cash equivalents, and mortgage notes payable, other notes payable, lines of credit and other financial instruments, approximate their carrying or contract values. With respect to the Company's investment in mortgage notes, the fair value as of December 31, 1996 was estimated to be approximately $100 million compared to the Company's carrying value of $86.6 million. The estimated fair value of the Company's investment in mortgage notes represents the estimated net present value based on the expected future property level cash flows and an estimated current market discount rate. (f) Revenue Recognition Rental income attributable to leases is recorded when due from tenants and is recognized monthly as it is earned, which is not materially different than on a straight-line basis. Interest income is recorded on an accrual basis. F-18 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (g) Lease Agreements A substantial portion of the leases entered into between the tenant and a multifamily property for the rental of an apartment unit is month-to-month or year-to-year, renewable upon consent of both parties. (h) Income Taxes Due to the structure of the Company as a REIT and the nature of the operations of the Properties and Management Business, the results of operations contain no provision for Federal income taxes. However, the Company is subject to certain state and local income, excise or franchise taxes. The Company paid no Federal income taxes during the year ended December 31, 1996. The aggregate cost of land and depreciable property for Federal income tax purposes as of December 31, 1996 was approximately $2.8 billion. (i) Income per Common Share Income per Common Share was based on the weighted average number of Common Shares outstanding during each of the three years ended December 31, 1996. The conversion of an OP Unit to a Common Share will have no effect on income per Common Share since the allocation of earnings to an OP Unit is equivalent to a Common Share. (j) Minority Interests Net income is allocated to the Minority Interests based on their respective ownership percentage of the Operating Partnership. Ownership percentage is represented by dividing the number of OP Units held by the Minority Interests by the OP Units held by Minority Interests and Common Shares outstanding. Issuance of additional Common Shares or OP Units changes the ownership of both the Minority Interests and the Company. Such transactions and the proceeds therefrom are treated as capital transactions and result in an allocation between shareholders' equity and Minority Interests to account for the change in the respective percentage ownership of the underlying equity of the Operating Partnership. (k) Use of Estimates In preparation of the Company's financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. F-19 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Rental Property The following summarizes the carrying amounts for the rental property as of December 31, 1996 and 1995:
1996 1995 ---------- ---------- (Amounts in thousands) Land $ 284,879 $ 210,439 Buildings and Improvements 2,566,568 1,884,510 Furniture, Fixtures and Equipment 132,063 93,990 ---------- ---------- Rental Property 2,983,510 2,188,939 Accumulated Depreciation (301,512) (218,339) ---------- ---------- Rental Property, net $2,681,998 $1,970,600 ========== ==========
During 1996, the Company acquired the Properties listed below. Each Property was purchased from an unaffiliated third party. The cash portions of the acquisitions were funded from either proceeds raised through the various offerings, amounts drawn on the Company's line of credit or working capital. In connection with certain of the acquisitions listed below, the Company assumed mortgage indebtedness of $134.1 million and issued OP Units having a value of $440,000.
Total Date Number Acquisition Cost Acquired Property Location of Units (in thousands) - - -------- ---------------------------------------- -------------------- -------- ---------------- 02/08/96 7979 Westheimer Houston, TX 459 $ 14,618 02/27/96 Sabal Pointe (formerly The Vinings at Coral Springs, FL 275 19,606 Coral Springs) 03/01/96 Woodbridge (formerly The Plantations) Cary, NC 344 19,938 03/05/96 Heron Landing (formerly Oxford & Sussex) Lauderhill, FL 144 7,239 03/12/96 The Pines at Cloverlane Ypsilanti, MI 582 20,982 03/14/96 Regency Palms Huntington Beach, CA 310 18,710 03/21/96 Port Royale II Ft Lauderdale, FL 161 10,468 04/16/96 2900 on First Seattle, WA 135 11,861 05/22/96 Woodland Hills Decatur, GA 228 12,420 05/31/96 Ivy Place (formerly Post Place) Atlanta, GA 122 8,079 06/03/96 Ridgetree Dallas, TX 798 21,347
F-20 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 06/05/96 Country Ridge Farmington Hills, MI 252 16,388 06/07/96 Rosehill Pointe Lenexa, KS 498 21,236 06/07/96 Forest Ridge Arlington, TX 660 23,670 06/12/96 Canyon Sands Phoenix, AZ 412 14,905 06/12/96 Desert Sands Phoenix, AZ 412 14,893 06/25/96 Chandler Court Chandler, AZ 311 13,633 06/28/96 Lands End Pacifica, CA 260 18,326 07/01/96 Sunny Oak Village Overland Park, KS 548 22,523 07/01/96 Mallard Cove Greenville, SC 211 8,171 07/16/96 Pine Meadow Greensboro, NC 204 7,262 07/19/96 Summer Ridge Riverside, CA 136 6,031 07/19/96 Promenade Terrace Corona, CA 330 22,853 07/19/96 South Creek Phoenix, AZ 528 26,773 08/01/96 Pueblo Villas Albuquerque, NM 232 8,581 08/28/96 Brixworth Nashville, TN 216 11,766 08/30/96 Brierwood Jacksonville, FL 196 5,528 08/30/96 Woodscape Raleigh, NC 240 9,595 09/03/96 Park Place Plymouth, MN 500 24,472 09/19/96 Eagle Canyon Chino Hills, CA 252 18,095 09/19/96 Summerset Village Chatsworth, CA 280 26,317 09/19/96 Canterchase Nashville, TN 235 8,655 09/20/96 Songbird San Antonio, TX 262 10,854 09/20/96 Willowglen Aurora, CO 384 17,173 09/26/96 Merrimac Woods Costa Mesa, CA 123 6,765 09/27/96 Casa Capricorn San Diego, CA 192 12,631 09/30/96 Hunter's Glen Chesterfield, MO 192 9,166 10/11/96 Marbrisa Tampa, FL 224 8,140 10/31/96 Lakeville Resort Petaluma, CA 492 27,348 11/01/96 Cedar Crest Overland Park, KS 466 21,614 12/12/96 Rock Creek Carrboro, NC 188 8,952 12/13/96 Village Oaks Austin, TX 280 11,849 12/16/96 Creekside Oaks Walnut Creek, CA 316 21,680 12/19/96 Gatehouse on the Green Plantation, FL 312 22,268 12/19/96 Gatehouse at Pine Lake Pembroke Pines, FL 296 18,962 12/20/96 Wilde Lake Richmond, VA 189 9,452 12/20/96 Spice Run Naperville, IL 400 25,793 12/31/96 Mountain Terrace Stevenson Ranch, CA 510 39,772 ------ -------- 15,297 $767,360 ====== ========
In addition to the Properties mentioned above, on February 1, 1996, Management Corp. II transferred to the Company its interest in Desert Park, a 368-unit Property located in Las Vegas, Nevada, subject to $8.1 million of indebtedness, in exchange for the forgiveness of a $2.7 million note payable to the Company. F-21 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During 1996, the Company disposed of the properties listed below. Each property was sold to an unaffiliated third party.
Number of Disposition Date Disposed Property Location Units Price - - ---------------- ------------------ -------------- --------- ----------- 01/31/96 Sanddollar Tulsa, OK 328 $ 6,200 06/25/96 Deer Run Charleston, SC 152 3,950 11/22/96 Valley Park South Bethlehem, PA 384 18,500 12/09/96 Colonial Glen Harrisburg, PA 174 6,005 12/20/96 Continental Villas Lithonia, GA 216 6,600 ----- ------- 1,254 $41,255 ===== =======
The Company recognized a total gain of approximately $22.4 million on the disposition of these five Properties. During the year ended December 31, 1995, the Company recorded a $1 million loss which represented the estimated impairment in connection with the potential sale of University Park located in Toledo, Ohio. This Property had a net carrying amount as of December 31, 1995 of approximately $1.1 million after the impairment loss. The impairment loss on real estate to be disposed of is included in gain on disposition of properties on the statement of operations for the year ended December 31, 1995. 6. INVESTMENT IN MORTGAGE NOTES AND PARTNERSHIP INTERESTS In 1995, the Company made an $89 million investment in partnership interests and subordinated mortgages collateralized by the Additional Properties. These Additional Properties consist of 3,896 units, located in California, Colorado, New Mexico and Oklahoma. This included a $87.1 million investment in second and third mortgages (net of an original discount of approximately $12.7 million to their face value), $1.6 million represents a one time payment for an interest rate protection agreement and $0.3 million represents an investment for primarily a 49.5% limited partnership interest in the title-holding entities. As the Company does not control the general partners of the title-holding entities and substantially all of the Company's investment is in second and third mortgages (which are subordinate to first mortgages owned by third party unaffiliated entities), the $87.1 million investment is accounted for as an investment in mortgage notes. The $1.6 million payment made for the interest rate protection agreement is included in deferred financing costs and is being amortized over the term of the related debt. The investment in limited partnership interests is accounted for under the equity method and is included in other assets on the balance sheet. As of December 31, 1996 the second mortgage notes had a combined principal balance of approximately $27.8 million, accrue interest at a rate of 9.45% per annum, receive principal amortization from excess cash flow and have a stated maturity date of December 31, 2019. The F-22 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) third mortgage notes had a combined principal balance of approximately $71.1 million, accrue interest at a rate of 6.15% per annum, plus up to an additional 3% per annum to the extent of available cash flow. Contingent interest on the third mortgage notes is recognized to the extent it is determined to be received. The third mortgage notes have a stated maturity of December 31, 2024. Receipt of principal and interest on the second and third mortgage notes is subordinated to the receipt of all interest on the first mortgage notes. With respect to the discount on these notes, the unamortized balance at December 31, 1996 was $12.1 million. During 1996, the Company amortized $0.6 million, which is included in interest income-investment in mortgage notes in the consolidated statement of operations. This discount is being amortized utilizing the effective yield method. 7. MORTGAGE NOTES PAYABLE As of December 31, 1996, the Company had outstanding mortgage indebtedness of approximately $755.4 million encumbering 88 of the Properties. The carrying value of such Properties (net of accumulated depreciation of $141.2 million) was approximately $1.1 billion. The mortgage notes payable are generally due in monthly installments of interest only. In connection with the Properties acquired during the year ended December 31, 1996, the Company assumed the outstanding mortgage balances on 14 Properties in the aggregate amount of $142.2 million. In addition, during 1996, in two separate transactions, certain indebtedness evidenced by tax-exempt bonds encumbering certain Properties was refinanced resulting in an increase in mortgage indebtedness affecting these Properties of approximately $112 million. As a result of the most recent transaction, the Company recorded an extraordinary loss in the amount of approximately $3.5 million, which represented the write-off of unamortized deferred financing costs from the early retirement of debt. Concurrent with the most recent refinanced tax-exempt bonds and as a requirement of the credit provider of the bonds, the Financing Partnership, which owns certain of the Properties entered into interest rate protection agreements to fix the interest rate on the bonds, which protection agreements were assigned to the credit provider as additional security. The Company simultaneously entered into substantially identical reverse protection agreements in order to convert the interest rate on the tax-exempt bonds back to a floating interest rate. As of December 31, 1996, the notional amount of these agreements was approximately $166.8 million. The Company believes that it has limited exposure to the extent of non-performance by the counterparties of the agreements since each counterparty is a major U.S. financial institution, and the Company does not anticipate their non-performance. Scheduled maturities for the Company's outstanding mortgage indebtedness are at various dates through August 1, 2030. During the year ended December 31, 1996, effective interest cost on certain of these mortgage notes was 7.87%. During the year ended December 31, 1996, the Company repaid the outstanding mortgage balances on eight Properties in the aggregate amount of $57 million. Subsequent to December 31, 1996, the Company repaid the outstanding mortgage balance on three Properties in the amount of approximately $19.6 million. In February 1996, the Company entered into an interest rate protection agreement which hedged the interest rate risk of $50 million of mortgage loans scheduled to mature in September 1997 by locking the five year F-23 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Treasury Rate, commencing October 1, 1997. As of December 31, 1995, the Company had outstanding mortgage indebtedness of approximately $561.7 million encumbering 73 of the Properties. The carrying value of such Properties (net of accumulated depreciation of $103.4 million) was $770.3 million. The mortgage notes payable are generally due in monthly installments of interest only. Scheduled maturities are at various dates through April 1, 2027. As of December 31, 1995, fixed interest rates on certain of the mortgage notes ranged from 4.00% to 10.27% and variable interest rates on certain of the mortgage notes ranged from 4.05% to 7.63%. During the year ended December 31, 1995, the Company repaid the outstanding mortgage balance on seven Properties in the aggregate amount of approximately $45.5 million. During 1996 the Company terminated two interest rate protection agreements that were initially entered into in connection with two mortgage loans with notional amounts totaling $64.2 million. These two agreements effectively converted these two mortgage loans to fixed rate instruments based on the London Interbank Offered Rate ("LIBOR"). Upon the termination of these agreements the Company received, or is entitled to receive, settlement payments of approximately $230,000. Aggregate payments of principal on mortgage notes payable for each of the next five years and thereafter are as follows:
YEAR TOTAL ---- ----- (in thousands) 1997 $ 28,223 1998 89,497 1999 20,641 2000 13,369 2001 34,639 Thereafter 569,065 -------- Total $755,434 ========
8. LINES OF CREDIT The Company, through the Operating Partnership, had a $250 million unsecured line of credit with Wells Fargo Realty Advisors Funding Incorporated, as agent, through November 14, 1996. On November 15, 1996, the Company completed an agreement with Morgan Guaranty Trust Company of New York and Bank of America of Illinois to provide the Company, through the Operating Partnership, a $250 million unsecured line of credit. This new line of credit matures in November 1999 and borrowings generally will bear interest at a per annum rate of one, two, three or six month LIBOR, plus 0.75%, and is subject to an annual facility fee of $500,000. As of F-24 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 1996, there were no amounts outstanding on this line of credit. 9. NOTES On May 16, 1994, the Operating Partnership issued $125 million of unsecured senior notes (the "1999 Notes") in a private placement (the "Debt Offering") to qualified institutional buyers. The 1999 Notes were issued at a discount, which is being amortized over the life of the 1999 Notes on a straight-line basis. As of December 31, 1996 the unamortized discount balance was approximately $0.4 million. The 1999 Notes are due May 15, 1999 and bear interest at a rate of 8.5%, which is payable semiannually in arrears on May 15 and November 15. The Operating Partnership received net proceeds of $122.9 million in connection with the Debt Offering. In February 1996 the Company entered into an interest rate protection agreement that hedged the interest rate risk of the 1999 Notes by locking the effective four year Treasury Rate commencing May 15, 1999. There was no current cost to the Company for entering into this agreement. In December 1994, the Operating Partnership registered $500 million in debt securities pursuant to a debt shelf registration statement (the "Debt Shelf Registration") of which $100 million of unsecured floating rate notes (the "Floating Rate Notes") were issued by the Operating Partnership on December 22, 1994 (the "Public Debt Offering"). The Floating Rate Notes are due on December 22, 1997 and bear interest at three month LIBOR plus 0.75%, which is payable quarterly in arrears on the third Wednesday of each February, May, August and November of each year. The Operating Partnership received net proceeds of $98.6 million in connection with the Public Debt Offering. In connection with the Floating Rate Notes, the Operating Partnership has entered into interest rate protection agreements which fix the interest rate at an effective rate of 7.075% through the term of the Floating Rate Notes. In April 1995, the Operating Partnership issued $125 million of unsecured fixed rate notes (the "2002 Notes") in connection with the Debt Shelf Registration in a public debt offering (the "Second Public Debt Offering"). The 2002 Notes were issued at a discount, which is being amortized over the life of the 2002 Notes on a straight-line basis. As of December 31, 1996 the unamortized discount balance was approximately $0.8 million. The 2002 Notes are due on April 15, 2002 and bear interest at 7.95%, which is payable semi-annually on each October 15 and April 15. The Operating Partnership received net proceeds of $123.1 million in connection with the Second Public Debt Offering. Prior to the issuance of the 2002 Notes, the Operating Partnership entered into an interest rate protection agreement to effectively fix the interest rate cost of such issuance. The Operating Partnership made a one time settlement payment of this protection transaction, which was approximately $0.8 million and is being amortized over the term of the 2002 Notes. As of December 31, 1996 the unamortized balance of this cost was approximately $0.6 million. F-25 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In August 1996, the Operating Partnership issued $150 million of unsecured fixed rate notes (the "2026 Notes") in connection with the Debt Shelf Registration in a public debt offering (the "Third Public Debt Offering"). The 2026 Notes are due on August 15, 2026 and bear interest at 7.57%, which is payable semi-annually in arrears on February 15 and August 15, commencing February 15, 1997. The 2026 Notes are redeemable at any time after August 15, 2006 by the Operating Partnership pursuant to the terms thereof. The Operating Partnership received net proceeds of approximately $149 million in connection with this issuance. Prior to the issuance of the 2026 Notes, the Company entered into an interest rate protection agreement to effectively fix the interest rate cost of this issuance to 7.5%. The Operating Partnership received a one time settlement payment of this transaction, which was approximately $0.6 million, which amount is being amortized over the term of the 2026 Notes. As of December 31, 1996, the unamortized balance was approximately $0.6 million. On September 18, 1996, the Operating Partnership filed with the SEC a Form S-3 Registration Statement to register $500 million of debt securities (the "1996 Debt Shelf Registration"). The SEC declared this Registration effective on September 23, 1996. In regard to all of the interest rate protection agreements mentioned in the previous paragraphs, the Company believes that it has limited exposure to the extent of non-performance by the counterparties of each agreement since each counterparty is a major U.S. financial institution, and the Company does not anticipate their non-performance. 10. EMPLOYEE TRANSACTIONS As of December 31, 1996, the outstanding principal balance on the employee notes issued in connection with Common Shares purchased was, in the aggregate, approximately $5.26 million. Douglas Crocker II, President and Chief Executive Officer of the Company and four other officers had purchased an aggregate of 194,000 Common Shares at prices which range from $26 to $31.625 per Common Share. These purchases were financed by loans made by the Company in the aggregate amount of approximately $5.4 million. The employee notes accrue interest, payable in arrears, at rates that range from 6.15% per annum to 7.93% per annum. Scheduled maturities are at various dates through March 2005. The employee notes are recourse to Mr. Crocker and the four other officers and are collateralized by pledges of the 194,000 Common Shares purchased. In addition, as of December 31, 1996, the outstanding principal balance on additional notes issued to Mr. Crocker was approximately $0.8 million. These notes accrue interest, payable in arrears, at one month LIBOR plus 2% per annum. Scheduled maturities are at various dates through March 2003. The notes are recourse to Mr. Crocker and are collateralized by pledges of options, share awards and Common Shares purchased. During 1996 the Board of Trustees approved a deferred compensation agreement (the "Agreement") for Mr. Crocker. This Agreement would provide Mr. Crocker with a salary benefit after his termination of employment with the Company. F-26 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) If Mr. Crocker's employment is terminated without cause, he would be entitled to annual deferred compensation for a 10-year period commencing on the termination date in an amount equal to his average annual base compensation (before bonus) for the prior five calendar years, multiplied by a percentage equal to 10% per year since December 31, 1995. In the event Mr. Crocker's employment is terminated as a result of his death, permanent disability or incapacity, he would be entitled to a similar amount except the annual percentage would be 15% and the maximum paid per year would not exceed 100% of his average base salary. Should Mr. Crocker be terminated for cause or should he choose to leave voluntarily without good reason, he would not be entitled to any deferred compensation. The Board of Trustees also approved a deferred compensation (share distributions) agreement ("Deferred Compensation Agreement") for Mr. Crocker. On January 18, 1996, Mr. Crocker was issued options to purchase 100,000 Common Shares, which vest over a 3-year period and are effective for 10 years. Pursuant to the terms of the Deferred Compensation Agreement, upon the exercise of any options, Mr. Crocker would be entitled to an amount equal to the amount of Common Share distributions that would have been paid on said shares being exercised had he owned said shares for the period from January 18, 1996 until the date of the exercise of the options in question. This agreement is not affected by Mr. Crocker's death or termination of employment with the Company. 11. DEPOSITS-RESTRICTED Deposits-restricted, as of December 31, 1996, primarily included deposits in the amount of approximately $16.4 million held in third party escrow accounts which were made in connection with a January 1997 acquisition and the expected acquisition of an additional property. In addition, approximately $3.7 million was for tenant security and utility deposits for certain of the Company's Properties. Deposits-restricted as of December 31, 1995 primarily included deposits held in third party escrow accounts made in connection with certain of the Company's dispositions. Approximately $15 million was held in these accounts and were utilized for the purchase of additional properties. In addition, approximately $3.2 million was for tenant security and utility deposits for certain of the Company's Properties. 12. GAIN ON EARLY EXTINGUISHMENT OF DEBT In June 1995, the Company paid approximately $12.6 million in full satisfaction of a $14.6 million mortgage note obligation related to one of its Properties. As a result, the Company recognized a gain of $2 million on the extinguishment of this indebtedness. F-27 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. SUMMARIZED PRO FORMA CONDENSED STATEMENT OF OPERATIONS (Unaudited) The following Summarized Pro Forma Condensed Statement of Operations has been prepared as if the January 1996 Common Share Offering, the February 1996 Common Share Offering, the May 1996 Common Share Offerings, the Third Public Debt Offering, the Series C Preferred Share Offering, the September 1996 Common Share Offering, the December 1996 Common Share Offerings, the acquisition of 49 Properties, the assumption of $142.2 million of mortgage indebtedness, the repayment of $57 million of mortgage indebtedness and the disposition of five Properties (as described in Note 5, Note 7 and Note 9 of Notes to Consolidated Financial Statements) had occurred on January 1, 1996. This would result in 51,154,836 Common Shares outstanding. In management's opinion, the Summarized Pro Forma Condensed Statement of Operations does not purport to present what actual results would have been had the above transactions occurred on January 1, 1996, or to project results for any future period. The amounts presented in the following statement are in thousands except for share amounts: F-28 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized Pro Forma Condensed Statement of Operations For the Year Ended December 31, 1996 (Amounts in thousands except per share amounts) ------------------------- Total Revenues $541,118 -------- Total Expenses 424,541 -------- Pro Forma income before allocation to Minority Interests 116,577 -------- Pro Forma net income 105,876 Preferred distributions 36,244 -------- Pro Forma net income available for Common Shares $ 69,632 ======== Pro Forma net income per Common Share $ 1.36 ========
14. SHARE OPTION PLAN The Company adopted, effective May 21, 1993, its 1993 Share Option Plan (the "1993 Share Option Plan"). Pursuant to the 1993 Share Option Plan, certain officers, trustees, key employees and consultants of the Company were offered the opportunity to acquire Common Shares through the grant of share options ("Options"), including non-qualified share options ("NQSOs") and, for key employees, incentive share options ("ISOs"). The Compensation Committee determines the vesting schedule, if any, of each Option and the term, which term shall not exceed ten years from the date of grant. As to the Options that have been granted through December 31, 1996, generally, one-third are exercisable one year after the initial grant, one-third are exercisable two years following the date such Options were granted and the remaining one-third are exercisable three years following the date such Options were granted. In addition, the 1993 Share Option Plan provided for the granting of share appreciation rights ("SARs"). Options and SARs are sometimes referred to herein as "Awards". The Common Shares subject to Awards under the 1993 Share Option Plan were limited to 1,000,000. On February 28, 1995, the Board of Trustees approved the Amended and Restated 1993 Share Option and Share Award Plan (the "Option and Award Plan") and on May 10, 1995, the shareholders approved the Option and Award Plan. Pursuant to the Option and Award Plan, officers, directors, key employees and consultants of the Company may be offered the opportunity to acquire Common Shares through the grant of NQSOs, ISOs and SARs or may be granted restricted or non-restricted shares. Additionally, under the Option and Award Plan, certain officers of the Company may be awarded Common Shares, subject to conditions and restrictions as described in the Option and Award Plan. Options and Awards for up to 1,600,000 Common Shares may be issued under the Option and Award Plan (including those Options granted under the 1993 Option Plan). F-29 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Second Amended and Restated Share Option and Share Award Plan ("Second Amended Option and Award Plan") was approved by the Board of Trustees on February 26, 1996 and approved by the shareholders on May 10, 1996. The Second Amended Option and Award Plan increased the number of Options and Awards which can be issued by the Company to 3,600,000 Common Shares. The number of Common Shares to which the SARs relate shall not exceed 3,600,000 less the number of Common Shares relating to outstanding Options. The exercise price for all Options under the Option and Award Plan shall not be less than the fair market value of the underlying Common Shares at the time the Option is granted. The Option and Award Plan will terminate at such time as no further Common Shares are available for issuance upon the exercise of Options and all outstanding Options have expired or been exercised. The Board of Trustees may at any time amend or terminate the Option and Award Plan, but termination will not affect Awards previously granted. Any Options which had vested prior to such a termination would remain exercisable by the holder thereof. The Option and Award Plan is administered by the Compensation Committee which is appointed by the Board of Trustees. The Compensation Committee determines those officers, key employees and consultants to whom, and the time or times at which, grants of Awards will be made. The Compensation Committee interprets the Option and Award Plan, adopts rules relating thereto and determines the terms and provisions of Awards. The Company has elected to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB No. 25) in the computation of compensation expense. Under APB No. 25's intrinsic value method, compensation expense is determined by computing the excess of the market price of the shares over the exercise price on the measurement date. For the Company's share options, the intrinsic value on the measurement date (or grant date) is zero, and no compensation expense is recognized. Financial Accounting Standards Board No. 123 (FASB No. 123) requires the Company to disclose pro forma net income and income per share as if a fair value based accounting method had been used in the computation of compensation expense. The fair value of the options computed under FASB No. 123 would be recognized over the vesting period of the options. The fair value for the Company's options granted subsequent to December 31, 1994 was estimated at the time the options were granted using the Black Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996, respectively: risk-free interest rates of 6.51% and 6.35%; dividend yields of 7.64% and 6.98%; volatility factors of the expected market price of the Company's Common Shares of 0.226 and 0.226; and a weighted-average expected life of the option of seven years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's Options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its Options. For purposes of pro forma disclosures, the estimated fair value of the Options is amortized to expense over the Options' vesting period. The following is the pro forma information for the years ended December 31, 1996 and 1995:
1996 1995 ---- ---- Pro forma net income available to Common Shares $70,905 $57,171 Pro forma income per weighted average Common Share outstanding $ 1.66 $ 1.66
F-30 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The table below summarizes the Option activity of the Option and Award Plan for the three years ended December 31, 1996:
Weighted Average Shares Subject to Exercise Price Option or Awards Per Share ------------------ -------------- Balance at January 1, 1994 688,000 $ 26.00 Options granted 279,200 $30.4705 Options cancelled (8,503) $27.9581 Options exercised (9,664) $30.2650 ---------- -------- Balance at December 31, 1994 949,033 $27.3086 Options granted 602,900 $26.4058 Options cancelled (91,319) $27.5005 Options exercised (100,966) $29.5585 ---------- -------- Balance at December 31, 1995 1,359,648 $26.9677 Options granted 1,215,429 $29.9682 Options cancelled (70,229) $28.9124 Options exercised (172,719) $28.6491 ---------- -------- Balance at December 31, 1996 2,332,129 $28.7510 ========== ========
As of December 31, 1996, 1995 and 1994, 898,075 shares, 743,368 shares and 551,172 shares were exercisable, respectively. Exercise prices for Options outstanding as of December 31, 1996 ranged from $26 to $35.375. Expiration dates ranged from August 11, 2003 to September 17, 2006. The remaining weighted- average contractual life of those Options was 8.25 years. The weighted-average grant-date fair value of Options granted during 1996 was 3.81. 15. EMPLOYEE SHARE PURCHASE PLAN The Company adopted, effective July 1, 1996, its Employee Share Purchase Plan. Pursuant to the Employee Share Purchase Plan, certain eligible officers, trustees and employees of the Company may annually acquire up to $100,000 of Common Shares of the Company. The aggregate number of Common Shares available under the Employee Share Purchase Plan shall not exceed 1,000,000, subject to adjustment by the Board of Trustees. The Common Shares may be purchased quarterly at a price equal to 85% of the lesser of: (a) the closing price for a share on the last day of such quarter; and (b) the greater of: (i) the closing price for a share on the first day of such quarter, and (ii) the average closing price for a share for all the business days in the quarter. During 1996, the Company issued 39,458 Common Shares at a net price of $30.44 per share. 16. COMMITMENTS AND CONTINGENCIES The Company, as an owner of real estate, is subject to various environmental laws of Federal and local governments. Compliance by the Company with existing laws has not had a material adverse effect on the Company's financial condition and results of operations. However, the Company cannot predict the impact of new or changed laws or regulations on its current Properties or on properties that it may acquire in the future. On March 20, 1996, a legal proceeding (Nick J. Miletich, Administrator of the Estates of Dorothy Miletich and Madelyne Miletich, deceased, v. Equity Residential Properties Trust, Equity Residential Properties Management Corporation, Curt Vajgrt, Raymond Countryman and Darla Countryman) (Iowa District Court, Polk County, Iowa, Law Case No. CL 68908) was filed against the Company. This legal proceeding arises out of the Company's ownership and management of F-31 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the apartment building known as 3000 Grand Ave. in Des Moines, Iowa and alleges that Raymond and Darla Countryman murdered Dorothy Miletich and Madelyne Miletich, who were residents of the apartment complex, on June 15, 1995. Raymond Countryman is a former employee of the Company. The plaintiff alleges, inter ----- alia, that had the Company learned of the background of Mr. Countryman prior to - - ---- his employment, the Company would not have hired him and the deaths of the Miletichs would have been avoided. While the Company is vigorously contesting these claims, there is no assurance that the Company will not be held liable for said deaths and there is no assurance that its insurance coverage will cover all damages that may be awarded against it. At this time, an estimate of the possible loss or range of loss that the Company may incur cannot be determined. The Company does not believe there is any other litigation, except as mentioned in the previous paragraph, threatened against the Company other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by liability insurance, none of which is expected to have a material adverse effect on the consolidated financial statements of the Company. The Company has lease agreements with an affiliated party covering office space occupied by regional operations centers located in Tampa, Florida ("Southeast ROC") and Chicago, Illinois ("Midwest ROC"). The Southeast ROC agreement expires on October 31, 2001 and the Midwest ROC agreement expires on September 30, 2000. The Company also has four additional lease agreements with unaffiliated parties covering space occupied by regional operations centers located in Dallas, Texas (the "Southwest ROC"); Bethesda, Maryland (the "Atlantic ROC"); Denver, Colorado (the "Western ROC") and Seattle, Washington (the "Pacific Northwest ROC"). The lease agreement for the Southwest ROC expires on March 31, 1999, the lease agreement for the Atlantic ROC expires on November 30, 1998, the lease agreement for the Western ROC expires on November 30, 1999 and the lease agreement for the Pacific Northwest ROC expires on November 30, 2000. The Company also has a lease agreement with an affiliated party covering office space occupied by the corporate headquarters located in Chicago, Illinois. This agreement, as amended, expires on July 31, 2001. In addition, commencing September 1, 1996, the Company increased the office space occupied by its corporate personnel. The lease agreement covering the additional space expires on April 29, 1998. During the years ended December 31, 1996, 1995 and 1994, total rentals, including a portion of real estate taxes, insurance, repairs and utilities, aggregated $1,020,311, $1,049,731 and $403,346, respectively. The minimum basic aggregate rental commitment under the above described leases in years succeeding December 31, 1996 is as follows:
Year Amount ---- ------ 1997 $1,144,500 1998 1,046,800 1999 821,700
F-32 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2000 684,600 2001 390,600 ---------- Total $4,088,200 ==========
F-33 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 17. TRANSACTIONS WITH RELATED PARTIES Certain related entities provided services to the Company. These included, but were not limited to, Rosenberg & Liebentritt, P.C., which provided legal services; Greenberg & Pociask, Ltd., which provided tax and accounting services; First Capital Financial Corporation, which provided accounting services; and Computech Systems, Inc., which provided computer services. Fees paid to these related entities in the aggregate amounted to approximately $0.7 million, $2.5 million and $3 million for the years ended December 31, 1996, 1995 and 1994, respectively. In addition, The Riverside Agency, Inc., which provided insurance brokerage services, was paid fees and reimbursed premiums and loss claims in the amount of $4.1 million, $2.6 million and $2.3 million for the years ended December 31, 1996, 1995 and 1994, respectively. As of December 31, 1996 and 1995, $315,700 and $366,300, respectively, was owed to Rosenberg & Liebentritt, P.C. for legal fees incurred in connection with securities offerings, litigation matters, property acquisitions and other general corporate matters. Equity Group Investments, Inc. and certain of its subsidiaries, including Equity Assets Management, Inc., Eagle Flight Services, Equity Properties & Development, L.P. and EPMC ("EGI"), have provided certain services to the Company which include, but are not limited to, financial and accounting services, investor relations, corporate secretarial, computer and support services, real estate tax evaluation services, market consulting and research services, financing services, information systems services and property development services. Fees paid to EGI for these services amounted to $1.3 million, $3.4 million and $1.1 million for the years ended December 31, 1996, 1995 and 1994, respectively. Amounts due to EGI were approximately $0.3 million and $1.1 million as of December 31, 1996 and 1995, respectively. In connection with the affiliated lease agreements discussed in Note 16, the Company paid Equity Office Holdings, L.L.C. ("EOH") $118,919, $104,421 and $118,518 in connection with the Midwest ROC, $137,638, $9,783 and $85,466 in connection with the Southeast ROC and $409,392, $632,725 and $19,070 in connection with the space occupied by the corporate headquarters for the years ended December 31, 1996, 1995 and 1994, respectively. As of December 31, 1996, approximately $46,435 was owed to EOH and as of December 31, 1995, no amounts were owed to EOH. In connection with the Private Equity Offering and the Shelf Offering, the Company paid Equity Institutional Investors, Inc. ("EII") consulting fees in the amount of $200,000 and $680,000 for the years ended December 31, 1995 and 1994, respectively. As of December 31, 1996 and 1995, no amounts were owed to EII for consulting services. Artery Property Management, Inc. ("Artery") provided the Company consulting services with regard to property acquisitions and additional business opportunities. Fees paid for those services and reimbursed expenses amounted to approximately $0.2 million and $0.7 million for the years ended December 31, 1996 and 1995. Rudnick & Wolfe, a law firm in which Mr. Errol Halperin, a trustee of the Company, is a partner, provided legal services to the Company. Fees paid to this firm amounted to approximately F-34 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) $4,300, $41,300 and $10,000 for the years ended December 31, 1996, 1995 and 1994. Genesis Merchant Group Securities ("Genesis") provided the Company brokerage services and was paid $18,970 during the year ended December 31, 1994. SZRL Investments, an Illinois general partnership of which one of its partners is a trust created for the benefit of Mr. Zell, is a limited partner of Genesis Merchant Group, the sole general partner of Genesis. In addition, the Company has provided acquisitions, asset and property management services to certain related entities for properties not owned by the Company. Fees received for providing such services were approximately $6.7 million, $7 million and $4.7 million for the years ended December 31, 1996, 1995 and 1994, respectively. 18. QUARTERLY FINANCIAL DATA (Unaudited): The following unaudited quarterly data has been prepared on the basis of a December 31 year end: (Amounts in thousands, except for per share amounts)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 1995 3/31 6/30 9/30 12/31 - - -------- -------- -------- -------- -------- Total revenues $91,882 $93,294 $99,594 $105,614 ======= ======= ======= ======== Income before allocation to Minority Interests $13,220 $15,544 $17,570 $ 37,021 ======= ======= ======= ======== Net income $10,345 $12,482 $14,504 $ 30,388 ======= ======= ======= ======== Net income available to Common Shares $10,345 $11,287 $10,918 $ 25,060 ======= ======= ======= ======== Weighted average Common Shares outstanding 34,097 34,328 34,401 34,599 ======= ======= ======= ======== Net income per Weighted Average Common Share outstanding $ 0.30 $ 0.33 $ 0.32 $ 0.72 ======= ======= ======= ========
F-35 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 1996 3/31 6/30 9/30 12/31 - - -------- -------- -------- -------- -------- Total revenues $106,321 $113,267 $124,459 $134,338 ======== ======== ======== ======== Income before allocation to Minority Interests $ 21,295 $ 23,310 $ 22,111 $ 49,207 ======== ======== ======== ======== Net income $ 18,394 $ 20,288 $ 19,608 $ 43,334 ======== ======== ======== ======== Net income available for Common Shares $ 11,957 $ 13,851 $ 12,529 $ 34,272 ======== ======== ======== ======== Weighted average Common Shares outstanding 37,877 41,114 43,781 47,505 ======== ======== ======== ======== Net income per Weighted Average Common Shares outstanding $ 0.32 $ 0.34 $ 0.29 $ 0.72 ======== ======== ======== ========
19. SUBSEQUENT EVENTS On January 2, 1997, the Company acquired Town Center Apartments, a 258-unit multifamily property located in Kingwood, Texas, from an unaffiliated third party for a purchase price of $12.8 million. On January 16, 1997 the Company entered into an Agreement and Plan of Merger regarding the planned acquisition of the multifamily property business of Wellsford Residential Property Trust ("Wellsford"), a Maryland real estate investment trust, by the Company through the tax free merger of the Company and Wellsford. This transaction is valued at approximately $1 billion and includes 75 multifamily residential properties containing 19,004 units. On January 21, 1997, the Company acquired Harborview Apartments, a 160-unit multifamily property located in San Pedro, California, from an unaffiliated third party for a purchase price of $19 million, which included the assumption of mortgage indebtedness of approximately $12.69 million. On January 31, 1997, the Company acquired The Cardinal Apartments, a 256- unit multifamily property located in Greensboro, North Carolina, from an unaffiliated third party for a purchase price of $12.77 million, including the assumption of mortgage indebtedness in the amount of approximately $7.53 million. F-36 EQUITY RESIDENTIAL PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On February 12, 1997, the Company acquired Trails at Dominion, a 843-unit multifamily property located in Houston, Texas from an unaffiliated third party for a purchase price of $38.3 million, which included the assumption of mortgage indebtedness of approximately $26.19 million. On February 25, 1997, the Company declared a $0.625 distribution per Common Share, $0.585938 per Series A Preferred Share, $0.570313 per Series B Depositary Share and $0.570313 per Series C Depositary Share for the quarter ended March 31, 1997 to shareholders of record on March 28, 1997. On February 25, 1997, the Company acquired Dartmouth Woods Apartments, a 201-unit multifamily property located in Lakewood, Colorado, from an unaffiliated third party for a purchase price of $12.4 million, including the assumption of mortgage indebtedness in the amount of approximately $4.44 million. On February 28, 1997, the Company acquired Rincon Apartments, a 288-unit multifamily property located in Houston, Texas, from an unaffiliated third party for a purchase price of $20.87 million. On February 28, 1997, the Company acquired Waterford at the Lakes Apartments, a 344-unit multifamily property located in Kent, Washington, from an unaffiliated third party for a purchase price of $18.9 million. On March 17, 1997, the Company acquired Junipers at Yarmouth Apartments, a 225-unit multifamily property located in Yarmouth, Maine, from an unaffiliated third party for a purchase price of $9.15 million. As of March 20, 1997, the Company completed offerings of 938,800 publicly registered Common Shares, which were sold at a net price of $46 per share. The Company received net proceeds of approximately $43.2 million in connection therewith. F-37 REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE To the Board of Trustees Equity Residential Properties Trust In connection with our audit of the consolidated financial statements of Equity Residential Properties Trust referred to in our report dated February 14, 1996, which financial statements are included in this Form 10-K, we have also audited the 1995 and 1994 information in the financial statement schedule listed in the Index to the Financial Statements and Schedule. In our opinion, this financial statement schedule presents fairly, in all material respects, the 1995 and 1994 information required to be set forth therein. /s/ Grant Thornton LLP ---------------------- GRANT THORNTON LLP Chicago, Illinois February 14, 1996 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COST CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION DESCRIPTION COMPANY (IMPROVEMENTS, NET) (1) - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & BUILDING & APARTMENT NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES - - ------------------------------------------------------------------------------------------------------------------------------------ 2900 on First...............Seattle, WA 0 1,176,400 10,588,096 1,200 95,180 3000 Grand..................Des Moines, IA 0 858,305 7,827,336 0 1,191,980 7979 Westheimer.............Houston, TX 0 1,388,400 12,495,280 1,400 733,108 Altamonte...................San Antonio, TX 14,600,000 1,663,100 14,968,079 1,970 540,718 Amberton....................Manassas, VA 6,595,519 888,800 8,352,507 11,800 745,330 Arbors of Hickory Hollow....Nashville, TN (D) 202,285 6,594,754 700 1,071,223 Arbors of Brentwood.........Nashville, TN (D) 404,570 13,189,508 100 749,501 Arbors of Las Colinas.......Irving, TX 0 1,662,300 14,960,709 1,600 1,012,376 Bainbridge..................Durham, NC 0 1,042,900 9,385,579 33,400 837,173 Bay Club....................Phoenix, AZ (E) 828,100 5,821,759 100 1,077,580 Bourbon Square..............Palatine, IL 28,150,000 3,982,600 35,843,025 2,700 2,024,772 Brentwood...................Vancouver, WA 0 1,318,200 11,863,517 39,021 824,156 Breton Mill.................Houston, TX (F) 212,720 8,154,404 100 613,371 Bridgecreek.................Wilsonville, OR 0 1,294,600 11,651,108 5,290 536,972 Bridgeport..................Raleigh, NC 0 1,296,200 11,665,351 500 208,931 Brierwood...................Jacksonville, FL 0 546,100 4,914,681 4,300 62,886 Brittany Square.............Tulsa, OK 0 625,000 4,220,662 0 352,527 Brixworth...................Nashville, TN 0 1,172,100 10,549,371 1,600 42,780 Camellero...................Scottsdale, AZ 11,949,595 1,923,600 17,312,869 1,300 274,238 Canterbury..................Germantown, MD 19,032,948 2,781,300 26,656,574 0 2,044,601 Canterchase.................Nashville, TN 5,824,040 862,200 7,759,711 1,100 32,267 Canyon Creek................Tucson, AZ (E) 834,313 5,840,188 100 358,628 Canyon Sands................Phoenix, AZ 8,849,680 1,475,900 13,282,737 14,550 131,988 Carmel Terrace..............San Diego, CA 0 2,288,300 20,632,540 0 99,768 Casa Capricorn..............San Diego, CA 0 1,260,100 11,341,085 2,400 27,534 Casa Cordoba................Tallahassee, FL 0 307,055 2,732,177 0 787,356 Casa Cortez.................Tallahassee, FL 0 120,590 1,196,857 0 467,869 Catalina Shores.............Las Vegas, NV 0 1,222,200 10,999,974 4,800 413,277 Cedar Crest.................Overland Park, KS 0 2,159,800 19,438,107 500 15,521 Celebration at Westchase....Houston, TX (E) 2,204,590 6,312,399 100 708,272 Champion Oaks...............Houston, TX 7,298,817 931,900 8,519,479 0 146,787 Chandler Court..............Chandler, AZ 0 1,352,600 12,172,974 500 107,033 Chandler's Bay I............Kent, WA 0 1,503,400 13,530,223 3,500 497,871 Chaparral...................Largo, FL 6,891,428 303,100 6,169,465 0 2,608,105 Charter Club................Everett, WA 0 998,700 8,988,560 2,400 224,471 Cheyenne Crest..............Colorado Springs, CO (E) 73,950 3,936,559 100 643,159 Cloisters on the Green......Lexington, KY 2,827,810 187,074 2,193,726 0 1,370,338 Country Club I..............Silver Spring, MD 7,077,694 1,119,500 10,815,232 1,457 465,095 Country Club II.............Silver Spring, MD 5,966,153 850,000 8,255,502 2,294 23,886 GROSS AMOUNT CARRIED AT CLOSE OF DESCRIPTION PERIOD 12/31/96 - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & ACCUMULATED APARTMENT NAME LOCATION LAND FIXTURES (A) TOTAL(B) DEPRECIATION - - ------------------------------------------------------------------------------------------------------------------------------------ 2900 on First...............Seattle, WA 1,177,600 10,683,276 11,860,876 266,733 3000 Grand..................Des Moines, IA 858,305 9,019,316 9,877,621 4,136,718 7979 Westheimer.............Houston, TX 1,389,800 13,228,388 14,618,188 481,175 Altamonte...................San Antonio, TX 1,665,070 15,508,797 17,173,867 1,259,430 Amberton....................Manassas, VA 900,600 9,097,837 9,998,437 679,673 Arbors of Hickory Hollow....Nashville, TN 202,985 7,665,977 7,868,962 960,405 Arbors of Brentwood.........Nashville, TN 404,670 13,939,009 14,343,679 1,657,104 Arbors of Las Colinas.......Irving, TX 1,663,900 15,973,085 17,636,985 1,740,888 Bainbridge..................Durham, NC 1,076,300 10,222,752 11,299,052 1,010,232 Bay Club....................Phoenix, AZ 828,200 6,899,339 7,727,539 906,957 Bourbon Square..............Palatine, IL 3,985,300 37,867,797 41,853,097 3,931,913 Brentwood...................Vancouver, WA 1,357,221 12,687,673 14,044,894 673,352 Breton Mill.................Houston, TX 212,820 8,767,775 8,980,595 1,003,745 Bridgecreek.................Wilsonville, OR 1,299,890 12,188,080 13,487,970 1,161,921 Bridgeport..................Raleigh, NC 1,296,700 11,874,282 13,170,982 1,331,562 Brierwood...................Jacksonville, FL 550,400 4,977,567 5,527,967 66,571 Brittany Square.............Tulsa, OK 625,000 4,573,189 5,198,189 2,041,207 Brixworth...................Nashville, TN 1,173,700 10,592,150 11,765,850 133,056 Camellero...................Scottsdale, AZ 1,924,900 17,587,107 19,512,007 920,338 Canterbury..................Germantown, MD 2,781,300 28,701,175 31,482,475 2,155,479 Canterchase.................Nashville, TN 863,300 7,791,978 8,655,278 84,269 Canyon Creek................Tucson, AZ 834,413 6,198,816 7,033,229 790,012 Canyon Sands................Phoenix, AZ 1,490,450 13,414,725 14,905,175 283,324 Carmel Terrace..............San Diego, CA 2,288,300 20,732,308 23,020,608 1,575,010 Casa Capricorn..............San Diego, CA 1,262,500 11,368,619 12,631,119 107,033 Casa Cordoba................Tallahassee, FL 307,055 3,519,533 3,826,588 2,322,089 Casa Cortez.................Tallahassee, FL 120,590 1,664,726 1,785,316 1,039,578 Catalina Shores.............Las Vegas, NV 1,227,000 11,413,251 12,640,251 994,406 Cedar Crest.................Overland Park, KS 2,160,300 19,453,627 21,613,927 121,265 Celebration at Westchase....Houston, TX 2,204,690 7,020,671 9,225,361 1,056,903 Champion Oaks...............Houston, TX 931,900 8,666,266 9,598,166 712,007 Chandler Court..............Chandler, AZ 1,353,100 12,280,007 13,633,107 237,596 Chandler's Bay I............Kent, WA 1,506,900 14,028,094 15,534,994 1,106,336 Chaparral...................Largo, FL 303,100 8,777,570 9,080,670 5,077,932 Charter Club................Everett, WA 1,001,100 9,213,031 10,214,131 970,112 Cheyenne Crest..............Colorado Springs, CO 74,050 4,579,718 4,653,768 663,938 Cloisters on the Green......Lexington, KY 187,074 3,564,064 3,751,138 2,349,167 Country Club I..............Silver Spring, MD 1,120,957 11,280,327 12,401,284 804,078 Country Club II.............Silver Spring, MD 852,294 8,279,388 9,131,682 555,368 LIFE USED TO DESCRIPTION COMPUTE - - ------------------------------------------------------------------------- DEPRECIATION IN DATE OF LATEST INCOME APARTMENT NAME LOCATION CONSTRUCTION STATEMENT (C) - - ------------------------------------------------------------------------------------------------- 2900 on First...............Seattle, WA 1989-91 30 Years 3000 Grand..................Des Moines, IA 1970 30 Years 7979 Westheimer.............Houston, TX 1973 30 Years Altamonte...................San Antonio, TX 1985 30 Years Amberton....................Manassas, VA 1986 30 Years Arbors of Hickory Hollow....Nashville, TN 1986 30 Years Arbors of Brentwood.........Nashville, TN 1986 30 Years Arbors of Las Colinas.......Irving, TX 1984/85 30 Years Bainbridge..................Durham, NC 1984 30 Years Bay Club....................Phoenix, AZ 1976 30 Years Bourbon Square..............Palatine, IL 1984-87 30 Years Brentwood...................Vancouver, WA 1990 30 Years Breton Mill.................Houston, TX 1986 30 Years Bridgecreek.................Wilsonville, OR 1987 30 Years Bridgeport..................Raleigh, NC 1990 30 Years Brierwood...................Jacksonville, FL 1974 30 Years Brittany Square.............Tulsa, OK 1982 30 Years Brixworth...................Nashville, TN 1985 30 Years Camellero...................Scottsdale, AZ 1979 30 Years Canterbury..................Germantown, MD 1986 30 Years Canterchase.................Nashville, TN 1985 30 Years Canyon Creek................Tucson, AZ 1986 30 Years Canyon Sands................Phoenix, AZ 1983 30 Years Carmel Terrace..............San Diego, CA 1988-89 30 Years Casa Capricorn..............San Diego, CA 1981 30 Years Casa Cordoba................Tallahassee, FL 1972/1973 30 Years Casa Cortez.................Tallahassee, FL 1970 30 Years Catalina Shores.............Las Vegas, NV 1989 30 Years Cedar Crest.................Overland Park, KS 1986 30 Years Celebration at Westchase....Houston, TX 1979 30 Years Champion Oaks...............Houston, TX 1984 30 Years Chandler Court..............Chandler, AZ 1987 30 Years Chandler's Bay I............Kent, WA 1989 30 Years Chaparral...................Largo, FL 1976 30 Years Charter Club................Everett, WA 1991 30 Years Cheyenne Crest..............Colorado Springs, CO 1984 30 Years Cloisters on the Green......Lexington, KY 1974 30 Years Country Club I..............Silver Spring, MD 1980 30 Years Country Club II.............Silver Spring, MD 1982 30 Years
S-2 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COST CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION DESCRIPTION COMPANY (IMPROVEMENTS, NET) (I) - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & BUILDING & APARTMENT NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES - - ------------------------------------------------------------------------------------------------------------------------------------ Country Ridge...............Farmington Hills, MI 0 1,605,800 14,452,066 14,750 315,877 Creekside...................Mountlake Terrace, WA 15,883,770 2,802,900 25,226,096 4,400 509,926 Creekside Oaks..............Walnut Creek, CA 11,566,208 2,167,300 19,505,628 700 6,495 Crystal Creek...............Phoenix, AZ 0 952,900 8,576,084 600 162,583 Cypress Point...............Las Vegas, NV 5,560,452 953,800 8,583,719 5,890 461,972 Dawntree....................Carrollton, TX 0 1,204,600 10,841,783 900 501,107 Deerwood....................San Diego, CA 0 2,075,700 18,680,801 6,395 2,734,498 Deerwood Meadows............Greensboro, NC (E) 986,643 6,906,503 100 582,195 Del Coronado................Mesa, AZ (O) 1,963,200 17,669,207 1,200 158,272 Desert Park.................Las Vegas, NV 0 1,085,400 9,401,015 0 501,594 Desert Sands................Phoenix, AZ 8,844,182 1,464,200 13,177,336 14,550 237,114 Diplomat South..............Beech Grove, IN 2,634,919 472,414 2,267,310 0 2,138,355 Doral.......................Louisville, KY 4,110,646 96,607 1,526,628 0 2,550,299 Eagle Canyon................Chino Hills, CA 0 1,806,800 16,261,336 1,400 25,406 Eagle Rim...................Redmond, WA 0 976,200 8,785,605 1,600 292,191 East Pointe.................Charlotte, NC 9,740,000 1,364,100 12,276,563 1,800 760,279 Edgewood....................Woodinville, WA 6,177,002 1,068,200 9,613,388 1,900 314,708 Emerald Place...............Bermuda Dunes, CA 0 954,400 8,589,110 2,100 442,566 Essex Place.................Overland Park, KS 11,161,045 1,831,900 16,486,600 3,500 1,251,417 Flying Sun..................Phoenix, AZ (E) 87,120 2,035,537 100 137,450 Forest Ridge................Arlington, TX 0 2,339,300 21,053,447 21,600 255,713 Fountain Creek..............Phoenix, AZ 0 686,000 6,173,818 500 107,826 Fountainhead Combined.......San Antonio, TX 23,275,000 3,617,449 13,446,560 0 1,197,985 Fountains at Flamingo.......Las Vegas, NV 0 3,180,900 28,628,533 2,200 405,159 Four Lakes..................Lisle, IL 10,344,569 2,465,000 13,178,449 0 5,443,148 Four Lakes Lisle............Lisle, IL 39,680,000 600,000 16,530,115 0 3,012,666 Fox Run.....................Little Rock, AR 5,481,038 422,014 4,053,552 0 4,563,021 Fox Run.....................Federal Way, WA 0 638,500 5,746,956 1,200 313,307 Frey........................Atlanta, GA 19,700,000 2,464,900 22,183,783 2,300 652,772 Gatehouse on the Green......Pambroke Pines, FL 0 2,216,800 19,951,085 9,900 90,552 Gatehouse at Pine Lake......Plantation, FL 0 1,886,200 16,975,382 9,900 90,508 Georgian Woods II...........Wheaton, MD 10,618,991 2,049,000 19,287,578 4,400 1,556,763 Glenridge...................Colorado Springs, CO (F) 884,688 4,466,900 100 372,410 Governor's Place............Augusta, GA 0 347,355 2,518,146 0 765,732 Greengate...................Marietta, GA 0 132,979 1,476,005 0 1,119,555 Greenwich Woods.............Silver Spring, MD 17,940,321 3,095,700 29,073,395 5,300 1,340,526 Greenwood Forest............Little Rock, AR 3,562,675 559,038 1,736,549 0 2,664,879 Habitat.....................Orlando, FL 0 600,000 494,032 0 5,636,708 Hammock's Place.............Miami, FL (F) 319,080 12,216,608 100 608,118 GROSS AMOUNT CARRIED AT CLOSE OF DESCRIPTION PERIOD 12/31/96 - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & ACCUMULATED APARTMENT NAME LOCATION LAND FIXTURES (A) TOTAL(B) DEPRECIATION - - ------------------------------------------------------------------------------------------------------------------------------------ Country Ridge...............Farmington Hills, MI 1,620,550 14,767,943 16,388,493 300,193 Creekside...................Mountlake Terrace, WA 2,807,300 25,736,022 28,543,322 1,983,579 Creekside Oaks..............Walnut Creek, CA 2,168,000 19,512,122 21,680,122 30,810 Crystal Creek...............Phoenix, AZ 953,500 8,738,667 9,692,167 484,560 Cypress Point...............Las Vegas, NV 959,690 9,045,691 10,005,381 771,850 Dawntree....................Carrollton, TX 1,205,500 11,342,890 12,548,390 912,733 Deerwood....................San Diego, CA 2,082,095 21,415,299 23,497,394 1,936,782 Deerwood Meadows............Greensboro, NC 986,743 7,488,698 8,475,441 960,160 Del Coronado................Mesa, AZ 1,964,400 17,827,479 19,791,879 945,455 Desert Park.................Las Vegas, NV 1,085,400 9,902,609 10,988,009 361,874 Desert Sands................Phoenix, AZ 1,478,750 13,414,450 14,893,200 283,007 Diplomat South..............Beech Grove, IN 472,414 4,405,665 4,878,079 2,482,055 Doral.......................Louisville, KY 96,607 4,076,927 4,173,534 1,684,821 Eagle Canyon................Chino Hills, CA 1,808,200 16,286,742 18,094,942 165,212 Eagle Rim...................Redmond, WA 977,800 9,077,796 10,055,596 708,488 East Pointe.................Charlotte, NC 1,365,900 13,036,842 14,402,742 1,403,023 Edgewood....................Woodinville, WA 1,070,100 9,928,096 10,998,196 791,151 Emerald Place...............Bermuda Dunes, CA 956,500 9,031,676 9,988,176 979,033 Essex Place.................Overland Park, KS 1,835,400 17,738,017 19,573,417 1,697,366 Flying Sun..................Phoenix, AZ 87,220 2,172,987 2,260,207 331,352 Forest Ridge................Arlington, TX 2,360,900 21,309,160 23,670,060 473,229 Fountain Creek..............Phoenix, AZ 686,500 6,281,644 6,968,144 345,109 Fountainhead Combined.......San Antonio, TX 3,617,449 14,644,545 18,261,994 4,992,983 Fountains at Flamingo.......Las Vegas, NV 3,183,100 29,033,692 32,216,792 2,214,423 Four Lakes..................Lisle, IL 2,465,000 18,621,597 21,086,597 7,916,639 Four Lakes Lisle............Lisle, IL 600,000 19,542,781 20,142,781 5,648,085 Fox Run.....................Little Rock, AR 422,014 8,616,573 9,038,587 4,506,821 Fox Run.....................Federal Way, WA 639,700 6,060,263 6,699,963 500,256 Frey........................Atlanta, GA 2,467,200 22,836,555 25,303,755 1,909,476 Gatehouse on the Green......Pambroke Pines, FL 2,226,700 20,041,637 22,268,337 25,538 Gatehouse at Pine Lake......Plantation, FL 1,896,100 17,065,890 18,961,990 21,910 Georgian Woods II...........Wheaton, MD 2,053,400 20,844,341 22,897,741 1,458,067 Glenridge...................Colorado Springs, CO 884,788 4,839,310 5,724,098 658,422 Governor's Place............Augusta, GA 347,355 3,283,878 3,631,233 1,967,054 Greengate...................Marietta, GA 132,979 2,595,560 2,728,539 1,215,888 Greenwich Woods.............Silver Spring, MD 3,101,000 30,413,921 33,514,921 2,216,764 Greenwood Forest............Little Rock, AR 559,038 4,401,428 4,960,466 2,269,057 Habitat.....................Orlando, FL 600,000 6,130,740 6,730,740 3,511,792 Hammock's Place.............Miami, FL 319,180 12,824,726 13,143,906 1,474,391 LIFE USED TO DESCRIPTION COMPUTE - - ------------------------------------------------------------------------- DEPRECIATION IN DATE OF LATEST INCOME APARTMENT NAME LOCATION CONSTRUCTION STATEMENT (C) - - ------------------------------------------------------------------------------------------------- Country Ridge...............Farmington Hills, MI 1986 30 Years Creekside...................Mountlake Terrace, WA 1987 30 Years Creekside Oaks..............Walnut Creek, CA 1974 30 Years Crystal Creek...............Phoenix, AZ 1985 30 Years Cypress Point...............Las Vegas, NV 1989 30 Years Dawntree....................Carrollton, TX 1982 30 Years Deerwood....................San Diego, CA 1990 30 Years Deerwood Meadows............Greensboro, NC 1986 30 Years Del Coronado................Mesa, AZ 1985 30 Years Desert Park.................Las Vegas, NV 1987 30 Years Desert Sands................Phoenix, AZ 1982 30 Years Diplomat South..............Beech Grove, IN 1970 30 Years Doral.......................Louisville, KY 1972 30 Years Eagle Canyon................Chino Hills, CA 1985 30 Years Eagle Rim...................Redmond, WA 1986-88 30 Years East Pointe.................Charlotte, NC 1987 30 Years Edgewood....................Woodinville, WA 1986 30 Years Emerald Place...............Bermuda Dunes, CA 1988 30 Years Essex Place.................Overland Park, KS 1970-84 30 Years Flying Sun..................Phoenix, AZ 1983 30 Years Forest Ridge................Arlington, TX 1984/85 30 Years Fountain Creek..............Phoenix, AZ 1984 30 Years Fountainhead Combined.......San Antonio, TX 1985/1987 30 Years Fountains at Flamingo.......Las Vegas, NV 1989-91 30 Years Four Lakes..................Lisle, IL 1968/1988* 30 Years Four Lakes Lisle............Lisle, IL 1968/1988* 30 Years Fox Run.....................Little Rock, AR 1974 30 Years Fox Run.....................Federal Way, WA 1988 30 Years Frey........................Atlanta, GA 1985 30 Years Gatehouse on the Green......Pambroke Pines, FL 1990 30 Years Gatehouse at Pine Lake......Plantation, FL 1990 30 Years Georgian Woods II...........Wheaton, MD 1967 30 Years Glenridge...................Colorado Springs, CO 1985 30 Years Governor's Place............Augusta, GA 1972 30 Years Greengate...................Marietta, GA 1971 30 Years Greenwich Woods.............Silver Spring, MD 1967 30 Years Greenwood Forest............Little Rock, AR 1975 30 Years Habitat.....................Orlando, FL 1974 30 Years Hammock's Place.............Miami, FL 1986 30 Years
S-3 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COST CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION DESCRIPTION COMPANY (IMPROVEMENTS, NET) (I) - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & BUILDING & APARTMENT NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES - - ------------------------------------------------------------------------------------------------------------------------------------ Hampton Green...............San Antonio, TX (E) 1,561,830 2,962,670 0 1,894,677 Harbour Landing.............Corpus Christi, TX 0 761,600 6,854,524 3,400 758,682 Hathaway....................Long Beach, CA 0 2,512,200 22,609,720 300 146,216 Hearthstone ...............San Antonio, TX (E) 1,035,700 3,375,132 100 283,285 Heron Cove..................Coral Springs, FL 0 823,000 7,997,360 0 458,184 Heron Landing (K)...........Lauderhill, FL 0 707,100 6,363,784 5,400 163,137 Heron Run...................Plantation, FL 0 917,800 8,854,001 0 564,445 Hidden Valley...............Ann Arbor, MI 0 915,000 7,583,653 0 723,276 Holcomb Bridge..............Atlanta, GA 9,545,000 2,142,400 19,281,704 900 752,903 Hunter's Glen...............Chesterfield, MO 0 913,500 8,221,026 1,600 29,842 Hunter's Green..............Fort Worth, TX (F) 524,200 3,404,622 100 619,907 Huntington Park.............Everett, WA 0 1,594,500 14,350,001 3,000 461,869 Indian Bend.................Phoenix, AZ 0 1,072,500 9,652,385 3,200 373,611 Indian Tree.................Arvada, CO (E) 881,125 4,868,332 100 352,319 Ivy Place (L)...............Atlanta, GA 0 793,200 7,139,200 8,450 138,033 Kempton Downs...............Gresham, OR 0 1,182,200 10,639,993 35,149 756,737 Keystone....................Austin, TX 2,959,560 498,000 4,482,306 500 313,558 Kingsport...................Alexandria, VA 0 1,262,250 11,454,606 0 1,454,504 Kingswood Manor.............San Antonio, TX (E) 293,900 2,061,996 100 325,573 La Costa Brava (J)..........Jacksonville, FL 4,741,003 835,757 4,964,681 (1) 5,751,810 La Costa Brava..............Orlando, FL 0 206,626 1,380,505 0 5,174,152 Lake in the Woods...........Ypsilanti, MI 0 1,859,625 16,314,064 0 5,349,035 Lakeville Resort............Petaluma, CA 20,776,563 2,734,100 24,773,523 0 (159,496) Lakewood Oaks...............Dallas, TX 0 1,630,200 14,671,813 1,200 526,491 Lands End...................Pacifica, CA 0 1,824,500 16,423,435 0 77,817 Laurel Ridge................Chapel Hill, NC 0 160,000 1,752,118 0 2,779,323 Lincoln Green I.............San Antonio, TX 0 947,366 2,133,002 0 3,609,969 Lincoln Green II............San Antonio, TX 0 1,052,340 6,045,696 0 (249,429) Lincoln Green III...........San Antonio, TX 0 536,010 2,121,295 0 (66,297) Lodge-Oklahoma..............Tulsa, OK 0 313,571 2,677,951 0 789,532 Lodge-Texas.................San Antonio, TX 0 1,363,636 5,496,784 0 3,427,219 Longwood....................Decatur, GA 0 1,452,000 13,067,523 2,048 192,005 Mallard Cove................Greenville, SC 0 803,700 7,233,160 8,350 125,996 Mallgate....................Louisville, KY 0 0 6,162,515 0 3,399,784 Marbrisa....................Tampa, FL 0 811,500 7,303,334 1,500 23,966 Marina Club.................Forth Worth, TX 0 781,000 7,028,588 3,269 1,381,884 Marymont....................Laurel, MD 0 1,901,800 17,116,593 2,000 462,012 Maxwell Apartments..........Augusta, GA 0 216,000 1,846,772 0 681,209 McAlpine Ridge..............Charlotte, NC 0 1,283,400 11,550,225 600 300,938 GROSS AMOUNT CARRIED AT CLOSE OF DESCRIPTION PERIOD 12/31/96 - - ---------------------------------------------------------------------------------------------------------------------------------- BUILDING & ACCUMULATED APARTMENT NAME LOCATION LAND FIXTURES (A) TOTAL(B) DEPRECIATION - - ---------------------------------------------------------------------------------------------------------------------------------- Hampton Green...............San Antonio, TX 1,561,830 4,857,347 6,419,177 676,323 Harbour Landing.............Corpus Christi, TX 765,000 7,613,206 8,378,206 807,403 Hathaway....................Long Beach, CA 2,512,500 22,755,936 25,268,436 1,060,589 Hearthstone ...............San Antonio, TX 1,035,800 3,658,417 4,694,217 527,069 Heron Cove..................Coral Springs, FL 823,000 8,455,544 9,278,544 661,829 Heron Landing (K)...........Lauderhill, FL 712,500 6,526,921 7,239,421 199,030 Heron Run...................Plantation, FL 917,800 9,418,446 10,336,246 706,775 Hidden Valley...............Ann Arbor, MI 915,000 8,306,929 9,221,929 4,101,426 Holcomb Bridge..............Atlanta, GA 2,143,300 20,034,607 22,177,907 1,684,661 Hunter's Glen...............Chesterfield, MO 915,100 8,250,868 9,165,968 77,392 Hunter's Green..............Fort Worth, TX 524,300 4,024,529 4,548,829 519,924 Huntington Park.............Everett, WA 1,597,500 14,811,870 16,409,370 1,533,292 Indian Bend.................Phoenix, AZ 1,075,700 10,025,996 11,101,696 941,553 Indian Tree.................Arvada, CO 881,225 5,220,651 6,101,876 803,866 Ivy Place (L)...............Atlanta, GA 801,650 7,277,233 8,078,883 152,322 Kempton Downs...............Gresham, OR 1,217,349 11,396,730 12,614,079 610,026 Keystone....................Austin, TX 498,500 4,795,864 5,294,364 281,085 Kingsport...................Alexandria, VA 1,262,250 12,909,110 14,171,360 942,883 Kingswood Manor.............San Antonio, TX 294,000 2,387,569 2,681,569 317,155 La Costa Brava (J)..........Jacksonville, FL 835,756 10,716,491 11,552,247 5,378,546 La Costa Brava..............Orlando, FL 206,626 6,554,657 6,761,283 3,259,968 Lake in the Woods...........Ypsilanti, MI 1,859,625 21,663,099 23,522,724 10,105,716 Lakeville Resort............Petaluma, CA 2,734,100 24,614,027 27,348,127 153,152 Lakewood Oaks...............Dallas, TX 1,631,400 15,198,304 16,829,704 1,247,503 Lands End...................Pacifica, CA 1,824,500 16,501,252 18,325,752 301,140 Laurel Ridge................Chapel Hill, NC 160,000 4,531,441 4,691,441 1,876,897 Lincoln Green I.............San Antonio, TX 947,366 5,742,971 6,690,337 2,342,894 Lincoln Green II............San Antonio, TX 1,052,340 5,796,267 6,848,607 1,863,118 Lincoln Green III...........San Antonio, TX 536,010 2,054,998 2,591,008 682,835 Lodge-Oklahoma..............Tulsa, OK 313,571 3,467,483 3,781,054 1,768,970 Lodge-Texas.................San Antonio, TX 1,363,636 8,924,003 10,287,639 2,752,127 Longwood....................Decatur, GA 1,454,048 13,259,528 14,713,576 1,339,222 Mallard Cove................Greenville, SC 812,050 7,359,156 8,171,206 139,976 Mallgate....................Louisville, KY 0 9,562,299 9,562,299 5,471,136 Marbrisa....................Tampa, FL 813,000 7,327,300 8,140,300 63,078 Marina Club.................Forth Worth, TX 784,269 8,410,472 9,194,741 867,288 Marymount...................Laurel, MD 1,903,800 17,578,605 19,482,405 1,343,520 Maxwell Apartments..........Augusta, GA 216,000 2,527,981 2,743,981 955,986 McAlpine Ridge..............Charlotte, NC 1,284,000 11,851,163 13,135,163 896,373 LIFE USED TO DESCRIPTION COMPUTE - - ----------------------------------------------------------------------- DEPRECIATION IN DATE OF LATEST INCOME APARTMENT NAME LOCATION CONSTRUCTION STATEMENT (C) - - ------------------------------------------------------------------------------------------ Hampton Green...............San Antonio, TX 1979 30 Years Harbour Landing.............Corpus Christi, TX 1985 30 Years Hathaway....................Long Beach, CA 1987 30 Years Hearthstone ...............San Antonio, TX 1982 30 Years Heron Cove..................Coral Springs, FL 1987 30 Years Heron Landing (K)...........Lauderhill, FL 1988 30 Years Heron Run...................Plantation, FL 1987 30 Years Hidden Valley...............Ann Arbor, MI 1973 30 Years Holcomb Bridge..............Atlanta, GA 1985 30 Years Hunter's Glen...............Chesterfield, MO 1985 30 Years Hunter's Green..............Fort Worth, TX 1981 30 Years Huntington Park.............Everett, WA 1991 30 Years Indian Bend.................Phoenix, AZ 1973 30 Years Indian Tree.................Arvada, CO 1983 30 Years Ivy Place (L)...............Atlanta, GA 1978 30 Years Kempton Downs...............Gresham, OR 1990 30 Years Keystone....................Austin, TX 1981 30 Years Kingsport...................Alexandria, VA 1986 30 Years Kingswood Manor.............San Antonio, TX 1983 30 Years La Costa Brava (J)..........Jacksonville, FL 1970/1973 30 Years La Costa Brava..............Orlando, FL 1967 30 Years Lake in the Woods...........Ypsilanti, MI 1969 30 Years Lakeville Resort............Petaluma, CA 1984 30 Years Lakewood Oaks...............Dallas, TX 1987 30 Years Lands End...................Pacifica, CA 1974 30 Years Laurel Ridge................Chapel Hill, NC 1975 30 Years Lincoln Green I.............San Antonio, TX 1984/1986 30 Years Lincoln Green II............San Antonio, TX 1984/1986 30 Years Lincoln Green III...........San Antonio, TX 1984/1986 30 Years Lodge-Oklahoma..............Tulsa, OK 1979 30 Years Lodge-Texas.................San Antonio, TX 1979(#) 30 Years Longwood....................Decatur, GA 1992 30 Years Mallard Cove................Greenville, SC 1983 30 Years Mallgate....................Louisville, KY 1969 30 Years Marbrisa....................Tampa, FL 1984 30 Years Marina Club.................Forth Worth, TX 1987 30 Years Marymount...................Laurel, MD 1987-88 30 Years Maxwell Apartments..........Augusta, GA 1951 30 Years McAlpine Ridge..............Charlotte, NC 1989-90 30 Years
S-4 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COST CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION DESCRIPTION COMPANY (IMPROVEMENTS, NET) (I) - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & BUILDING & APARTMENT NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES - - ------------------------------------------------------------------------------------------------------------------------------------ Meadowcreek.................Tigard, OR 8,788,473 1,298,100 11,682,684 1,000 497,605 Merrimac Woods..............Costa Mesa, CA 0 673,300 6,059,722 1,600 29,948 Mountain Terrace............Stevenson Ranch, CA 0 3,977,200 35,794,729 0 (0) Newport Cove................Henderson, NV 0 698,700 6,288,245 1,600 765,432 Newport Heights.............Seattle, WA 2,655,505 390,700 3,516,229 500 208,031 Northhampton I..............Largo, MD 13,333,122 1,843,200 17,318,363 0 1,720,009 Northhampton II.............Largo, MD 0 1,494,100 14,279,723 19,400 186,486 Northgate Village...........San Antonio, TX (E) 660,000 5,753,724 100 350,807 Oak Mill II.................Germantown, MD 6,475,057 854,000 8,187,169 133 689,508 Oak Park North..............Agoura Hills, CA (O) 1,706,500 15,358,942 400 44,593 Oak Park South..............Agoura Hills, CA (O) 1,683,400 15,150,835 400 82,585 Oaks of Lakebridge..........Ormond Beach, FL 0 413,700 3,742,503 2,100 270,178 Olentangy...................Columbus, OH 28,425,106 3,032,336 20,862,191 0 7,394,749 Orchard Ridge...............Seattle, WA 0 482,600 4,343,826 3,000 157,534 Paradise Point..............Dania, FL 0 1,494,700 13,452,161 855,955 1,237,844 Park Knoll..................Atlanta, GA 0 2,904,500 26,140,219 4,300 1,252,945 Park Place I & II...........Plymouth, MN 17,951,182 2,428,200 21,853,006 5,700 185,384 Park West...................Los Angeles, CA 0 3,033,300 27,299,323 100 236,356 Parkwest....................Austin, TX (E) 648,605 4,541,683 100 419,923 Pine Harbour................Orlando, FL 0 1,661,000 14,948,625 3,300 749,584 Pine Meadow.................Greensboro, NC 4,921,530 719,300 6,474,036 1,250 67,385 Pines at Cloverlane.........Pittsfield Township, MI 0 1,906,600 17,159,269 2,400 1,913,775 Pines of Springdale.........West Palm Beach, FL 0 471,200 4,240,800 2,667 385,267 Plantation..................Monroe, LA 0 210,000 3,370,715 0 (399,716) Pointe East.................Redmond, WA 0 601,800 5,416,489 800 108,328 Port Royale.................Ft. Lauderdale, FL 0 1,752,100 15,769,281 2,100 406,225 Port Royale II..............Ft. Lauderdale, FL 0 1,015,700 9,141,355 6,300 304,166 Preston in Willowbend.......Plano, TX 0 872,500 7,852,675 3,000 1,261,802 Preston Lake................Atlanta, GA 0 1,430,900 12,877,986 34,993 934,101 Promenade Terrace...........Corona Hills, CA 16,490,541 2,281,000 20,529,476 1,700 40,643 Pueblo Villas...............Albuquerque, NM 0 854,300 7,688,783 1,200 36,858 Quail Run...................Oklahoma City, OK 0 1,000,000 4,136,059 0 551,288 Ravens Crest................Plainsboro, NJ (O) 4,673,000 42,057,149 2,850 1,065,442 Regency Palms...............Huntington Beach, CA 0 1,856,500 16,708,950 800 143,839 Reserve Square..............Cleveland, OH 0 2,618,352 23,565,022 500 7,965,098 Ridgetree I & II............Dallas, TX 0 2,094,600 18,851,177 19,000 382,141 River Bend..................Tampa, FL 0 602,945 2,161,915 0 1,994,175 Rock Creek..................Corrboro, NC 0 895,100 8,056,360 0 148 Rosehill Pointe.............Lenexa, KS 0 2,073,400 18,660,475 18,300 483,594 GROSS AMOUNT CARRIED AT CLOSE OF DESCRIPTION PERIOD 12/31/96 - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & ACCUMULATED APARTMENT NAME LOCATION LAND FIXTURES (A) TOTAL(B) DEPRECIATION - - ------------------------------------------------------------------------------------------------------------------------------------ Meadowcreek.................Tigard, OR 1,299,100 12,180,289 13,479,389 972,673 Merrimac Woods..............Costa Mesa, CA 674,900 6,089,669 6,764,569 58,694 Mountain Terrace............Stevenson Ranch, CA 3,977,200 35,794,729 39,771,929 3,502 Newport Cove................Henderson, NV 700,300 7,053,677 7,753,977 844,928 Newport Heights.............Seattle, WA 391,200 3,724,260 4,115,460 300,036 Northhampton I..............Largo, MD 1,843,200 19,038,372 20,881,572 1,440,396 Northhampton II.............Largo, MD 1,513,500 14,466,209 15,979,709 1,026,005 Northgate Village...........San Antonio, TX 660,100 6,104,531 6,764,631 918,384 Oak Mill II.................Germantown, MD 854,133 8,876,677 9,730,810 616,158 Oak Park North..............Agoura Hills, CA 1,706,900 15,403,535 17,110,435 660,163 Oak Park South..............Agoura Hills, CA 1,683,800 15,233,420 16,917,220 703,216 Oaks of Lakebridge..........Ormond Beach, FL 415,800 4,012,681 4,428,481 505,544 Olentangy...................Columbus, OH 3,032,336 28,256,940 31,289,276 14,672,182 Orchard Ridge...............Seattle, WA 485,600 4,501,360 4,986,960 411,431 Paradise Point..............Dania, FL 2,350,655 14,690,005 17,040,660 1,199,383 Park Knoll..................Atlanta, GA 2,908,800 27,393,164 30,301,964 2,838,509 Park Place I & II...........Plymouth, MN 2,433,900 22,038,390 24,472,290 265,497 Park West...................Los Angeles, CA 3,033,400 27,535,679 30,569,079 1,281,092 Parkwest....................Austin, TX 648,705 4,961,606 5,610,311 607,764 Pine Harbour................Orlando, FL 1,664,300 15,698,209 17,362,509 1,558,426 Pine Meadow.................Greensboro, NC 720,550 6,541,421 7,261,971 115,437 Pines at Cloverlane.........Pittsfield Township, MI 1,909,000 19,073,044 20,982,044 583,144 Pines of Springdale.........West Palm Beach, FL 473,867 4,626,067 5,099,934 485,180 Plantation..................Monroe, LA 210,000 2,970,999 3,180,999 1,930,187 Pointe East.................Redmond, WA 602,600 5,524,817 6,127,417 421,303 Port Royale.................Ft. Lauderdale, FL 1,754,200 16,175,506 17,929,706 1,236,499 Port Royale II..............Ft. Lauderdale, FL 1,022,000 9,445,521 10,467,521 264,972 Preston in Willowbend.......Plano, TX 875,500 9,114,477 9,989,977 980,635 Preston Lake................Atlanta, GA 1,465,893 13,812,087 15,277,980 1,394,584 Promenade Terrace...........Corona Hills, CA 2,282,700 20,570,119 22,852,819 332,826 Pueblo Villas...............Albuquerque, NM 855,500 7,725,641 8,581,141 122,902 Quail Run...................Oklahoma City, OK 1,000,000 4,687,347 5,687,347 1,911,096 Raven's Crest...............Plainsboro, NJ 4,675,850 43,122,591 47,798,441 3,741,881 Regency Palms...............Huntington Beach, CA 1,857,300 16,852,789 18,710,089 493,126 Reserve Square..............Cleveland, OH 2,618,852 31,530,120 34,148,972 2,619,824 Ridgetree I & II............Dallas, TX 2,113,600 19,233,318 21,346,918 405,273 River Bend..................Tampa, FL 602,945 4,156,090 4,759,035 2,714,440 Rock Creek..................Corrboro, NC 895,100 8,056,508 8,951,608 16,432 Rosehill Pointe.............Lenexa, KS 2,091,700 19,144,069 21,235,769 404,389 LIFE USED TO DESCRIPTION COMPUTE - - ------------------------------------------------------------------------- DEPRECIATION IN DATE OF LATEST INCOME APARTMENT NAME LOCATION CONSTRUCTION STATEMENT (C) - - ------------------------------------------------------------------------------------------------- Meadowcreek.................Tigard, OR 1985 30 Years Merrimac Woods..............Costa Mesa, CA 1970 30 Years Mountain Terrace............Stevenson Ranch, CA 1992 30 Years Newport Cove................Henderson, NV 1983 30 Years Newport Heights.............Seattle, WA 1985 30 Years Northhampton I..............Largo, MD 1977 30 Years Northhampton II.............Largo, MD 1988 30 Years Northgate Village...........San Antonio, TX 1984 30 Years Oak Mill II.................Germantown, MD 1985 30 Years Oak Park North..............Agoura Hills, CA 1990 30 Years Oak Park South..............Agoura Hills, CA 1989 30 Years Oaks of Lakebridge..........Ormond Beach, FL 1984 30 Years Olentangy...................Columbus, OH 1972 30 Years Orchard Ridge...............Seattle, WA 1988 30 Years Paradise Point..............Dania, FL 1987-90 30 Years Park Knoll..................Atlanta, GA 1983 30 Years Park Place I & II...........Plymouth, MN 1986 30 Years Park West...................Los Angeles, CA 1987/90 30 Years Parkwest....................Austin, TX 1985 30 Years Pine Harbour................Orlando, FL 1991 30 Years Pine Meadow.................Greensboro, NC 1974 30 Years Pines at Cloverlane.........Pittsfield Township, MI 1975-79 30 Years Pines of Springdale.........West Palm Beach, FL 1985/87(x) 30 Years Plantation..................Monroe, LA 1972 30 Years Pointe East.................Redmond, WA 1988 30 Years Port Royale.................Ft. Lauderdale, FL 1988 30 Years Port Royale II..............Ft. Lauderdale, FL 1991 30 Years Preston in Willowbend.......Plano, TX 1985 30 Years Preston Lake................Atlanta, GA 1984-86 30 Years Promenade Terrace...........Corona Hills, CA 1990 30 Years Pueblo Villas...............Albuquerque, NM 1975 30 Years Quail Run...................Oklahoma City, OK 1978/1983 30 Years Raven's Crest...............Plainsboro, NJ 1984 30 Years Regency Palms...............Huntington Beach, CA 1969 30 Years Reserve Square..............Cleveland, OH 1973 30 Years Ridgetree I & II............Dallas, TX 1983 30 Years River Bend..................Tampa, FL 1971 30 Years Rock Creek..................Corrboro, NC 1986 30 Years Rosehill Pointe.............Lenexa, KS 1984 30 Years
S-5 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COST CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION DESCRIPTION COMPANY (IMPROVEMENTS, NET) (I) - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & BUILDING & APARTMENT NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES - - ------------------------------------------------------------------------------------------------------------------------------------ Roswell.....................Atlanta, GA 8,100,000 1,217,500 10,957,845 2,500 442,046 Sabal Pointe(M).............Coral Springs, FL 0 1,941,900 17,477,592 9,500 177,360 Saddle Creek................Carrollton, TX 0 703,300 6,329,899 4,800 2,939,209 Saddle Ridge................Loudoun County, VA 0 1,351,800 12,165,984 13,000 191,045 Sawgrass Cove...............Bradenton, FL 0 1,671,200 15,041,179 2,950 718,569 Sheffield Court.............Arlington, VA 0 3,349,350 30,246,228 0 1,991,716 Silver Shadow...............Las Vegas, NV 0 952,100 8,568,921 1,340 254,165 Silverwood..................Mission, KS 11,000,000 1,244,000 11,196,244 1,700 496,371 Sleepy Hollow...............Kansas City, MO 12,500,000 2,193,546 13,689,443 1 1,224,190 Songbird....................San Antonio, TX 6,984,854 1,080,500 9,724,928 1,900 46,272 Sonnet Cove I...............Lexington, KY 0 183,407 2,422,860 0 1,553,169 Sonnet Cove II..............Lexington, KY 1,495,882 100,000 1,108,405 0 821,113 Southbank...................Mesa, AZ 0 319,600 2,876,874 10,900 304,656 South Creek.................Mesa, AZ 16,541,027 2,669,300 24,023,758 1,900 78,353 Spice Run...................Naperville, IL 0 2,578,900 23,210,030 400 3,874 Springs Colony..............Orlando, FL 0 631,900 5,687,010 8,500 657,299 Stonebrook..................Oklahoma City, OK 0 1,418,887 7,528,238 0 180,721 Stonelake Club..............Ocala, FL (E) 250,000 2,024,968 100 319,301 Summer Ridge................Riverside, CA 0 600,500 5,404,571 1,800 23,710 Summerset Village...........Chatsworth, CA 0 2,628,500 23,656,668 1,900 30,377 Sunny Oak Village...........Overland Park, KS 0 2,222,600 20,003,050 20,950 276,118 Sunrise Springs.............Las Vegas, NV 0 972,600 8,753,491 2,700 144,038 Sutton Place................Dallas, TX 0 1,316,500 11,848,717 41,900 2,241,843 Tanasbourne Terrace.........Hillsboro, OR 0 1,873,000 16,857,220 3,700 695,796 Tanglewood..................Manassas, VA 15,795,420 2,103,400 19,559,772 4,895 1,576,348 Tanglewood..................Portland, OR 0 760,000 6,839,589 3,000 800,883 Terraces at Peachtree.......Atlanta, GA 0 582,800 5,245,560 700 284,134 The Place...................Fort Myers, FL 0 722,900 6,506,350 3,340 350,239 The Seasons.................Boise, ID 0 604,400 5,439,624 3,600 200,077 Towne Centre III............Laurel, MD 6,022,120 982,300 9,301,830 0 929,712 Towne Centre IV.............Laurel, MD 9,781,127 1,564,200 14,787,362 4,700 44,169 Trails......................Arlington, TX 0 616,700 5,550,590 21,300 531,223 Trails......................Las Vegas, NV 0 3,076,200 27,685,764 3,000 713,626 Trails......................Aurora, CO (E) 1,217,800 8,525,346 100 1,142,930 University Park.............Toledo, OH 0 70,000 834,378 0 1,415,627 Via Ventura.................Phoenix, AZ 0 1,476,500 13,288,894 7,100 2,735,078 Village Oaks................Austin, TX 5,506,970 1,184,400 10,659,432 500 4,761 Villa Madeira...............Phoenix, AZ 0 1,580,000 14,219,907 2,100 403,579 Villa Manana................Phoenix, AZ 0 951,400 8,562,443 3,900 484,091 GROSS AMOUNT CARRIED AT CLOSE OF DESCRIPTION PERIOD 12/31/96 - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & ACCUMULATED APARTMENT NAME LOCATION LAND FIXTURES(A) TOTAL(B) DEPRECIATION - - ------------------------------------------------------------------------------------------------------------------------------------ Roswell.....................Atlanta, GA 1,220,000 11,399,891 12,619,891 965,464 Sabal Pointe(M).............Coral Springs, FL 1,951,400 17,654,952 19,606,352 531,729 Saddle Creek................Carrollton, TX 708,100 9,269,108 9,977,208 1,175,684 Saddle Ridge................Loudoun County, VA 1,364,800 12,357,029 13,721,829 506,256 Sawgrass Cove...............Bradenton, FL 1,674,150 15,759,748 17,433,898 1,471,148 Sheffield Court.............Arlington, VA 3,349,350 32,237,944 35,587,294 2,072,699 Silver Shadow...............Las Vegas, NV 953,440 8,823,086 9,776,526 941,078 Silverwood..................Mission, KS 1,245,700 11,692,615 12,938,315 956,744 Sleepy Hollow...............Kansas City, MO 2,193,547 14,913,633 17,107,180 4,287,699 Songbird....................San Antonio, TX 1,082,400 9,771,200 10,853,600 103,123 Sonnet Cove I...............Lexington, KY 183,407 3,976,029 4,159,436 2,577,503 Sonnet Cove II..............Lexington, KY 100,000 1,929,518 2,029,518 1,208,653 Southbank...................Mesa, AZ 330,500 3,181,530 3,512,030 347,843 South Creek.................Mesa, AZ 2,671,200 24,102,111 26,773,311 400,568 Spice Run...................Naperville, IL 2,579,300 23,213,904 25,793,204 27,627 Springs Colony..............Orlando, FL 640,400 6,344,309 6,984,709 587,311 Stonebrook..................Oklahoma City, OK 1,418,887 7,708,959 9,127,846 3,310,433 Stonelake Club..............Ocala, FL 250,100 2,344,269 2,594,369 344,464 Summer Ridge................Riverside, CA 602,300 5,428,281 6,030,581 91,415 Summerset Village...........Chatsworth, CA 2,630,400 23,687,044 26,317,444 236,265 Sunny Oak Village...........Overland Park, KS 2,243,550 20,279,168 22,522,718 380,603 Sunrise Springs.............Las Vegas, NV 975,300 8,897,529 9,872,829 735,256 Sutton Place................Dallas, TX 1,358,400 14,090,560 15,448,960 1,558,058 Tanasbourne Terrace.........Hillsboro, OR 1,876,700 17,553,016 19,429,716 1,491,360 Tanglewood..................Manassas, VA 2,108,295 21,136,120 23,244,415 1,634,125 Tanglewood..................Portland, OR 763,000 7,640,472 8,403,472 716,175 Terraces at Peachtree.......Atlanta, GA 583,500 5,529,694 6,113,194 227,212 The Place...................Fort Myers, FL 726,240 6,856,589 7,582,829 608,174 The Seasons.................Boise, ID 608,000 5,639,701 6,247,701 510,392 Towne Centre III............Laurel, MD 982,300 10.231,542 11,213,842 789,981 Towne Centre IV.............Laurel, MD 1,568,900 14,831,531 16,400,431 1,020,310 Trails......................Arlington, TX 638,000 6,081,813 6,719,813 623,069 Trails......................Las Vegas, NV 3,079,200 28,399,390 31,478,590 2,184,035 Trails......................Aurora, Co 1,217,900 9,668,276 10,886,176 1,306,466 University Park.............Toledo, OH 70,000 2,250,005 2,320,005 1,235,516 Via Ventura.................Phoenix, AZ 1,483,600 16,023,972 17,507,572 1,331,620 Village Oaks................Austin, TX 1,184,900 10,664,193 11,849,093 20,925 Villa Madeira...............Phoenix, AZ 1,582,100 14,623,486 16,205,586 1,324,635 Villa Manana................Phoenix, AZ 955,300 9,046,534 10,001,834 839,816
LIFE USED TO DESCRIPTION COMPUTE - - ------------------------------------------------------------------------- DEPRECIATION IN DATE OF LATEST INCOME APARTMENT NAME LOCATION CONSTRUCTION STATEMENT(C) - - ------------------------------------------------------------------------------------------------- Roswell.....................Atlanta, GA 1985 30 Years Sabal Pointe(M).............Coral Springs, FL 1995 30 Years Saddle Creek................Carrollton, TX 1980 30 Years Saddle Ridge................Loudoun County, VA 1989 30 Years Sawgrass Cove...............Bradenton, FL 1991 30 Years Sheffield Court.............Arlington, VA 1986 30 Years Silver Shadow...............Las Vegas, NV 1992 30 Years Silverwood..................Mission, KS 1986 30 Years Sleepy Hollow...............Kansas City, MO 1987 30 Years Songbird....................San Antonio, TX 1981 30 Years Sonnet Cove I...............Lexington, KY 1972 30 Years Sonnet Cove II..............Lexington, KY 1974 30 Years Southbank...................Mesa, AZ 1985 30 Years South Creek.................Mesa, AZ 1986-89 30 Years Spice Run...................Naperville, IL 1988 30 Years Springs Colony..............Orlando, FL 1986 30 Years Stonebrook..................Oklahoma City, OK 1983 30 Years Stonelake Club..............Ocala, FL 1986 30 Years Summer Ridge................Riverside, CA 1985 30 Years Summerset Village...........Chatsworth, CA 1985 30 Years Sunny Oak Village...........Overland Park, KS 1984 30 Years Sunrise Springs.............Las Vegas, NV 1989 30 Years Sutton Place................Dallas, TX 1985 30 Years Tanasbourne Terrace.........Hillsboro, OR 1986-89 30 Years Tanglewood..................Manassas, VA 1987 30 Years Tanglewood..................Portland, OR 1976 30 Years Terraces at Peachtree.......Atlanta, GA 1987 30 Years The Place...................Fort Myers, FL 1986 30 Years The Seasons.................Boise, ID 1990 30 Years Towne Centre III............Laurel, MD 1969 30 Years Towne Centre IV.............Laurel, MD 1968 30 Years Trails......................Arlington, TX 1984 30 Years Trails......................Las Vegas, NV 1988 30 Years Trails......................Aurora, CO 1986 30 Years University Park.............Toledo OH 1965 30 Years Via Ventura.................Phoenix, AZ 1980 30 Years Village Oaks................Austin, TX 1984 30 Years Villa Madeira...............Phoenix, AZ 1971 30 Years Villa Manana................Phoenix, AZ 1971-85 30 Years
S-6 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COST CAPITALIZED SUBSEQUENT TO INITIAL COST TO ACQUISITION DESCRIPTION COMPANY (IMPROVEMENTS, NET) (I) - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & BUILDING & APARTMENT NAME LOCATION ENCUMBRANCES LAND FIXTURES LAND FIXTURES - - ------------------------------------------------------------------------------------------------------------------------------------ Villa Solana................ Laguna Hills, CA 0 1,663,500 14,971,366 1,600 796,923 Village of Hampshire........ Toledo, OH 0 195,886 1,320,453 0 9,366,924 Village of Newport.......... Federal Way, WA 3,272,574 414,900 3,733,899 1,400 248,689 Vista Del Lago.............. Mission Viejo, CA 32,350,000 4,524,400 41,357,681 1,400 966,539 Walden Wood................. Southfield, MI 5,960,000 833,300 7,499,662 1,400 818,712 Walnut Ridge................ Little Rock, AR 3,654,026 196,079 2,424,631 0 2,997,627 Waterstone Place............ Seattle, WA 0 2,950,900 26,558,353 13,100 2,237,608 Wellington.................. Silverdale, WA 8,349,435 1,097,300 9,876,034 2,000 382,036 Wellington Hill............. Manchester, NH 28,625,000 1,872,500 16,852,955 29,700 1,407,693 Wilde Lake.................. Richmond, VA 4,440,000 934,600 8,411,613 10,600 95,472 Williamsburg Square......... Little Rock, AR 3,288,623 315,000 1,745,958 0 3,305,267 Willowglen.................. Aurora, CO 0 1,708,000 15,371,641 1,100 92,270 Windmill.................... Colorado Springs, CO (E) 395,544 4,953,156 100 488,925 Windridge................... Laguna Niguel, CA (O) 2,660,800 23,947,096 2,100 293,993 Winterwood.................. Charlotte, NC 12,260,000 1,720,100 15,481,455 1,700 898,560 Woodbridge (N).............. Cary, NC 4,820,441 1,981,900 17,839,380 0 116,484 Woodcreek................... Beaverton, OR 11,600,802 1,753,700 15,783,764 1,400 1,102,966 Woodlake at Killearn........ Tallahassee, FL 0 1,404,300 12,638,426 3,855 846,099 Woodland Hills.............. Decatur, GA 0 1,223,900 11,017,542 0 178,798 Woodmoor.................... Austin, TX 0 649,300 5,843,200 4,500 830,321 Woods at North Bend......... Raleigh, NC 0 1,039,000 9,350,616 500 267,612 Woodscape................... Raleigh, NC 0 956,000 8,603,550 1,200 34,519 Woodside.................... Lorton, VA 0 1,308,100 12,503,220 17,900 209,155 Yorktowne................... Millersville, MD 0 216,000 1,330,710 0 4,508,939 Yuma Court.................. Colorado Springs, CO 0 113,163 836,429 100 104,328 Operating Partnership....... Chicago, IL 0 0 88,566 0 0 Management Business......... Chicago, IL 0 0 3,442,962 1,000 5,589,868 --------------------------------- --------------------------------------------- TOTAL $680,755,447 $283,252,575 $2,486,293,619 $1,626,411 $212,337,130 ================================= ============================================= GROSS AMOUNT CARRIED AT CLOSE OF DESCRIPTION PERIOD 12/31/96 - - ------------------------------------------------------------------------------------------------------------------------------------ BUILDING & ACCUMULATED APARTMENT NAME LOCATION LAND FIXTURES (A) TOTAL (B) DEPRECIATION - - ------------------------------------------------------------------------------------------------------------------------------------ Villa Solana................ Laguna Hills, CA 1,665,100 15,768,289 17,433,389 1,579,997 Village of Hampshire........ Toledo, OH 195,886 10,687,377 10,883,263 3,281,711 Village of Newport.......... Federal Way, WA 416,300 3,982,588 4,398,888 326,790 Vista Del Lago.............. Mission Viejo, CA 4,525,800 42,324,220 46,850,020 4,318,438 Walden Wood................. Southfield, MI 834,700 8,318,374 9,153,074 899,416 Walnut Ridge................ Little Rock, AR 196,079 5,422,258 5,618,337 2,659,332 Waterstone Place............ Seattle, WA 2,964,000 28,795,961 31,759,961 3,101,327 Wellington.................. Silverdale, WA 1,099,300 10,258,070 11,357,370 554,721 Wellington Hill............. Manchester, NH 1,902,200 18,260,648 20,162,848 1,750,000 Wilde Lake.................. Richmond, VA 945,200 8,507,085 9,452,285 10,254 Williamsburg Square......... Little Rock, AR 315,000 5,051,225 5,366,225 2,325,587 Willowglen.................. Aurora, CO 1,709,100 15,463,911 17,173,011 161,468 Windmill.................... Colorado Springs, CO 395,644 5,442,081 5,837,725 856,207 Windridge................... Laguna Niguel, CA 2,662,900 24,241,089 26,903,989 1,825,518 Winterwood.................. Charlotte, NC 1,721,800 16,380,015 18,101,815 1,748,890 Woodbridge (N).............. Cary, NC 1,981,900 17,955,864 19,937,764 549,380 Woodcreek................... Beaverton, OR 1,755,100 16,886,730 18,641,830 1,396,188 Woodlake at Killearn........ Tallahassee, FL 1,408,155 13,484,525 14,892,680 1,404,945 Woodland Hills.............. Decatur, GA 1,223,900 11,196,340 12,420,240 250,737 Woodmoor.................... Austin, TX 653,800 6,673,521 7,327,321 694,877 Woods at North Bend......... Raleigh, NC 1,039,500 9,618,228 10,657,728 399,780 Woodscape................... Raleigh, NC 957,200 8,638,069 9,595,269 104,374 Woodside.................... Lorton, VA 1,326,000 12,712,375 14,038,375 937,395 Yorktowne................... Millersville, MD 216,000 5,839,649 6,055,649 3,740,770 Yuma Court.................. Colorado Springs, CO 113,263 940,757 1,054,020 128,338 Operating Partnership....... Chicago, IL 0 88,566 88,566 30,113 (H) Management Business......... Chicago, IL 1,000 9,032,830 9,033,830 5,413,107 (G) --------------------------------- ------------------------------ TOTAL $284,878,986 $2,698,630,748 $2,983,509,734 $301,511,545 ============= ============== ============== ============== LIFE USED TO DESCRIPTION COMPUTE - - ------------------------------------------------------------------------- DEPRECIATION IN DATE OF LATEST INCOME APARTMENT NAME LOCATION CONSTRUCTION STATEMENT (C) - - ------------------------------------------------------------------------------------------------- Villa Solana................ Laguna Hills, CA 1984 30 Years Village of Hampshire........ Toledo, OH 1950 30 Years Village of Newport.......... Federal Way, WA 1987 30 Years Vista Del Lago.............. Mission Viejo, CA 1986-88 30 Years Walden Wood................. Southfield, MI 1972 30 Years Walnut Ridge................ Little Rock, AR 1975 30 Years Waterstone Place............ Seattle, WA 1990 30 Years Wellington.................. Silverdale, WA 1990 30 Years Wellington Hill............. Manchester, NH 1987 30 Years Wilde Lake.................. Richmond, VA 1989 30 Years Williamsburg Square......... Little Rock, AR 1974 30 Years Willowglen.................. Aurora, CO 1983 30 Years Windmill.................... Colorado Springs, CO 1985 30 Years Windridge................... Laguna Niguel, CA 1989 30 Years Winterwood.................. Charlotte, NC 1986 30 Years Woodbridge (N).............. Cary, NC 1993-95 30 Years Woodcreek................... Beaverton, OR 1982-84 30 Years Woodlake at Killearn........ Tallahassee, FL 1986 30 Years Woodland Hills.............. Decatur, GA 1985 30 Years Woodmoor.................... Austin, TX 1981 30 Years Woods at North Bend......... Raleigh, NC 1983 30 Years Woodscape................... Raleigh, NC 1979 30 Years Woodside.................... Lorton, VA 1987 30 Years Yorktowne................... Millersville, MD 1974 30 Years Yuma Court.................. Colorado Springs, CO 1985 30 Years Operating Partnership....... Chicago, IL Management Business......... Chicago, IL
S-7 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST Real Estate and Accumulated Depreciation December 31, 1996 NOTES: (A) The balance of furniture & fixtures included in the total amount was $132,062,754 as of December 31, 1996. (B) The aggregate cost for Federal Income Tax purposes as of December 31, 1996 was approximately $2.8 billion. (C) The life to compute depreciation for furniture & fixtures is 5 years. (D) These two properties are encumbered by $15,178,699 in bonds. (E) These 15 properties are encumbered by a $44,000,000 note payable. (F) These four properties are encumbered by $15,500,000 in bonds. (G) This asset consists of various acquisition dates and represents furniture, fixtures and equipment owned by the Management Business. (H) This asset consists of various acquisition dates and represents furniture, fixtures and equipment owned by the Operating Partnership. (I) Improvements are net of write-off of fully depreciated assets which are no longer in service. (J) Combined with Cedar Cove (K) Formerly Oxford & Sussex (L) Formerly Post Place (M) Formerly The Vinings at Coral Springs (N) Formerly The Plantations (NC) (O) These properties are pledged as additional collateral in connection with the tax-exempt bond refinancing. * Four Lakes was constructed in phases between 1968 & 1988. (#) The Lodge-Texas was struck by a tornado that destroyed most of the property. The property was reconstructed during 1989 & 1990. (x) Pines of Springdale was constructed in phases between 1985 & 1987. S-8 SCHEDULE III EQUITY RESIDENTIAL PROPERTIES TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED) (AMOUNTS IN THOUSANDS) The changes in total real estate for the years ended December 31, 1996, 1995, and 1994 are as follows:
1996 1995 1994 ------------ ------------ ------------ Balance, beginning of year $2,188,939 $1,963,476 $634,577 Acquisitions 789,056 288,277 1,313,077 Improvements 33,001 32,800 16,721 Write-off of fully depreciated assets which are no longer in service (20) (34,320) Dispositions and other (27,466) (61,294) (899) ============ ============ ============ Balance, end of year $2,983,510 $2,188,939 $1,963,476 ============ ============ ============
The changes in accumulated depreciation for the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 ------------ ------------ ------------ Balance, beginning of year $218,339 $192,741 $156,367 Depreciation 93,253 72,410 37,273 Write-off of fully depreciated assets which are no longer in service (20) (34,320) Dispositions and other (10,060) (12,492) (899) ============ ============ ============ Balance, end of year $301,512 $218,339 $192,741 ============ ============ ============
S-9 EX-10.20 2 REVOLVING CREDIT AGREEMENT --------------------------------------------------------- --------------------------------------------------------- REVOLVING CREDIT AGREEMENT dated as of November 15, 1996 among ERP OPERATING LIMITED PARTNERSHIP, THE BANKS LISTED HEREIN, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Lead Agent and BANK OF AMERICA ILLINOIS, as Co-Lead Agent --------------------------------------------------------- --------------------------------------------------------- TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEFINITIONS SECTION 1.1 Definitions................................................. 1 1.2 Accounting Terms and Determinations......................... 30 1.3 Types of Borrowings......................................... 30 ARTICLE II THE CREDITS SECTION 2.1 Commitments to Lend......................................... 31 2.2 Notice of Borrowing......................................... 31 2.3 Money Market Borrowings..................................... 31 2.4 Notice to Banks; Funding of Loans........................... 37 2.5 Notes....................................................... 38 2.6 Method of Electing Interest Rates........................... 39 2.7 Interest Rates.............................................. 41 2.8 Fees........................................................ 43 2.9 Maturity Date............................................... 44 2.10 Mandatory Prepayment........................................ 44 2.11 Optional Prepayments........................................ 45 2.12 General Provisions as to Payments........................... 46 2.13 Funding Losses.............................................. 47 2.14 Computation of Interest and Fees............................ 48 2.15 Use of Proceeds............................................. 48 ARTICLE III CONDITIONS SECTION 3.1 Closing..................................................... 48 3.2 Borrowings.................................................. 51 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1 Existence and Power......................................... 52 4.2 Power and Authority......................................... 52 4.3 No Violation................................................ 53 4.4 Financial Information....................................... 53 4.5 Litigation.................................................. 54 4.6 Compliance with ERISA....................................... 54 4.7 Environmental Matters....................................... 55 4.8 Taxes....................................................... 55 4.9 Full Disclosure............................................. 55 i Page ---- 4.10 Solvency.................................................... 56 4.11 Use of Proceeds; Margin Regulations......................... 56 4.12 Governmental Approvals...................................... 56 4.13 Investment Company Act; Public Utility Holding Company Act............................................... 56 4.14 Principal Offices........................................... 57 4.15 REIT Status................................................. 57 4.16 Patents, Trademarks, etc.................................... 57 4.17 Ownership of Property....................................... 57 4.18 No Default.................................................. 57 4.19 Licenses, etc............................................... 57 4.20 Compliance With Law......................................... 58 4.21 No Burdensome Restrictions.................................. 58 4.22 Brokers' Fees............................................... 58 4.23 Labor Matters............................................... 58 4.24 Insurance................................................... 58 4.25 Organizational Documents.................................... 59 4.26 Qualifying Unencumbered Properties.......................... 59 ARTICLE V AFFIRMATIVE AND NEGATIVE COVENANTS SECTION 5.1 Information................................................. 59 5.2 Payment of Obligations...................................... 63 5.3 Maintenance of Property; Insurance; Leases.................. 64 5.4 Conduct of Business and Maintenance of Existence............ 64 5.5 Compliance with Laws........................................ 64 5.6 Inspection of Property, Books and Records................... 65 5.7 Existence................................................... 65 5.8 Financial Covenants......................................... 65 5.9 Restriction on Fundamental Changes.......................... 67 5.10 Changes in Business......................................... 68 5.11 Margin Stock................................................ 69 5.12 Hedging Requirements........................................ 69 5.13 EQR Status.................................................. 69 ARTICLE VI DEFAULTS SECTION 6.1 Events of Default........................................... 71 6.2 Rights and Remedies......................................... 74 6.3 Notice of Default........................................... 75 ARTICLE VII THE AGENTS SECTION 7.1 Appointment and Authorization............................... 75 ii Page ---- 7.2 Agency and Affiliates....................................... 75 7.3 Action by Lead Agent and Co-Lead Agent...................... 76 7.4 Consultation with Experts................................... 76 7.5 Liability of Lead Agent and Co-Lead Agent................... 76 7.6 Indemnification............................................. 77 7.7 Credit Decision............................................. 77 7.8 Successor Lead Agent or Co-Lead Agent....................... 77 7.9 Consents and Approvals...................................... 78 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.1 Basis for Determining Interest Rate Inadequate or Unfair.................................................... 79 8.2 Illegality.................................................. 80 8.3 Increased Cost and Reduced Return........................... 81 8.4 Taxes....................................................... 83 8.5 Base Rate Loans Substituted for Affected Euro-Dollar Loans......................................... 86 ARTICLE IX MISCELLANEOUS SECTION 9.1 Notices..................................................... 86 9.2 No Waivers.................................................. 87 9.3 Expenses; Indemnification................................... 87 9.4 Sharing of Set-Offs......................................... 89 9.5 Amendments and Waivers...................................... 90 9.6 Successors and Assigns...................................... 91 9.7 Collateral.................................................. 93 9.8 Governing Law; Submission to Jurisdiction................... 93 9.9 Counterparts; Integration; Effectiveness.................... 94 9.10 Waiver of Jury Trial........................................ 94 9.11 Survival.................................................... 94 9.12 Domicile of Loans........................................... 94 9.13 Limitation of Liability..................................... 94 9.14 Recourse Obligation......................................... 95 9.15 Confidentiality............................................. 95 9.16 Bank's Failure to Fund...................................... 95 Schedule 4.6 - ERISA Plans Schedule 4.17 - Real Property Schedule 5.13(c)(i) - EQR Investments Schedule 5.13(c)(2) - EQR Property Exhibit A - Form of Note Exhibit B - Form of Money Market Quote Request Exhibit C - Form of Invitation for Money Market Quote Exhibit D - Form of Money Market Quote Exhibit E - Assignment and Assumption Agreement Exhibit F - Qualifying Unecumbered Properties iii REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT (this "Agreement") dated as of November 15, 1996 among ERP OPERATING LIMITED PARTNERSHIP (the "Borrower"), the BANKS listed on the signature pages hereof, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Lead Agent, and BANK OF AMERICA ILLINOIS, as Co-Lead Agent. W I T N E S S E T H - - - - - - - - - - The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.3. "Accommodation Obligations" as applied to any Person, means any obligation, contingent or otherwise, of that Person in respect of which that Person is liable for any Indebtedness or other obligation or liability of another Person, including without limitation and without duplication (i) any such Indebtedness, obligation or liability directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including Contractual Obligations (contingent or otherwise) arising through any agreement to purchase, repurchase or otherwise acquire such Indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, or other financial condition, or to make payment other than for value received and (ii) any obligation of such Person arising through such Person's status as a general partner of a general or limited partnership with respect to any Indebtedness, obligation or liability of such general or limited partnership. "Adjusted Asset Value" means, with respect to any Person or Property, (i) for any Property for which an acquisition or disposition has not occurred in the Fiscal Quarter most recently ended by the Borrower or a Financing Partnership, the product of four (4) and a fraction, the numerator of which is EBITDA for such Fiscal Quarter attributable to such Property in a manner reasonably acceptable to Lead Agent for the Fiscal Quarter most recently ended, and the denominator of which is the FMV Cap Rate, plus (ii) for any Property which has been acquired by the Borrower or a Financing Partnership in the Fiscal Quarter most recently ended, the Net Price of the Property paid by Borrower or a Financing Partnership for such Property. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.7(b). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Lead Agent and submitted to the Lead Agent (with a copy to the Borrower and the Co-Lead Agent) duly completed by such Bank. "Agreement" shall mean this Revolving Credit Agreement as the same may from time to time hereafter be modified, supplemented or amended. "Applicable Interest Rate" means (i) with respect to any Fixed Rate Indebtedness, the fixed interest rate applicable to such Fixed Rate Indebtedness at the time in question, and (ii) with respect to any Floating Rate Indebtedness, either (x) the rate at which the interest rate applicable to such Floating Rate Indebtedness is actually capped (or fixed pursuant to an interest rate hedging device), at the time of calculation, if Borrower has entered into an interest rate cap agreement or other interest rate hedging device with respect 2 thereto or (y) if Borrower has not entered into an interest rate cap agreement or other interest rate hedging device with respect to such Floating Rate Indebtedness, the greater of (A) the rate at which the interest rate applicable to such Floating Rate Indebtedness could be fixed for the remaining term of such Floating Rate Indebtedness, at the time of calculation, by Borrower's entering into any unsecured interest rate hedging device either not requiring an upfront payment or if requiring an upfront payment, such upfront payment shall be amortized over the term of such device and included in the calculation of the interest rate (or, if such rate is incapable of being fixed by entering into an unsecured interest rate hedging device at the time of calculation, a fixed rate equivalent reasonably determined by Lead Agent) or (B) the floating rate applicable to such Floating Rate Indebtedness at the time in question. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office, and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Applicable Margin" means, with respect to each Loan, the respective percentages per annum determined, at any time, based on the range into which Borrower's Credit Rating then falls, in accordance with the table set forth below. Any change in Borrower's Credit Rating causing it to move to a different range on the table shall effect an immediate change in the Applicable Margin. In the event that Borrower receives two (2) Credit Ratings that are not equivalent, the Applicable Margin shall be determined by the lower of such two (2) Credit Ratings. In the event that Borrower receives more than two (2) Credit Ratings, and such ratings are not equivalent, the Applicable Margin shall be determined by the lower of the two (2) highest ratings, provided that each of said two (2) highest ratings shall be Investment Grade Ratings and at least one of which shall be an Investment Grade Rating from S&P or Moody's. In the event that only one of the Rating Agencies shall have set Borrower's Credit Rating, then the Applicable Margin shall be based on such rating only. 3
Range of Applicable Borrower's Margin for Applicable Credit Rating Base Rate Margin for Euro (S&P/Moody's Loans Dollar Loans Ratings) (% per annum) (% per annum) - - -------- ------------- ------------- Non-Invest- ment Grade 0.0 1.125 BBB-/Baa3 0.0 0.950 BBB/Baa2 0.0 0.750 BBB+/Baa1 0.0 0.625 A-/A3 or better 0.0 0.550
"Approved Bank" shall mean banks which have (i)(a) a minimum net worth of $500,000,000 and/or (b) total assets of $10,000,000,000, and (ii) a minimum long term debt rating of (a) BBB+ or higher by S&P, and (b) Baa1 or higher by Moody's. "Assignee" has the meaning set forth in Section 9.6(c). "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective successors. "Bankruptcy Code" shall mean Title 11 of the United States Code, entitled "Bankruptcy", as amended from time to time, and any successor statute or statutes. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 0.5% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Committed Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Borrowing or pursuant to Article VIII. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is 4 maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means ERP Operating Limited Partnership, an Illinois limited partnership. "Borrower's Share" means Borrower's or EQR's share of the liabilities of an Investment Affiliate based upon Borrower's or EQR's percentage ownership of such Investment Affiliate, as the case may be. "Borrowing" has the meaning set forth in Section 1.3. "Capital Leases" as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Cap Rate" means the Treasury Rate plus 2.8%. "Capital Reserve" shall mean, for any period, $62.50 for each Fiscal Quarter to occur during such period. "Cash and Cash Equivalents" shall mean (i) cash, (ii) direct obligations of the United States Government, including without limitation, treasury bills, notes and bonds, (iii) interest bearing or discounted obligations of Federal agencies and Government sponsored entities or pools of such instruments offered by Approved Banks and dealers, including without limitation, Federal Home Loan Mortgage Corporation participation sale certificates, Government National Mortgage Association modified pass through certificates, Federal National Mortgage Association bonds and notes, and Federal Farm Credit System securities, (iv) time deposits, Domestic and Eurodollar certificates of deposit, bankers acceptances, commercial paper rated at least A- 1 by S&P and P-1 by Moody's and/or guaranteed by an Aa rating by Moody's, a AA rating by S&P or better rated credit, floating rate notes, other money market instruments and letters of credit each issued by Approved Banks (provided that the same shall cease to be a "Cash or Cash Equivalent" if at any time any such bank shall cease to be an Approved Bank), (v) obligations of domestic corporations, including, without limitation, commercial paper, bonds, debentures and loan participations, each of which is rated at least AA by S&P 5 and/or Aa2 by Moody's and/or guaranteed by an Aa rating by Moody's, a AA rating by S&P or better rated credit, (vi) obligations issued by states and local governments or their agencies, rated at least MIG-1 by Moody's and/or SP-1 by S&P and/or guaranteed by an irrevocable letter of credit of an Approved Bank (provided that the same shall cease to be a "Cash or Cash Equivalent" if at any time any such bank shall cease to be an Approved Bank), (vii) repurchase agreements with major banks and primary government security dealers fully secured by the U.S. Government or agency collateral equal to or exceeding the principal amount on a daily basis and held in safekeeping, and (viii) real estate loan pool participations, guaranteed by an AA rating given by S&P or Aa2 rating given by Moody's or better rated credit. "Closing Date" means the date on or after the Effective Date on which the conditions set forth in Section 3.1 shall have been satisfied to the satisfaction of the Lead Agent and the Co-Lead Agent. "Code" shall mean the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "Co-Lead Agent" shall mean Bank of America Illinois in its capacity as Co-Lead Agent hereunder, and its permitted successors in such capacity in accordance with the terms of this Agreement. "Committed Borrowing" has the meaning set forth in Section 1.3. "Committed Loan" means a loan made by a Bank pursuant to Section 2.1; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "Committed Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof (and, for each Bank which is an Assignee, the amount set forth in the Assignment and 6 Assumption Agreement entered into pursuant to Section 9.6(c) as the Assignee's Commitment), as such amount may be reduced from time to time pursuant to Section 2.10(c) or in connection with an assignment to an Assignee. "Consolidated Subsidiary" means at any date any Subsidiary or other entity which is consolidated with Borrower in accordance with GAAP. "Consolidated Tangible Net Worth" means at any date the consolidated partner's capital plus the value of preference units of the Borrower and its Consolidated Subsidiaries (determined on a book basis), less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition "Intangible Assets" means with respect to any such intangible assets, the amount (to the extent reflected in determining such consolidated stockholders' equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to June 30, 1996 in the book value of any asset (other than Real Property Assets) owned by the Borrower or a Consolidated Subsidiary and (ii) goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry forwards, copyrights, organization or developmental expenses and other intangible assets. "Contingent Obligation" as to any Person means, without duplication, (i) any contingent obligation of such Person required to be shown on such Person's balance sheet in accordance with GAAP, and (ii) any obligation required to be disclosed in the footnotes to such Person's financial statements, guaranteeing partially or in whole any Non-Recourse Indebtedness, lease, dividend or other obligation, exclusive of contractual indemnities (including, without limitation, any indemnity or price-adjustment provision relating to the purchase or sale of securities or other assets) and guarantees of non-monetary obligations (other than guarantees of completion) which have not yet been called on or quantified, of such Person or of any other Person. The amount of any Contingent Obligation described in clause (ii) shall be deemed to be (a) with respect to a guaranty of interest or interest and principal, or operating income guaranty, the Net Present Value of the sum of all payments required to be made thereunder (which in the case of an operating income guaranty shall be deemed to be equal 7 to the debt service for the note secured thereby), calculated at the Applicable Interest Rate, through (i) in the case of an interest or interest and principal guaranty, the stated date of maturity of the obligation (and commencing on the date interest could first be payable thereunder), or (ii) in the case of an operating income guaranty, the date through which such guaranty will remain in effect, and (b) with respect to all guarantees not covered by the preceding clause (a), an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as recorded on the balance sheet and on the footnotes to the most recent financial statements of Borrower required to be delivered pursuant to Section 4.4 hereof. Notwithstanding anything contained herein to the contrary, guarantees of completion shall not be deemed to be Contingent Obligations unless and until a claim for payment or performance has been made thereunder, at which time any such guaranty of completion shall be deemed to be a Contingent Obligation in an amount equal to any such claim. Subject to the preceding sentence, (i) in the case of a joint and several guaranty given by such Person and another Person (but only to the extent such guaranty is recourse, directly or indirectly to Borrower), the amount of the guaranty shall be deemed to be 100% thereof unless and only to the extent that such other Person has delivered Cash or Cash Equivalents to secure all or any part of such Person's guaranteed obligations and (ii) in the case of a guaranty (whether or not joint and several) of an obligation otherwise constituting Indebtedness of such Person, the amount of such guaranty shall be deemed to be only that amount in excess of the amount of the obligation constituting Indebtedness of such Person. Notwithstanding anything contained herein to the contrary, "Contingent Obligations" shall be deemed not to include guarantees of Unused Commitments or of construction loans to the extent the same have not been drawn. All matters constituting "Contingent Obligations" shall be calculated without duplication. "Contractual Obligation," as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, lease, contract, undertaking, document or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject 8 (including without limitation any restrictive covenant affecting such Person or any of its properties). "Convertible Securities" means evidences of shares of stock, limited or general partnership interests or other ownership interests, warrants, options, or other rights or securities which are convertible into or exchangeable for, with or without payment of additional consideration, shares of common stock of EQR or partnership interests of Borrower, as the case may be, either immediately or upon the arrival of a specified date or the happening of a specified event. "Credit Rating" means the rating assigned by the Rating Agencies to Borrower's senior unsecured long term indebtedness. "Debt Restructuring" means a restatement of, or material change in, the amortization or other financial terms of any Indebtedness of EQR, the Borrower or any Investment Affiliate. "Debt Service" means, for any period, Interest Expense for such period plus scheduled principal amortization (excluding any individual scheduled principal payment which exceeds 25% of the original principal amount of an issuance of Indebtedness) for such period on all Indebtedness of EQR (calculated as provided in Section 1.2), on a consolidated basis, plus Borrower's Share of scheduled principal amortization for such period on all Indebtedness of Investment Affiliates for which there is no recourse to EQR or Borrower (or any Property thereof), plus, without duplication, EQR's and Borrower's actual or potential liability for principal amortization for such period on all Indebtedness of Investment Affiliates that is recourse to EQR or Borrower (or any Property thereof). "Default" means any condition or event which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate" has the meaning set forth in Section 2.6(d). "Development Activity" means (a) the development and construction of multiple apartment complexes by the Borrower or any of its Subsidiaries excluding Unimproved Assets, (b) the financing by the Borrower or any of its 9 Subsidiaries of any such development or construction or (c) the incurrence by the Borrower or any of its Subsidiaries of any Contingent Obligations in connection with such development or construction (other than purchase contracts for Real Property Assets which are not payable until completion of development or construction), valued at the cost of such projects under development and construction. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address in the United States set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Lead Agent. "EBITDA" means, for any period (i) Net Income for such period, plus (ii) depreciation and amortization expense and other non-cash items deducted in the calculation of Net Income for such period, plus (iii) Interest Expense deducted in the calculation of Net Income for such period, plus, (iv) Taxes deducted in the calculation of Net Income for such period, plus (v) Borrower's Share of distributed earnings of Investment Affiliates for such period, minus (vi) the gains (and plus the losses) from extraordinary items or asset sales or write-ups or forgiveness of indebtedness included in the calculation of Net Income, for such period, minus (vii) Borrower's Share of accrued income and losses of Investment Affiliates for such period minus (viii) earnings of Subsidiaries for such period distributed to third parties, all of the foregoing without duplication. "Effective Date" means the date this Agreement becomes effective in accordance with Section 9.9. "Environmental Affiliate" means any partnership, joint venture, trust or corporation in which an equity interest is owned by the Borrower, either directly or indirectly. "Environmental Approvals" means any permit, license, approval, ruling, variance, exemption or other authorization required under applicable Environmental Laws. 10 "Environmental Claim" means, with respect to any Person, any notice, claim, demand or similar communication (written or oral) by any other Person alleging potential liability of such Person for investigatory costs, cleanup costs, governmental response costs, natural resources damage, property damages, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such Person or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law, in each case (with respect to both (i) and (ii) above) as to which there is a reasonable possibility of an adverse determination with respect thereto and which, if adversely determined, would have a Material Adverse Effect on the Borrower. "Environmental Laws" means any and all federal, state, and local statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of Materials of Environmental Concern into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern or the clean up or other remediation thereof. "EQR" means Equity Residential Properties Trust, a Maryland real estate investment trust, the sole general partner of the Borrower. "EQR Guaranty" means the Guaranty of Payment of even date herewith executed by EQR in favor of Lead Agent, Co-Lead Agent and the Banks. "EQR 1995 Form 10-K" means EQR's annual report on Form 10-K for 1995, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. 11 "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Code. "Euro-Dollar Borrowing" has the meaning set forth in Section 1.3. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro- Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Lead Agent. "Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Borrowing. "Euro-Dollar Reference Bank" means the principal London offices of the Lead Agent. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.7(b). "Event of Default" has the meaning set forth in Section 6.1. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business 12 Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Lead Agent on such day on such transactions as determined by the Lead Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System as constituted from time to time. "FFO" means "funds from operations," defined to mean, for any period, Net Income before Borrower's share of the Net Income or loss of any Investment Affiliate, plus any and all cash distributions received by Borrower representing Borrower's Share of the Net Income (plus Borrower's Share of depreciation and amortization expenses of Investment Affiliates) of any Investment Affiliate, plus depreciation and amortization expense for such period and excluding gains (or losses) from Debt Restructurings and sales or other dispositions of Property of the Borrower or any Investment Affiliate. "Financing Partnerships" means (i) those subsidiary limited partnerships for which the Borrower is a limited partner with a 1% limited partnership interest, Borrower is a general partner with a 98% general partner interest and a QRS Corporation is a general partner with a 1% general partner interest, (ii) those limited liability companies for which the Borrower is a member with a 99% member interest and a QRS Corporation is a member with a 1% member interest, (iii) those general partnerships in which the Borrower is a general partner with a 99% partnership interest and a QRS Corporation is a general partner with a 1% partnership interest, and (iv) those corporations which are wholly-owned and controlled by the Borrower or an entity described in clause (i), (ii) or (iii) of this definition. "Fiscal Quarter" means a fiscal quarter of a Fiscal Year. "Fiscal Year" means the fiscal year of Borrower and EQR which shall be the twelve (12) month period ending on the last day of December in each year. "Fixed Charges" for any Fiscal Quarter period means the sum of (i) Debt Service for such period, (ii) the product of the average number of apartment units owned 13 (directly or beneficially) by Borrower or a Financing Partnership during such period and the Capital Reserve for such Period, (iii) Borrower's Share of the aggregate sum of the product of the average number of apartment units owned (directly or beneficially) by each Investment Affiliate during such period and the Capital Reserve for such period, and (iv) dividends on preferred units payable by Borrower for such period. "Fixed Rate Borrowing" has the meaning set forth in Section 1.3. "Fixed Rate Indebtedness" means all Indebtedness which accrues interest at a fixed rate. "Floating Rate Indebtedness" means all Indebtedness which is not Fixed Rate Indebtedness and which is not a Contingent Obligation or an Unused Commitment. "FMV Cap Rate" means 9%. "GAAP" means generally accepted accounting principles recognized as such in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Gross Asset Value" means, with respect to any Person or Property, Adjusted Asset Value plus, in the case of any Person, the value of any Cash or Cash Equivalent owned by such Person and not subject to any Lien. "Group of Loans" means, at any time, a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time, or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.2 or 8.5, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "Indebtedness" as applied to any Person (and without duplication), means (a) all indebtedness, obligations or 14 other liabilities of such Person for borrowed money, (b) all indebtedness, obligations or other liabilities of such Person evidenced by Securities or other similar instruments, (c) all Contingent Obligations of such Person, (d) all reimbursement obligations and other liabilities of such Person with respect to letters of credit or banker's acceptances issued for such Person's account or other similar instruments for which a contingent liability exists, (e) all obligations of such Person to pay the deferred purchase price of Property or services, (f) all obligations in respect of Capital Leases (including ground leases) of such Person, (g) all indebtedness obligations or other liabilities of such Person or others secured by a Lien on any asset of such Person, whether or not such indebtedness, obligations or liabilities are assumed by, or are a personal liability of such Person, (h) all indebtedness, obligations or other liabilities (other than interest expense liability) in respect of Interest Rate Contracts and foreign currency exchange agreements (other than Interest Rate Contracts purchased to hedge Indebtedness), (i) ERISA obligations currently due and payable and (j) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person. "Indemnitee" has the meaning set forth in Section 9.3(b). "Interest Expense" means, for any period and without duplication, total interest expense, whether paid, accrued or capitalized (including the interest component of Capital Leases but excluding interest expense covered by an interest reserve established under a loan facility) of EQR, on a consolidated basis, including without limitation all commissions, discounts and other fees and charges owed with respect to drawn letters of credit, amortized costs of Interest Rate Contracts incurred on or after the Closing Date and the Facility Fees payable to the Banks in accordance with Section 2.8, plus Borrower's Share of accrued, paid or capitalized interest with respect to any Indebtedness of Investment Affiliates for which there is no recourse to EQR or Borrower, plus, without duplication, EQR's and Borrower's actual or potential liability for accrued, paid or capitalized interest with respect to Indebtedness of Investment Affiliates that is recourse to EQR or Borrower calculated for all Fixed Rate Indebtedness, at the actual interest rate in effect with respect to all Indebtedness outstanding as of the last day of such Fiscal 15 Quarter and in the case of all Floating Rate Indebtedness, the greater of (i) (A) the Treasury Rate plus 1.75% for taxable Indebtedness and (B) 7.0% for tax- exempt Indebtedness, (ii) the actual rate of interest in effect with respect to such Floating Rate Indebtedness outstanding for which no Interest Rate Contract is in effect as of the last day of such quarter and (iii) if an Interest Rate Contract is in effect with respect to such Floating Rate Indebtedness, the strike rate payable under such Interest Rate Contract, all determined on an annualized basis. "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing specified in the Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending 30, 60, 90, or 180 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing or Notice of Interest Rate Election; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) if any Interest Period includes a date on which a payment of principal of the Loans is required to be made under Section 2.10 but does not end on such date, then (i) the principal amount (if any) of each Euro- Dollar Loan required to be repaid on such date shall have an Interest Period ending on such date (it being understood that the foregoing shall not be deemed to relieve the Borrower of any obligation to pay any amounts otherwise required pursuant to Section 2.13 in connection with such prepayment) and (ii) the remainder (if any) of each such Euro-Dollar Loan shall have an Interest Period determined as set forth above. 16 (2) with respect to each Base Rate Borrowing and solely for determining when interest is payable on any Base Rate Borrowing, the period commencing on the date of such Borrowing specified in the Notice of Borrowing or on the date specified (or deemed specified) in the applicable Notice of Interest Rate Election and ending 30 days thereafter; provided that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (b)(i) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) if any Interest Period includes a date on which a payment of principal of the Loans is required to be made under Section 2.10 but does not end on such date, then (i) the principal amount (if any) of each Base Rate Loan required to be repaid on such date shall have an Interest Period ending on such date and (ii) the remainder (if any) of each such Base Rate Loan shall have an Interest Period determined as set forth above. (3) with respect to each Money Market LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Money Market Quote Request and ending such number of months thereafter as the Borrower may elect in accordance with Section 23; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and 17 (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (4) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of borrowing specified in the applicable Money Market Quote Request and ending such number of days thereafter (but not less than 14 days or more than 180 days) as the Borrower may elect in accordance with Section 23; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Interest Rate Contracts" means, collectively, interest rate swap, collar, cap or similar agreements providing interest rate protection. "Interest Rate Hedges" has the meaning set forth in Section 5.12. "Investment Affiliate" means any Person in whom EQR or Borrower holds an equity interest, directly or indirectly, whose financial results are not consolidated under GAAP with the financial results of EQR or Borrower on the consolidated financial statements of EQR and Borrower. "Investment Grade Rating" means a rating for a Person's senior long- term unsecured debt, or if no such rating has been issued, a "shadow" rating, of BBB- or better from S&P, and a rating or "shadow" rating of Baa3 or better from Moody's. Any such "shadow" rating shall be evidenced by a letter from the applicable Rating Agency or by such other evidence as may be reasonably acceptable to the Lead Agent (as to any such other evidence, the Lead Agent shall present the same to, and discuss the same with, the Banks). "Investment Mortgages" means mortgages securing indebtedness directly or indirectly owed to Borrower or any of its Subsidiaries, including certificates of interest in real estate mortgage investment conduits. 18 "Invitation for Money Market Quotes" has the meaning set forth in Section 2.3(c). "Lead Agent" shall mean Morgan Guaranty Trust Company of New York in its capacity as Lead Agent hereunder, and its permitted successors in such capacity in accordance with the terms of this Agreement. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.3. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement, in each case that has the effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Borrower or any Consolidated Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Base Rate Loan, a Euro-Dollar Loan or a Money Market Loan and "Loans" means Base Rate Loans, Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "Loan Documents" means this Agreement, the Notes and the EQR Guaranty. "London Interbank Offered Rate" has the meaning set forth in Section 2.7(b). "Margin Stock" shall have the meaning provided such term in Regulation U and Regulation G of the Federal Reserve Board. "Material Adverse Effect" means an effect resulting from any circumstance or event or series of circumstances or events, of whatever nature (but excluding general economic conditions), which does or could reasonably be expected to, materially and adversely (i) effect the business, operations, properties, assets or financial condition of the Borrower and its Consolidated Subsidiaries taken as a whole, (ii) impair the ability of the Borrower and its Consolidated Subsidiaries, taken as a whole, to 19 perform their respective obligations under the Loan Documents, or (iii) cause a Default under Sections 5.8, 5.9 or 5.13. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $5,000,000. "Materials of Environmental Concern" means and includes pollutants, contaminants, hazardous wastes, toxic and hazardous substances, asbestos, lead, petroleum and petroleum by-products. "Maturity Date" shall mean the date when all of the Obligations hereunder shall be due and payable which shall be November 15, 1999, unless accelerated pursuant to the terms hereof. "Minority Holdings" means partnerships, limited liability companies and corporations held or owned by the Borrower which are not consolidated with Borrower on Borrower's financial statements. "Money Market Absolute Rate" has the meaning set forth in Section 2.3(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Borrowing" has the meaning set forth in Section 1.3. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Lead Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan 20 bearing interest at the Base Rate pursuant to Article VIII). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.3(d)(2). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.3. "Moody's" means Moody's Investors Services, Inc. or any successor thereto. "Morgan" means Morgan Guaranty Trust Company of New York, in its individual capacity. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Multifamily Residential Property Mortgages" means Investment Mortgages issued by any Person engaged primarily in the business of developing, owning, and managing multifamily residential property. "Multifamily Residential Property Partnership Interests" means partnership or joint venture interests issued by any Person (other than a Financing Partnership) engaged primarily in the business of developing, owning, and managing multifamily residential property. "Net Income" means, for any period, the net earnings (or loss) after Taxes of the Borrower, on a consolidated basis, for such period calculated in conformity with GAAP. "Net Offering Proceeds" means all cash or other assets received by EQR or Borrower as a result of the sale of common shares of beneficial interest, preferred shares of beneficial interest, partnership interests, limited liability company interests, Convertible Securities or other 21 ownership or equity interests in EQR or Borrower less customary costs and discounts of issuance paid by EQR or Borrower, as the case may be. "Net Operating Income" means, for any period with respect to any Property owned (directly or beneficially) by Borrower or a Financing Partnership, the net operating income of such Property (attributed to such Property in a manner reasonably acceptable to Agent) for such period (i) determined in accordance with GAAP, (ii) determined in a manner which is consistent with the past practices of EQR and Borrower, and (iii) inclusive of an allocation of reasonable management fees and administrative costs to each Property consistent with the past practices of EQR and Borrower, except that, for purposes of determining Net Operating Income, income shall not (a) include security or other deposits, lease termination or other similar charges, delinquent rent recoveries, unless previously reflected in reserves, or any other items deemed by Lead Agent to be of a non-recurring nature or (b) be reduced by depreciation or amortization. "Net Price" means, with respect to the purchase and sale of any Property, without duplication, (i) Cash and Cash Equivalents paid as consideration for such purchase or sale, plus (ii) the principal amount of any note received or other deferred payment to be made in connection with such purchase or sale (except as described in clause (iv) below), plus (iii) the value of any other considerations delivered in connection with such purchase or sale (including, without limitation, shares of beneficial interest in EQR and OP Units or Preferred OP Units (as defined in Borrower's partnership agreement)) (as reasonably determined by Lead Agent), minus (only in the case of a sale) (iv) the value of any consideration deposited into escrow or subject to disbursement or claim upon the occurrence of any event, minus (only in the case of a sale) (v) the value of any consideration required to be paid to any Person other than the Borrower and its Subsidiaries owning a beneficial interest in such Property, minus (vi) reasonable costs of sale and taxes paid or payable in connection with such purchase or sale. "Net Present Value" shall mean, as to a specified or ascertainable dollar amount, the present value, as of the date of calculation of any such amount using a discount rate 22 equal to the Base Rate in effect as of the date of such calculation. "Non-Multifamily Residential Property" means Property which is not (i) used for lease, operation or use as a multifamily residential property, (ii) Unimproved Assets, (iii) Securities, (iv) Multifamily Residential Property Mortgages, or (v) Multifamily Residential Property Partnership Interests. "Non-Recourse Indebtedness" means Indebtedness with respect to which recourse for payment is limited to (i) specific assets related to a particular Property or group of Properties encumbered by a Lien securing such Indebtedness or (ii) any Subsidiary (provided that if a Subsidiary is a partnership, there is no recourse to Borrower or EQR as a general partner of such partnership); provided, however, that personal recourse of Borrower or EQR for any such Indebtedness for fraud, misrepresentation, misapplication of cash, waste, environmental claims and liabilities and other circumstances customarily excluded by institutional lenders from exculpation provisions and/or included in separate indemnification agreements in non-recourse financing of real estate shall not, by itself, prevent such Indebtedness from being characterized as Non- Recourse Indebtedness. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Borrowing (as defined in Section 2.4). "Notice of Interest Rate Election" has the meaning set forth in Section 2.6. "Obligations" means all obligations, liabilities, indemnity obligations and Indebtedness of every nature of the Borrower, from time to time owing to Lead Agent, Co-Lead Agent or any Bank under or in connection with this Agreement or any other Loan Document. "Other Indebtedness" means all Indebtedness other than the Obligations. 23 "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Period Fraction" means with respect to any period of time, a fraction, the numerator of which is the actual number of days in such period, and the denominator of which is three hundred and sixty (360). "Permitted Holdings" means Unimproved Assets, Development Activity, Securities, Non-Multifamily Residential Property and Investment Mortgages, but only to the extent permitted in Section 5.8. "Permitted Liens" means: a. Liens for Taxes, assessments or other governmental charges not yet due and payable or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted in accordance with the terms hereof; b. statutory liens of carriers, warehousemen, mechanics, materialmen and other similar liens imposed by law, which are incurred in the ordinary course of business for sums not more than sixty (60) days delinquent or which are being contested in good faith in accordance with the terms hereof; c. deposits made in the ordinary course of business to secure liabilities to insurance carriers; d. Liens for purchase money obligations for equipment; provided that (i) the Indebtedness secured by any such Lien does not exceed the purchase price of such equipment, (ii) any such Lien encumbers only the asset so purchased and the proceeds upon sale, disposition, loss or 24 destruction thereof, and (iii) such Lien, after giving effect to the Indebtedness secured thereby, does not give rise to an Event of Default; e. easements, rights-of-way, zoning restrictions, other similar charges or encumbrances and all other items listed on Schedule B to Borrower's owner's title insurance policies for any of Borrower's Real Property Assets, so long as the foregoing do not interfere in any material respect with the use or ordinary conduct of the business of Borrower and do not diminish in any material respect the value of the Property to which it is attached or for which it is listed; f. Liens and judgments which have been or will be bonded or released of record within thirty (30) days after the date such Lien or judgment is entered or filed against ERQ, Borrower, or any Subsidiary; and g. Liens on Property of the Borrower or its Subsidiaries (other than Qualifying Unencumbered Property) securing Indebtedness which may be incurred or remain outstanding without resulting in an Event of Default hereunder. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Prime Rate" means the rate of interest publicly announced by the Lead Agent in New York City from time to time as its Prime Rate. 25 "Property" means, with respect to any Person, any real or personal property, building, facility, structure, equipment or unit, or other asset owned by such Person. "Property Income" means, when used with respect to any Real Property Asset, annual contractual rents (other than prepaid rents and revenues and security deposits except to the extent applied in satisfaction of tenants' obligations for rent), in effect as of the last day of a quarter in accordance with the applicable leases, but provided that if any tenant is more than 60 days in arrears in the payment of base or fixed rent as of the last day of a quarter, the annual contractual rents payable pursuant to such tenant's lease shall not constitute "Property Income". "Qualifying Unencumbered Property" means any Property from time to time which (i) is an operating multifamily residential property wholly-owned (directly or beneficially) by Borrower or a Financing Partnership, (ii) is not subject (nor are any equity interests in such Property subject) to a Lien which secures Indebtedness of any Person other than Permitted Liens, (iii) is not subject (nor are any equity interests in such Property subject) to any covenant, condition, or other restriction which prohibits or limits the creation or assumption of any Lien upon such Property. "QRS Corporation" means those qualified EQR subsidiaries wholly owned by EQR. "Rating Agencies" means, collectively, S&P and Moody's. "Real Property Assets" means as of any time, the real property assets (including interests in participating mortgages in which the Borrower's interest therein is characterized as equity according to GAAP) owned directly or indirectly by the Borrower and the Consolidated Subsidiaries at such time. "Recourse Debt" shall mean Indebtedness that is not Non-Recourse Indebtedness. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. 26 "Required Banks" means at any time Banks having at least 51% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 51% of the aggregate unpaid principal amount of the Loans. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto. "Secured Debt" means Indebtedness, the payment of which is secured by a Lien on any Property owned or leased by EQR, Borrower, or any Subsidiary. "Securities" means any stock, partnership interests, shares, shares of beneficial interest, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities," or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the obligations. "Solvent" means, with respect to any Person, that the fair saleable value of such Person's assets exceeds the Indebtedness of such Person. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Taxes" means all federal, state, local and foreign income and gross receipts taxes. "Term" has the meaning set forth in Section 2.9. "Termination Event" shall mean (i) a "reportable event, as such term is described in Section 4043 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC), or an event described in Section 4062(e) of ERISA, (ii) the withdrawal by any member of the ERISA Group from a Multiemployer Plan 27 during a plan year in which it is a "substantial employer (as defined in Section 4001(a)(2) of ERISA), or the incurrence of liability by any member of the ERISA Group under Section 4064 of ERISA upon the termination of a Multiemployer Plan, (iii) the filing of a notice of intent to terminate any Plan under Section 4041 of ERISA, other than in a standard termination within the meaning of Section 4041 of ERISA, or the treatment of a Plan amendment as a distress termination under Section 4041 of ERISA, (iv) the institution by the PBGC of proceedings to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or cause a trustee to be appointed to administer, any Plan or (v) any other event or condition that might reasonably constitute grounds for the termination of, or the appointment of a trustee to administer, any Plan or the imposition of any liability or encumbrance or Lien on the Real Property Assets or any member of the ERISA Group under ERISA. "Total Liabilities" means, as of the date of determination and without duplication, all Indebtedness of EQR (calculated as provided in Section 1.2), on a consolidated basis, plus Borrower's Share of all Indebtedness of Investment Affiliates for which there is no recourse to EQR or Borrower (or any Property thereof) plus the actual or potential liability of EQR, Borrower or any Subsidiary for any Indebtedness of Investment Affiliates that is recourse to EQR or Borrower (or Property thereof) plus accounts payable incurred in the ordinary course of business. "Treasury Rate" means, as of any date, a rate equal to the annual yield to maturity on the U.S. Treasury Constant Maturity Series with a ten year maturity, as such yield is reported in Federal Reserve Statistical Release H.15--Selected Interest Rates, published most recently prior to the date the applicable Treasury Rate is being determined. Such yield shall be determined by straight line linear interpolation between the yields reported in Release H.15, if necessary. In the event Release H.15 is no longer published, the Lead Agent shall select, in its reasonable discretion, an alternate basis for the determination of Treasury yield for U.S. Treasury Constant Maturity Series with ten year maturities. "Unencumbered Asset Value" means (i) a fraction, the numerator of which is the product of four (4) and the 28 aggregate Unencumbered Net Operating Income for the most recently ended Fiscal Quarter which is attributable (in a manner reasonably acceptable to Lead Agent) to Qualifying Unencumbered Properties owned (directly or beneficially) by the Borrower or any Financing Partnership (exclusive of Unimproved Assets) for the entire Fiscal Quarter and the denominator of which is the FMV Cap Rate plus (ii) for all Qualifying Unencumbered Properties wholly-owned (directly or beneficially) by Borrower or any Financing Partnership which have been acquired (directly or indirectly) by the Borrower or any Financing Partnership in the Fiscal Quarter most recently ended, the aggregate Net Price of the Qualifying Unencumbered Properties paid by Borrower or its Affiliates for such Qualifying Unencumbered Properties. "Unencumbered Net Operating Income" means for any period for all Qualifying Unencumbered Properties owned (directly or beneficially) by the Borrower or any Financing Partnership during the applicable period, Net Operating Income from each such Qualifying Unencumbered Property minus an amount equal to the product of the average number of apartment units in such Qualifying Unencumbered Property during such period and the Capital Reserve for such period. "Unimproved Assets" means Real Property Assets upon which no material improvements have been completed which completion is evidenced by a certificate of occupancy or its equivalent. "United States" means the United States of America, including the fifty states and the District of Columbia. "Unsecured Debt" means Indebtedness of Borrower and any Financing Partnership which is not Secured Debt. "Unsecured Interest Expense" means Interest Expense other than Interest Expense payable in respect of Secured Debt. "Unused Commitments" shall mean an amount equal to all unadvanced funds (other than unadvanced funds in connection with any construction loan) which any third party is obligated to advance to Borrower or another Person or otherwise pursuant to any loan document, written instrument or otherwise. 29 SECTION 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Lead Agent; provided that for purposes of references to the financial results and information of "EQR, on a consolidated basis," EQR shall be deemed to own one hundred percent (100%) of the partnership interests in Borrower; and provided further that, if the Borrower notifies the Lead Agent that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Lead Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner reasonably satisfactory to the Borrower and the Required Banks. SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on the same date, all of which Loans are of the same type (subject to Article 8) and, except in the case of Base Rate Loans, have the same initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Fixed Rate Borrowing" is a Euro-Dollar Borrowing or a Money Market Borrowing (excluding any such Borrowing consisting of Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Article VIII), and a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.1 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.3 in which a Bank's share is determined on the basis of its bid in accordance therewith). 30 ARTICLE II THE CREDITS SECTION 2.1. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Borrower pursuant to this Article from time to time during the term hereof in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing outstanding under this Section 2.1 shall be in an aggregate principal amount of $3,000,000, or an integral multiple of $100,000 in excess thereof (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.2(c)) and, other than with respect to Money Market Loans, shall be made from the several Banks ratably in proportion to their respective Commitments. Subject to the limitations set forth herein, any amounts repaid may be reborrowed. SECTION 2.2. Notice of Borrowing. The Borrower shall give Lead Agent notice not later than 10:00 a.m. (New York City time) (x) one Domestic Business Day before each Base Rate Borrowing, or (y) three Euro-Dollar Business Days before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.3. Money Market Borrowings. (a) The Money Market Option. From time to time during the Term, and provided that at such time the Borrower maintains an Investment Grade Rating, the Borrower may, as set forth in this Section 2.3, request the Banks during the 31 Term to make offers to make Money Market Loans to the Borrower, not to exceed, at such time, the lesser of (i) $150,000,000 in the aggregate outstanding, and (ii) the aggregate Commitments less all Loans then outstanding. Subject to the provisions of this Agreement, the Borrower may repay any outstanding Money Market Loan on any day which is both a Domestic Business Day and a Euro-Dollar Business Day and any amounts so repaid may be reborrowed, up to the amount available under this Section 2.3 at the time of such Borrowing, until the Domestic Business Day next preceding the Maturity Date. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.3. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received not later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Lead Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: 1. the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, 2. the aggregate amount of such Borrowing, which shall be $3,000,000 or a larger multiple of $100,000, 3. the duration of the Interest Period applicable thereto (which shall not be less than 14 days or more than 180 days), subject to the provisions of the definition of Interest Period, and 32 4. whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Lead Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Lead Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. 1. Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Lead Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.1 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Lead Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Lead Agent (or any affiliate of the Lead Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Lead Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 33 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Lead Agent given on the instructions of the Borrower. 2. Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (a) the proposed date of Borrowing, (b) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $3,000,000 or a larger multiple of $100,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (c) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (d) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (e) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. 3. Any Money Market Quote shall be disregarded if it: (a) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(2) above; 34 (b) contains qualifying, conditional or similar language (except for an aggregate limitation as provided in subsection (d)(2)(b) above); (c) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (d) arrives after the time set forth in subsection (d)(1). (e) Notice to Borrower. The Lead Agent shall promptly (and in any event within one (1) Domestic Business Day after receipt thereof) notify the Borrower in writing of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Lead Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote or modifies the terms of such previous Money Market Quote to provide terms more favorable to Borrower. The Lead Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Lead Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Lead Agent of its acceptance or non-acceptance of the offers so notified to it 35 pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: 1. the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request; 2. the principal amount of each Money Market Borrowing must be $3,000,000 or a larger multiple of $100,000; 3. acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be; and 4. the Borrower may not accept any offer that is described in subsection (d)(3) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Lead Agent among such Banks as nearly as possible (in multiples of $100,000, as the Lead Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. The Lead Agent shall promptly (and in any event within one (1) Domestic Business Day after such offers are accepted) notify the Borrower and each such Bank in writing of any such allocation of Money Market Loans. Determinations by the Lead Agent of the allocation of Money Market Loans shall be conclusive in the absence of manifest error. (h) Notwithstanding anything to the contrary contained herein, each Bank shall be required to fund its pro rata share of Committed Loans in accordance with Section 2.1 hereof despite the fact that any Bank's Commitment may have been or may be exceeded as a result of such Bank's making of Money Market Loans. 36 SECTION 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt of a notice from Borrower in accordance with Section 2.2 hereof (each such notice being a "Notice of Borrowing"), the Lead Agent shall, on the date such Notice of Borrowing is received by the Lead Agent, notify Co-Lead Agent and each Bank of the contents thereof and of such Bank's share of such Borrowing, of the interest rate determined pursuant thereto and the Interest Period(s) (if different from those requested by the Borrower) and such Notice of Borrowing shall not thereafter be revocable by the Borrower, unless Borrower shall pay any applicable expenses pursuant to Section 2.13. (b) Not later than 1:00 p.m. (New York City time) on the date of each Borrowing as indicated in the Notice of Borrowing, each Bank shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing in Federal funds immediately available in New York City, to the Lead Agent at its address referred to in Section 9.1. (c) Unless the Lead Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Lead Agent such Bank's share of such Borrowing, the Lead Agent may assume that such Bank has made such share available to the Lead Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.4 and the Lead Agent may, in reliance upon such assumption, but shall not be obligated to, make available to the Borrower on such date a corresponding amount on behalf of such Bank. If and to the extent that such Bank shall not have so made such share available to the Lead Agent, such Bank and the Borrower severally agree to repay to the Lead Agent forthwith on demand, and in the case of the Borrower one (1) Domestic Business Day after demand, such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Lead Agent, at (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Lead Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. 37 SECTION 2.5. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate amount of such Bank's Commitment. (b) Each Bank may, by notice to the Borrower, the Lead Agent and the Co-Lead Agent, request that its Loans of a particular type (including Money Market Loans) be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Any additional costs incurred by the Lead Agent, the Borrower or the Banks in connection with preparing such a Note shall be at the sole cost and expense of the Bank requesting such Note. In the event any Loans evidenced by such a Note are paid in full prior to the Maturity Date, any such Bank shall return such Note to Borrower. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Upon the execution and delivery of any such Note, any existing Note payable to such Bank shall be replaced or modified accordingly. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.1(a), the Lead Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the appropriate schedule appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. (d) The Committed Loans shall mature, and the principal amount thereof shall be due and payable, on the Maturity Date. 38 (e) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the earlier to occur of (i) last day of the Interest Period applicable to such Borrowing or (ii) the Maturity Date. (f) There shall be no more than ten (10) Euro-Dollar Groups of Loans outstanding at any one time. SECTION 2.6. Method of Electing Interest Rates. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article VIII), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert all or any portion of such Loans to Euro-Dollar Loans as of any Euro- Dollar Business Day; (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert all or any portion of such Loans to Base Rate Loans and/or elect to continue all or any portion of such Loans as Euro-Dollar Loans for an additional Interest Period or additional Interest Periods, in each case effective on the last day of the then current Interest Period applicable to such Loans, or on such other date designated by Borrower in the Notice of Interest Rate Election provided Borrower shall pay any losses pursuant to Section 2.13. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Lead Agent at least three (3) Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group, (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each $500,000 or any larger multiple of $100,000, (iii) there shall be no more than ten (10) Euro-Dollar 39 Groups of Loans outstanding at any time, (iv) no Committed Loan may be continued as, or converted into, a Euro-Dollar Loan when any Event of Default has occurred and is continuing, and (v) no Interest Period shall extend beyond the Maturity Date. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if such new Loans are Euro-Dollar Loans, the duration of the initial Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Lead Agent shall notify the Co- Lead Agent and each Bank the same day as it receives such Notice of Interest Rate Election of the contents thereof, the interest rates determined pursuant thereto and the Interest Periods (if different from those requested by the Borrower) and such notice shall not thereafter be revocable by the Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Lead Agent for any Group of Euro-Dollar Loans, such Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto. (d) If the Borrower shall fail to pay any principal of or interest on any Money Market Loan when due, such Money Market Loan shall bear interest, payable on 40 demand, for each day until paid at a rate per annum equal to the Base Rate until such failure shall become an Event of Default and thereafter at a rate per annum equal to the sum of 4% plus the Base Rate for such day. SECTION 2.7. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until the date it is repaid or converted into a Euro-Dollar Loan pursuant to Section 2.6 or at the Maturity Date, at a rate per annum equal to the Base Rate plus the Applicable Margin for Base Rate Loans for such day. Such interest shall be payable for each Interest Period on the last day thereof. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for Euro- Dollar Loans for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than one month, at intervals of one month after the first day thereof. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the London Interbank Offered Rate applicable during such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to the Euro-Dollar Reference Bank in the London interbank market at approximately 11:00 a.m. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Borrowing or Group of Loans or portion thereof to be converted into or continued as Euro-Dollar Loans to which such Interest Period is to apply and for a period of time comparable to such Interest Period. 41 "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D, as Regulation D may be amended, modified or supplemented, for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (c) Subject to Section 8.1, each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.7(b) as if the related Money Market LIBOR Borrowing were a Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.3. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.3. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than one month, at intervals of one month after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Base Rate until such failure shall become an Event of Default and thereafter at a rate per annum equal to the sum of 4% plus the Base Rate for such day. (d) In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal amount of the Loans, and, to the extent permitted by applicable law, overdue interest in respect of all Loans, shall bear interest at the annual rate 42 equal to the sum of the Base Rate and four percent (4%) (the "Default Rate"). (e) The Lead Agent shall determine each interest rate applicable to the Loans hereunder. The Lead Agent shall give prompt notice to the Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of demonstrable error. (f) The Euro-Dollar Reference Bank agrees to use its best efforts to furnish quotations to the Lead Agent as contemplated by this Section. SECTION 2.8. Fees. (a) Facility Fee. The Borrower shall pay to the Lead Agent for the account of the Banks ratably in proportion to their respective Commitments a facility fee on the aggregate Commitments at the respective percentages per annum based upon the range into which the Borrower's Credit Rating then falls, in accordance with the following table. The facility fee shall be payable in arrears on each January 1, April 1, July 1 and October 1 during the Term. Non-Investment Grade Rating 0.375% BBB-/Baa3 0.300% BBB/Baa2 0.200% BBB+/Baa1 0.150% A-/A3 or better 0.150% Any change in the Borrower's Credit Rating causing it to move into a different range on the table shall effect an immediate change in the applicable percentage per annum. In the event that the Borrower's Credit Rating is such that the Rating Agencies' ratings are split between a higher and a lower range on the table, the applicable percentage per annum shall be based upon the lower of such two (2) Credit Ratings. In the event that only one (1) Rating Agency has set the Borrower's Credit Rating, then the applicable percentage per annum shall be based on such single rating. (b) Fees Non-Refundable. All fees set forth in this Section 2.8 shall be deemed to have been earned on the date payment is due in accordance with the provisions hereof and shall be non-refundable. The obligation of the Borrower 43 to pay such fees in accordance with the provisions hereof shall be binding upon the Borrower and shall inure to the benefit of the Lead Agent, the Co-Lead Agent and the Banks regardless of whether any Loans are actually made. SECTION 2.9. Maturity Date. The term (the "Term") of the Commitments (and each Bank's obligations to make Loans hereunder) shall terminate and expire on the Maturity Date. Upon the date of the termination of the Term, any Loans then outstanding (together with accrued interest thereon and all other Obligations) shall be due and payable on such date. SECTION 2.10. Mandatory Prepayments. (a) If at any time the Borrower or any Consolidated Subsidiary sells, transfers, assigns or conveys any Real Property Asset which shall cause the Borrower in any fiscal year period commencing after the Closing Date, to have sold, transferred or conveyed property or assets which constitute in the aggregate more than 30% of the Gross Asset Value of the Borrower and its Subsidiaries on the date of such transfer, then at the request of Lead Agent, Borrower shall pay to the Lead Agent, for the account of the Banks, within thirty (30) days after the date of such request, an amount equal to the Net Proceeds of such transfer (but in no event more than the outstanding balance of the Loans). Borrower shall make such prepayment together with interest accrued to the date of the prepayment on the principal amount prepaid. In connection with the prepayment of a Euro-Dollar Loan prior to the maturity thereof, the Borrower shall also pay any applicable expenses pursuant to Section 2.13. Each such prepayment shall be applied to prepay ratably the Loans of the Banks. Amounts prepaid pursuant to this Section 2.10 may not be reborrowed. As used in this Section 2.10, the term "Net Proceeds" shall mean all amounts received by Borrower and its Consolidated Subsidiaries in connection with such sale, transfer, assignment or conveyance after payment of all expenses to be made by Borrower and any Consolidated Subsidiaries in connection with such sale, transfer, assignment or conveyance (including, without limitation, payment of then existing Liens or encumbrances on such Real Property Asset, brokerage commissions, title and survey costs or transfer taxes). 44 (b) If at any time the Borrower shall purchase or hold any interest in any Minority Holdings which, taken singly or in the aggregate, exceeds ten percent (10%) of the Gross Asset Value of the Borrower and its Subsidiaries then, at the request of Lead Agent, Borrower shall pay to the Lead Agent, for the account of the Banks, within thirty (30) days after the date of such request, an amount equal to the outstanding balance of all Borrowings hereunder (except as to any Fixed Rate Borrowings for which such repayments shall be made at the end of the Interest Period applicable to such Fixed Rate Borrowing), and Borrower shall not be entitled to request any further Borrowings under this Agreement until such time as the interest in any Minority Holdings of Borrower shall not, taken singly or in the aggregate, exceed ten percent (10%) of the Gross Asset Value of the Borrower and its Subsidiaries. Borrower shall make such prepayment together with interest accrued to the date of the prepayment on the principal amount prepaid. SECTION 2.11. Optional Prepayments. (a) The Borrower may, upon at least one (1) Domestic Business Day's notice to the Lead Agent, prepay any Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.1), in whole at any time, or from time to time in part in amounts aggregating One Million Dollars ($1,000,000) or any larger multiple of One Hundred Thousand Dollars ($100,000), by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. (b) The Borrower may, upon at least one (1) Euro-Dollar Business Days' notice to the Lead Agent, prepay any Euro-Dollar Loan as of the last day of the Interest Period applicable thereto. Except as provided in Article 8 and except with respect to any Euro-Dollar Loan which has been converted to a Base Rate Loan pursuant to Section 8.2, 8.3 or 8.4 hereof, the Borrower may not prepay all or any portion of the principal amount of any Euro-Dollar Loan or Money Market Loan prior to the end of the Interest Period applicable thereto unless the Borrower shall also pay any applicable expenses pursuant to Section 2.13. Any such prepayment shall be upon at least three (3) Euro-Dollar Business Days notice to the Lead Agent. Each such optional 45 prepayment shall be in the amounts set forth in Section 2.11(a) above and shall be applied to prepay ratably the Loans of the Banks included in any Group of Euro-Dollar Loans, except that any Euro-Dollar Loan which has been converted to a Base Rate Loan pursuant to Section 8.2, 8.3 or 8.4 hereof may be prepaid without ratable payment of the other Loans in such Group of Loans which have not been so converted. (c) The Borrower may at any time and from time to time cancel all or any part of the Commitments by the delivery to the Lead Agent of a notice of cancellation within the applicable time periods set forth in Sections 2.11(a) and (b) if there are Loans then outstanding or, if there are no Loans outstanding at such time as to which the Commitments with respect thereto are being cancelled, upon at least one (1) Domestic Business Day's notice to the Lead Agent, whereupon, in either event, all or such portion of the Commitments, as applicable, shall terminate as to the Banks, pro rata on the date set forth in such notice of cancellation, and, if there are any Loans then outstanding, Borrower shall prepay, as applicable, all or such portion of Loans outstanding on such date in accordance with the requirements of Section 2.11(a) and (b). Borrower shall be permitted to designate in its notice of cancellation which Loans, if any, are to be prepaid. (d) Any amounts so prepaid pursuant to Section 2.11 (a) or (b) may be reborrowed. In the event Borrower elects to cancel all or any portion of the Commitments pursuant to Section 2.11(c) hereof, such amounts may not be reborrowed. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of interest on the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Lead Agent at its address referred to in Section 9.1. The Lead Agent will promptly (and in any event within one (1) Domestic Business Day after receipt thereof) distribute to each Bank its ratable share (or applicable share with respect to Money Market Loans) of each such payment received by the Lead Agent for the account of the Banks. If and to the extent that the Lead Agent shall receive any such payment for the account of the Banks on or 46 before 12:00 Noon (New York City time) on any Domestic Business Day, and Lead Agent shall not have distributed to any Bank its applicable share of such payment on such Domestic Business Day, Lead Agent shall distribute such amount to such Bank together with interest thereon, for each day from the date such amount should have been distributed to such Bank until the date Lead Agent distributes such amount to such Bank, at the Federal Funds Rate. Whenever any payment of principal of, or interest on the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro- Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Lead Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Lead Agent may assume that the Borrower has made such payment in full to the Lead Agent on such date and the Lead Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Lead Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Lead Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan or Money Market LIBOR Loan (pursuant to Article II, VI or VIII or otherwise) on any day other than the last 47 day of the Interest Period applicable thereto, or if the Borrower fails to borrow any Euro-Dollar Loans or Money Market LIBOR Loans after notice has been given to any Bank in accordance with Section 2.4(a), or if Borrower shall deliver a Notice of Interest Rate Election specifying that a Euro-Dollar Loan shall be converted on a date other than the first (1st) day of the then current Interest Period applicable thereto, the Borrower shall reimburse each Bank within 15 days after certification of such Bank of such loss or expense (which shall be delivered by each such Bank to Lead Agent for delivery to Borrower) for any resulting loss or expense incurred by it (or by an existing Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow, provided that such Bank shall have delivered to Lead Agent and Lead Agent shall have delivered to the Borrower a certification as to the amount of such loss or expense, which certification shall set forth in reasonable detail the basis for and calculation of such loss or expense and shall be conclusive in the absence of demonstrable error. SECTION 2.14. Computation of Interest and Fees. All interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.15. Use of Proceeds. The Borrower shall use the proceeds of the Loans for general corporate purposes, including, without limitation, the acquisition of real property to be used in the Borrower's existing business and for general working capital needs of the Borrower. ARTICLE III CONDITIONS SECTION 3.1. Closing. The closing hereunder shall occur on the date when each of the following conditions is satisfied (or waived by the Lead Agent and the Banks), each document to be dated the Closing Date unless otherwise indicated: 48 (a) the Borrower shall have executed and delivered to the Lead Agent a Note for the account of each Bank dated on or before the Closing Date complying with the provisions of Section 2.4; (b) the Borrower, the Lead Agent and Co-Lead Agent and each of the Banks shall have executed and delivered to the Borrower, the Lead Agent and Co- Lead Agent a duly executed original of this Agreement; (c) EQR shall have executed and delivered to the Lead Agent and Co- Lead Agent a duly executed original of the EQR Guaranty; (d) the Lead Agent shall have received an opinion of Rosenberg & Liebentritt, P.C., counsel for the Borrower, acceptable to the Lead Agent, the Co-Lead Agent, the Banks and their counsel; (e) the Lead Agent shall have received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, acceptable to the Lead Agent, the Co-Lead Agent, the Banks and their counsel; (f) the Lead Agent shall have received all documents the Lead Agent may reasonably request relating to the existence of the Borrower and EQR, the authority for and the validity of this Agreement and the other Loan Documents, and any other matters relevant hereto, all in form and substance satisfactory to the Lead Agent. Such documentation shall include, without limitation, the agreement of limited partnership of the Borrower, as well as the certificate of limited partnership of the Borrower, both as amended, modified or supplemented to the Closing Date, certified to be true, correct and complete by a senior officer of the Borrower as of a date not more than ten (10) days prior to the Closing Date, together with a certificate of existence as to the Borrower from the Secretary of State (or the equivalent thereof) of Illinois, to be dated not more than thirty (30) days prior to the Closing Date, as well as the declaration of trust of EQR, as amended, modified or supplemented to the Closing Date, certified to be true, correct and complete by a senior officer of EQR as of a date not more than ten (10) days prior to the Closing Date, together with a good standing certificate as to EQR from the Secretary of State (or the equivalent thereof) of 49 Maryland, to be dated not more than thirty (30) days prior to the Closing Date; (g) the Lead Agent shall have received all certificates, agreements and other documents and papers referred to in this Section 3.1 and the Notice of Borrowing referred to in Section 3.2, if applicable, unless otherwise specified, in sufficient counterparts, satisfactory in form and substance to the Lead Agent and Co-Lead Agent in their sole discretion; (h) the Borrower shall have taken all actions required to authorize the execution and delivery of this Agreement and the other Loan Documents and the performance thereof by the Borrower; (i) the Lead Agent and Co-Lead Agent shall be satisfied that neither the Borrower, EQR nor any Consolidated Subsidiary is subject to any present or contingent environmental liability which could have a Material Adverse Effect; (j) the Lead Agent shall have received, for its and any other Bank's account, all fees due and payable pursuant to Section 2.8 hereof on or before the Closing Date, and the fees and expenses accrued through the Closing Date of Skadden, Arps, Slate, Meagher & Flom LLP; (k) the Lead Agent shall have received copies of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by the Borrower, EQR and the applicable Consolidated Subsidiaries, and the validity and enforceability, of the Loan Documents, or in connection with any of the transactions contemplated thereby, and such consents, licenses and approvals shall be in full force and effect; (l) the Lead Agent shall have received the audited financial statements of the Borrower and its Consolidated Subsidiaries and of EQR for the fiscal year ending December 31, 1995; and (m) no Default or Event of Default shall have occurred. 50 SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan is subject to the satisfaction of the following conditions: (a) the Closing Date shall have occurred on or prior to November 15, 1996; (b) receipt by the Lead Agent of a Notice of Borrowing as required by Section 2.2 or a Notice of Money Market Borrowing as required by Section 2.3; (c) immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (d) immediately before and after such Borrowing, no Default or Event of Default shall have occurred and be continuing both before and after giving effect to the making of such Loans; (e) the representations and warranties of the Borrower contained in this Agreement (other than representations and warranties which expressly speak as of a different date) shall be true and correct in all material respects on and as of the date of such Borrowing both before and after giving effect to the making of such Loans; (f) no law or regulation shall have been adopted, no order, judgment or decree of any governmental authority shall have been issued, and no litigation shall be pending, which does or seeks to enjoin, prohibit or restrain, the making or repayment of the Loans or the consummation of the transactions contemplated by this Agreement; and (g) no event, act or condition shall have occurred after the Closing Date which, in the reasonable judgment of the Lead Agent, Co-Lead Agent or the Required Banks, as the case may be, has had or is likely to have a Material Adverse Effect; Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (c), (d), (e), (f), and (g) (to the extent that Borrower is or should have been aware of any Material Adverse Effect) of this Section, except as otherwise disclosed in writing by Borrower to the Banks. Notwithstanding anything to the contrary, no 51 Borrowing shall be permitted if such Borrowing would cause Borrower to fail to be in compliance with any of the covenants contained in this Agreement or in any of the other Loan Documents. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Lead Agent, Co-Lead Agent and each of the other Banks which is or may become a party to this Agreement to make the Loans, the Borrower makes the following representations and warranties as of the Closing Date. Such representations and warranties shall survive the effectiveness of this Agreement, the execution and delivery of the other Loan Documents and the making of the Loans. SECTION 4.1. Existence and Power. The Borrower is a limited partnership, duly formed and validly existing as a limited partnership under the laws of the State of Illinois and has all powers and all material governmental licenses, authorizations, consents and approvals required to own its property and assets and carry on its business as now conducted or as it presently proposes to conduct and has been duly qualified and is in good standing in every jurisdiction in which the failure to be so qualified and/or in good standing is likely to have a Material Adverse Effect. EQR is a real estate investment trust, duly formed, validly existing and in good standing as a real estate investment trust under the laws of the State of Maryland and has all powers and all material governmental licenses, authorizations, consents and approvals required to own its property and assets and carry on its business as now conducted or as it presently proposes to conduct and has been duly qualified and is in good standing in every jurisdiction in which the failure to be so qualified and/or in good standing is likely to have a Material Adverse Effect. SECTION 4.2. Power and Authority. The Borrower has the partnership power and authority to execute, deliver and carry out the terms and provisions of each of the Loan Documents to which it is a party and has taken all necessary partnership action, if any, to authorize the execution and delivery on behalf of the Borrower and the performance by the Borrower of such Loan Documents. The Borrower has duly executed and delivered each Loan Document to which it is a party in accordance with the terms of this Agreement, and 52 each such Loan Document constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable insolvency, bankruptcy or other laws affecting creditors rights generally, or general principles of equity, whether such enforceability is considered in a proceeding in equity or at law. EQR has the power and authority to execute, deliver and carry out the terms and provisions of each of the Loan Documents on behalf of the Borrower to which the Borrower is a party and has taken all necessary action to authorize the execution and delivery on behalf of the Borrower and the performance by the Borrower of such Loan Documents. SECTION 4.3. No Violation. Neither the execution, delivery or performance by or on behalf of the Borrower of the Loan Documents to which it is a party, nor compliance by the Borrower with the terms and provisions thereof nor the consummation of the transactions contemplated by the Loan Documents, (i) will materially contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, (ii) will materially conflict with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Borrower or any of its Consolidated Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, or other agreement or other instrument to which the Borrower (or of any partnership of which the Borrower is a partner) or any of its Consolidated Subsidiaries is a party or by which it or any of its property or assets is bound or to which it is subject, or (iii) will cause a material default by the Borrower under any organizational document of any Person in which the Borrower has an interest, or cause a material default under the Borrower's agreement or certificate of limited partnership, the consequences of which conflict, breach or default would have a Material Adverse Effect, or result in or require the creation or imposition of any Lien whatsoever upon any Property (except as contemplated herein). SECTION 4.4. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries, dated as of 53 December 31, 1995, and the related consolidated statements of Borrower's financial position for the fiscal year then ended, reported on by Ernst & Young LLP, a copy of which has been delivered to each of the Banks, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The consolidated balance sheet of EQR, dated as of December 31, 1995, and the related consolidated statements of EQR's financial position for the fiscal year then ended, reported on by Ernst & Young LLP and set forth in the EQR 1995 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with GAAP, the consolidated financial position of EQR and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) Since September 30, 1996, (i) except as may have been disclosed in writing to the Banks, nothing has occurred having a Material Adverse Effect, and (ii) except as previously disclosed to the Banks, neither the Borrower not EQR has incurred any material indebtedness or guaranty on or before the Closing Date. SECTION 4.5. Litigation. Except as previously disclosed by the Borrower in writing to the Banks, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, (i) the Borrower, EQR or any of their Consolidated Subsidiaries, (ii) the Loan Documents or any of the transactions contemplated by the Loan Documents or (iii) any of their assets, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could, individually, or in the aggregate have a Material Adverse Effect or which in any manner draws into question the validity of this Agreement or the other Loan Documents. SECTION 4.6. Compliance with ERISA. (a) Except as set forth on Schedule 4.6 attached hereto, neither Borrower nor EQR is a member of any Plan or Multiemployer Plan or any other Benefit Arrangement. (b) The transactions contemplated by the Loan Documents will not constitute a nonexempt prohibited 54 transaction (as such term is defined in Section 4975 of the Code or Section 406 of ERISA) that could subject the Lead Agent, Co-Lead Agent or the Banks to any tax or penalty or prohibited transactions imposed under Section 4975 of the Code or Section 502(i) of ERISA. SECTION 4.7. Environmental Matters. The Borrower conducts reviews of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Consolidated Subsidiaries when necessary in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect on the Borrower, EQR and their Consolidated Subsidiaries. SECTION 4.8. Taxes. United States Federal income tax returns of the Borrower, EQR and their Consolidated Subsidiaries have been prepared and filed through the fiscal year ended December 31, 1995. The Borrower, EQR and their Consolidated Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower, EQR or any Consolidated Subsidiary, except such taxes, if any, as are reserved against in accordance with GAAP, such taxes as are being contested in good faith by appropriate proceedings or such taxes, the failure to make payment of which when due and payable will not have, in the aggregate, a Material Adverse Effect. The charges, accruals and reserves on the books of the Borrower, EQR and their Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.9. Full Disclosure. All information heretofore furnished by the Borrower to the Lead Agent, Co- 55 Lead Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby or thereby is true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Lead Agent, in writing any and all facts which have or may have (to the extent the Borrower can now reasonably foresee) a Material Adverse Effect. SECTION 4.10. Solvency. On the Closing Date and after giving effect to the transactions contemplated by the Loan Documents occurring on the Closing Date, the Borrower will be Solvent. SECTION 4.11. Use of Proceeds; Margin Regulations. All proceeds of the Loans will be used by the Borrower only in accordance with the provisions hereof. No part of the proceeds of any Loan will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. SECTION 4.12. Governmental Approvals. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of any Loan Document or the consummation of any of the transactions contemplated thereby other than those that have already been duly made or obtained and remain in full force and effect or those which, if not made or obtained, would not have a Material Adverse Effect; SECTION 4.13. Investment Company Act; Public Utility Holding Company Act. Neither the Borrower, EQR nor any Consolidated Subsidiary is (x) an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended, (y) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (z) subject to any other federal or state law or regulation 56 which purports to restrict or regulate its ability to borrow money. SECTION 4.14. Principal Offices. As of the Closing Date, the principal office, chief executive office and principal place of business of the Borrower is Two North Riverside Plaza, Suite 400, Chicago, Illinois 60606. SECTION 4.15. REIT Status. For the fiscal year ended December 31, 1995, EQR qualified and EQR intends to continue to qualify as a real estate investment trust under the Code. SECTION 4.16. Patents, Trademarks, etc. The Borrower has obtained and holds in full force and effect all patents, trademarks, servicemarks, trade names, copyrights and other such rights, free from burdensome restrictions, which are necessary for the operation of its business as presently conducted, the impairment of which is likely to have a Material Adverse Effect. SECTION 4.17. Ownership of Property. Schedule 4.17 attached hereto and made a part hereof sets forth all the real property owned or ground leased by the Borrower and Persons in which the Borrower, directly or indirectly, owns an interest as of the Closing Date. As of the Closing Date, the Borrower and such Persons have good and insurable fee simple title (or leasehold title if so designated on Schedule 4.17) to all of such real property, subject to Permitted Liens. As of the date of this Agreement, there are no mortgages, deeds of trust, indentures, debt instruments or other agreements creating a Lien against any of the Real Property Assets except as disclosed on Schedule 4.17. SECTION 4.18. No Default. No Event of Default or, to the best of the Borrower's knowledge, Default exists under or with respect to any Loan Document and the Borrower is not in default in any material respect beyond any applicable grace period under or with respect to any other material agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound in any respect, the existence of which default is likely to result in a Material Adverse Effect. SECTION 4.19. Licenses, etc. The Borrower has obtained and does hold in full force and effect, all franchises, licenses, permits, certificates, authorizations, 57 qualifications, accreditation, easements, rights of way and other consents and approvals which are necessary for the operation of its businesses as presently conducted, the absence of which is likely to have a Material Adverse Effect. SECTION 4.20. Compliance With Law. To the Borrower's knowledge, the Borrower and each of the Real Property Assets are in compliance with all laws, rules, regulations, orders, judgments, writs and decrees, including, without limitation, all building and zoning ordinances and codes, the failure to comply with which is likely to have a Material Adverse Effect. SECTION 4.21. No Burdensome Restrictions. Except as may have been disclosed by the Borrower in writing to the Banks, Borrower is not a party to any agreement or instrument or subject to any other obligation or any charter or corporate or partnership restriction, as the case may be, which, individually or in the aggregate, is likely to have a Material Adverse Effect. SECTION 4.22. Brokers' Fees. The Borrower has not dealt with any broker or finder with respect to the transactions contemplated by this Agreement or otherwise in connection with this Agreement, and the Borrower has not done any act, had any negotiations or conversation, or made any agreements or promises which will in any way create or give rise to any obligation or liability for the payment by the Borrower of any brokerage fee, charge, commission or other compensation to any party with respect to the transactions contemplated by the Loan Documents, other than the fees payable to the Lead Agent, the Co-Lead Agent and the Banks, and certain other Persons as previously disclosed in writing to the Lead Agent. SECTION 4.23. Labor Matters. There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower and the Borrower has not suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years. SECTION 4.24. Insurance. The Borrower currently maintains insurance at 100% replacement cost insurance coverage (subject to customary deductibles) in respect of each of the Real Property Assets, as well as commercial general liability insurance (including "builders' risk" 58 where applicable) against claims for personal, and bodily injury and/or death, to one or more persons, or property damage, as well as workers' compensation insurance, in each case with respect to liability and casualty insurance with insurers having an A.M. Best policyholders' rating of not less than A-VII in amounts that prudent owner of assets such as the Real Property Assets would maintain. SECTION 4.25. Organizational Documents. The documents delivered pursuant to Section 3.1(d) constitute, as of the Closing Date, all of the organizational documents (together with all amendments and modifications thereof) of the Borrower and EQR. The Borrower represents that it has delivered to the Lead Agent true, correct and complete copies of each of the documents set forth in this Section 4.25. SECTION 4.26. Qualifying Unencumbered Properties. As of the date hereof, each Property listed on Exhibit F as a Qualifying Unencumbered Property (i) is an operating multifamily residential property wholly-owned (directly or beneficially) by Borrower or a Financing Partnership, (ii) is not subject (nor are any equity interests in such Property subject) to a Lien which secures Indebtedness of any Person, other than Permitted Liens, and (iii) is not subject (nor are any equity interests in such Property subject) to any covenant, condition, or other restriction which prohibits or limits the creation or assumption of any Lien upon such Property. All of the information set forth on Exhibit F is true and correct in all material respects. ARTICLE V AFFIRMATIVE AND NEGATIVE COVENANTS The Borrower covenants and agrees that, so long as any Bank has any Commitment hereunder or any Obligations remain unpaid: SECTION 5.1. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within five (5) Domestic Business Days after the same is required to be filed with the Securities and Exchange Commission (but in no event later than 125 days after the end of each fiscal year of the Borrower) a consolidated balance sheet of the 59 Borrower, EQR and their Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of Borrower's and EQR's operations and consolidated statements of Borrower's and EQR's cash flow for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission on Borrower's and EQR's Form 10K and reported on by Ernst & Young LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within five (5) Domestic Business Days after the same is required to be filed with the Securities and Exchange Commission (but in no event later than 80 days after the end of each of the first three quarters of each fiscal year of the Borrower and EQR), (i) a consolidated balance sheet of the Borrower, EQR and their Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of Borrower's and EQR's operations and consolidated statements of Borrower's and EQR's cash flow for such quarter and for the portion of the Borrower's or EQR's fiscal year ended at the end of such quarter, all reported on in the form provided to the Securities and Exchange Commission on Borrower's and EQR's Form 10Q, and (ii) and such other information reasonably requested by the Lead Agent and Co-Lead Agent or any Bank; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Section 5.8 on the date of such financial statements; (ii) certifying (x) that such financial statements fairly present the financial condition and the results of operations of the Borrower on the dates and for the periods indicated, on the basis of GAAP, with respect to the Borrower subject, in the case of interim financial statements, to normally recurring year-end adjustments, and (y) that such officer has reviewed the terms of the Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the business and condition of the Borrower during the period beginning on the date through which the last such review was made pursuant to this Section 5.1(c) (or, in the case of the first certification pursuant 60 to this Section 5.1(c), the Closing Date) and ending on a date not more than ten (10) Domestic Business Days prior to the date of such delivery and that (1) on the basis of such financial statements and such review of the Loan Documents, no Event of Default existed under Section 6.1(b) with respect to Sections 5.8 and 5.9 at or as of the date of said financial statements, and (2) on the basis of such review of the Loan Documents and the business and condition of the Borrower, to the best knowledge of such officer, as of the last day of the period covered by such certificate no Default or Event of Default under any other provision of Section 6.1 occurred and is continuing or, if any such Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof and, the action the Borrower proposes to take in respect thereof and (3) no event has occurred and is continuing which would give rise to a mandatory prepayment pursuant to Section 2.10 hereof. Such certificate shall set forth the calculations required to establish the matters described in clauses (1) and (3) above; (d) (i) within five (5) Domestic Business Days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer, the chief accounting officer, controller, or other executive officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; and (ii) promptly and in any event within five (5) Domestic Business Days after the Borrower obtains knowledge thereof, notice of (x) any litigation or governmental proceeding pending or threatened against the Borrower or the Real Property Assets as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, is likely to individually or in the aggregate, result in a Material Adverse Effect, (y) any other event, act or condition which is likely to result in a Material Adverse Effect, and (z) any event giving rise to a mandatory prepayment pursuant to Section 2.10; (e) promptly upon the mailing thereof to the shareholders of EQR generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equiv- 61 alent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) (other than the exhibits thereto, which exhibits will be provided upon request therefor by any Bank) which EQR shall have filed with the Securities and Exchange Commission; (g) Promptly and in any event within thirty (30) days, if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, and in the case of clauses (i) through (vii) above, which event could result in a Material Adverse Effect, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (h) promptly and in any event within ten (10) days after the Borrower obtains actual knowledge of any of the following events, a certificate of the Borrower, executed by an officer of the Borrower, specifying the nature of such condition, and the Borrower's or, if the Bor- 62 rower has actual knowledge thereof, the Environmental Affiliate's proposed initial response thereto: (i) the receipt by the Borrower, or, if the Borrower has actual knowledge thereof, any of the Environmental Affiliates of any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Borrower, or, if the Borrower has actual knowledge thereof, any of the Environmental Affiliates, is not in compliance with applicable Environmental Laws, and such noncompliance is likely to have a Material Adverse Effect, (ii) the Borrower shall obtain actual knowledge that there exists any Environmental Claim pending against the Borrower or any Environmental Affiliate and such Environmental Claim is likely to have a Material Adverse Effect or (iii) the Borrower obtains actual knowledge of any release, emission, discharge or disposal of any Material of Environmental Concern that is likely to form the basis of any Environmental Claim against the Borrower or any Environmental Affiliate which in any such event is likely to have a Material Adverse Effect; (i) promptly and in any event within five (5) Domestic Business Days after receipt of any material notices or correspondence from any company or agent for any company providing insurance coverage to the Borrower relating to any loss which is likely to result in a Material Adverse Effect, copies of such notices and correspondence; and (j) from time to time such additional information regarding the financial position or business of the Borrower, EQR and their Subsidiaries as the Lead Agent, at the request of any Bank, may reasonably request in writing. SECTION 5.2. Payment of Obligations. The Borrower, EQR and their Consolidated Subsidiaries will pay and discharge, at or before maturity, all its respective material obligations and liabilities including, without limitation, any obligation pursuant to any agreement by which it or any of its properties is bound, in each case where the failure to so pay or discharge such obligations or liabilities is likely to result in a Material Adverse Effect, and will maintain in accordance with GAAP, appropriate reserves for the accrual of any of the same. 63 SECTION 5.3. Maintenance of Property; Insurance; Leases. (a) The Borrower will keep, and will cause each Consolidated Subsidiary to keep, all property useful and necessary in its business, including without limitation the Real Property Assets (for so long as it constitutes Real Property Assets), in good repair, working order and condition, ordinary wear and tear excepted, in each case where the failure to so maintain and repair will have a Material Adverse Effect. (b) The Borrower shall maintain, or cause to be maintained, insurance comparable to that described in Section 4.24 hereof with insurers meeting the qualifications described therein, which insurance shall in any event not provide for less coverage than insurance customarily carried by owners of properties similar to, and in the same locations as, the Real Property Assets. The Borrower will deliver to the Lead Agent upon the reasonable request of the Lead Agent from time to time (i) full information as to the insurance carried, (ii) within five (5) days of receipt of notice from any insurer a copy of any notice of cancellation or material change in coverage from that existing on the date of this Agreement and (iii) forthwith, notice of any cancellation or nonrenewal of coverage by the Borrower. SECTION 5.4. Conduct of Business and Maintenance of Existence. The Borrower and EQR will continue to engage in business of the same general type as now conducted by the Borrower and EQR, and each will preserve, renew and keep in full force and effect, its partnership and trust existence and its respective rights, privileges and franchises necessary for the normal conduct of business unless the failure to maintain such rights and franchises does not have a Material Adverse Effect. SECTION 5.5. Compliance with Laws. The Borrower will comply in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws, and all zoning and building codes with respect to the Real Property Assets and ERISA and the rules and regulations thereunder and all federal securities laws) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to do so will not have a Material Adverse Effect 64 or expose Lead Agent, Co-Lead Agent or Banks to any material liability therefor. SECTION 5.6. Inspection of Property, Books and Records. The Borrower will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities in conformity with GAAP, modified as required by this Agreement and applicable law; and will permit representatives of any Bank at such Bank's expense to visit and inspect any of its properties, including without limitation the Real Property Assets, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers and independent public accountants, all at such reasonable times during normal business hours, upon reasonable prior notice and as often as may reasonably be desired. Lead Agent shall coordinate any such visit or inspection to arrange for review by any Bank requesting any such visit or inspection. SECTION 5.7. Existence. The Borrower shall do or cause to be done, all things necessary to preserve and keep in full force and effect its, EQR's and their Consolidated Subsidiaries' existence and its patents, trademarks, servicemarks, tradenames, copyrights, franchises, licenses, permits, certificates, authorizations, qualifications, accreditation, easements, rights of way and other rights, consents and approvals the nonexistence of which is likely to have a Material Adverse Effect. SECTION 5.8. Financial Covenants. (a) Total Liabilities to Gross Asset Value. Borrower shall not permit the ratio of Total Liabilities to Gross Asset Value of Borrower and its Subsidiaries to exceed 0.50:1 at any time. (b) Secured Debt to Gross Asset Value. Borrower shall not permit the ratio of Secured Debt to Gross Asset Value of Borrower and its Subsidiaries to exceed 0.30:1 at any time. (c) Unencumbered Pool. Borrower shall not permit the ratio of the Unencumbered Asset Value to outstanding Unsecured Debt to be less than 2.5:1 at any time. 65 (d) EBITDA to Fixed Charges Ratio. Borrower shall not permit the ratio of EBITDA for the then most recently completed Fiscal Quarter to Fixed Charges for the then most recently completed Fiscal Quarter to be less than 1.8:1. (e) Unencumbered Net Operating Income to Unsecured Interest Expense. Borrower shall not permit the ratio of Unencumbered Net Operating Income for the then most recently completed Fiscal Quarter to Unsecured Interest Expense for the then most recently completed Fiscal Quarter to be less than 2.25:1. (f) Dividends. The Borrower will not, as determined on an aggregate annual basis, pay any partnership distributions in excess of 90% of the Borrower's FFO for such year. During the continuance of a monetary Event of Default, Borrower shall only pay those dividends necessary to maintain its status as a real estate investment trust. (g) Minimum Consolidated Tangible Net Worth. The Consolidated Tangible Net Worth of the Borrower and its Consolidated Subsidiaries will at no time be less than $1,000,000,000 plus ninety percent (90%) of all Net Offering Proceeds received by EQR or Borrower after the date hereof. (h) Unimproved Assets. The Borrower and its Subsidiaries shall not purchase or continue to hold any Unimproved Assets to the extent that the undepreciated book value of all such Unimproved Assets, taken singly or in the aggregate, exceeds ten percent (10%) of the Gross Asset Value of Borrower and its Subsidiaries. (i) Development Activity. The Borrower and its Subsidiaries will not engage in any Development Activity other than Development Activity in which the Borrower and its Subsidiaries do not have a total aggregate investment at any time exceeding an amount equal to five percent (5%) of the Gross Asset Value of Borrower and its Subsidiaries. (j) Permitted Holdings. Borrower's primary business will be the ownership, operation and development of multifamily residential property and any other business activities of Borrower and its Subsidiaries will remain incidental thereto. Notwithstanding the foregoing, Borrower and its Subsidiaries may acquire or maintain the following Permitted Holdings if and so long as (i) the aggregate value 66 of Permitted Holdings, together with the Permitted Holdings described in subsections (h) and (i) above, whether held directly or indirectly by Borrower and its Subsidiaries, does not exceed, at any time, twenty five percent (25%) of Gross Asset Value of Borrower and its Subsidiaries as a whole and (ii) the value of each such Permitted Holding, whether held directly or indirectly by Borrower or its Subsidiaries, does not exceed, at any time, the following percentages of Gross Asset Value of Borrower and its Subsidiaries: Maximum Percentage Permitted Holdings of Gross Asset Value - - ------------------ -------------------- Non-Multifamily Residential Property (other than Cash or Cash Equivalents) 10% Securities 5% Multifamily Residential Property Mortgages 10% Multifamily Residential Property Partnership Interests 10% For purposes of calculating the foregoing percentages the value of each category shall be calculated in the manner that Gross Asset Value is determined; provided, however, that the Gross Asset Value for Securities shall be equal to the lesser of (a) the acquisition cost thereof or (b) the current market value thereof (such market value to be determined in a manner reasonably acceptable to Lead Agent). (k) Calculation. Each of the foregoing ratios and financial requirements shall be calculated as of the last day of each Fiscal Quarter. SECTION 5.9. Restriction on Fundamental Changes. (a) Neither the Borrower nor EQR shall enter into any merger or consolidation, unless (i) the Borrower or EQR is the surviving entity, (ii) the entity which is merged into Borrower or EQR is predominantly in the commercial real estate business, (iii) the creditworthiness of the surviving entity's long term unsecured debt or implied senior debt, as applicable, is not lower than Borrower's or EQR's creditworthiness two months immediately preceding such merger, and (iv) in the case of any merger where the then 67 fair market value of the assets of the entity which is merged into the Borrower or EQR is twenty-five percent (25%) or more of the Borrower's or EQR's then Combined Asset Value, the Lead Agent and Co-Lead Agent consent thereto in writing, which consent shall not be unreasonably withheld, conditioned or delayed. Neither the Borrower nor EQR shall liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its business or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of its business or property, whether now or hereafter acquired. Nothing in this Section shall be deemed to prohibit the sale or leasing of portions of the Real Property Assets in the ordinary course of business. (b) The Borrower shall not amend its agreement of limited partnership or other organizational documents in any manner that would have a Material Adverse Effect without the Lead Agent's and Co-Lead Agent's consent, which shall not be unreasonably withheld. EQR shall not amend its declaration of trust, by- laws, or other organizational documents in any manner that would have a Material Adverse Effect without the Lead Agent's and Co-Lead Agent's consent, which shall not be unreasonably withheld. (c) The Borrower shall deliver to Lead Agent copies of all amendments to its agreement of limited partnership or to EQR's declaration of trust, by- laws, or other organizational documents no less than ten (10) days after the effective date of any such amendment. SECTION 5.10. Changes in Business. (a) Neither the Borrower nor EQR shall enter into any business which is substantially different from that conducted by the Borrower or EQR on the Closing Date after giving effect to the transactions contemplated by the Loan Documents. The Borrower shall carry on its business operations through the Borrower and its Subsidiaries. (b) Except for Permitted Holdings, Borrower shall not engage in any line of business other than ownership, operation and development of multifamily residential property and the provision of services incidental thereto, whether directly or through its Subsidiaries and Investment Affiliates. 68 SECTION 5.11. Margin Stock. None of the proceeds of the Loan will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any Margin Stock. SECTION 5.12. Hedging Requirements. Within five (5) Domestic Business Days after the last day of each calendar quarter, commencing December 31, 1996, the Borrower shall have in effect "Interest Rate Hedges" on Borrower's Indebtedness so that such Indebtedness, together with all Fixed Rate Indebtedness of Borrower, shall constitute at least fifty percent (50%) of the then aggregate Indebtedness of the Borrower. "Interest Rate Hedges" shall mean interest rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor or similar agreements, each of which (i) shall have a minimum term of two (2) years, or, in the case of loans pursuant to which interest shall accrue at a rate other than a fixed rate, a term equal to the term of such floating rate loan (to the extent the term of such floating rate loan is less than two (2) years), (ii) shall have the effect of capping the interest rates covered thereby at a rate equal to or lower than the Cap Rate at the time of purchase or execution, and (iii) shall be with an Approved Bank as the counterparty. It is acknowledged and agreed that the Borrower shall have no obligation to replace any Interest Rate Hedge even if the counterparty thereto shall cease to be an Approved Bank. The Borrower shall submit evidence of its compliance with Interest Rate Hedges to the Lead Agent together with the certificate required to be delivered by the Borrower pursuant to Section 5.1(c). SECTION 5.13. EQR Status. (a) Status. EQR shall at all times (i) remain a publicly traded company listed on the New York Stock Exchange, and (ii) maintain its status as a self-directed and self-administered real estate investment trust under the Code. (b) Indebtedness. EQR shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (1) the Obligations; and (2) Indebtedness which, after giving effect thereto, may be incurred or may remain outstanding 69 without giving rise to an Event of Default or Default under any provision of this Article V. (c) Restriction on Fundamental Changes. (1) EQR shall not have an Investment in any Person other than Borrower, common stock of QRS Corporations, and the interests identified on Schedule 5.13(c)(1) as being owned by EQR. (2) EQR shall not acquire an interest in any Property other than Securities issued by Borrower, common stock of QRS Corporations, and the interests identified on Schedule 5.13(c)(2). (d) Environmental Liabilities. Neither EQR nor any of its Subsidiaries shall become subject to any Environmental Claim which has a Material Adverse Effect, including any arising out of or related to (i) the release or threatened release of any Material of Environmental Concern into the environment, or any remedial action in response thereto, or (ii) any violation of any Environmental Laws. Notwithstanding the foregoing provision, EQR shall have the right to contest in good faith any claim of violation of an Environmental Law by appropriate legal proceedings and shall be entitled to postpone compliance with the obligation being contested as long as (i) no Event of Default shall have occurred and be continuing, (ii) EQR shall have given Lead Agent prior written notice of the commencement of such contest, (iii) noncompliance with such Environmental Law shall not subject EQR or such Subsidiary to any criminal penalty or subject Lead Agent, Co-Lead Agent or any Bank to pay any civil penalty or to prosecution for a crime, and (iv) no portion of any Property material to Borrower or its condition or prospects shall be in substantial danger of being sold, forfeited or lost, by reason of such contest or the continued existence of the matter being contested. (e) Disposal of Partnership Interests. EQR will not directly or indirectly convey, sell, transfer, assign, pledge or otherwise encumber or dispose of any of its partnership interests in Borrower, except for the reduction of EQR's interest in the Borrower arising from Borrower's issuance of partnership interests in the Borrower or the retirement of preference units by Borrower. 70 ARTICLE VI DEFAULTS SECTION 6.1. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or the Borrower shall fail to pay when due interest on any Loan or any fees or any other amount payable hereunder and the same shall continue for a period of five (5) days after the same becomes due; (b) the Borrower shall fail to observe or perform any covenant contained in Section 5.8, Section 5.9(a) or (b), or Sections 5.10 to 5.13, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a), (b), (e), (f), (g), (h), (j), (n) or (o) of this Section 6.1) for 30 days after written notice thereof has been given to the Borrower by the Lead Agent, or if such default is of such a nature that it cannot with reasonable effort be completely remedied within said period of thirty (30) days such additional period of time as may be reasonably necessary to cure same, provided Borrower commences such cure within said thirty (30) day period and diligently prosecutes same, until completion, but in no event shall such extended period exceed ninety (90) days; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made) and the defect causing such representation or warranty to be incorrect when made (or deemed made) is not removed within thirty (30) days after written notice thereof from Lead Agent to Borrower; (e) the Borrower, EQR, any Subsidiary or any Investment Affiliate shall default in the payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) of any amount owing in respect of any Recourse Debt (other than the Obligations) for which the aggregate outstanding principal amount exceeds $10,000,000 and such default shall continue beyond the giving of any required notice and the expiration of any 71 applicable grace period and such default has not been waived, in writing, by the holder of any such Debt; or the Borrower, EQR, any Subsidiary or any Investment Affiliate shall default in the performance or observance of any obligation or condition with respect to any such Recourse Debt or any other event shall occur or condition exist beyond the giving of any required notice and the expiration of any applicable grace period, if the effect of such default, event or condition is to accelerate the maturity of any such indebtedness or to permit (without any further requirement of notice or lapse of time) the holder or holders thereof, or any trustee or agent for such holders, to accelerate the maturity of any such indebtedness; (f) the Borrower or EQR shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action to authorize any of the foregoing; (g) an involuntary case or other proceeding shall be commenced against the Borrower or EQR seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 90 days; or an order for relief shall be entered against the Borrower or EQR under the federal bankruptcy laws as now or hereafter in effect; (h) one or more final, non-appealable judgments or decrees in an aggregate amount of Twenty Million Dollars ($20,000,000) or more shall be entered by a court or courts of competent jurisdiction against the Borrower, EQR or its Consolidated Subsidiaries (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) and (i) any such judgments or decrees shall not be stayed, discharged, paid, bonded or vacated within thirty (30) days or 72 (ii) enforcement proceedings shall be commenced by any creditor on any such judgments or decrees; (i) there shall be a change in the majority of the Board of Trustees of EQR during any twelve (12) month period, excluding any change in directors resulting from (x) the death or disability of any director, or (y) satisfaction of any requirement for the majority of the members of the board of directors or trustees of EQR to qualify under applicable law as independent trustees or (z) the replacement of any trustee who is an officer or employee of EQR or an affiliate of EQR with any other officer or employee of EQR or an affiliate of EQR; (j) any Person (including affiliates of such Person) or "group" (as such term is defined in applicable federal securities laws and regulations) shall acquire more than thirty percent (30%) of the common shares of EQR; (k) EQR shall cease at any time to qualify as a real estate investment trust under the Code; (l) if any Termination Event with respect to a Plan shall occur as a result of which Termination Event or Events any member of the ERISA Group has incurred or may incur any liability to the PBGC or any other Person and the sum (determined as of the date of occurrence of such Termination Event) of the insufficiency of such Plan and the insufficiency of any and all other Plans with respect to which such a Termination Event shall occur and be continuing (or, in the case of a Multiple Employer Plan with respect to which a Termination Event described in clause (ii) of the definition of Termination Event shall occur and be continuing, the liability of the Borrower) is equal to or greater than $10,000,000 and which the Lead Agent reasonably determines will have a Material Adverse Effect; (m) if, any member of the ERISA Group shall commit a failure described in Section 402(f)(1) of ERISA or Section 412(n)(1) of the Code and the amount of the lien determined under Section 402(f)(3) of ERISA or Section 412(n)(3) of the Code that could reasonably be expected to be imposed on any member of the ERISA Group or their assets in respect of such failure shall be equal to or greater than $10,000,000 and which the Lead Agent reasonably determines will have a Material Adverse Effect; (n) at any time, for any reason the Borrower seeks to repudiate its obligations under any Loan Document; or 73 (o) a default beyond any applicable notice or grace period under any of the other Loan Documents. SECTION 6.2. Rights and Remedies. (a) Upon the occurrence of any Event of Default described in Sections 6.1(f) or (g), the Commitment shall immediately terminate and the unpaid principal amount of, and any and all accrued interest on, the Loans and any and all accrued fees and other Obligations hereunder shall automatically become immediately due and payable, with all additional interest from time to time accrued thereon and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Lead Agent may (and upon the demand of the Required Banks and the Co-Lead Agent shall), by written notice to the Borrower, in addition to the exercise of all of the rights and remedies permitted the Lead Agent and the Banks at law or equity or under any of the other Loan Documents, declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans and any and all accrued fees and other Obligations hereunder to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and (except as otherwise as provided in the Loan Documents) without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower. (b) Notwithstanding anything to the contrary contained in this Agreement or in any other Loan Document, the Co-Lead Agent, the Lead Agent, and the Banks each agree that any exercise or enforcement of the rights and remedies granted to the Co-Lead Agent, the Lead Agent or the Banks under this Agreement or at law or in equity with respect to this Agreement or any other Loan Documents shall be commenced and maintained by the Co-Lead Agent or the Lead Agent on behalf of the Co-Lead Agent, the Lead Agent and/or the Banks. The Lead Agent shall act at the direction of the Required Banks and the Co-Lead Agent in connection with the exercise of any and all remedies at law, in equity or under any of the Loan Documents or, if the Required Banks and the Co-Lead Agent are unable to reach agreement, then, from and after an Event of Default, the Lead Agent may pursue such rights and remedies as it may determine. 74 SECTION 6.3. Notice of Default. The Lead Agent shall give notice to the Borrower under Section 6.1(c) promptly upon being requested to do so by the Required Banks and the Co-Lead Agent and shall thereupon notify all the Banks thereof. Neither Lead Agent nor Co-Lead Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default (other than nonpayment of principal of or interest on the Loans) unless Lead Agent or Co- Lead Agent has received notice in writing from a Bank or Borrower referring to this Agreement or the other Loan Documents, describing such event or condition. Should Lead Agent or Co-Lead Agent receive notice of the occurrence of an Default or Event of Default expressly stating that such notice is a notice of an Default or Event of Default, or should Lead Agent or Co-Lead Agent send Borrower a notice of Default or Event of Default, Lead Agent or Co-Lead Agent, as applicable, shall promptly give notice thereof to each Bank. SECTION 6.4. Distribution of Proceeds after Default. Notwithstanding anything contained herein to the contrary, from and after an Event of Default, to the extent proceeds are received by Lead Agent, such proceeds will be distributed to the Banks pro rata in accordance with the unpaid principal amount of the Loans. ARTICLE VII THE AGENTS SECTION 7.1. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Lead Agent and Co-Lead Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Lead Agent and Co-Lead Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. Except as set forth in Sections 7.8 and 7.9 hereof, the provisions of this Article VII are solely for the benefit of Lead Agent, Co-Lead Agent and the Banks, and Borrower shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Agreement, Lead Agent and Co-Lead Agent shall each act solely as an agent of the Banks and do not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Borrower. SECTION 7.2. Agency and Affiliates. Morgan and Bank of America Illinois shall have the same rights and 75 powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Lead Agent or Co-Lead Agent respectively, and Morgan and Bank of America Illinois and their affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower, EQR or any Subsidiary or affiliate of the Borrower as if they were not the Lead Agent and Co-Lead Agent, respectively, hereunder, and the term "Bank" and "Banks" shall include Morgan and Bank of America Illinois in their individual capacities. SECTION 7.3. Action by Lead Agent and Co-Lead Agent. The obligations of the Lead Agent and Co-Lead Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Lead Agent and Co-Lead Agent shall not be required to take any action with respect to any Default or Event of Default, except as expressly provided in Article VI. The duties of Lead Agent and Co-Lead Agent shall be administrative in nature. Subject to the provisions of Sections 7.1, 7.5 and 7.6, Lead Agent and Co-Lead Agent shall administer the Loans in the same manner as each administers its own loans. SECTION 7.4. Consultation with Experts. As between Lead Agent and the Banks, the Lead Agent and Co-Lead Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.5. Liability of Lead Agent and Co-Lead Agent. As between Lead Agent and the Banks, none of the Lead Agent, the Co-Lead Agent nor any of their affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or wilful misconduct. As between Lead Agent and the Banks, none of the Lead Agent, the Co-Lead Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Lead Agent or the Co-Lead Agent; or (iv) the validity, 76 effectiveness or genuineness of this Agreement, the other Loan Documents or any other instrument or writing furnished in connection herewith. As between Lead Agent and the Banks, neither the Lead Agent nor the Co-Lead Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Lead Agent and the Co-Lead Agent and their affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitee's gross negligence or wilful misconduct) that such indemnitee may suffer or incur in connection with its duties as Lead Agent and/or Co-Lead Agent under this Agreement, the other Loan Documents or any action taken or omitted by such indemnitee hereunder. In the event that the Co-Lead Agent or the Lead Agent shall, subsequent to its receipt of indemnification payment(s) from Banks in accordance with this section, recoup any amount from the Borrower, or any other party liable therefor in connection with such indemnification, such Co-Lead Agent or the Lead Agent shall reimburse the Banks which previously made the payment(s) pro rata, based upon the actual amounts which were theretofore paid by each Bank. The Co-Lead Agent or the Lead Agent, as the case may be, shall reimburse such Banks so entitled to reimbursement within two (2) Domestic Business Days of its receipt of such funds from the Borrower or such other party liable therefor. SECTION 7.7. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Lead Agent, the Co-Lead Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Lead Agent, Co-Lead Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.8. Successor Lead Agent or Co-Lead Agent. The Lead Agent or the Co-Lead Agent may resign at any time by giving notice thereof to the Banks, the Borrower and each other and the Lead Agent or the Co-Lead Agent, as 77 applicable, shall resign in the event its Commitment is reduced to zero. Upon any such resignation, the Required Banks shall have the right to appoint a successor Lead Agent or Co-Lead Agent, as applicable, which successor Lead Agent or successor Co-Lead Agent (as applicable) shall, provided no Event of Default has occurred and is then continuing, be subject to Borrower's approval, which approval shall not be unreasonably withheld or delayed (except that Borrower shall, in all events, be deemed to have approved Bank of America Illinois as a successor Lead Agent and Morgan as a successor Co-Lead Agent). If no successor Lead Agent or Co-Lead Agent (as applicable) shall have been so appointed by the Required Banks and approved by the Borrower, and shall have accepted such appointment, within 30 days after the retiring Lead Agent or Co-Lead Agent (as applicable) gives notice of resignation, then the retiring Lead Agent or retiring Co-Lead Agent (as applicable) may, on behalf of the Banks, appoint a successor Lead Agent or Co-Lead Agent (as applicable), which shall be the Co- Lead Agent or the Lead Agent, as the case may be, who shall act until the Required Banks shall appoint a Lead Agent or Co-Lead Agent. Upon the acceptance of its appointment as the Lead Agent or Co-Lead Agent hereunder by a successor Lead Agent or successor Co-Lead Agent, as applicable, such successor Lead Agent or successor Co-Lead Agent, as applicable, shall thereupon succeed to and become vested with all the rights and duties of the retiring Lead Agent or retiring Co- Lead Agent, as applicable, and the retiring Lead Agent or the retiring Co-Lead Agent, as applicable, shall be discharged from its duties and obligations hereunder. After any retiring Lead Agent's or retiring Co-Lead Agent's resignation hereunder, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Lead Agent or the Co-Lead Agent, as applicable. For gross negligence or willful misconduct, as determined by all the Banks (excluding for such determination Lead Agent or Co-Lead Agent in its capacity as a Bank, as applicable), Lead Agent or Co-Lead Agent may be removed at any time by giving at least thirty (30) Domestic Business Days prior written notice to Lead Agent, Co-Lead Agent and Borrower. Such resignation or removal shall take effect upon the acceptance of appointment by a successor Lead Agent or Co-Lead Agent, as applicable, in accordance with the provisions of this Section 7.8. SECTION 7.9. Consents and Approvals. All 78 communications from Lead Agent to the Banks requesting the Banks' determination, consent, approval or disapproval (i) shall be given in the form of a written notice to each Bank, (ii) shall be accompanied by a description of the matter or item as to which such determination, approval, consent or disapproval is requested, or shall advise each Bank where such matter or item may be inspected, or shall otherwise describe the matter or issue to be resolved, (iii) shall include, if reasonably requested by a Bank and to the extent not previously provided to such Bank, written materials and a summary of all oral information provided to Lead Agent by Borrower in respect of the matter or issue to be resolved, and (iv) shall include Lead Agent's recommended course of action or determination in respect thereof. Each Bank shall reply promptly, but in any event within ten (10) Domestic Business Days after receipt of the request therefor from Lead Agent (the "Bank Reply Period"). Unless a Bank shall give written notice to Lead Agent that it objects to the recommendation or determination of Lead Agent (together with a written explanation of the reasons behind such objection) within the Bank Reply Period, such Bank shall be deemed to have approved of or consented to such recommendation or determination. With respect to decisions requiring the approval of the Required Banks or all the Banks, Lead Agent shall submit its recommendation or determination for approval of or consent to such recommendation or determination to all Banks and upon receiving the required approval or consent shall follow the course of action or determination of the Required Banks (and each non-responding Bank shall be deemed to have concurred with such recommended course of action) or all the Banks, as the case may be. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Euro- Dollar Borrowing or Money Market LIBOR Loan: (a) the Lead Agent is advised by the Reference Bank that the Euro-Dollar Reference Bank has determined in good faith that deposits in dollars (in the applicable amounts) are not being offered to the Euro-Dollar Reference Bank in the relevant market for such Interest Period, or 79 (b) Banks having 50% or more of the aggregate amount of the Commitments advise the Lead Agent that the Adjusted London Interbank Offered Rate, as determined by the Lead Agent will not adequately and fairly reflect the cost to such Bank of funding its Euro-Dollar Loans for such Interest Period, the Lead Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Lead Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make Euro-Dollar Loans shall be suspended. Unless the Borrower notifies the Lead Agent at least two Domestic Business Days before the date of (i) any Euro- Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing, or (ii) any Money Market LIBOR Borrowing for which a Notice of Money Market Borrowing has previously been given, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. For purposes of this Section 8.1(b), in determining whether the Adjusted London Interbank Offered Rate, as determined by Lead Agent, will not adequately and fairly reflect the cost to any Bank of funding its Euro-Dollar Loans for such Interest Period, such determination will be based solely on the ability of such Bank to obtain matching funds in the London interbank market at a reasonably equivalent rate. SECTION 8.2. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) made after the Closing Date of any such authority, central bank or comparable agency shall make it unlawful for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans, the Lead Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Lead Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. With respect to Euro-Dollar Loans, before giving any notice to the Lead Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will 80 avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall be deemed to have delivered a Notice of Interest Rate Election and such Euro-Dollar Loan shall be converted as of such date to a Base Rate Loan (without payment of any amounts that Borrower would otherwise be obligated to pay pursuant to Section 2.13 hereof with respect to Loans converted pursuant to this Section 8.2) in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. If at any time, it shall be unlawful for any Bank to make, maintain or fund its Euro-Dollar Loans, the Borrower shall have the right, upon five (5) Domestic Business Day's notice to the Lead Agent, to either (x) cause a bank, reasonably acceptable to the Lead Agent, to offer to purchase the Commitments of such Bank for an amount equal to such Bank's outstanding Loans, and to become a Bank hereunder, or obtain the agreement of one or more existing Banks to offer to purchase the Commitments of such Bank for such amount, which offer such Bank is hereby required to accept, or (y) to repay in full all Loans then outstanding of such Bank, together with interest and all other amounts due thereon, upon which event, such Bank's Commitments shall be deemed to be cancelled pursuant to Section 2.11(c). SECTION 8.3. Increased Cost and Reduced Return. (a) If, on or after (x) the date hereof in the case of Committed Loans made pursuant to Section 2.1, or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) made at the Closing Date of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System (but excluding with respect to any Euro-Dollar Loan any such requirement reflected in an applicable 81 Euro-Dollar Reserve Percentage)), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition materially more burdensome in nature, extent or consequence than those in existence as of the Closing Date affecting such Bank's Euro-Dollar Loans, its Note, or its obligation to make Euro-Dollar Loans, and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect to such Euro-Dollar Loans, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Lead Agent and Co-Lead Agent), the Borrower shall pay to such Bank such additional amount or amounts (based upon a reasonable allocation thereof by such Bank to the Euro-Dollar Loans made by such Bank hereunder) as will compensate such Bank for such increased cost or reduction to the extent such Bank generally imposes such additional amounts on other borrowers of such Bank in similar circumstances. (b) If any Bank shall have reasonably determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) made after the Closing Date of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount reasonably deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Lead Agent and Co-Lead Agents), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction to the extent such Bank generally imposes such additional amounts on other borrowers of such Bank in similar circumstances. 82 (c) Each Bank will promptly notify the Borrower, the Lead Agent and the Co-Lead Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall fail to notify Borrower of any such event within 90 days following the end of the month during which such event occurred, then Borrower's liability for any amounts described in this Section incurred by such Bank as a result of such event shall be limited to those attributable to the period occurring subsequent to the ninetieth (90th) day prior to the date upon which such Bank actually notified Borrower of the occurrence of such event. A certificate of any Bank claiming compensation under this Section and setting forth a reasonably detailed calculation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of demonstrable error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. (d) If at any time, any Bank shall be owed amounts pursuant to this Section 8.3, the Borrower shall have the right, upon five (5) Domestic Business Day's notice to the Lead Agent to either (x) cause a bank, reasonably acceptable to the Lead Agent, to offer to purchase the Commitments of such Bank for an amount equal to such Bank's outstanding Loans, and to become a Bank hereunder, or to obtain the agreement of one or more existing Banks to offer to purchase the Commitments of such Bank for such amount, which offer such Bank is hereby required to accept, or (y) to repay in full all Loans then outstanding of such Bank, together with interest and all other amounts due thereon, upon which event, such Bank's Commitment shall be deemed to be cancelled pursuant to Section 2.11(c). SECTION 8.4. Taxes. (a) Any and all payments by the Borrower to or for the account of any Bank, the Co-Lead Agent or the Lead Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank, the Co-Lead Agent and the Lead Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction 83 under the laws of which such Bank, the Co-Lead Agent or the Lead Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof or by any other jurisdiction (or any political subdivision thereof) as a result of a present or former connection between such Bank, Co-Lead Agent or Lead Agent and such other jurisdiction or by the United States (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Non- Excluded Taxes"). If the Borrower shall be required by law to deduct any Non- Excluded Taxes from or in respect of any sum payable hereunder or under any Note, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.4) such Bank, the Co-Lead Agent or the Lead Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Lead Agent, at its address referred to in Section 9.1, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Bank, the Co-Lead Agent and the Lead Agent for the full amount of Non-Excluded Taxes or Other Taxes (including, without limitation, any Non-Excluded Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.4) paid by such Bank, the Co-Lead Agent or the Lead Agent (as the case may be) and, so long as such Bank, Co-Lead Agent or Lead Agent has promptly paid any such Non- Excluded Taxes or Other Taxes, any liability for penalties and interest arising therefrom or with respect thereto. This indemnification shall be made within 15 days from the date such Bank, the Co-Lead Agent or the Lead Agent (as the case may be) makes demand therefor. 84 (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, shall provide the Borrower with (A) two duly completed copies of Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (B) an Internal Revenue Service Form W-8 or W-9, or any successor form prescribed by the Internal Revenue Service, and shall provide Borrower with two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to Borrower, certifying (i) in the case of a Form 1001 or 4224, that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Non-Excluded Taxes" as defined in Section 8.4(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.4(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.4(c) with respect to Non-Excluded Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Non-Excluded Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes so long as Borrower shall incur no cost or liability as a result thereof. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.4, then such Bank will change the jurisdiction of 85 its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. (g) If at any time, any Bank shall be owed amounts pursuant to this Section 8.4, the Borrower shall have the right, upon five (5) Domestic Business Day's notice to the Lead Agent to either (x) cause a bank, reasonably acceptable to the Lead Agent, to offer to purchase the Commitments of such Bank for an amount equal to such Bank's outstanding Loans, and to become a Bank hereunder, or to obtain the agreement of one or more existing Banks to offer to purchase the Commitments of such Bank for such amount, which offer such Bank is hereby required to accept, or (y) to repay in full all Loans then outstanding of such Bank, together with interest and all other amounts due thereon, upon which event, such Bank's Commitment shall be deemed to be cancelled pursuant to Section 2.11(c). SECTION 8.5. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Lead Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) Borrower shall be deemed to have delivered a Notice of Interest Rate Election with respect to such affected Euro-Dollar Loans and thereafter all Loans which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead, and (c) Borrower will not be required to make any payment which would otherwise be required by Section 2.13 with respect to such Euro-Dollar Loans converted to Base Rate Loans pursuant to clause (a) above. 86 ARTICLE IX MISCELLANEOUS SECTION 9.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission followed by telephonic confirmation or similar writing) and shall be given to such party: (x) in the case of the Borrower, the Co-Lead Agent or the Lead Agent, at its address, telex number or facsimile number set forth on the signature pages hereof with a duplicate copy thereof, in the case of the Borrower, to the Borrower, at Equity Residential Properties Trust, Two North Riverside Plaza, Suite 400, Chicago, Illinois 60606, Attn: General Counsel, and to Rosenberg & Liebentritt, P.C., Two North Riverside Plaza, Suite 1515, Chicago, Illinois 60606, Attn: James M. Phipps, Esq., (y) in the case of any Bank, at its address, telex number or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, telex number or facsimile number as such party may hereafter specify for the purpose by notice to the Lead Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex or facsimile transmission, when such telex or facsimile is transmitted to the telex number or facsimile number specified in this Section and the appropriate answerback or facsimile confirmation is received, (ii) if given by certified registered mail, return receipt requested, with first class postage prepaid, addressed as aforesaid, upon receipt or refusal to accept delivery, (iii) if given by a nationally recognized overnight carrier, 24 hours after such communication is deposited with such carrier with postage prepaid for next day delivery, or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Lead Agent and the Co- Lead Agent under Article II or Article VIII shall not be effective until received. SECTION 9.2. No Waivers. No failure or delay by the Lead Agent, the Co-Lead Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 87 SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay within thirty (30) days after written notice from the Lead Agent or Co-Lead Agent, as applicable, (i) all reasonable out-of-pocket costs and expenses of the Lead Agent and the Co-Lead Agent (including reasonable fees and disbursements of special counsel Skadden, Arps, Slate, Meagher & Flom LLP), in connection with the preparation of this Agreement, the Loan Documents and the documents and instruments referred to therein, and any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder, (ii) all reasonable fees and disbursements of special counsel Skadden, Arps, Slate, Meagher & Flom LLP in connection with the syndication of the Loans and (iii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Lead Agent, Co-Lead Agent and each Bank, including fees and disbursements of counsel for the Lead Agent, the Co-Lead Agent and each of the Banks, in connection with the enforcement of the Loan Documents and the instruments referred to therein and such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom; provided, however, that the attorneys' fees and disbursements for which Borrower is obligated under this subsection (a)(iii) shall be limited to the reasonable non-duplicative fees and disbursements of (A) counsel for Lead Agent, (B) counsel for Co-Lead Agent and (C) counsel for all of the Banks as a group; and provided, further, that all other costs and expenses for which Borrower is obligated under this subsection (a)(iii) shall be limited to the reasonable non-duplicative costs and expenses of Lead Agent and Co-Lead Agent. For purposes of this Section 9.3(a)(iii), (1) counsel for Lead Agent shall mean a single outside law firm representing Lead Agent, (2) counsel for Co-Lead Agent shall mean a single outside law firm representing Co-Lead Agent (which may or may not be the same law firm representing Lead Agent) and (3) counsel for all of the Banks as a group shall mean a single outside law firm representing such Banks as a group (which law firm may or may not be the same law firm representing either or both of Lead Agent or Co-Lead Agent). (b) The Borrower agrees to indemnify the Co-Lead Agent, the Lead Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such 88 Indemnitee in connection with any investigative, administrative or judicial proceeding that may at any time (including, without limitation, at any time following the payment of the Obligations) be asserted against any Indemnitee, as a result of, or arising out of, or in any way related to or by reason of, (i) any of the transactions contemplated by the Loan Documents or the execution, delivery or performance of any Loan Document, (ii) any violation by the Borrower or the Environmental Affiliates of any applicable Environmental Law, (iii) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by the Borrower or any of the Environmental Affiliates, including, without limitation, all on-site and off-site activities of Borrower or any Environmental Affiliate involving Materials of Environmental Concern, (iv) the breach of any environmental representation or warranty set forth herein, but excluding those liabilities, losses, damages, costs and expenses (a) for which such Indemnitee has been compensated pursuant to the terms of this Agreement, (b) incurred solely by reason of the gross negligence, wilful misconduct bad faith or fraud of any Indemnitee as finally determined by a court of competent jurisdiction, (c) violations of Environmental Laws relating to a Property which are caused by the act or omission of such Indemnitee after such Indemnitee takes possession of such Property or (d) any liability of such Indemnitee to any third party based upon contractual obligations of such Indemnitee owing to such third party which are not expressly set forth in the Loan Documents. In addition, the indemnification set forth in this Section 9.3(b) in favor of any director, officer, agent or employee of Lead Agent, Co- Lead Agent or any Bank shall be solely in their respective capacities as such director, officer, agent or employee. The Borrower's obligations under this Section shall survive the termination of this Agreement and the payment of the Obligations. SECTION 9.4. Sharing of Set-Offs. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, but subject to the prior consent of the Lead Agent and the Co-Lead Agent, to set off and to appropriate and apply any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness at any time held or owing by such Bank (including, without limitation, by 89 branches and agencies of such Bank wherever located) to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower then due and payable to such Bank under this Agreement or under any of the other Loan Documents, including, without limitation, all interests in Obligations purchased by such Bank. Each Bank agrees that if it shall by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have to any deposits not received in connection with the Loans and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. Notwithstanding anything to the contrary contained herein, any Bank may, by separate agreement with the Borrower, waive its right to set off contained herein or granted by law and any such written waiver shall be effective against such Bank under this Section 9.4. SECTION 9.5. Amendments and Waivers. Any provision of this Agreement or the Notes or other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Lead Agent, the Co-Lead Agent and the Required Banks (and, if the rights or duties of the Lead Agent or the Co-Lead Agent in their capacity as Lead Agent or Co-Lead Agent, as applicable, are affected thereby, by the Lead Agent or the Co-Lead Agent, as applicable); provided that no such amendment or waiver with respect to this Agreement, the Notes or any other Loan Documents shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan 90 or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for any reduction or termination of any Commitment, (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, (v) release the EQR Guaranty or (vi) modify the provisions of this Section 9.5. SECTION 9.6. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement or the other Loan Documents without the prior written consent of all Banks and the Lead Agent and a Bank may not assign or otherwise transfer any of its interest under this Agreement except as permitted in subsection (b) and (c) of this Section 9.6. (b) Any Bank may at any time grant (i) prior to the occurrence of an Event of Default, to an existing Bank, one or more banks, finance companies, insurance companies or other financial institutions in minimum amounts of not less than $10,000,000 (or any lesser amount in the case of participations to an existing Bank) and (ii) after the occurrence and during the continuance of an Event of Default, to any Person in any amount (in each case, a "Participant"), participating interests in its Commitment or any or all of its Loans, with (and subject to) the consent of the Lead Agent and, provided that no Event of Default shall have occurred and be continuing, the Borrower, which consent shall not be unreasonably withheld or delayed. Any participation made during the continuation of an Event of Default shall not be affected by the subsequent cure of such Event of Default. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Lead Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Co-Lead Agent and the Lead Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision 91 of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii), (iv) or (v) of Section 9.5 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. (c) Any Bank may at any time assign to (i) prior to the occurrence of an Event of Default, an existing Bank or one or more banks, finance companies, insurance or other financial institutions which (A) has (or, in the case of a bank which is a subsidiary, such bank's parent has) a rating of its senior debt obligations of not less than Baa-1 by Moody's Investors Service or a comparable rating by a rating agency acceptable to Lead Agent and (B) has total assets in excess of Ten Billion Dollars ($10,000,000,000), in minimum amounts of not less than Ten Million Dollars ($10,000,000) and integral multiple of One Million Dollars ($1,000,000) thereafter (or any lesser amount in the case of assignments to an existing Bank) and (ii) after the occurrence and during the continuance of an Event of Default, to any Person in any amount (in each case, an "Assignee"), all or a proportionate part of all, of its rights and obligations under this Agreement, the Notes and the other Loan Documents, and, in either case, such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit "E" hereto executed by such Assignee and such transferor Bank, with (and subject to) the consent of the Lead Agent and, provided that no Event of Default shall have occurred and be continuing, the Borrower, which consent shall not be unreasonably withheld or delayed; provided that if an Assignee is an affiliate of such transferor Bank or was a Bank immediately prior to such assignment, no such consent shall be required; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and no further consent or action by any party shall be required and the transferor Bank shall be released from its obligations hereunder to a corresponding extent. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Lead Agent and the Borrower 92 shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Lead Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Lead Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.4. Any assignment made during the continuation of an Event of Default shall not be affected by any subsequent cure of such Event of Default. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.3 or 8.4 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.7. Collateral. Each of the Banks represents to the Lead Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.8. Governing Law; Submission to Jurisdiction. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW). (b) Any legal action or proceeding with respect to this Agreement or any other Loan Document and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, the Borrower hereby accepts for itself and in respect of its 93 property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. The Borrower irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the hand delivery, or mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address set forth below. The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Lead Agent or the Co-Lead Agent to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Borrower in any other jurisdiction. SECTION 9.9. Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Lead Agent and the Borrower of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Lead Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE LEAD AGENT, THE Co-Lead Agent AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. Survival. All indemnities set forth herein shall survive the execution and delivery of this Agreement and the other Loan Documents and the making and repayment of the Loans hereunder. SECTION 9.12. Domicile of Loans. Each Bank may transfer and carry its Loans at, to or for the account of 94 any domestic or foreign branch office, subsidiary or affiliate of such Bank. SECTION 9.13. Limitation of Liability. No claim may be made by the Borrower or any other Person acting by or through Borrower against the Lead Agent, the Co-Lead Agent or any Bank or the affiliates, directors, officers, employees, attorneys or agent of any of them for any consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or by the other Loan Documents, or any act, omission or event occurring in connection therewith; and the Borrower hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 9.14. Recourse Obligation. This Agreement and the Obligations hereunder are fully recourse to the Borrower. Notwithstanding the foregoing, no recourse under or upon any obligation, covenant, or agreement contained in this Agreement shall be had against any officer, director, shareholder or employee of the Borrower or EQR except in the event of fraud or misappropriation of funds on the part of such officer, director, shareholder or employee. SECTION 9.15. Confidentiality. The Lead Agent, the Co-Lead Agent and each Bank shall use reasonable efforts to assure that information about Borrower, EQR and its Subsidiaries and Investments Affiliates, and the Properties thereof and their operations, affairs and financial condition, not generally disclosed to the public, which is furnished to Lead Agent, the Co-Lead Agent or any Bank pursuant to the provisions hereof or any other Loan Document is used only for the purposes of this Agreement and shall not be divulged to any Person other than the Lead Agent, the Co-Lead Agent, the Banks, and their affiliates and respective officers, directors, employees and agents who are actively and directly participating in the evaluation, administration or enforcement of the Loan, except: (a) to their attorneys and accountants, (b) in connection with the enforcement of the rights and exercise of any remedies of the Lead Agent, the Co-Lead Agent and the Banks hereunder and under the other Loan Documents, (c) in connection with assignments and participations and the solicitation of prospective assignees and participants referred to in Section 9.6 hereof, who have agreed in writing to be bound by a confidentiality agreement substantially equivalent to the terms of this Section 9.15, and (d) as may otherwise be required or requested by any regulatory authority having 95 jurisdiction over the Lead Agent, the Co-Lead Agent or any Bank or by any applicable law, rule, regulation or judicial process. SECTION 9.16. Bank's Failure to Fund. (a) Unless the Lead Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Lead Agent such Bank's share of such Borrowing, the Lead Agent may assume that such Bank has made such share available to the Lead Agent on the date of such Borrowing in accordance with subsection (b) of Section 2.4 hereof, and the Lead Agent may, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Lead Agent, such Bank and Borrower severally agree to repay to the Lead Agent forthwith on demand such corresponding amount together with interest thereon, in accordance with the provisions of Section 2.4(c) hereof. If such Bank shall repay to the Lead Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. Nothing contained in this Section or Section 2.4(c) shall be deemed to reduce the Commitment of any Bank or in any way affect the rights of Borrower with respect to any defaulting Bank or Lead Agent. The failure of any Bank to make available to the Lead Agent such Bank's share of any Borrowing in accordance with Section 2.4(b) hereof shall not relieve any other Bank of its obligations to fund its Commitment, in accordance with the provisions hereof. (b) If a Bank does not advance to Lead Agent such Bank's pro rata share of a Loan in accordance herewith, then neither Lead Agent, Co-Lead Agent nor the other Banks shall be required or obligated to fund such Bank's pro rata share of such Loan. (c) As used herein, the following terms shall have the meanings set forth below: (i) "Defaulting Bank" shall mean any Bank which (x) does not advance to the Lead Agent such Bank's pro rata share of a Loan in accordance herewith for a period of five (5) Domestic Business Days after notice of such failure from Lead Agent, (y) shall otherwise fail to perform such Bank's obligations under the Loan Documents, or (z) shall fail to 96 pay the Lead Agent, Co-Lead Agent or any other Bank, as the case may be, upon demand, such Bank's pro rata share of any costs, expenses or disbursements incurred or made by the Lead Agent pursuant to the terms of the Loan Documents, and in all cases, such failure is not as a result of a good faith dispute as to whether such advance is properly required to be made pursuant to the provisions of this Agreement, or as to whether such other performance or payment is properly required pursuant to the provisions of this Agreement. (ii) "Junior Creditor" means any Defaulting Bank which has not (x) fully cured each and every default on its part under the Loan Documents and (y) unconditionally tendered to the Lead Agent such Defaulting Bank's pro rata share of all costs, expenses and disbursements required to be paid or reimbursed pursuant to the terms of the Loan Documents. (iii) "Payment in Full" means, as of any date, the receipt by the Banks who are not Junior Creditors of an amount of cash, in lawful currency of the United States, sufficient to indefeasibly pay in full all Senior Debt. (iv) "Senior Debt" means (x) collectively, any and all indebtedness, obligations and liabilities of the Borrower to the Banks who are not Junior Creditors from time to time, whether fixed or contingent, direct or indirect, joint or several, due or not due, liquidated or unliquidated, determined or undetermined, arising by contract, operation of law or otherwise, whether on open account or evidenced by one or more instruments, and whether for principal, premium, interest (including, without limitation, interest accruing after the filing of a petition initiating any proceeding referred to in Section 6.1(f) or (g)), reimbursement for fees, indemnities, costs, expenses or otherwise, which arise under, in connection with or in respect of the Loans or the Loan Documents, and (y) any and all deferrals, renewals, extensions and refundings of, or amendments, restatements, rearrangements, modifications or supplements to, any such indebtedness, obligation or liability. (v) "Subordinated Debt" means (x) any and all indebtedness, obligations and liabilities of Borrower to one or more Junior Creditors from time to time, whether fixed or contingent, direct or indirect, joint or several, due or not 97 due, liquidated or unliquidated, determined or undetermined, arising by contract, operation of law or otherwise, whether on open account or evidenced by one or more instruments, and whether for principal, premium, interest (including, without limitation, interest accruing after the filing of a petition initiating any proceeding referred to in Section 6.1(f) or (g)), reimbursement for fees, indemnities, costs, expenses or otherwise, which arise under, in connection with or in respect of the Loans or the Loan Documents, and (y) any and all deferrals, renewals, extensions and refundings of, or amendments, restatements, rearrangements, modifications or supplements to, any such indebtedness, obligation or liability. (d) Immediately upon a Bank's becoming a Junior Creditor, no Junior Creditor shall, prior to Payment in Full of all Senior Debt: (i) accelerate, demand payment of, sue upon, collect, or receive any payment upon, in any manner, or satisfy or otherwise discharge, any Subordinated Debt, whether for principal, interest and otherwise; (ii) take or enforce any Liens to secure Subordinated Debt or attach or levy upon any assets of Borrower, to enforce any Subordinated Debt; (iii) enforce or apply any security for any Subordinated Debt; or (iv) incur any debt or liability, or the like, to, or receive any loan, return of capital, advance, gift or any other property, from, the Borrower. (e) In the event of: (i) any insolvency, bankruptcy, receivership, liquidation, dissolution, reorganization, readjustment, composition or other similar proceeding relating to Borrower; (ii) any liquidation, dissolution or other winding-up of the Borrower, voluntary or involuntary, whether or not involving insolvency, reorganization or bankruptcy proceedings; 98 (iii) any assignment by the Borrower for the benefit of creditors; (iv) any sale or other transfer of all or substantially all assets of the Borrower; or (v) any other marshalling of the assets of the Borrower; each of the Banks shall first have received Payment in Full of all Senior Debt before any payment or distribution, whether in cash, securities or other property, shall be made in respect of or upon any Subordinated Debt. Any payment or distribution, whether in cash, securities or other property that would otherwise be payable or deliverable in respect of Subordinated Debt to any Junior Creditor but for this Agreement shall be paid or delivered directly to the Lead Agent for distribution to the Banks in accordance with this Agreement until Payment in Full of all Senior Debt. If any Junior Creditor receives any such payment or distribution, it shall promptly pay over or deliver the same to the Lead Agent for application in accordance with the preceding sentence. (f) Each Junior Creditor shall file in any bankruptcy or other proceeding of Borrower in which the filing of claims is required by law, all claims relating to Subordinated Debt that such Junior Creditor may have against Borrower and assign to the Banks who are not Junior Creditors all rights of such Junior Creditor thereunder. If such Junior Creditor does not file any such claim prior to forty-five (45) days before the expiration of the time to file such claim, Lead Agent, as attorney-in-fact for such Junior Creditor, is hereby irrevocably authorized to do so in the name of such Junior Creditor or, in Lead Agent's sole discretion, to assign the claim to a nominee and to cause proof of claim to be filed in the name of such nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. The Lead Agent shall, to the exclusion of each Junior Creditor, have the sole right, subject to Section 9.5 hereof, to accept or reject any plan proposed in any such proceeding and to take any other action that a party filing a claim is entitled to take. In all such cases, whether in administration, bankruptcy or otherwise, the Person or Persons authorized to pay such claim shall pay to Lead Agent the amount payable on such claim and, to the full extent necessary for that purpose, each Junior Creditor 99 hereby transfers and assigns to the Lead Agent all of the Junior Creditor's rights to any such payments or distributions to which Junior Creditor would otherwise be entitled. (g)(i) If any payment or distribution of any character or any security, whether in cash, securities or other property, shall be received by any Junior Creditor in contravention of any of the terms hereof, such payment or distribution or security shall be received in trust for the benefit of, and shall promptly be paid over or delivered and transferred to, Lead Agent for application to the payment of all Senior Debt, to the extent necessary to achieve Payment in Full. In the event of the failure of any Junior Creditor to endorse or assign any such payment, distribution or security, Lead Agent is hereby irrevocably authorized to endorse or assign the same as attorney-in-fact for such Junior Creditor. (ii) Each Junior Creditor shall take such action (including, without limitation, the execution and filing of a financing statement with respect to this Agreement and the execution, verification, delivery and filing of proofs of claim, consents, assignments or other instructions that Lead Agent may require from time to time in order to prove or realize upon any rights or claims pertaining to Subordinated Debt or to effectuate the full benefit of the subordination contained herein) as may, in Lead Agent's sole and absolute discretion, be necessary or desirable to assure the effectiveness of the subordination effected by this Agreement. (h)(i) Each Bank that becomes a Junior Creditor understands and acknowledges by its execution hereof that each other Bank is entering into this Agreement and the Loan Documents in reliance upon the absolute subordination in right of payment and in time of payment of Subordinated Debt to Senior Debt as set forth herein. (ii) Only upon the Payment in Full of all Senior Debt shall any Junior Creditor be subrogated to any remaining rights of the Banks which are not Defaulting Banks to receive payments or distributions of assets of the Borrower made on or applicable to any Senior Debt. (iii) Each Junior Creditor agrees that it will deliver all instruments or other writings evidencing any 100 Subordinated Debt held by it to Lead Agent, promptly after request therefor by the Lead Agent. (iv) No Junior Creditor may at any time sell, assign or otherwise transfer any Subordinated Debt, or any portion thereof, including, without limitation, the granting of any Lien thereon, unless and until satisfaction of the requirements of Section 9.6 above and the proposed transferee shall have assumed in writing the obligation of the Junior Creditor to the Banks under this Agreement, in a form acceptable to the Lead Agent. (v) If any of the Senior Debt, should be invalidated, avoided or set aside, the subordination provided for herein nevertheless shall continue in full force and effect and, as between the Banks which are not Defaulting Banks and all Junior Creditors, shall be and be deemed to remain in full force and effect. (vi) Each Junior Creditor hereby irrevocably waives, in respect of Subordinated Debt, all rights (x) under Sections 361 through 365, 502(e) and 509 of the Bankruptcy Code (or any similar sections hereafter in effect under any other Federal or state laws or legal or equitable principles relating to bankruptcy, insolvency, reorganizations, liquidations or otherwise for the relief of debtors or protection of creditors), and (y) to seek or obtain conversion to a different type of proceeding or to seek or obtain dismissal of a proceeding, in each case in relation to a bankruptcy, reorganization, insolvency or other proceeding under similar laws with respect to the Borrower. Without limiting the generality of the foregoing, each Junior Creditor hereby specifically waives (A) the right to seek to give credit (secured or otherwise) to the Borrower in any way under Section 364 of the Bankruptcy Code unless the same is subordinated in all respects to Senior Debt in a manner acceptable to Lead Agent in its sole and absolute discretion and (B) the right to receive any collateral security (including any "super priority" or equal or "priming" or replacement Lien) for any Subordinated Debt unless the Banks which are not Defaulting Banks have received a senior position acceptable to the Banks in their sole and absolute discretion to secure all Senior Debt (in the same collateral to the extent collateral is involved). (i)(i) In addition to and not in limitation of the subordination effected by this Section 9.16, the Lead 101 Agent and each of the Banks which are not Defaulting Banks may in their respective sole and absolute discretion, also exercise any and all other rights and remedies available at law or in equity in respect of a Defaulting Bank; and (ii) The Lead Agent shall give each of the Banks notice of the occurrence of a default under this Section 9.16 by a Defaulting Bank and if the Lead Agent and/or one or more of the other Banks shall, at their option, fund any amounts required to be paid or advanced by a Defaulting Bank, the other Banks who have elected not to fund any portion of such amounts shall not be liable for any reimbursements to the Lead Agent and/or to such other funding Banks. (j) Notwithstanding anything to the contrary contained or implied herein, a Defaulting Bank shall not be entitled to vote on any matter as to which a vote by the Banks is required hereunder, including, without limitation, any actions or consents on the part of the Lead Agent as to which the approval or consent of all the Banks or the Required Banks is required under Article VIII, Section 9.5 or elsewhere, so long as such Bank is a Defaulting Bank; provided, however, that in the case of any vote requiring the unanimous consent of the Banks, if all the Banks other than the Defaulting Bank shall have voted in accordance with each other, then the Defaulting Bank shall be deemed to have voted in accordance with such Banks. 5. Each of the Lead Agent and any one or more of the Banks which are not Defaulting Banks may, at their respective option, (i) advance to the Borrower such Bank's pro rata share of the Loans not advanced by a Defaulting Bank in accordance with the Loan Documents, or (ii) pay to the Lead Agent such Bank's pro rata share of any costs, expenses or disbursements incurred or made by the Lead Agent pursuant to the terms of this Agreement not theretofore paid by a Defaulting Bank. Immediately upon the making of any such advance by the Lead Agent or any one of the Banks, such Bank's pro rata share and the pro rata share of the Defaulting Bank shall be recalculated to reflect such advance. All payments, repayments and other disbursements of funds by the Lead Agent to Banks shall thereupon and, at all times thereafter be made in accordance with such Bank's recalculated pro rata share unless and until a Defaulting Bank shall fully cure all defaults on the part of such Defaulting Bank under the Loan Documents or otherwise 102 existing in respect of the Loans or this Agreement, at which time the pro rata share of the Bank(s) which advanced sums on behalf of the Defaulting Bank and of the Defaulting Bank shall be restored to their original percentages. 103 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ERP OPERATING LIMITED PARTNERSHIP By: Equity Residential Properties Trust By: ________________________ Name: Title: Facsimile number: Address: Two North Riverside Plaza Suite 400 Chicago, Illinois 60606 Attn: Chief Financial Officer Commitments - - ----------- $125,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ______________________________ Name: Timothy O'Donovan Title: Vice President $125,000,000 BANK OF AMERICA ILLINOIS By: ______________________________ Name: Title: Total Commitments - - ----------------- $250,000,000 BANK OF AMERICA ILLINOIS, as Co-Lead Agent By: ___________________________ Name: Title: Bank of America Illinois Commercial Real Estate Services Group 231 South LaSalle Street Chicago, Illinois 60607 Attention: Andrew Hensel Telecopy: (312) 974-4970 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Lead Agent By: ___________________________ Name: Timothy O'Donovan Title: Vice President c/o J.P. Morgan Services Inc. 500 Stanton Christiana Road Newark, DE 19713-2107 Attention: Nancy K. Dunbar Telecopy: (302) 634-4222 Domestic and Euro-Currency Lending Office: c/o J.P. Morgan Services Inc. 500 Stanton Christiana Road Newark, DE 19713-2107- Attention: Kevin M. McCann Telecopy: (302) 634-1852/1872 SCHEDULE 4.6 ------------ Borrower and EQR ERISA Plans The employees of EQR and the Borrower may currently participate in a 401(k) Plan. Other benefits include: Health care plan, dental care, life insurance and accidental death and dismemberment plan, travel/accident insurance, short-term disability, long- term disability, sick time, vacation time, personal days, holidays and direct paycheck deposit. SCHEDULE 5.13(c)(1) ------------------- None SCHEDULE 5.13(c)(2) ------------------- None EXHIBIT A NOTE New York, New York _________ __, 1996 For value received, ERP OPERATING LIMITED PARTNERSHIP, an Illinois partnership (the "Borrower"), promises to pay to the order of ____________ (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement). The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in, and is delivered pursuant to and subject to all of the terms of, the Revolving Credit Agreement dated as of November 15, 1996 among the Borrower, the banks listed on the signature pages thereof, Bank of America Illinois, as Co-Lead Agent and Morgan Guaranty Trust Company of New York, as Lead Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. ERP OPERATING LIMITED PARTNERSHIP By: Equity Residential Properties Trust By: -------------------------- Name: Title: A-2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - - ------------------------------------------------------------------------ Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made By - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- A-3 EXHIBIT B Form of Money Market Quote Request ---------------------------------- [Date] To: Morgan Guaranty Trust Company of New York (the "Lead Agent") From: ERP Operating Limited Partnership Re: Revolving Credit Agreement (the "Credit Agreement") dated as of November 15, 1996 among ERP Operating Limited Partnership, the Banks parties thereto, the Lead Agent and Bank of America Illinois, as Co- Lead Agent We hereby give notice pursuant to Section 2.3 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: ---------------------- Principal Amount* Interest Period** - - ---------------- --------------- $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] - - --------------------- * Amount must be $(MINIMUM BORROWING) or a larger multiple of $(MINIMUM BORROWING INCREMENT). ** Not less than 14 days (LIBOR Auction) or not less than 14 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Terms used herein have the meanings assigned to them in the Credit Agreement. (NAME OF BORROWER) By -------------------------- Name: Title: B-2 EXHIBIT C Form of Invitation for Money Market Quotes ------------------------------------------ To: [Name of Bank] Re: Invitation for Money Market Quotes to ERP Operating Limited Partnership (the "Borrower") Pursuant to Section 2.3 of the Revolving Credit Agreement dated as of November 15, 1996 among ERP Operating Limited Partnership, the Banks parties thereto, the undersigned, as Lead Agent, and Bank of America Illinois, as Co- Lead Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: ------------------ Principal Amount Interest Period - - ---------------- --------------- $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By ---------------------- Authorized Officer EXHIBIT D Form of Money Market Quote -------------------------- To: Morgan Guaranty Trust Company of New York, as Agent Re: Money Market Quote to ERP Operating Limited Partnership (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: _____________________________ 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] - - -------- --------- --------------------------------- $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Revolving Credit Agreement dated as of November 15, 1996 among ERP Operating Limited Partnership, the Banks parties thereto, Bank of America Illinois, as Co-Lead Agent, and yourselves, as Lead Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated: By: ---------------- ------------------------- Authorized Officer - - ---------- * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $3,000,000 or a larger multiple of $100,000. *** Not less than 14 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). D-2 EXHIBIT E ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- TRANSFER SUPPLEMENT (this "Transfer Supplement") dated as of _________, 199_ between ______________________ (the "Assignor") and _________________ having an address at ______________ (the "Purchasing Bank"). W I T N E S S E T H: -------------------- WHEREAS, the Assignor has made loans to ERP Operating Limited Partnership, an Illinois limited partnership (the "Borrower"), pursuant to the Revolving Credit Agreement, dated as of November 15, 1996 (as the same may be amended, supplemented or otherwise modified through the date hereof, the "Credit Agreement"), among the Borrower, the banks party thereto, Morgan Guaranty Trust Company of New York, as Lead Agent, and Bank of America Illinois, as Co-Lead Agent. All capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement; WHEREAS, the Purchasing Bank desires to purchase and assume from the Assignor, and the Assignor desires to sell and assign to the Purchasing Bank, certain rights, title, interest and obligations under the Credit Agreement; NOW, THEREFORE, IT IS AGREED: 1. In consideration of the amount set forth in the receipt (the "Receipt") given by Assignor to Purchasing Bank of even date herewith, and transferred by wire to Assignor, the Assignor hereby assigns and sells, without recourse, representation or warranty except as specifically set forth herein, to the Purchasing Bank, and the Purchasing Bank hereby purchases and assumes from the Assignor, a __% interest (the "Purchased Interest") of the Loans constituting a portion of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below) including, without limitation, such percentage interest of the Assignor in any Loans owing to the Assignor, any Note held by the Assignor, any Loan Commitment of the Assignor and any other interest of the Assignor under any of the Loan Documents. 2. The Assignor (i) represents and warrants that as of the date hereof the aggregate outstanding principal amount of its share of the Loans owing to it (without giving effect to assignments thereof which have not yet become effective) is $_________; (ii) represents and warrants that it is the legal and beneficial owner of the interests being assigned by it hereunder and that such interests are free and clear of any adverse claim; (iii) represents and warrants that it has not received any notice of Default or Event of Default from the Borrower; (iv) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations (or the truthfulness or accuracy thereof) made in or in connection with the Credit Agreement, or the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, or the other Loan Documents or any other instrument or document furnished pursuant thereto; and (v) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or the other Loan Documents or any other instrument or document furnished pursuant thereto. Except as specifically set forth in this Paragraph 2, this assignment shall be without recourse to Assignor. 3. The Purchasing Bank (i) confirms that it has received a copy of the Credit Agreement, and the other Loan Documents, together with such financial statements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Transfer Supplement and to become a party to the Credit Agreement, and has not relied on any statements made by Assignor or Skadden, Arps, Slate, Meagher & Flom LLP; (ii) agrees that it will, independently and without reliance upon any of the Lead Agent, the Co-Lead Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower and will make its own credit analysis, appraisals and decisions in taking or not taking action under the Credit Agreement, and the other Loan Documents; (iii) appoints and authorizes the Lead Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement, and the other Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are incidental thereto; (iv) agrees that it will be bound by and perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; (v) specifies as its address for notices and lending office, the office set forth beneath its name on the signature page hereof; (vi) it has full power and authority to execute and deliver, and perform under, E-2 this Transfer Supplement, and all necessary corporate and/or partnership action has been taken to authorize, and all approvals and consents have been obtained for, the execution, delivery and performance thereof; (vii) this Transfer Supplement constitutes its legal, valid and binding obligation enforceable in accordance with its terms; and (viii) the interest being assigned hereunder is being acquired by it for its own account, for investment purposes only and not with a view to the public distribution thereof and without any present intention of its resale in either case that would be in violation of applicable securities laws. 4. This Transfer Supplement shall be effective on the date (the "Effective Date") on which all of the following have occurred (i) it shall have been executed and delivered by the parties hereto, (ii) copies hereof shall have been delivered to the Lead Agent and the Borrower, and (iii) the Purchasing Bank shall have paid to the Assignor the agreed purchase price as set forth in the Receipt. 5. On and after the Effective Date, (i) the Purchasing Bank shall be a party to the Credit Agreement and, to the extent provided in this Transfer Supplement, have the rights and obligations of a Bank thereunder and be entitled to the benefits and rights of the Banks thereunder and (ii) the Assignor shall, to the extent provided in this Transfer Supplement as to the Purchased Interest, relinquish its rights and be released from its obligations under the Credit Agreement. 6. From and after the Effective Date, the Assignor shall cause the Lead Agent to make all payments under the Credit Agreement, and the Notes in respect of the Purchased Interest assigned hereby (including, without limitation, all payments of principal, fees and interest with respect thereto and any amounts accrued but not paid prior to such date) to the Purchasing Bank. 7. This Transfer Supplement may be executed in any number of counterparts which, when taken together, shall be deemed to constitute one and the same instrument. 8. Assignor hereby represents and warrants to Purchasing Bank that it has made all payments demanded to date by Morgan Guaranty Trust Company of New York ("Morgan") as Lead Agent in connection with the Assignor's pro rata share of the obligation to reimburse the Agent for its expenses. In the event Morgan, as Lead Agent, shall demand reimbursement for fees and expenses from Purchasing Bank for any period prior to the Effective Date, Assignor hereby agrees to promptly pay Morgan, as Lead Agent, such sums directly, subject, however, to Paragraph 12 hereof. E-3 9. Assignor will, at the cost of Assignor, and without expense to Purchasing Bank, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, assignments, notices of assignments, transfers and assurances as Purchasing Bank shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring and confirming unto Purchasing Bank the property and rights hereby given, granted, bargained, sold, aliened, enfeoffed, conveyed, confirmed, assigned and/or intended now or hereafter so to be, on which Assignor may be or may hereafter become bound to convey or assign to Purchasing Bank, or for carrying out the intention or facilitating the performance of the terms of this Agreement or for filing, registering or recording this Agreement. 10. The parties agree that no broker or finder was instrumental in bringing about this transaction. Each party shall indemnify, defend the other and hold the other free and harmless from and against any damages, costs or expenses (including, but not limited to, reasonable attorneys' fees and disbursements) suffered by such party arising from claims by any broker or finder that such broker or finder has dealt with said party in connection with this transaction. 11. Subject to the provisions of Paragraph 12 hereof, if, with respect to the Purchased Interest only, Assignor shall on or after the Effective Date receive (a) any cash, note, securities, property, obligations or other consideration in respect of or relating to the Loan or the Loan Documents or issued in substitution or replacement of the Loan or the Loan Documents, (b) any cash or non-cash consideration in any form whatsoever distributed, paid or issued in any bankruptcy proceeding in connection with the Loan or the Loan Documents or (c) any other distribution (whether by means of repayment, redemption, realization of security or otherwise), Assignor shall accept the same as Purchasing Bank's agent and hold the same in trust on behalf of and for the benefit of Purchasing Bank, and shall deliver the same forthwith to Purchasing Bank in the same form received, with the endorsement (without recourse) of Assignor when necessary or appropriate. If the Assignor shall fail to deliver any funds received by it within the same Business Day of receipt, unless such funds are received by Assignor after 4:00 p.m., Eastern Standard Time, then the following business day after receipt, said funds shall accrue interest at the federal funds interest rate and in addition to promptly remitting said amount, Assignor shall remit such interest from the date received to the date such amount is remitted to the Purchasing Bank. 12. Assignor and Purchasing Bank each hereby agree to indemnify and hold harmless the other, each of its directors and E-4 each of its officers in connection with any claim or cause of action based on any matter or claim based on the acts of either while acting as a Bank under the Credit Agreement. Promptly after receipt by the indemnified party under this Section of notice of the commencement of any action, such indemnified party shall notify the indemnifying party in writing of the commencement thereof. If any such action is brought against any indemnified party and that party notifies the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof. In no event shall the indemnified party settle or consent to a settlement of such cause of action or claim without the consent of the indemnifying party. E-5 13. THIS TRANSFER SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Wire Transfer Instructions: -------------------------- By: ---------------------- Name: Title: -------------------------- By: ---------------------- Name: Title: Receipt Acknowledged this __day of _____, 199_: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Lead Agent By: ------------------------ Name: Title: E-6 EX-10.21 3 AMENDED AND RESTATED REINBURSMENT AGREEMENT __________________________ AMENDED AND RESTATED MASTER REIMBURSEMENT AGREEMENT Dated as of November 1, 1996 by and between FEDERAL NATIONAL MORTGAGE ASSOCIATION and EQR-BOND PARTNERSHIP __________________________ TABLE OF CONTENTS PAGE ---- ARTICLE I. DEFINITIONS SECTION 1.1 General Interpretative Principles . . . . . . . . . . 3 SECTION 1.2 Defined Terms . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.3 Interpretation. . . . . . . . . . . . . . . . . . . . 29 ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 2.1 Representations and Warranties of Owner . . . . . . . 29 SECTION 2.2 Affirmative Covenants of Owner. . . . . . . . . . . . 43 SECTION 2.3 Negative Covenants of Owner . . . . . . . . . . . . . 55 SECTION 2.4 Certain Covenants With Respect to Sleepy Hollow Project . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE III. INTEREST RATE PROTECTION SECTION 3.1 Interest Rate Protection. . . . . . . . . . . . . . . 59 ARTICLE IV. FANNIE MAE REIMBURSEMENT; FEES; INDEMNIFICATION SECTION 4.1 Reimbursement Obligations Under Related Fannie Mae Collateral Agreements . . . . . . . . . . . . . . . . 63 SECTION 4.2 Fees and Expenses . . . . . . . . . . . . . . . . . . 65 SECTION 4.3 Payment of Fees and Expenses. . . . . . . . . . . . . 67 SECTION 4.4 Facility and Activity Fees. . . . . . . . . . . . . . 68 SECTION 4.5 Indemnification . . . . . . . . . . . . . . . . . . . 70 SECTION 4.6 Liability of Owner. . . . . . . . . . . . . . . . . . 72 SECTION 4.7 Fannie Mae and Servicer Not Liable. . . . . . . . . . 73 SECTION 4.8 Waivers and Consents. . . . . . . . . . . . . . . . . 73 SECTION 4.9 Subrogation . . . . . . . . . . . . . . . . . . . . . 74 SECTION 4.10 Application of Payments . . . . . . . . . . . . . . . 74 SECTION 4.11 Pledge of Rights to Certain Funds and Investments . . 74 SECTION 4.12 Purchased Bonds . . . . . . . . . . . . . . . . . . . 75 SECTION 4.13 Cash Collateral . . . . . . . . . . . . . . . . . . . 75 SECTION 4.14 Nonrecourse Obligations . . . . . . . . . . . . . . . 75 SECTION 4.15 Application for Related Fannie Mae Collateral (i) PAGE ---- Agreements. . . . . . . . . . . . . . . . . . . . . . 78 SECTION 4.16 Bond Matters. . . . . . . . . . . . . . . . . . . . . 79 ARTICLE V. SUBSTITUTION, RELEASE, AND ADDITION OF PROPERTIES; REUNDERWRITING; PRINCIPAL RESERVE FUNDS SECTION 5.1 Allocable Facility Amount . . . . . . . . . . . . . . 79 SECTION 5.2 Substitution of Additional Mortgaged Properties . . . 80 SECTION 5.3 Release of Properties . . . . . . . . . . . . . . . . 81 SECTION 5.4 Addition of New Properties to the Credit Facility . . 82 SECTION 5.5 Portfolio Reunderwriting. . . . . . . . . . . . . . . 83 SECTION 5.6 Certain Permitted Transfers . . . . . . . . . . . . . 84 SECTION 5.7 Principal Reserve Fund. . . . . . . . . . . . . . . . 87 SECTION 5.8 Credit Enhancement of the Springs Colony Refunding Bond Issue . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE VI. SERVICING; REPLACEMENT OF CREDIT ENHANCEMENT SECTION 6.1 Servicing . . . . . . . . . . . . . . . . . . . . . . 92 SECTION 6.2 Replacement of Fannie Mae Credit Enhancement. . . . . 93 ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES SECTION 7.1 Events of Default . . . . . . . . . . . . . . . . . . 94 SECTION 7.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . 99 ARTICLE VIII. MISCELLANEOUS SECTION 8.1 Waivers, Amendments . . . . . . . . . . . . . . . . . 102 SECTION 8.2 Survival of Representations and Warranties. . . . . . 102 SECTION 8.3 Notices . . . . . . . . . . . . . . . . . . . . . . . 102 SECTION 8.4 Payment Procedure . . . . . . . . . . . . . . . . . . 104 SECTION 8.5 Continuing Obligation . . . . . . . . . . . . . . . . 104 SECTION 8.6 Satisfaction Requirement. . . . . . . . . . . . . . . 105 SECTION 8.7 Consent of Fannie Mae . . . . . . . . . . . . . . . . 105 SECTION 8.8 Governing Law . . . . . . . . . . . . . . . . . . . . 105 SECTION 8.9 Jurisdiction, Consent to Service. . . . . . . . . . . 105 (ii) PAGE ---- SECTION 8.10 Waivers of Jury Trial . . . . . . . . . . . . . . . . 106 SECTION 8.11 Counterparts. . . . . . . . . . . . . . . . . . . . . 106 SECTION 8.12 Severability. . . . . . . . . . . . . . . . . . . . . 107 SECTION 8.13 Business Days . . . . . . . . . . . . . . . . . . . . 107 SECTION 8.14 Entire Agreement. . . . . . . . . . . . . . . . . . . 107 SECTION 8.15 Headings. . . . . . . . . . . . . . . . . . . . . . . 107 SECTION 8.16 Further Assurances and Corrective Instruments . . . . 107 SECTION 8.17 Assignment; Transfers; Third-Party Rights . . . . . . 108 SECTION 8.18 Waiver of Claims. . . . . . . . . . . . . . . . . . . 108 SECTION 8.19 Disclaimer; Acknowledgements. . . . . . . . . . . . . 108 SECTION 8.20 Conflicts Between Agreements. . . . . . . . . . . . . 108 SECTION 8.21 Acknowledgment and Agreement of Nominee Corps. to Joint and Several Liability . . . . . . . . . . . . . 109 SECTION 8.22 No Novation . . . . . . . . . . . . . . . . . . . . . 111 EXHIBIT A BOND PROPERTIES; ISSUERS EXHIBIT B ADDITIONAL MORTGAGED PROPERTIES EXHIBIT C SCHEDULE OF TRANSACTION DOCUMENTS EXHIBIT D PERMITTED LIENS EXHIBIT E FORM OF INTEREST RATE HEDGE SECURITY AGREEMENT EXHIBIT F FORM OF NEW PROPERTY CONFIRMATION EXHIBIT G FORM OF RENT ROLL EXHIBIT H SCHEDULE OF MANAGEMENT AGREEMENTS SCHEDULE 2.1(f) SCHEDULE OF LITIGATION SCHEDULE 2.1(o) SCHEDULE OF ENVIRONMENTAL REPORTS SCHEDULE 2.1(y) SCHEDULE OF CERTAIN DISCLOSURES PURSUANT TO SECTION 2.1(Y) SCHEDULE 2.1(z) SCHEDULE OF STRUCTURAL AND MATERIAL DEFECTS SCHEDULE 2.1(aa) SCHEDULE OF CONTRACTUAL DEFAULTS SCHEDULE 2.1(am) SCHEDULE OF CONTRACTS WITH AFFILIATES (iii) AMENDED AND RESTATED MASTER REIMBURSEMENT AGREEMENT THIS AMENDED AND RESTATED MASTER REIMBURSEMENT AGREEMENT is made and entered into as of this 1st day of November, 1996, by and between FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FANNIE MAE"), a corporation duly organized and existing under the Federal National Mortgage Association Charter Act, 12 U.S.C. Section 1716 et. seq., and EQR-BOND PARTNERSHIP ("OWNER"), a general partnership duly organized and existing under the laws of Georgia. The meanings of initially capitalized terms used herein and not defined are set forth in section 1.2. RECITALS WHEREAS, Owner owns each of the eight (8) multifamily housing projects described in Exhibit A, Section 1 (the "EXISTING BOND PROPERTIES"); WHEREAS, as contemplated in that certain Master Reimbursement Agreement dated as of August 1, 1996 by and between Owner and Fannie Mae, as the same has been amended by that certain First Amendment to Master Reimbursement Agreement, dated as of November 27, 1996, by and between Owner and Fannie Mae (such Master Reimbursement Agreement as so amended, the "EXISTING REIMBURSEMENT AGREEMENT"), Fannie Mae has provided credit enhancement and liquidity support for each issue of Related Bonds with respect to the Existing Bond Properties, pursuant to the terms of the Related Fannie Mae Collateral Agreements with respect to such Existing Bond Properties; WHEREAS, concurrently herewith Owner is acquiring the multifamily residential housing project described in Exhibit A, Section 2 (the "ADDITIONAL BOND PROPERTY"), which Additional Bond Property is financed by an existing issue of tax-exempt housing bonds (the "EXISTING BOND ISSUE") in accordance with a certain existing trust indenture (the "EXISTING INDENTURE"); WHEREAS, the Existing Bond Issue is supported by a first priority mortgage, deed of trust or deed to secure debt (the "EXISTING SECURITY INSTRUMENT") and mortgage note secured thereby (the "EXISTING MORTGAGE NOTE"); WHEREAS, the Issuer with respect to the Additional Bond Property has received a request from Owner to issue new bonds under the Related Act in order to refinance such Additional Bond Property by the current refunding of the Existing Bond Issue with respect to such Additional Bond Property; WHEREAS, the Issuer with respect to the Additional Bond Property has determined that the issuance of the Related Bonds and the application of the proceeds thereof to fund the Mortgage Loan relating thereto will promote and serve the intended 1 purposes of, and in all respects will conform to the provisions and requirements of, the Related Act; WHEREAS, in order to provide funding for the Mortgage Loan with respect to the Additional Bond Property, and in that way assist in the refinancing of such Additional Bond Property, the Issuer with respect to the Additional Bond Property is issuing and selling the Related Bonds and depositing the proceeds of the Related Bonds with the Related Trustee, to be used to fund the Mortgage Loan with respect to such Additional Bond Property; WHEREAS, each Mortgage Loan will be (a) made in accordance with the requirements of Fannie Mae and the Issuer, (b) evidenced by the Related Mortgage Note, (c) secured by the Related Bond Mortgage, and (d) otherwise secured by the other Related Bond Documents; WHEREAS, with respect to the Additional Bond Property, the Related Mortgage Note, the Related Bond Mortgage and certain other Related Bond Documents will be executed by Owner in favor of the Issuer with respect to such Additional Bond Property and immediately following the origination of such Mortgage Loans, the Issuer with respect to such Additional Bond Property will, pursuant to an Assignment, assign the Mortgage Loan, the Related Mortgage Note and the Related Bond Mortgage, together with certain other collateral, to the Related Trustee and Fannie Mae as their interests may appear; WHEREAS, as contemplated in the Existing Reimbursement Agreement, Fannie Mae has agreed to provide credit enhancement and liquidity support for the Related Bonds with respect to the Additional Bond Property, pursuant to and in accordance with the terms of the Related Fannie Mae Collateral Agreement with respect to such Additional Bond Property; WHEREAS, in consideration of Fannie Mae entering into the Related Fannie Mae Collateral Agreements with respect to the Additional Bond Property and in order to further evidence and secure Owner's obligations to Fannie Mae, Owner has agreed, among other things: (i) to renew the obligations evidenced by the Existing Reimbursement Agreement by amending, restating and consolidating the Existing Reimbursement Agreement so as to constitute one Master Reimbursement Agreement with respect to the Existing Bond Properties and the Additional Bond Property, (ii) to grant Fannie Mae second priority mortgages, deeds to secure debt and deeds of trust on the Additional Bond Property, (iii) pay certain fees to Fannie Mae and Servicer, and (iv) to reimburse Fannie Mae for amounts advanced to the Related Trustees pursuant to the Related Fannie Mae Collateral Agreements or otherwise advanced in accordance with this Agreement and the other Transaction Documents; and 2 WHEREAS, it is a condition to the execution and delivery of the Related Fannie Mae Collateral Agreements with respect to the Additional Bond Property by Fannie Mae that Owner enter into this Agreement. NOW THEREFORE, in consideration of the mutual covenants and undertakings set forth herein, the payment of certain fees to Fannie Mae, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Fannie Mae and Owner, the parties hereto agree that the Existing Reimbursement Agreement is hereby amended, restated and consolidated in its entirety so as to constitute one Master Reimbursement Agreement as follows: ARTICLE I. DEFINITIONS SECTION 1.1 GENERAL INTERPRETATIVE PRINCIPLES. --------------------------------- For purposes of this Agreement, except as otherwise provided or unless the context otherwise requires: (a) the terms defined in section 1.2 have the meanings assigned to them in section 1.2 and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; (b) accounting terms relating to financial statements prepared in accordance with GAAP and not otherwise defined herein have the meanings assigned to them in accordance with GAAP, otherwise such terms shall have the meanings ascribed to them in accordance with Owner's modified cash basis accounting consistently applied; (c) references herein to "sections," "subsections," "paragraphs" and other subdivisions without reference to a document are to designated sections, subsections, paragraphs and other subdivisions of this Agreement; (d) a reference to a subsection without further reference to a section is a reference to such subsection as contained in the same section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions; (e) a reference to an Exhibit or a Schedule without a further reference to the document to which the Exhibit or Schedule is attached is a reference to an Exhibit or Schedule to this Agreement; (f) unless otherwise provided herein, a reference to Fannie Mae forms, guides, memos, updates or announcements shall mean such Fannie Mae forms, guides, memos, updates or announcements as the same exist on the date hereof and as such Fannie 3 Mae forms, guides, memos, updates or announcements may be amended, supplemented, otherwise modified, superseded or replaced from time to time; (g) the words "attorneys' fees and expenses," "legal fees and expenses," "attorneys' fees and costs," "attorneys' fees and court costs," and other words of similar import are deemed to include any actual costs and expenses incurred by Fannie Mae's in-house counsel (unless otherwise expressly limited where used); (h) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; (i) the word "including" means "including, but not limited to"; and (j) references to "knowledge" of any EQR Party shall mean the actual knowledge of (i) those persons principally involved in the negotiation, implementation and administration of this Agreement and the transactions contemplated hereunder, including David Neithercut, Bruce Strohm, and Lori Shelstad, (ii) all senior officers of each EQR Party, including any officer holding the position of, or position equivalent to, Chairman, President, Senior Vice President, Executive Vice President, Chief Financial Officer, Chief Accounting Officer, Secretary or Treasurer, (iii) the attorneys who are part of any EQR Party's in-house legal staff, and (iv) with respect to any particular factual matter, the employees of any EQR Party with significant responsibility for such factual matter and the employees and officers to whom such employees report, including, by way of example only, (A) with respect to a representation or warranty relating to the physical condition of a Property, the Property Manager for such Property (but not maintenance or other personnel reporting to the Property Manager, unless such other personnel would be included by virtue of any of clauses (i) through (iii) of this subsection 1.1(j)) and the employees and officers to whom such Property Manager reports, and (B) with respect to a representation or warranty relating an environmental condition of a Property, the environmental officer or other individual employed by an EQR Party who is responsible for overseeing, evaluating or advising senior management with respect to environmental matters similar to the relevant environmental condition, and the employees and officers to whom such environmental officer or other individual reports. SECTION 1.2 DEFINED TERMS. ------------- For all purposes of this Agreement, the following terms shall have the respective meanings set forth below: "ACTIVITY FEE" shall have the meaning given that term in section 4.4(b). 4 "ACTIVITY RATE" means the prime rate of interest as reported from day to day in The Wall Street Journal as the base rate on corporate loans posted by at least seventy-five percent (75%) of the nation's thirty (30) largest banks plus two percent (2%) per annum. The Activity Rate will be the rate reported on the applicable publication date as determined above, notwithstanding the fact that such reported rate shall be the prime rate for the preceding business day. If such rate is no longer available, then the Activity Rate shall mean the average base rate or prime rate of interest of any three "Money Center" banks designated by Fannie Mae, in its discretion, plus two percent (2%) per annum. "ADDITIONAL BOND PROPERTY" shall have the meaning given that term in the recitals to this Agreement. "ADDITIONAL MORTGAGED PROPERTIES" means the real properties, together with the improvements and fixtures located thereon, described in Exhibit B. "Additional Mortgaged Properties" shall also include each New Additional Property from and after the date of its addition to the Fannie Mae Credit Facility, and shall exclude each Released Property (which prior to such substitution or release, as applicable, was an Additional Mortgaged Property), from and after the date of such substitution or release. "ADDITIONAL MORTGAGED PROPERTY" means any one of the foregoing, individually. "ADVANCE" means the payment, or deemed payment pursuant to the Related Fannie Mae Collateral Agreement of any monies, from the cash flow or the redemption of mortgages pledged by Fannie Mae or otherwise, by Fannie Mae to a Related Trustee pursuant to the terms of a Related Fannie Mae Collateral Agreement. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, partnership interests or by contract or otherwise. "AGGREGATE DEBT SERVICE COVERAGE RATIO" means, at any time, the ratio of (a) the aggregate of the Net Operating Income for the applicable period for all of the Properties, to (b) the aggregate scheduled debt service due on all of the Mortgage Loans for the applicable period, assuming that the scheduled debt service due on each Mortgage Loan is equal to interest at the Underwriting Rate, plus all payments required to be made to the Principal Reserve Fund during the applicable period; provided, however, that if the Pass-Through Rate (as such term is defined in the Related Mortgage Notes) on the Mortgage Loans has been converted to a Fixed Rate which is to remain in effect until maturity of the Mortgage Loans, then the assumed scheduled debt service shall be equal to interest at such actual Fixed Rate with respect to each such Mortgage Loan plus amounts payable at the "Set Rate" set forth in each Related Mortgage Note plus all payments required to be made 5 to the Principal Reserve Fund during the applicable period. As of the Restatement Closing Date, Fannie Mae has calculated that the Aggregate Debt Service Coverage Ratio for the 12 month period ending on July 1, 1996 is equal to or greater than 1.65:1. "AGGREGATE FACILITY AMOUNT" means at any time the total amount of all Facility Amounts. "AGREEMENT" means this Amended and Restated Master Reimbursement Agreement, as amended, supplemented, or otherwise modified or amended and restated from time to time in accordance with its terms. "ALLOCABLE FACILITY AMOUNT" means the portion of the Aggregate Facility Amount allocated to a particular Property by Fannie Mae in accordance with this Agreement. "ALLOCATED RELEASE PRICE CASH COLLATERAL" means, with respect to each Bond Property, the portion of the aggregate amount of all Release Price Cash Collateral allocable to such Bond Property, as determined by Owner at the time the Release Price Cash Collateral is paid by Owner to Fannie Mae, or, if Owner does not timely make such a determination, on a pro rata basis, as reasonably determined by Fannie Mae. "ALTERATIONS" shall mean the meaning given to such term in section 2.2(o). "ALTERNATE CREDIT FACILITY", with respect to particular Related Bonds, shall have the meaning given that term in the Related Indenture. "ALTERNATIVE HEDGE SHORTFALL COLLATERAL" shall have the meaning given that term in section 3.1(e). "APPLICABLE LAW" means (a) all applicable provisions of all constitutions, statutes, rules, regulations and orders of all governmental bodies, all Governmental Approvals and all applicable orders, judgments and decrees of all courts and arbitrators, (b) all zoning, building, environmental and other laws, ordinances, rules, regulations and restrictions of any Governmental Authority affecting the ownership, management, use, operation, maintenance or repair of any Property, including the Americans with Disabilities Act (if applicable), the Fair Housing Amendment Act of 1988 and Hazardous Materials Laws, (c) any building permits or any conditions, easements, rights-of-way, covenants, restrictions of record or any recorded agreement (other than the Transaction Documents) affecting or concerning any Property including planned development permits, condominium declarations, and reciprocal easement and regulatory agreements with any Governmental Authority, (d) all laws, ordinances, rules and regulations, whether in the form of rent control, rent stabilization or otherwise, that limit or impose conditions on the amount of rent that may be collected from the units of any Property, and (e) all terms of any insurance policy that Owner is required to maintain under the Mortgages, all requirements of the issuers of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters 6 (or any body exercising similar functions) applicable to or affecting the operation or use of any Property or the consummation of the transactions to be effected by this Agreement or any of the other Transaction Documents. "ASSIGNMENT" means, individually, any Assignment of Mortgage (or Deed to Secure Debt or Deed of Trust, as the case may be) and Other Loan Documents with respect to a Bond Property by an Issuer (or in the case of the Silverwood Apartments Bond Property, by the Related Trustee) to the Related Trustee and Fannie Mae as their interests may appear, as such Assignment may be amended, supplemented or otherwise modified or amended and restated from time to time in accordance with its terms. "ASSIGNMENTS" means every such Assignment, collectively. "BOND DOCUMENTS" means, collectively, the Related Bond Documents for all Bond Properties, and "BOND DOCUMENT" means any one of the foregoing, individually. "BOND FEES" shall have the meaning given that term in section 4.3(a). "BONDHOLDERS" with respect to any Related Bonds shall have the meaning given that term in the Related Indenture. "BOND MORTGAGE" means the first priority Security Instrument on each Bond Property securing the obligations of Owner (and with respect to the Additional Bond Property, of Manchester Nominee Corp.) under and with respect to the Related Mortgage Note and the related Mortgage Loan, and "BOND MORTGAGES" means every such Bond Mortgage, collectively. "BOND PROPERTIES" means the real properties, together with the improvements and fixtures located thereon, described in Exhibit A. "Bond Properties" shall also include each New Bond Property from and after the date of its addition to the Fannie Mae Credit Facility, and shall exclude each Released Property (which prior to its substitution or release, as applicable, was a Bond Property), from and after the date of such substitution or release. "BOND PROPERTY" means any one of the foregoing, individually. "BOND PROPERTY LOAN DOCUMENT" means, with respect to a Mortgage Loan, any of the documents, agreements or instruments granting, evidencing or securing such Mortgage Loan, including the Related Mortgage Note, the Related Mortgages, the title policy, UCC fixture filings and UCC financing statements (in each case relating to such Mortgage Loan) and the Assignment with respect to such Mortgage Loan, as each such document, agreement or instrument may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its respective terms, and "BOND PROPERTY LOAN DOCUMENTS" means every such Bond Property Loan Document with respect to such Mortgage Loan, collectively. 7 "BONDS" means, collectively, the Related Bonds for all Bond Properties. "BOND TRANSACTION CLOSING DATE" with respect to a particular Related Bonds, means the date such Related Bonds are initially issued and paid for. "BUSINESS DAY" means any day, other than (a) a Saturday or a Sunday, (b) any day on which banking institutions located in the City of New York, New York or the city in which the principal office of Servicer is located are required or authorized by law to close, (c) a day on which The New York Stock Exchange is closed, or (d) any day on which Fannie Mae is closed. "CAP" means an interest rate cap, and includes an interest rate cap which has its first "calculation period" commencing on the last day of a Reset Period which commences on or after the date such cap was obtained (i.e. a "future" cap). "CASH COLLATERAL" shall have the meaning given to the term "Collateral" in the Cash Management Agreement. "CASH MANAGEMENT AGREEMENT" means, with respect to all Properties, that certain Cash Management, Security, Pledge and Assignment Agreement dated as of August 1, 1996, among Owner, Fannie Mae and Servicer, as such agreement may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms. "CASUALTY", with respect to any Property, means any damage to, or destruction or loss of, all or any portion of the Property, whether by fire or other cause. "CENTRAL ACCOUNT" means, the Central Account identified in the Cash Management Agreement. "CODE" means the Internal Revenue Code of 1954, as amended (the "1954 CODE") and the Internal Revenue Code of 1986, (the "1986 CODE"), in each case to the extent made applicable to matters relating to the Bonds and or the Properties by Section 1313(a) of the Tax Reform Act of 1986, and with respect to a specific section thereof such reference shall be deemed to include (a) the applicable regulations promulgated or proposed under such section or any previous corresponding section, (b) any successor provision of similar import hereafter enacted, (c) any corresponding provision of any subsequent Internal Revenue Code and (d) the applicable regulations promulgated or proposed under the provisions described in (b) and (c). "COLLATERAL" means all cash, Government Obligations, assets and property, real and personal (including the Bond Properties, the Additional Mortgaged Properties, the Property Accounts, the Central Account, the Cash Collateral, Release Price Cash Collateral, the Replacement Reserve Accounts and all funds contained in such accounts, the Hedges and 8 Hedge Documents, and cash and any investments in the Principal Reserve Funds), pledged by Owner pursuant to any Bond Document or any Mortgage Document or any other Transaction Document and the Proceeds thereof. "CONDEMNATION", with respect to any Property, means (a) any action or proceeding for the taking of the Property, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other similar manner or (b) the conveyancing of any Property under the threat or contemplation of any action or proceeding described in clause (a). "CONDEMNATION PROCEEDS" means the proceeds of any Condemnation. "CONTINGENT OBLIGATION" as to any Person (the "GUARANTEEING PERSON"), means any obligation (a) of the guaranteeing person or (b) of another Person (including any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case, guaranteeing or in effect guaranteeing any indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including (without double counting) any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation of any guaranteeing person shall be deemed to be the lesser of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Contingent Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Contingent Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by Owner in good faith. "CONTROLLED GROUP" means all members of a group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Owner, are treated as a single employer under Section 414 of the Code. 9 "COUNTERPARTY" shall have the meaning given to such term in section 3.1(d). "CREDIT ENHANCEMENT COMPONENT" means, with respect to each issue of Related Bonds that is part of the Fannie Mae Credit Facility as of the date hereof, .60% per annum or 60 basis points; provided, however, that the Credit Enhancement Component with respect to each issue of Related Bonds that is part of the Fannie Mae Credit Facility as of the date hereof, shall be subject to adjustment in accordance with section 5.8(d). With respect to each New Bond Property added to the Fannie Mae Credit Facility pursuant to section 5.4, the Credit Enhancement Component shall be the amount set forth in the New Property Confirmation with respect to such New Bond Property. "CUSTODIAL ACCOUNT" shall have the meaning given that term in section 3.1(g). "DETERMINATION DATE" shall have the meaning given that term in section 5.1. "DUS GUIDE" means the Fannie Mae Multifamily Delegated Underwriting and Servicing (DUS) Guide, as such DUS Guide may be amended, supplemented or otherwise modified from time to time, including by Lender Memos, Guide Updates and Guide Announcements (all references to Parts, Chapters, Sections and other subdivisions of the DUS Guide shall be deemed references to (a) the Parts, Chapters, Sections and other subdivisions in effect on the Restatement Closing Date and (b) any successor provisions to such Parts, Chapters, Sections and other subdivision). "ENVIRONMENTAL CLAIM" means any notice of violation, claim, demand, abatement, order or other order or direction (conditional or otherwise) by any person or entity for any damage, including personal injury (including sickness, disease or death), tangible or intangible property damage, contribution, indemnity, indirect or consequential damages, damage to the environment, pollution, contamination or other adverse effects on the environment, removal, cleanup or remedial action or for fines, penalties or restrictions, resulting from or based upon (a) the existence or occurrence, or the alleged existence or occurrence, of a Hazardous Substance Activity or (b) the violation, or alleged violation, of any Hazardous Materials Laws in connection with any Property. "ENVIRONMENTAL REPORTS" means any Phase I environmental report meeting the requirements of the DUS Guide, and any additional environmental report delivered to Servicer or Fannie Mae with respect to any Property. "EQR" means Equity Residential Properties Trust, a Maryland real estate investment trust. "EQR PARTY" means any of Owner, QRS Partner, Ravens Crest Nominee Corp., Manchester Nominee Corp., OP Partner or EQR, and "EQR PARTIES" means all such Persons, collectively. 10 "ERISA" means the Employee Retirement Income Security Act of 1974 as amended from time to time. "EVENT OF DEFAULT" shall have the meaning given that term in section 7.1. "EXISTING BOND ISSUES" shall have the meaning given that term in the recitals to this Agreement. "EXISTING BOND PROPERTIES" shall have the meaning given that term in the recitals to this Agreement. "EXISTING INDENTURE" and "EXISTING INDENTURES" shall have the respective meanings given such terms in the recitals to this Agreement. "EXISTING MORTGAGE NOTE" shall have the meaning given such term in the recitals to this Agreement. "EXISTING REIMBURSEMENT AGREEMENT" shall have the meaning given that term in the recitals to this Agreement. "EXISTING SECURITY INSTRUMENT" shall have the meaning given such term in the recitals to this Agreement. "FACILITY", with respect to particular Related Bonds, means the facility for credit enhancement of such Related Bonds by Fannie Mae and the Liquidity Commitment (as defined in the Related Fannie Mae Collateral Agreement) provided by Fannie Mae, subject and pursuant to the Related Fannie Mae Collateral Agreement. "FACILITY AMOUNT", with respect to particular Related Bonds, means the aggregate principal amount of such Related Bonds then outstanding. "FACILITY FEE" shall have the meaning set forth in section 4.4(a). "FANNIE MAE CREDIT FACILITY" means the credit enhancement and liquidity support of the Bonds provided by Fannie Mae subject and pursuant to the Related Fannie Mae Collateral Agreements. "FANNIE MAE FACILITY CLOSING DATE" means September 30, 1996. "FANNIE MAE TITLE COMMITMENTS" means, the marked-up title insurance commitments or pro-forma title policies insuring the lien of the Reimbursement Mortgage with respect to each Property listed on Exhibit D. 11 "FINANCING AGREEMENT", with respect to an issue of Related Bonds, shall have the meaning given that term in the Related Bond Indenture and "FINANCING AGREEMENTS" means every such Financing Agreement, collectively. "FINANCING LEASE" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee or to be otherwise disclosed as such in a note to such balance sheet. "FIXED RATE", with respect to particular Related Bonds, shall have the meaning given that term in the Related Indenture. "GAAP" means generally accepted accounting principles in effect in the United States from time to time. "GOVERNMENT OBLIGATIONS", with respect to particular Related Bonds, shall have the meaning given that term in the Related Indenture. "GOVERNMENTAL ACTION" means any pending or, to the actual knowledge of Owner, threatened suit, proceeding, order, or governmental inquiry or opinion involving any Property that alleges the violation of any Hazardous Materials Law. "GOVERNMENTAL APPROVAL" means an authorization, permit, consent, approval, license, registration or exemption from registration or filing with, or report to, any Governmental Authority. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GROSS CASH FLOW" means, for any period, with respect to any of the Properties, all gross rents collected from or on behalf of tenants at such Property (other than unforfeited tenant security deposits), any other income, receipts or withdrawals from reserves (but only to the extent such reserves were included as Operating Expenses at the times they were set aside) derived from such Property (including from the use or operation thereof) without regard to its source, including tenant reimbursements for utilities, services and supplies, security deposit forfeitures, parking rents or fees, concessions and vending fees and laundry income and proceeds from rental interruption insurance, but excluding Insurance Proceeds (other than proceeds from rental interruption insurance), Condemnation Proceeds, proceeds from the sale of the Related Bonds, if any, unearned portions of prepaid rent, other refundable items, interest on any account established for the deposit of refundable items, and proceeds from the sale or other disposition of all or any portion of a Property. 12 "HAZARDOUS MATERIALS" means petroleum and petroleum products, flammable explosives, radioactive materials (excluding radioactive materials in smoke detectors), polychlorinated biphenyls, lead, asbestos in any form that is or could become friable, hazardous waste, toxic or hazardous substances or other related materials whether in the form of a chemical, element, compound, solution, mixture or otherwise and shall also include those materials defined as "hazardous substances," "extremely hazardous substances," "hazardous chemicals," "hazardous materials," "toxic substances," "solid waste," "toxic chemicals," "air pollutants," "toxic pollutants," "hazardous wastes," "extremely hazardous waste," or "restricted hazardous waste" by Hazardous Materials Law or regulated by Hazardous Materials Law in any manner whatsoever. "HAZARDOUS MATERIALS LAW" means all federal, state, and local laws, ordinances and regulations and standards, rules, policies and other binding governmental requirements and any court judgments applicable to Owner or any Property relating to industrial hygiene or to environmental or unsafe conditions or to human health, including those relating to the generation, manufacture, storage, handling, transportation, disposal, release, emission or discharge of Hazardous Materials, those in connection with the construction, fuel supply, power generation and transmission, waste disposal or any other operations or processes relating to any Property, and those relating to the atmosphere, soil, surface and ground water, wetlands, stream sediments and vegetation on, under, in or about any Property. "HAZARDOUS SUBSTANCE ACTIVITY" means any storage, holding, existence, release, spill, leaking, pumping, pouring, injection, escaping, deposit, disposal, dispersal, leaching, migration, use, treatment, emission, discharge, generation, processing, abatement, removal, disposition, handling or transportation of any Hazardous Materials from, under, into or on any Property in violation of Hazardous Materials Laws, including the discharge of any Hazardous Materials emanating from any Property in violation of Hazardous Materials Laws through the air, soil, surface water, groundwater or property and also including the abandonment or disposal of any barrels, containers and other receptacles containing any Hazardous Materials from or on any Property in violation of Hazardous Materials Laws, in each case whether sudden or nonsudden, accidental or nonaccidental. "HEDGE" means a Swap or a Cap. "HEDGE DOCUMENTS" means the documents evidencing and governing a Hedge. "HEDGE PERIOD" shall have the meaning given that term in section 3.1(b). "HEDGE RATE", with respect to particular Related Bonds, means 5.70% per annum. "HEDGE SECURITY AGREEMENT" means, with respect to each Hedge, an Interest Rate Hedge Security Agreement between Owner and Fannie Mae and substantially in the form of Exhibit E (subject to modifications approved by Fannie Mae), as such agreement may be amended, supplemented, otherwise modified or amended and restated from time to time 13 in accordance with its terms, and "HEDGE SECURITY AGREEMENTS" means every Hedge Security Agreement, collectively. "HEDGE SHORTFALL CASH COLLATERAL" means either (i) a letter of credit in form and substance and provided by a financial institution satisfactory to Fannie Mae in its discretion or (ii) cash collateral deposited with Fannie Mae or its designee and otherwise held in a manner approved by Fannie Mae in its discretion. "IMPOSITIONS" means, with respect to any Property, all real estate and personal property taxes, water, sewer and vault charges and all other taxes, levies, assessments, common charges and other similar charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of every kind and nature whatsoever, which at any time prior to, at or after the execution of this Agreement may be assessed, levied or imposed by, in each case, a Governmental Authority or any other Person upon such Property or the rents or the ownership, use, occupancy or enjoyment thereof, and any interest, costs or penalties with respect to any of the foregoing; but excluding all documentary stamp, recording, transfer, mortgage, intangible or filing or other similar taxes or fees. "INDEBTEDNESS" of any Person at any date means, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Financing Leases, (d) all obligations of such person in respect of acceptances issued or created for the account of such Person, (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, and (f) all Contingent Obligations; "Indebtedness," however, shall exclude endorser liability on checks endorsed in the ordinary course of such Person's business. "INDEPENDENT DIRECTOR" shall mean a director of a Person who is not at the time of appointment and has not been at any time during the preceding five (5) years and does not become subsequently: (i) a member, partner, director, stockholder, officer or employee of such Person or any Affiliate of such Person; (ii) a creditor, supplier, independent contractor, manager, or any other person who derives more than 25% of its gross revenues from its activities with such Person or any Affiliate of such Person; (iii) a person controlling any such partner, stockholder, creditor, supplier, independent contractor, manager, or any other person; (iv) the legal or beneficial owner, at any time while serving as a director, of any beneficial interest in such Person or any Affiliate of such Person; or (v) a member of the immediate family of any such stockholder, partner, officer, employee, creditor, supplier, director, independent contractor, manager, or any other person of such Person or any Affiliate of such Person. Notwithstanding anything to the contrary set forth above, an Independent Director may be a partner of any outside law firm who is engaged in the practice of law on a full-time basis. 14 "INITIAL HEDGE PERIOD" shall have the meaning given that term in section 3.1(b). "INITIAL RESET PERIOD" shall have the meaning given that term in section 3.1(a). "INSURANCE PROCEEDS" means, with respect to any Property, all insurance proceeds, damages, claims and rights of action and the right thereto under any insurance policies with respect to a Casualty insuring and relating to any portion of such Property. "INTEREST ACCOUNT", with respect to particular Related Bonds, shall have the meaning given that term in the Related Indenture, and "Interest Accounts" shall mean every such Interest Account, collectively. "INTEREST RESERVE REQUIREMENT", with respect to particular Related Bonds, shall have the meaning given that term in the Related Indenture. "ISSUER" means the issuer with respect to an issue of Related Bonds, and "Issuers" means every such Issuer, collectively. As of the date hereof, the Issuer with respect to each Bond Property is listed on Exhibit A. "ISSUER DEFAULT" shall have the meaning given that term in section 7.2(c). "LEASE" means any lease, any sublease or subsublease, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Property, and every modification, amendment or other agreement relating to such lease, sublease, subsublease or other agreement entered into in connection with such lease, sublease, subsublease or other agreement, and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. "LIABILITIES" shall have the meaning set forth in section 4.5(a). "LIEN" means any mortgage, deed of trust, deed to secure debt, charge (whether fixed or floating), pledge, lien, encumbrance, assignment, hypothecation, security interest, conditional sale, capital lease or other title retention, preferential right, trust arrangement or any other encumbrance, security agreement or arrangement securing any obligation of any Person. "MANCHESTER NOMINEE AGREEMENT" means that certain Nominee Agreement dated as of August 1, 1996 between Owner, as principal, and Manchester Nominee Corp., as agent. "MANCHESTER NOMINEE CORP." means EQR-Manchester Hill Vistas, Inc., an Illinois corporation, the legal title holder of the Bond Property, commonly known as Wellington Hill Apartments. 15 "MANCHESTER ORGANIZATIONAL DOCUMENTS" shall have the meaning given such term in section 2.1(a). "MANAGER" means Equity Residential Properties Management Limited Partnership, an Illinois limited partnership. "MANAGEMENT AGREEMENTS" means the Property Management Agreements between Owner (or in the case of a Nominee Property, the respective Nominee Corp.) and Manager identified on Exhibit H hereto. "MATERIAL ADVERSE EFFECT" means any circumstance, act, condition or event of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, or circumstance or circumstances, whether or not related, that could reasonably be expected to have a material adverse change in or a materially adverse effect upon the business, operations, property or condition (financial or otherwise) of any Person. "MATERIAL ADVERSE IMPACT" means any circumstance, act, condition or event of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, or circumstance or circumstances, whether or not related, that could reasonably be expected to have a material adverse change in or a materially adverse effect upon any of: (a) the value, financial condition, operations, property or business of any Property; (b) Fannie Mae's ability to have recourse against any Property; (c) the rights and remedies of Fannie Mae under any Transaction Documents or under this Agreement or the present or future ability of Owner to perform the Obligations; or (d) the validity, priority, perfection or enforceability of any Related Mortgage, this Agreement or any other Transaction Document or the rights or remedies of Fannie Mae under any Transaction Document. "MAXIMUM RATE", with respect to an issue of Related Bonds, shall have the meaning given that term in the Related Indenture. "MINIMUM SUBSTITUTE PROPERTY VALUE" means, with respect to each Released Property, the Allocable Facility Amount for such Released Property divided by .618. "MODE" with respect to each Mortgage Loan, shall have the meaning given that term in the Related Indenture. "MOODY'S INVESTORS SERVICE" means Moody's Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, and its successors and assigns, if such successors and assigns shall continue to perform the functions of a securities rating agency. 16 "MORTGAGE" means any Bond Mortgage and any Reimbursement Mortgage, individually, and "MORTGAGES" means every such Mortgage, collectively. "Mortgage" shall include any Security Instrument in favor of Fannie Mae or a Related Trustee on any New Property from and after the date of its addition to the Fannie Mae Credit Facility, and shall exclude any Mortgage on a Released Property released from the lien of such Mortgage, from and after the date of release. "MORTGAGE DOCUMENTS" means, collectively, the Bond Property Loan Documents for all of the Bond Properties and the Reimbursement Loan Documents. "MORTGAGE LOAN", with respect to an issue of Related Bonds, shall have the meaning given that term in the Related Indenture, and "MORTGAGE LOANS" shall mean every such Mortgage Loan, collectively. "MORTGAGE NOTE RATE", with respect to a Related Mortgage Note, shall have the meaning assigned to such term in such Related Mortgage Note. "MORTGAGE RIGHTS" shall have the meaning given such term in the Related Fannie Mae Collateral Agreement. "MULTIFAMILY RESIDENTIAL PROPERTY" means a residential property containing five or more dwelling units in which not more than twenty percent (20%) of the net rentable area is or will be rented to non-residential tenants. "NET OPERATING INCOME" means, for any period, with respect to any of the Properties, the amount, if any, without duplication, by which the Gross Cash Flow for such Property during such period exceeds the Operating Expenses for such Property during such period. "NEW ADDITIONAL PROPERTY" means a Multifamily Residential Property substituted for an Additional Mortgaged Property pursuant to section 5.2 or otherwise added to the Fannie Mae Credit Facility by Owner as Collateral for the Obligations. "NEW BOND PROPERTY" means a Multifamily Residential Property added to the Fannie Mae Credit Facility in connection with Fannie Mae's issuance of a new Related Fannie Mae Collateral Agreement. "NEW PROPERTY" means a New Additional Property or a New Bond Property. "NEW PROPERTY CONFIRMATION" shall have the meaning given that term in section 5.4. "NOMINEE AGREEMENT" means either the Manchester Nominee Agreement or the Ravens Crest Nominee Agreement individually, and "NOMINEE AGREEMENTS" means every such Nominee Agreement, collectively. 17 "NOMINEE CORP." means either Manchester Nominee Corp. or Ravens Crest Nominee Corp. individually, and "NOMINEE CORPS." means every such Nominee Corp., collectively. "NOMINEE CORP. ORGANIZATIONAL DOCUMENTS" means the Manchester Organizational Documents and the Ravens Crest Organizational Documents, collectively. "NOMINEE PROPERTY" means either of (i) that certain Bond Property located in Manchester, Hillsborough County, New Hampshire and commonly known as Wellington Hill Apartments, or (ii) that certain Additional Mortgaged Property located in Plainsboro, Middlesex County, New Jersey and commonly known as Ravens Crest Apartments, and "Nominee Properties" means every such Nominee Property, collectively. "OBLIGATIONS" means the obligations of Owner (i) to pay principal, interest and fees (including the Pass-Through Rate and the Set Rate, each as defined in the Related Mortgage Notes) and any other amounts on the Mortgage Loans when due and payable, (ii) to pay all other amounts payable under the Transaction Documents, (iii) to make all required deposits into the Principal Reserve Funds, Interest Accounts, the Replacement Reserve Accounts, the Central Account, the Property Accounts, the Custodial Accounts and any and all other loan funds, escrow funds, revenue funds, debt service funds, reserve funds, redemption funds or other funds or accounts required to be maintained under the Transaction Documents, (iv) to reimburse Fannie Mae and Servicer for all Advances and for all other sums advanced and costs and expenses incurred by Fannie Mae and Servicer in accordance with the terms of this Agreement or any other Transaction Document, (v) to pay all other amounts payable under the Transaction Documents, and (vi) to observe and perform each of the terms, conditions and provisions of this Agreement and the other Transaction Documents. "OFFICIAL STATEMENT" means the Official Statement or any reoffering or remarketing circular approved by Owner and issued in connection with the issuance or remarketing of an issue of Related Bonds, as such statement may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms, and "OFFICIAL STATEMENTS" means every such Official Statement, collectively. "OPERATING EXPENSES" means, for any period, with respect to any of the Properties, the aggregate of all direct, ordinary, normal, recurring and necessary expenses thereof including, without duplication, (a) Impositions, (b) property and liability insurance premiums, (c) wages, salaries and benefits of personnel employed on site to manage, lease, maintain and operate such Property, (d) costs or expenses of utility services to such Property and tenant spaces to the extent payable by Owner, (e) costs or expenses of providing security services to such Property, if any, (f) costs or expenses of in-house or outside service arrangements for landscaping, janitorial, window washing and cleaning, trash, debris, make ready units, cable and satellite television and other services, (g) expenses of maintaining, repairing and cleaning the grounds, parking, amenities, exterior and interior spaces of such Property, (h) expenses of repairing and maintaining in good operable condition the 18 mechanical, structural, electrical, elevator, heating, ventilating, air conditioning and plumbing systems, (i) property management fees payable to parties other than Owner (and specifically including management fees paid to any Affiliate of Owner), (j) administrative expenses including advertising incurred at the site of such Property, (k) legal fees associated with lease documentation and tenant matters and legal, accounting and other professional fees relating to the operation of the Properties, (l) (for all purposes hereunder other than the calculation of Value) the replacement and repair amount with respect to such Property (based on historical costs), (m) costs for water and sewage fees, and (n) any other property operation items that are not treated as capitalized expenses under GAAP. All of the foregoing (including Impositions) shall be computed on an accrual basis and in accordance with customary real estate management accounting principles consistently applied. During any period the Properties are managed by an Affiliate of Owner, Operating Expenses shall also include an amount equal to the difference, if any, by which management fees paid by owners of similar properties in the same geographic location exceed management fees then payable by Owner. In addition, for all purposes Operating Expenses shall exclude (i) payments on the Obligations and any other interest payments or principal payments on any Indebtedness (including payments into the Principal Reserve Funds), (ii) depreciation and amortization, (iii) all legal, accounting and professional fees not included in clause (k) above, and (iv) items that would be treated as capital expenses under GAAP consistently applied and calculated in accordance with Fannie Mae Form 4254. "OP GUARANTY" means that certain Payment Guaranty dated as of August 1, 1996, executed by OP Partner for the benefit of Fannie Mae. "OP ORGANIZATIONAL DOCUMENTS" shall have the meaning set forth in section 2.1(a). "OP PARTNER" means ERP Operating Limited Partnership, an Illinois limited partnership. "OP PARTNERSHIP AGREEMENT" shall have the meaning set forth in section 2.1(a). "OP PARTNERSHIP CERTIFICATE" shall have the meaning set forth in section 2.1(a). "OWNER" means EQR-Bond Partnership, a Georgia general partnership. "OWNER PARTNERSHIP AGREEMENT" shall have the meaning set forth in section 2.1(a). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITS" means all permits, or similar licenses or approvals issued and/or required by an applicable Governmental Authority or any Applicable Law in connection with the ownership, use, occupancy, leasing, management, operation, repair, maintenance or rehabilitation of any Property or Owner's business. 19 "PERMITTED LIENS" means, with respect to each Property, (i) exceptions to title (other than notes or other informational items set forth therein) contained in the Fannie Mae Title Commitments or insured over in a manner approved by Fannie Mae in its discretion; (ii) Liens created by, or permitted by, the applicable Mortgage Documents and the Bond Documents with respect to such Property; (iii) Liens created by the Leases with respect to such Property (including those permitted under Paragraphs 4 and 16 of the Related Mortgages); (iv) easements, rights-of-way, restrictions on use of real property and other similar Liens incurred or entered into in the ordinary course of business which, in the aggregate, are not substantial in amount and individually do not materially detract from the Value of any Property subject thereto or materially interfere with the operation and use of, or the ordinary conduct of the business on, such Property; and (v) Liens approved by Fannie Mae. "PERSON" means an individual, an estate, a trust, a corporation, a partnership, a limited liability company or any other organization or entity (whether governmental or private). "PLAN" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other agreement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "POTENTIAL EVENT OF DEFAULT" means any of the events specified in section 7.1 which with the passage of time or giving of notice or both would constitute an Event of Default. "PREPAYMENT PREMIUM", with respect to a Bond Property, shall have the meaning given such term in the Related Mortgage Note. "PRINCIPAL RESERVE FUND" with respect to any Bond Property shall have the meaning given that term in the Related Indenture, and "PRINCIPAL RESERVE FUNDS" shall mean every such Principal Reserve Fund, collectively. "PROCEEDS" mean all "proceeds" as such term is defined in Section 9- 306(1) of the UCC and, in any event, shall include all interest, dividends or other earnings, income or distributions from or in respect of, or from or in respect of investments or reinvestments of, the Property Accounts, the Central Account or the Cash Collateral, all collections and distributions with respect to the Mortgage Loans and all other proceeds of Collateral. "PROHIBITED ACTIVITIES OR CONDITIONS", with respect to a particular Mortgage, shall have the meaning given that term in such Mortgage. 20 "PROPERTY" means any of the Bond Properties or any of the Additional Mortgaged Properties, individually. "PROPERTIES" means every such Bond Property and Additional Mortgaged Property, collectively. "PROPERTY ACCOUNT" means, with respect to each Property, the Property Account corresponding to such Property as identified in the Cash Management Agreement, and "PROPERTY ACCOUNTS" means every such Property Account, collectively. "PROPOSED TRANSFER" shall have the meaning given that term in section 5.6(a). "PROPOSED TRANSFEREE" shall have the meaning given that term in section 5.6(a). "QRS ARTICLES OF INCORPORATION" shall have the meaning set forth in section 2.1(a). "QRS ORGANIZATIONAL DOCUMENTS" shall have the meaning set forth in section 2.1(a). "QRS PARTNER" means QRS-Bond, Inc., an Illinois corporation. "RATING AGENCIES" means Standard & Poor's and Moody's Investors Service, their successors in interest, or any other nationally recognized rating agency reasonably acceptable to Fannie Mae. "RAVENS CREST NOMINEE AGREEMENT" means that certain Nominee Agreement dated as of August 1, 1996 between Owner, as principal, and Ravens Crest Nominee Corp., as agent. "RAVENS CREST NOMINEE CORP." means EQR-Ravens Crest Vistas, Inc., an Illinois corporation, the legal title holder of the Additional Mortgaged Property commonly known as Ravens Crest Apartments. "RAVENS CREST ORGANIZATIONAL DOCUMENTS" shall have the meaning given such term in section 2.1(a). "REFUNDING COMMITMENT TERMINATION DATE" shall have the meaning given that term in section 5.8(b). "REGULATORY AGREEMENT", with respect to each Bond Property, shall have the meaning given such term in the Related Indenture, and "REGULATORY AGREEMENTS" means every such Regulatory Agreement, collectively. "REIMBURSEMENT LOAN DOCUMENTS" means, collectively, the Reimbursement Mortgages and each of the other documents, agreements and instruments granting, evidencing or perfecting security interests granted in connection with the obligations secured by the Reimbursement Mortgages, including the Hedge Security Agreements, the Cash 21 Management Agreement, the OP Guaranty, the Replacement Reserve Agreements, the Assignment of Management Agreement, title policies, UCC fixture filings and UCC financing statements, as each such document, agreement or instrument may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its respective terms, and "REIMBURSEMENT LOAN DOCUMENT" means any one of the foregoing, individually. "REIMBURSEMENT MORTGAGES" means, collectively, the first priority Security Instruments on each of the Additional Mortgaged Properties securing the obligations of Owner (and, if applicable, a Nominee Corp.) under all of the Related Mortgage Notes and under this Agreement, and the second priority Security Instruments on each of the Bond Properties securing the obligations of Owner (and, if applicable, a Nominee Corp.) under all of the Related Mortgage Notes, other than the Related Mortgage Note evidencing the Mortgage Loan secured by the first priority Mortgage on such Bond Property, and under this Agreement, and "REIMBURSEMENT MORTGAGE" means any one of the foregoing, individually. "RELATED ACT", with respect to particular Related Bonds, shall have the meaning given to the term "Act" in the Related Indenture. "RELATED BOND DOCUMENTS" means, with respect to particular Related Bonds, the Related Bonds, the Related Indenture, the Related Fannie Mae Collateral Agreement, the Regulatory Agreement (and any other agreement relating to rental restrictions on the applicable Bond Property), the Related Pledge Agreement, the Financing Agreement, a Tax Certificate (or other applicable agreement relating to arbitrage in connection with the proceeds of such Related Bonds) and all other documents, instruments and agreements executed and delivered by or on behalf of any EQR Party or by which any EQR Party is bound and delivered in connection with the issuance, sale, delivery and/or remarketing of the Related Bonds, as each such agreement or instrument may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms. "RELATED BOND MORTGAGE" with respect to a particular Bond Property, means the first priority Bond Mortgage encumbering such Bond Property and securing the Related Mortgage Note. "RELATED BONDS" means, with respect to a particular Bond Property, the tax-exempt multifamily revenue bonds issued pursuant to the Related Indenture. "RELATED FANNIE MAE COLLATERAL AGREEMENT" means, with respect to a particular Bond Property, the Collateral Agreement between Fannie Mae and the Related Trustee pursuant to which Fannie Mae has agreed to provide credit enhancement and liquidity support for the Related Bonds, as such Related Fannie Mae Collateral Agreement may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms, and "RELATED FANNIE MAE COLLATERAL AGREEMENTS" means every such Related Fannie Mae Collateral Agreement, collectively. 22 "RELATED INDENTURE" means, with respect to an issue of Related Bonds, the indenture of trust between an Issuer and a Related Trustee pursuant to which such Related Bonds were issued, as such Related Indenture may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms, and "RELATED INDENTURES" means every such Related Indenture, collectively. "RELATED MORTGAGE" means (a) with respect to a particular Bond Property, the Related Bond Mortgage and the Related Second Mortgage, collectively, encumbering such Bond Property, and (b) with respect to a particular Additional Mortgaged Property, the Reimbursement Mortgage encumbering such Additional Mortgaged Property. "RELATED MORTGAGE NOTE" means, with respect to a Bond Property, the Multifamily Note (together with all addenda thereto) executed by Owner (and with respect to the Additional Bond Property, by Manchester Nominee Corp.) in favor of an Issuer and secured by, among other things, a Related Bond Mortgage on such Bond Property, as such Related Mortgage Note may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms, and "RELATED MORTGAGE NOTES" means every such Related Mortgage Note, collectively. "RELATED PLEDGE AGREEMENT", with respect to particular Related Bonds, shall have the meaning given to the term "Pledge Agreement" in the Related Indenture. "RELATED PURCHASED BOND", with respect to each issue of Related Bonds, shall have the meaning given the term "Purchased Bond" in the Related Indenture, and "RELATED PURCHASED BONDS" means every such Related Purchased Bond, collectively. "RELATED REMARKETING AGREEMENT", with respect to particular Related Bonds, shall have the meaning given to the term "Remarketing Agreement" in the Related Indenture. "RELATED SECOND MORTGAGE", with respect to a particular Bond Property, means the second priority Reimbursement Mortgage encumbering such Bond Property. "RELATED TRUSTEE" with respect to an issue of Related Bonds, means the entity designated as the "Trustee" under the Related Indenture, and "RELATED TRUSTEES" means every such Related Trustee, collectively. "RELEASE PRICE CASH COLLATERAL" shall have the meaning given that term in section 5.3(a). "RELEASED PROPERTY" means a Property released or proposed to be released from the lien of a Mortgage pursuant to section 5.2 or section 5.3. "REMARKETING AGENT", with respect to particular Related Bonds, shall have the meaning given such term in the Related Indenture. 23 "REMARKETING PERIOD" shall have the meaning given that term in section 7.1(p). "RENT ROLL" shall have the meaning given that term in section 2.1(r). "RENTS AND PROFITS" with respect to any Property, shall have the meaning given that term in section 4.14. "REPLACEMENT RESERVE ACCOUNT", with respect to a particular Property, means the replacement reserve account established pursuant to the Replacement Reserve Agreement relating to such Property, and "REPLACEMENT RESERVE ACCOUNTS" shall mean every such Replacement Reserve Account, collectively. "REPLACEMENT RESERVE AGREEMENT" means each Replacement Reserve and Security Agreement between Owner and Fannie Mae relating to a Property and Owner's obligation to fund certain replacement reserve accounts, as such agreement may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms, and "REPLACEMENT RESERVE AGREEMENTS" means every such Replacement Reserve Agreement, collectively. "RESERVE COMPONENT" means, with respect to each issue of Related Bonds that is part of the Fannie Mae Credit Facility as of the date hereof, .30% per annum, or 30 basis points, and with respect to each issue of Related Bonds with respect to each New Bond Property added to the Fannie Mae Credit Facility pursuant to section 5.4, the Reserve Component shall be the amount set forth in the New Property Confirmation with respect to such New Bond Property. "RESET PERIOD", with respect to particular Related Bonds, shall have the meaning given such term in the Related Indenture. "RESTATEMENT CLOSING DATE" means December 11, 1996. "REUNDERWRITING" shall have the meaning given to such term in section 5.5. "REUNDERWRITING DSC TESTPOINT" initially, means 1.85:1; provided, however, that such Reunderwriting DSC Testpoint shall be subject to adjustment in accordance with section 5.8(d). "REUNDERWRITING LTV TESTPOINT" initially, means sixty-one and eight- tenths of one percent (61.8%); provided, however, that such Reunderwriting LTV Testpoint shall be subject to adjustment in accordance with section 5.8(d). "RESET RATE", with respect to particular Related Bonds, shall have the meaning given such term in the Related Indenture. 24 "SECURITY INSTRUMENT" means a written instrument creating a valid lien on a Property either in favor of or held by Fannie Mae and/or a Related Trustee, as such instrument may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms. A Security Instrument may be in the form of a mortgage, deed of trust, deed to secure debt or security deed. "SERVICER" means the independent contractor engaged to service the Mortgage Loans, the Bond Property Loan Documents and the Reimbursement Documents for Fannie Mae and any replacements or successors engaged by Fannie Mae; provided, however, that nothing set forth in this definition shall limit the provisions of section 6.1. The initial Servicer pursuant to a written contract with Fannie Mae is Washington Capital DUS, Inc. "SERVICING FEE COMPONENT" means 0.1% per annum or 10 basis points initially; provided, however, that in the event a successor servicer is appointed to service the Mortgage Loans, the Servicing Fee Component shall be adjusted (subject to section 6.1) to the amount agreed upon among Fannie Mae and such successor servicer, but in any event such amount shall not be greater than .125% or 12.5 basis points. "SERVICING AGREEMENT" means any agreement with respect to the servicing of the Mortgage Loans, the Bond Property Loan Documents and the Reimbursement Documents between Fannie Mae and an independent contractor, if any, designated from time to time by Fannie Mae as the Servicer of the Mortgage Loans, the Bond Property Loan Documents and the Reimbursement Documents, as each such agreement may be amended, supplemented, otherwise modified or amended and restated from time to time in accordance with its terms; provided that the Servicing Agreement may be a Fannie Mae guide or announcement made applicable to the Mortgage Loans by an agreement between Fannie Mae and the Servicer. "SHORTFALL HEDGE" shall have the meaning given that term in section 3.1(e). "SINGLE-PURPOSE" means, with respect to a Person, that such Person at all times since its formation: (i) has been a duly formed and existing partnership or corporation, as the case may be; (ii) has been duly qualified in each jurisdiction in which such qualification was at such time necessary for the conduct of its business; (iii) has complied with the provisions of its organizational documents and the laws of its jurisdiction of formation in all material respects; (iv) has observed all customary formalities regarding its partnership or corporate existence, as the case may be; (v) has accurately maintained its financial statements, accounting records and other partnership or corporate documents separate from those of any other Person subject to appropriate consolidation (for accounting purposes) with those of other Affiliates in accordance with GAAP (provided, however, that all consolidated financial statements prepared with respect to any Affiliate of Owner will include footnote references to indicate that the Properties are owned by a partnership the equity interests in which are owned in part by a wholly-owned subsidiary of EQR and in part by OP Partner); (vi) has not commingled its assets or funds with those of any other Person; (vii) has 25 accurately maintained its own bank accounts, payroll and books and accounts separate from those of any other Person; (viii) has paid its own liabilities from its own separate assets; (ix) has identified itself in all dealings with the public under its own name (which may include the word "Equity") and as a separate and distinct entity; (x) has not identified itself as being a division or a part of any other Person; (xi) has not identified any other Person as being a division or a part of such Person; (xii) has been adequately capitalized in light of its contemplated business operations; (xiii) has not assumed, guaranteed or become obligated for the liabilities of any other Person (except in connection with the endorsement of negotiable instruments in the ordinary course of business) or held out its credit as being available to satisfy the obligations of any other Person, except as otherwise permitted herein and so long as such other Person is not an Affiliate of such Single-Purpose Person; (xiv) has not made loans or advances to (or pledged its assets for) any other Person (except loans, advances or pledges expressly permitted hereunder and made in the ordinary course of business, and provided that payments collected in arrears shall not by virtue of such fact alone be considered loans); (xv) has not entered into and was not a party to any transaction with any Affiliate of such Person, except in the ordinary course of business and on terms which are no less favorable to such Person than would be obtained in a comparable arm's-length transaction with an unrelated third party, except as identified on Schedule 2.1(am).B; (xvi) has conducted its own business in its own name; (xvii) has paid the salaries of its own employees, if any, and maintained a sufficient number of employees in light of its contemplated business operations; (xviii) has allocated fairly and reasonably any overhead for shared office space; (xix) has used stationery, invoices and checks separate from those of any other Person; (xx) has not engaged in a non-exempt prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code; (xxi) has not acquired obligations or securities of its partners or Affiliates (provided, however, that QRS Partner shall not fail to qualify as a Single-Purpose entity because of its ownership of general partnership interests in Owner); and (xxii) has corrected any known misunderstanding regarding its separate identity. Notwithstanding the foregoing, Owner shall not fail to be a Single-Purpose entity solely because of (a) business dealings with Manager that are conducted in accordance with the terms of the Management Agreements, or (b) distributions it may make to its constituent partners. "SLEEPY HOLLOW PUBLIC IMPROVEMENTS DEED OF TRUST" means that certain Second Deed of Trust executed by Sleepy Hollow Associates, L.P. a Kansas limited partnership, to Heather Brown, as Trustee, for the benefit of the City of Kansas City, Missouri, dated March 12, 1987 and filed April 8, 1987 as Document No. K-767723 in Book K-1661 at Page 1694 of the land records of Jackson County, Missouri, and securing an original amount of $291,000.00. "SLEEPY HOLLOW PUBLIC IMPROVEMENTS AGREEMENT" means that certain Cooperative Agreement for Public Improvements, by and between Sleepy Hollow Associates, L.P. a Kansas limited partnership and the City of Kansas City, Missouri, filed April 8, 1987 as Document No. K-767720 in Book K-1661 at page 1670 of the land records of Jackson County, Missouri. 26 "SPRINGS COLONY CREDIT ENHANCEMENT" shall have the meaning given that term in section 5.8(a). "SPRINGS COLONY ISSUER" means the Florida Housing Finance Agency. "SPRINGS COLONY PROJECT" means that certain Multifamily Residential Property located in Altamonte Springs, Seminole County, Florida and commonly known as Springs Colony Apartments. "SPRINGS COLONY REFUNDING BONDS" means an issue of tax-exempt housing finance bonds issued by the Springs Colony Issuer in order to refinance (by repurchase and a subsequent remarketing pursuant to an amended and restated trust indenture and related bond documents) or refund (by the issuance of new refunding bonds) certain existing housing finance bonds with respect to the Springs Colony Project. "SPRINGS COLONY REFUNDING DOCUMENTS" shall have the meaning given that term in section 5.8(b). "SPRINGS COLONY REFUNDING MORTGAGE LOAN" shall have the meaning given such term in section 5.8(b). "SPRINGS COLONY REFUNDING TRANSACTION" means the tax-exempt bond issue and mortgage loan transaction to be credit enhanced by Fannie Mae's Springs Colony Credit Enhancement as contemplated in section 5.8. "STANDARD & POOR'S" means Standard & Poor's, a division of The McGraw Hill Companies, Inc. and its successors and assigns if such successors and assigns shall continue to perform the functions of a securities rating agency. "SUBSIDIARY" means, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. "SUBSTITUTION PERCENTAGE" shall have the meaning given that term in section 5.2(a). "SWAP" means an interest rate swap, and includes an interest rate swap which has its first "calculation period" commencing on the last day of a Reset Period which commences on or after the date such swap was obtained (i.e. a "future" swap). 27 "TAX CERTIFICATE" (i) with respect to the Related Bonds for that certain Bond Property located in Manchester, Hillsborough County, New Hampshire and commonly known as Wellington Hill Apartments, shall have the meaning given to the term or "Tax Certificate of the Borrower" in the Related Indenture, and (ii) with respect each other issue of Related Bonds, shall have the meaning given to the term "Tax Certificate", and "TAX CERTIFICATES" means every such Tax Certificate, collectively. "TAXES" shall have the meaning given that term in section 2.2(u). "TENDER AGENT", with respect to particular Related Bonds, shall have the meaning given that term in the Related Indenture. "TENDERED BONDS" with respect to a Related Indenture shall have the meaning given that term in such Related Indenture. "TERMINATION DATE" shall have the meaning given that term in the Related Fannie Mae Collateral Agreement. "TERMINATION PAYMENTS" shall have the meaning given that term in section 3.1(i). "TRANSACTION DOCUMENTS" means, collectively, the Bond Documents, the Mortgage Documents, this Agreement, the Cash Management Agreement, the OP Guaranty, the Hedge Documents and all other agreements, instruments or documents executed by or on behalf of any EQR Party or by which any EQR Party is bound and delivered in connection with the Bonds, the Mortgage Loans, this Agreement or the transactions contemplated thereby or hereby, including those listed in Exhibit C, and "TRANSACTION DOCUMENT" means any one of the foregoing, individually. "UCC" or "UNIFORM COMMERCIAL CODE", with respect to a Property, means the Uniform Commercial Code as in effect in the state where such Property is located. "UNDERWRITING RATE" means 6.82%. "VALUE" means, as of any date of determination, the value attributed to any Property by Fannie Mae in accordance with the standards and procedures utilized for underwriting purposes for similar Multifamily Residential Properties in accordance with the applicable provisions of the DUS Guide as of such date of determination, it being acknowledged that, to the extent consistent with the foregoing, in evaluating the Value of a Property, Fannie Mae may take into account all factors relevant to the value of such Property including the current condition of the Property, and in evaluating the Value of a Property without an extended operating history, such Value shall be based on projections and pro forma satisfactory to Fannie Mae. 28 "WEEKLY VARIABLE RATE", with respect to particular Related Bonds, shall have the meaning given that term in the Related Indenture. "WITHDRAWAL" means, with respect to an issue of Related Bonds, a withdrawal of funds from the Principal Reserve Fund with respect to such Related Bonds in accordance with the terms of the Transaction Documents in order to either (i) reimburse Fannie Mae for an Advance or (ii) make any payment otherwise due from Owner under the Related Bond Documents (including a payment to purchase Related Purchased Bonds on behalf of Owner) other than a payment to redeem any Related Bonds. SECTION 1.3 INTERPRETATION. -------------- The parties to this Agreement acknowledge that each party and their respective counsel have participated in the drafting and revision of this Agreement and the other Transaction Documents. Accordingly, the parties agree that any rule of construction which disfavors the drafting party shall not apply in the interpretation of this Agreement and the other Transaction Documents or any statement or supplement or exhibit to this Agreement or to the other Transaction Documents. ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF OWNER. --------------------------------------- To induce Fannie Mae to enter into this Agreement and to execute and deliver the Related Fannie Mae Collateral Agreements, Owner represents and warrants to Fannie Mae as follows: (A) DUE ORGANIZATION; OWNERSHIP STRUCTURE. -------------------------------------- (i) Owner is a Single-Purpose general partnership duly organized, validly existing and in good standing under the laws of the State of Georgia pursuant to those certain Articles of General Partnership dated as of August 1, 1996 (together with all schedules, exhibits and annexes thereto, the "OWNER PARTNERSHIP AGREEMENT"). A copy of the Owner Partnership Agreement certified as true, correct and complete by a duly authorized officer of QRS Partner, has been delivered to Fannie Mae on or before the date hereof. The Owner Partnership Agreement is in full force and effect and constitutes the entire agreement of the partners thereof with respect to Owner, and has not been supplemented, amended or modified. (ii) QRS Partner and OP Partner are the sole general partners of Owner. QRS Partner is the record and beneficial owner of, and has good title to, a one percent (1%) interest in Owner, and OP Partner is the record and beneficial owner of, and has good title to, a ninety-nine percent (99%) interest in Owner, in 29 each case free and clear of all liens, security interests, options, rights of first refusal and adverse claims of title of any kind or character, and no such percentage interest is the subject of any agreement providing for the sale or transfer thereof. (iii) QRS Partner is a Single-Purpose corporation duly organized, validly existing and in good standing under the laws of the State of Illinois pursuant to those certain Articles of Incorporation dated as of August 23, 1996 and duly filed on August 26, 1996 in the office of the Secretary of State of Illinois (the "QRS ARTICLES OF INCORPORATION"). Copies of the QRS Articles of Incorporation, By-Laws and other organizational documents of QRS Partner (the "QRS ORGANIZATIONAL DOCUMENTS"), certified as true, correct and complete by a duly authorized officer of QRS Partner, have been delivered to Fannie Mae. The QRS Organizational Documents are in full force and effect and have not been supplemented, amended or modified. (iv) OP Partner is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Illinois pursuant to (x) that certain Fourth Amended and Restated Agreement of Limited Partnership dated as of September 30, 1995 (together with all schedules, exhibits and annexes thereto, the "OP PARTNERSHIP AGREEMENT"), and (y) that certain Certificate of Limited Partnership duly filed on May 13, 1993 in the office of the Secretary of State of Illinois (the "OP PARTNERSHIP CERTIFICATE"). Copies of the OP Partnership Agreement and the OP Partnership Certificate (the "OP ORGANIZATIONAL DOCUMENTS"), certified as true, correct and complete by a duly authorized officer of EQR, have been delivered to Fannie Mae. The OP Organizational Documents are in full force and effect and constitute the entire agreement of the partners thereof with respect to the organization of OP Partner, and have not been supplemented, amended or modified. (v) EQR is the sole general partner of OP Partner and is the record and beneficial owner of, and has good title to, not less than a seventy five percent (75%) interest in OP Partner, free and clear of all liens, security interests, options, rights of first refusal and adverse claims of title of any kind or character (except for any options' rights of first refusal and adverse claims arising under or pursuant to the OP Partnership Agreement), and such percentage interest is not subject to any agreement providing for the sale or transfer thereof. EQR is the sole shareholder of QRS Partner and is the record and beneficial owner of, and has good title to, a one hundred percent (100%) ownership interest in QRS Partner, free and clear of all liens, security interests, options, rights of first refusal and adverse claims of title of any kind or character, and such percentage interest is not subject to any agreement providing for the sale or transfer thereof. (vi) Manchester Nominee Corp. is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois pursuant to those certain Articles of Incorporation duly filed on March 18, 1994 in the office 30 of the Secretary of State of Illinois (the "MANCHESTER CORP. ARTICLES OF INCORPORATION"). Copies of the Manchester Corp. Articles of Incorporation, By-Laws and other organizational documents of Manchester Nominee Corp. (the "MANCHESTER CORP. ORGANIZATIONAL DOCUMENTS") certified as true, correct and complete by a duly authorized officer of QRS Partner, have been delivered to Fannie Mae. The Manchester Corp. Organizational Documents are in full force and effect and have not been otherwise supplemented, amended or modified. A copy of the Manchester Nominee Agreement certified as true, correct and complete by a duly authorized officer of QRS Partner, has been delivered to Fannie Mae on or before the date hereof. The Manchester Nominee Agreement is in full force and effect and constitutes the entire agreement of the parties thereto with respect to the Nominee Property commonly known as Wellington Hill Apartments, and has not been supplemented, amended or modified. (vii) Ravens Crest Nominee Corp. is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois pursuant to those certain Articles of Incorporation dated July 21, 1994 and duly filed on July 22, 1994 in the office of the Secretary of State of Illinois (the "RAVENS CREST ARTICLES OF INCORPORATION"). Copies of the Ravens Crest Articles of Incorporation, By-Laws and other organizational documents of Ravens Crest Nominee Corp. (the "RAVENS CREST ORGANIZATIONAL DOCUMENTS") certified as true, correct and complete by a duly authorized officer of QRS Partner, have been delivered to Fannie Mae. The Ravens Crest Organizational Documents are in full force and effect and have not been otherwise supplemented, amended or modified. A copy of the Ravens Crest Nominee Agreement certified as true, correct and complete by a duly authorized officer of QRS Partner, has been delivered to Fannie Mae on or before the date hereof. The Ravens Crest Nominee Agreement (a) is in full force and effect and constitutes the entire agreement of the parties thereto with respect to the Nominee Property commonly known as Ravens Crest Apartments, (b) has not been supplemented, amended or modified and (c) constitutes the legal, valid and binding obligation of Ravens Crest Nominee Corp. (viii) Donald Liebentritt is the sole shareholder of each Nominee Corp. and is the record and beneficial owner of, and has good title to, a one hundred percent (100%) ownership interest in each Nominee Corp., free and clear of all liens, security interests, options, rights of first refusal and adverse claims of title of any kind or character, and such percentage interest is not subject to any agreement providing for the sale or transfer thereof. (ix) Owner has duly made each state and/or local filing and registration necessary for the conduct of its business in the jurisdiction of Arizona, California, Florida, Georgia, Kansas, Illinois, Missouri, New Jersey, New Hampshire and Texas and in each other jurisdiction where the failure to make any such filing or registration would adversely affect the validity of, the enforceability of, or the 31 ability of Owner to perform the Obligations under this Agreement and the other Transaction Documents. (x) Each of QRS Partner and OP Partner is qualified to transact business and in good standing in the States of Arizona, California, Florida, Georgia, Kansas, Illinois, Missouri, New Jersey, New Hampshire and Texas, and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of Owner to perform the Obligations under this Agreement and the other Transaction Documents. EQR is qualified to transact business and is in good standing in the State of Maryland and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of Owner to perform the Obligations under this Agreement and the other Transaction Documents. (xi) Ravens Crest Nominee Corp. is qualified to transact business and in good standing in the State of New Jersey and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of Owner to perform the Obligations under this Agreement and the other Transaction Documents. (xii) Manchester Nominee Corp. is qualified to transact business and in good standing in the State of New Hampshire and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of Owner to perform the Obligations under this Agreement and the other Transaction Documents. (xiii) Owner's principal place of business, principal office and office where it keeps its books and records as to the Collateral is located at Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606. (b) POWER AND AUTHORITY. Each of Owner, QRS Partner and the Nominee Corps. has the requisite power and authority (i) to own its properties and to carry on its business as now conducted and as contemplated to be conducted in connection with the performance of its Obligations hereunder and under the other Transaction Documents and (ii) to execute and deliver this Agreement and the other Transaction Documents to which it is a party and to carry out the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party. (c) DUE AUTHORIZATION. The execution, delivery and performance of this Agreement and the other Transaction Documents have been duly authorized by all 32 necessary action and proceedings by or on behalf of each of Owner, QRS Partner and the Nominee Corps., and no further approvals or filings of any kind, including any approval of or filing with any Governmental Authority, are required by or on behalf of Owner, QRS Partner or the Nominee Corps., as a condition to the valid execution, delivery and performance by Owner, QRS Partner or the Nominee Corps. of this Agreement or any of the other Transaction Documents. (d) VALID AND BINDING OBLIGATIONS. This Agreement and the other Transaction Documents have been duly authorized, executed and delivered by each EQR Party that is a party thereto and (assuming the due authorization, execution and delivery by the other parties thereto) constitute the legal, valid and binding obligations of such EQR Party, enforceable against such EQR Party in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the enforcement of creditors' rights generally or by equitable principles or by the exercise of discretion by any Court. (e) NON-CONTRAVENTION; NO LIENS. Neither the execution and delivery of this Agreement and the other Transaction Documents to which any EQR Party is a party, nor the fulfillment of or compliance with the terms and conditions of this Agreement and the other Transaction Documents to which any EQR Party is a party, the issuance of the Bonds nor the payment of the Obligations: (i) does or will conflict with or result in any breach or violation of any Applicable Law, rule or regulation enacted or issued by any Governmental Authority or other agency having jurisdiction over Owner, QRS Partner or any Nominee Corp., any of the Properties or any other portion of the Collateral or other assets of Owner, QRS Partner or any Nominee Corp., or any judgment or order applicable to Owner, QRS Partner or any Nominee Corp. or to which Owner, QRS Partner or any Nominee Corp., any of the Properties or other assets of either Owner, QRS Partner or any Nominee Corp. are subject, which in any case could have a Material Adverse Effect or a Material Adverse Impact; (ii) does or will conflict with or result in any material breach or violation of, or constitute a default under, any of the terms, conditions or provisions of the Owner Partnership Agreement, the QRS Organizational Documents, the Nominee Corp. Organizational Documents, any indenture, existing agreement or other instrument to which Owner, QRS Partner or any Nominee Corp. is a party or to which Owner, QRS Partner or any Nominee Corp., any of the Properties or any other portion of the Collateral or other assets of Owner, QRS Partner or any Nominee Corp. are subject and which will remain in effect on or after the Restatement Closing Date; 33 (iii) does or will result in or require the creation of any Lien on all or any portion of the Collateral or any of the Properties, except for the Permitted Liens; or (iv) does or will require the consent or approval of any creditor of Owner, QRS Partner or any Nominee Corp., any Governmental Authority or any other Person except such consents or approvals which have already been obtained, which in any case could have a Material Adverse Effect or a Material Adverse Impact. (f) PENDING LITIGATION OR OTHER PROCEEDINGS. Except as set forth on Schedule 2.1(f), there is no pending or, to the best knowledge of Owner, threatened action, suit, proceeding or investigation, at law or in equity, before any court, board, body or official of any Governmental Authority or arbitrator against or affecting any Property or any other portion of the Collateral or other assets of any EQR Party, which, if decided adversely to such EQR Party, (i) would have a Material Adverse Effect on such EQR Party or would have an Material Adverse Impact, or (ii) challenges the exclusion of interest on any Related Bonds from gross income for federal income tax purposes. Owner is not in default with respect to any order of any Governmental Authority, which in any case could have a Material Adverse Effect or a Material Adverse Impact. (g) SOLVENCY. No EQR Party is insolvent or will be rendered insolvent by the transactions contemplated by this Agreement or the other Transaction Documents and after giving effect to such transactions, none of the EQR Parties will be left with an unreasonably small amount of capital with which to engage in its business or undertakings, nor will any EQR Party have incurred, have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. Owner did not receive less than a reasonably equivalent value in exchange for incurrence of the Obligations. There (i) is no contemplated, pending or, to the best of Owner's knowledge, threatened bankruptcy, reorganization, receivership, insolvency or like proceeding, whether voluntary or involuntary, affecting any EQR Party or any of the Properties and (ii) has been no assertion or exercise of jurisdiction over any EQR Party or any of the Properties by any court empowered to exercise bankruptcy powers. (h) TITLE. With respect to each Property other than the Nominee Properties, Owner has good, valid, marketable and indefeasible fee simple title in such Property, free and clear of all Liens whatsoever except the Permitted Liens. With respect to each Nominee Property, (i) the respective Nominee Corp. holds record title solely on behalf of Owner, subject to the respective Nominee Agreement, free and clear of all Liens whatsoever except the Permitted Liens, (ii) Owner owns and holds all beneficial ownership interests and Owner has good, valid, marketable title, free and clear of all Liens whatsoever except the Permitted Liens, pursuant to the respective Nominee Agreement, (iii) Owner has the sole undivided right, power and authority to direct the respective Nominee Corp. to sell, convey, mortgage, pledge, otherwise encumber, lease, grant easements and otherwise take 34 any action with respect to such Nominee Property and (iv) the respective Nominee Corp. has no right, power or authority to sell, convey, mortgage, pledge, otherwise encumber, lease, grant easements or otherwise take any action with respect to such Nominee Property except at the direction of Owner. Each Bond Mortgage, if and when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create or has created a valid, perfected first lien on the Bond Property intended to be encumbered thereby (including the Leases of such Bond Property and the Rents and Profits and all rights to collect Rents and Profits under such Leases), subject only to Permitted Liens. Each Reimbursement Mortgage with respect to an Additional Mortgaged Property, if and when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create or has created a valid, perfected first priority lien on the Additional Mortgaged Property intended to be encumbered thereby (including the Leases of such Additional Mortgaged Property and the Rents and Profits and all rights to collect Rents and Profits under such Leases), subject only to Permitted Liens. Each Reimbursement Mortgage with respect to a Bond Property, if and when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create or has created a valid, perfected second priority lien on the Bond Property intended to be encumbered thereby (including the Leases of such Bond Property and the Rents and Profits and all rights to collect Rents and Profits under such Leases), subject only to Permitted Liens. Except for (i) any Permitted Liens and (ii) claims for work, labor, or materials affecting any Properties that will either (x) be paid in full in the ordinary course of Owner's business, or (y) if in dispute, bonded over in the ordinary course of Owner's business, and which claims in the aggregate do not exceed $250,000, there are no Liens or claims for work, labor or materials affecting any Property which are or may be prior to, subordinate to, or of equal priority with, the Liens created by the Mortgage Documents. (i) COMPLIANCE WITH EXISTING BOND ISSUE AND EXISTING SECURITY INSTRUMENT. Owner has no knowledge, and since Owner acquired its interests in the Bond Properties Owner has not received notice, of any event or condition that remains uncured that would constitute an event of default or which, with the lapse of time, if not cured, or with the giving of notice or both, would become an event of default under the Existing Security Instrument or any other document executed in connection with the Existing Bond Issue. Owner has complied in all material respects with the requirements of the loan agreement executed in connection with the Existing Bond Issue. (j) COMPLIANCE WITH TAX CERTIFICATES. Neither Owner nor Manchester Nominee Corp. has taken and neither will take any action, or permit any action that is within the control of Owner or Manchester Nominee Corp., that would impair the exclusion from gross income for federal income tax purposes of the interest payable on the Existing Bond Issue or any of the Bonds. As of the Restatement Closing Date, Owner and Manchester Nominee Corp. are in compliance with all material requirements of all of the Tax Certificates. Each of Owner and Manchester Nominee Corp. has complied and will 35 comply with all the material terms and conditions of the Tax Certificates, including the terms and conditions of the exhibits thereto, and the representations set forth in the Tax Certificates pertaining to Owner and, if applicable, Manchester Nominee Corp. are true and accurate in all material respects. (k) COMPLIANCE WITH REGULATORY AGREEMENTS. Each of the Bond Properties is in compliance with all material requirements of the applicable Regulatory Agreement. Owner intends to cause the residential units in each Bond Property to be rented or available for rental on a basis which satisfies the requirements of the Regulatory Agreement with respect to such Bond Property. All Leases with respect to each Bond Property will comply with all material requirements of the Regulatory Agreement with respect to such Bond Property and in all material respects with all Applicable Laws. (l) TAXES. Owner has filed or caused to be filed all property and similar tax returns required to have been filed by it with respect to each Property and has paid and discharged, or caused to be paid and discharged, all installments for the payment of real estate, property or similar taxes due to date, and all other material Impositions imposed against, affecting or relating to each Property other than those which have not become due, together with any fine, penalty, interest or cost for nonpayment pursuant to such returns or pursuant to any assessment received by it, except with regard to tax contests being diligently prosecuted in accordance with the requirements of the Related Mortgages. Owner has no knowledge of any new proposed tax, levy or other governmental or private assessment or charge in respect of any Property which has not been disclosed in writing to Fannie Mae. (m) ZONING. Each Property complies in all material respects with all Applicable Laws affecting such Property, except to the extent such failure to comply would not have a Material Adverse Impact. Without limiting the foregoing, all material Permits, including certificates of occupancy, have been issued and are in full force and effect, except to the extent that the lack of such Permits and such certificates of occupancy would not have a Material Adverse Impact. Neither Owner, any Nominee Corp. or, to the knowledge of Owner, any former owner of any Property, has received any written notification or threat of any actions or proceedings regarding the noncompliance or nonconformity of any Property with any Applicable Laws or Permits, nor is Owner or any Nominee Corp. otherwise aware of any such pending actions or proceedings, except to the extent that such pending or threatened actions or proceedings would not have a Material Adverse Impact. (n) LIABILITY FOR HAZARDOUS SUBSTANCES. Neither Owner, QRS Partner, any Nominee Corp. or OP Partner has any liability, contingent or otherwise, in connection with any Hazardous Substance Activity on or affecting any Property in violation of Hazardous Materials Laws in an amount in excess of $100,000 with respect to any Property. (o) PROHIBITED ACTIVITIES OR CONDITIONS. Except as disclosed in the Environmental Reports delivered to Fannie Mae prior to the date of this Agreement and described on Schedule 2.1(o), or otherwise disclosed in writing by Owner to Fannie Mae 36 prior to the date of this Agreement, (i) to the best knowledge of Owner, no Prohibited Activities or Conditions exist or have existed at, upon, under or within any Property that have not been remedied and (ii) neither Owner, QRS Partner, any Nominee Corp. or OP Partner has at any time caused or permitted any Prohibited Activities or Conditions to exist at, upon, under or within any Property. (p) HAZARDOUS MATERIALS LAWS. Except as disclosed in the Environmental Reports delivered to Fannie Mae prior to the date of this Agreement and described on Schedule 2.1(o) or otherwise disclosed in writing by Owner to Fannie Mae prior to the date of this Agreement: (i) neither Owner, QRS Partner, any Nominee Corp., OP Partner or, to the knowledge of Owner, any other party has been or is involved in operations at any Property which operations could reasonably be expected to lead to (x) the imposition of liability on Owner, QRS Partner, any Nominee Corp., OP Partner under any Hazardous Materials Law in effect as of the Restatement Closing Date, or on any subsequent or former owner of any Property in an amount (together with all claims and liabilities with respect to such Property described in clauses (ii) and (iii) below) in excess of $100,000 with respect to any Property, or (y) the creation of a Lien with respect to a liability on any Property under any Hazardous Materials Law in effect as of the date hereof; (ii) neither Owner, QRS Partner, any Nominee Corp., OP Partner, nor to the best knowledge of Owner, any predecessor-in- interest with respect to any Property has permitted any tenant or occupant of any Property to engage in any activity that could reasonably be expected to impose a claim or liability under any Hazardous Materials Law in effect as of the date hereof on such tenant or occupant, on Owner or on any other subsequent or former owner of any Property in an amount (together with all claims and liabilities with respect to such Property described in clause (i) above and clause (iii) below) in excess of $100,000 with respect to any Property; and (iii) neither Owner, QRS Partner, any Nominee Corp. or OP Partner has received, and Owner has no knowledge of the issuance of, any claim, citation or notice of any Governmental Actions with respect to an amount (together with all claims and liabilities with respect to such Property described in clauses (i) and (ii) above) in excess of $100,000 with respect to any Property. (q) LEASES. Owner has delivered to Servicer, on behalf of Fannie Mae, a true and correct copy of its form apartment lease for each Property, and each Lease with respect to such Property is in substantially the form thereof, with no material modifications thereto, except as previously disclosed in writing to Servicer or Fannie Mae. Except as set forth in a Rent Roll, no Lease for any unit in any Property (i) is for a term in excess of one year, including any renewal or extension period unless such renewal or extension period is subject to termination by Owner upon not more than 30 days' written notice, (ii) provides for prepayment of more than one month's rent, or (iii) was entered into in other than the ordinary course of business. (r) RENT ROLL. Owner has executed and delivered to Servicer, on behalf of Fannie Mae, a rent roll (the "RENT ROLL"), for each Property, each dated as of and delivered within thirty (30) days prior to (i) Fannie Mae Facility Closing Date with respect 37 to the Existing Bond Properties and the Additional Mortgaged Properties, and (ii) the Restatement Closing Date with respect to the Additional Bond Property, and otherwise in the form attached hereto as Exhibit G and on which Owner is required to disclose each Lease in effect as of the date of such Rent Roll. The information set forth on each Rent Roll is true, correct and complete as of its date and there has occurred no material adverse change in the information shown on any Rent Roll from the date of each such Rent Roll to the Restatement Closing Date. (s) STATUS OF LANDLORD UNDER LEASES. Except for any assignment of leases and rents which is a Permitted Lien or which is to be released in connection with the consummation of the transactions contemplated by this Agreement, Owner is the owner and holder of the landlord's interest under each of the Leases of units in each Property and there are no prior outstanding assignments of any such Lease, or any portion of the Rents and Profits due and payable or to become due and payable thereunder. (t) ENFORCEABILITY OF LEASES. Each Lease constitutes the legal, valid and binding obligation, in all material respects, of Owner and, to the knowledge of Owner, of each of the other parties thereto, enforceable, in all material respects, in accordance with its terms, subject only to bankruptcy, insolvency, reorganization or other similar laws relating to creditors' rights generally, and equitable principles, and except as disclosed in writing to Fannie Mae, no notice of any default by Owner which remains uncured has been received by Owner or any affiliate of Owner under any such Lease which in the aggregate could reasonably be expected to have a Material Adverse Impact. (u) NO LEASE OPTIONS. No Lease contains any option or right to purchase, right of first refusal or any other similar provisions. No option or right to purchase, right of first refusal, purchase contract or similar right exists with respect to any Property. (v) INSURANCE. Owner has delivered to Servicer or Fannie Mae true and correct certified copies of all policies of insurance currently in effect as of the date of this Agreement with respect to the Properties. Each such insurance policy complies in all material respects with the requirements set forth in the Mortgage Documents. (w) TAX PARCELS. Each Property is on one or more separate tax parcels, and each such parcel (or parcels) is (or are) separate and apart from any other property. (x) ENCROACHMENTS. Except as discussed on the survey or the title insurance commitments listed in Exhibit D, none of the improvements located on any Property encroaches upon the property of any other Person nor lies outside of the boundaries and building restriction lines of such Property and no improvement located on property adjoining such Property lies within the boundaries of or in any way encroaches upon such Property. 38 (y) INDEPENDENT UNIT. Except as set forth in the Fannie Mae Title Commitment (other than notes or other informational items set forth therein) with respect to each Property or on the survey described in the "Survey Endorsement" attached to such Fannie Mae Title Commitment with respect to such Property, each Property is an independent unit which does not rely on any drainage, sewer, access, parking, structural or other facilities located on any property not included in such Property or on public or utility easements for the (i) fulfillment of any zoning, building code or other requirement of any Governmental Authority that has jurisdiction over such Property, (ii) structural support, or (iii) the fulfillment of the requirements of any Lease or other agreement affecting such Property. Except as disclosed on Schedule 2.1(y), Owner, directly or indirectly, has the right to use all amenities, easements, public or private utilities, parking, access routes or other items necessary or currently used for the operation of each Property. Except as disclosed on Schedule 2.1(y), all public utilities are installed and operating at each Property and all billed installation and connection charges have been paid in full. Except as disclosed on Schedule 2.1(y), each Property is either (x) contiguous to or (y) benefits from an irrevocable unsubordinated easement permitting access from such Property to a physically open, dedicated public street, and has all necessary permits for ingress and egress and is adequately serviced by public water, sewer systems and utilities. Except as set forth in the Fannie Mae Title Commitment (other than notes or other informational items set forth therein) with respect to each Property or on the survey of such Property identified in such Fannie Mae Title Commitment and certified to Fannie Mae, no building or other improvement not located on a Property relies on any part of the Property to fulfill any zoning requirements, building code or other requirement of any Governmental Authority that has jurisdiction over the Property for structural support or to furnish to such building or improvement any essential building systems or utilities. (z) CONDITION OF THE PROPERTIES. Except as disclosed on Schedule 2.1(z), each Property is in good condition, order and repair, there exist no structural or other material defects in such Property, whether latent or otherwise and Owner has not received notice from any insurance company or bonding company of any defects or inadequacies in such Property, or any part of it, which would affect the insurability of such Property or cause the imposition of extraordinary premiums or charges for insurance or of any termination or threatened termination of any policy of insurance or bond such that any of the foregoing could reasonably be expected to have a Material Adverse Impact on any such Property. No EQR Party has made a claim against any contractor, architect or other party with respect to the condition of any Property or the existence of any structural or other material defect therein. No Property has been materially damaged by Casualty which has not been fully repaired or for which Insurance Proceeds have not been received or are not expected to be received except as previously disclosed in writing to Fannie Mae or Servicer. There are no proceedings pending for partial or total Condemnation of any Property except as disclosed in writing to Fannie Mae or Servicer. The weighted average maturity of each issue of Related Bonds does not exceed 120% of the average remaining reasonably expected economic life of the facilities financed with the proceeds of such Related Bonds. 39 (aa) NO CONTRACTUAL DEFAULTS. Except as disclosed on Schedule 2.1(aa), there are no defaults by any EQR Party or, to the knowledge of Owner, by any other Person under any contract to which any EQR Party is a party relating to any Property, including any management, rental, service, supply, security, maintenance or similar contract, that either (i) individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or (ii) involves, in any individual instance, an actual or potential disputed amount that is equal to or greater than $25,000. No EQR Party or to the knowledge of Owner, any other person has received notice or has any knowledge of any existing circumstances in respect of which it could receive any notice of default or breach in respect of any contracts affecting or concerning any Property, that either (i) individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or (ii) involves, in any individual instance, an actual or potential disputed amount that is equal to or greater than $25,000. (ab) COMPLIANCE WITH THE TRANSACTION DOCUMENTS. Owner is in compliance with all provisions of the Transaction Documents to which it is a party or by which it is bound. (ac) ERISA. Each EQR Party is in compliance in all material respects with all applicable provisions of ERISA and has not incurred any liability to the PBGC on a Plan under Title IV of ERISA. The assets of each EQR Party do not constitute plan assets (within the meaning of Department of Labor Regulation Section 2510.3-101) of any employee benefit plan subject to Title I of ERISA. (ad) OFFICIAL STATEMENT. The statements and information concerning Owner and its Affiliates, and the Related Bond Property set forth in each Official Statement (other than the information under the subheading "Federal National Mortgage Association" of each such Official Statement) are each true, complete and correct in all material respects as of its date and, as of its date, do not contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (ae) OWNERSHIP; REIT STATUS. EQR currently qualifies and is taxed as a real estate investment trust under Subchapter M of the Code. QRS Partner currently qualifies as a "Qualified REIT Subsidiary" (as defined in Subchapter M of the Code) of EQR. (af) FINANCIAL INFORMATION. Any written financial projections relating to the EQR Parties and delivered to Servicer, on behalf of Fannie Mae, on or prior to the date hereof, if any, were prepared on the basis of assumptions believed by Owner, in good faith at the time of preparation, to be reasonable and Owner is not aware of any fact or information that would lead it to believe that such assumptions are incorrect or misleading in any material respect; provided, however, that no representation or warranty is made that 40 any result set forth in such financial projections shall be achieved. The consolidated financial statements of Owner and QRS Partner which have been furnished to Servicer on behalf of Fannie Mae, if any, are complete and accurate in all material respects and present fairly the financial condition and results of operations of each of Owner and QRS Partner, as the case may be, as of their respective dates, and were prepared on an accrual accounting basis in accordance with GAAP. The consolidated financial statements of EQR and OP Partner which have been furnished to Servicer on behalf of Fannie Mae are complete and accurate in all material respects and present fairly the financial condition and results of operations of EQR and OP Partner, as the case may be, as of their respective dates in accordance with GAAP. Since the date of the most recent of such financial statements with respect to each EQR Party no event has occurred which would have a Material Adverse Effect on such EQR Party, and there has not been any material transaction entered into by Owner or QRS Partner other than transactions in the ordinary course of business. No EQR Party has any Contingent Obligation which would be required to be disclosed in GAAP financial statements and which is not otherwise disclosed in its most recent financial statements. Neither Owner nor QRS Partner or any Nominee Corp. has any material liabilities, other than those incurred under the Transaction Documents. (ag) ACCURACY OF INFORMATION. The representations, warranties of Owner and any other EQR Party contained in this Agreement, the Bond Documents, the Mortgage Documents or any other Transaction Document are true, correct and complete in all material respects, do not contain any untrue statement or misleading statement of a material fact, and do not omit to state a material fact required to be stated therein or necessary in order to make the certifications, representations, warranties, statements, information and descriptions contained therein, in light of the circumstances under which they were made, not misleading. No information, statement or report furnished in writing to Fannie Mae, any Issuer, Servicer or any Related Trustee by any EQR Party in connection with the consummation of the transactions contemplated in this Agreement, the Bond Documents, the Mortgage Documents or any other Transaction Document (including any information furnished by any EQR Party in connection with the preparation of any materials related to the issuance delivery or offering of any of the Bonds on the Bond Transaction Closing Date) contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein not misleading, except to the extent that such misstatements and omissions when considered in light of the totality of such information, statements and reports furnished by such EQR Parties are not materially misleading in the aggregate. (ah) NO CONFLICTS OF INTEREST. To the best knowledge of Owner, no member, officer, agent or employee of any Issuer has been or is in any manner interested, directly or indirectly (except for the publicly traded stock of EQR), in that Person's own name, or in the name of any other Person, in the Related Bonds, the Related Bond Documents, the Bond Property Loan Documents, Owner, any Nominee Corp., OP Partner or QRS Partner or the applicable Bond Property, in any contract for property or materials to be furnished 41 or used in connection with such Bond Property or in any aspect of the transactions contemplated by the Related Bond Documents or the Bond Property Loan Documents. (ai) GOVERNMENTAL ORDERS. No EQR Party is presently under any cease or desist order or other orders of a similar nature, temporary or permanent, of any Governmental Authority which would have the effect of preventing or hindering performance of Owner's duties hereunder, nor are there any proceedings presently in progress or to its knowledge contemplated which would, if successful, lead to the issuance of any such order. (aj) NO RELIANCE. Owner acknowledges, represents and warrants that it understands the nature and structure of the transactions relating to the refinancings of the Bond Properties as contemplated by the Transaction Documents, that it is familiar with the provisions of all of the documents and instruments relating to such refinancings to which it or any Issuer is a party or of which it is a beneficiary; that it understands the risks inherent in such transactions, including the risk of loss of all or any of the Bond Properties and the Additional Mortgaged Properties; and that it has not relied on any Issuer or Fannie Mae for any guidance or expertise in analyzing the financial or other consequences of the transactions contemplated by this Agreement, any Related Indenture or any other Transaction Document or otherwise relied on any Issuer or Fannie Mae in any manner in connection with interpreting, entering into or otherwise in connection with this Agreement, any other Transaction Document or any of the matters contemplated hereby or thereby; provided, however, that this provision shall not be interpreted to limit Fannie Mae's obligations under the Related Fannie Mae Collateral Agreements or any other Transaction Document to which Fannie Mae is a party. (ak) ARBITRAGE BONDS. No money on deposit in any fund or account in connection with the Existing Bond Issue or any issue of Related Bonds, whether or not such money was derived from other sources, has been used by or under the direction of Owner, QRS Partner or Manchester Nominee Corp. in a manner which would (i) cause the Existing Bond Issue or any issue of Related Bonds to be ``arbitrage bonds'' within the meaning of Section 103(c) of the Code and (ii) either cause a Material Adverse Impact on Owner or result in the interest received by the Bondholders of any of the Bonds being taxable for federal income tax purposes. (al) COMPLIANCE WITH APPLICABLE LAW. Each of Owner, QRS Partner and each Nominee Corp. is in compliance with Applicable Law, including all Governmental Approvals, if any, except for such items of noncompliance that, singly or in the aggregate (i) would not have a Material Adverse Effect upon any of Owner, QRS Partner or any Nominee Corp. and (ii) would not have a Material Adverse Impact. (am) CONTRACTS WITH AFFILIATES. Except as set forth on Schedule 2.1(am), Owner has not entered into and is not a party to any contract, lease or other agreement with any Affiliate of Owner for the provision of any service, materials or supplies to any Property 42 or Properties (including any contract, lease or agreement for the provision of property management services, cable television services or equipment, gas, electric or other utilities, security services or equipment, laundry services or equipment or telephone services or equipment). (ao) COMPLIANCE WITH SLEEPY HOLLOW PUBLIC IMPROVEMENT AGREEMENT and DEED OF TRUST. Owner is in compliance (and at all times in the past has complied) with all terms, conditions and requirements (including payment obligations) under and with respect to the Sleepy Hollow Public Improvements Agreement and the Sleepy Hollow Public Improvements Deed of Trust. Owner has not received notice of any event or condition that remains uncured that would constitute a default or which, with the lapse of time, if not cured, or with the giving of notice or both, would become a default under the Sleepy Hollow Public Improvements Agreement or the Sleepy Hollow Public Improvements Deed of Trust. Owner has not received notice of or demand for any payment required to be made by Owner under or with respect to the Sleepy Hollow Public Improvements Agreement or the Sleepy Hollow Public Improvements Deed of Trust. SECTION 2.2 AFFIRMATIVE COVENANTS OF OWNER. ------------------------------ Owner agrees and covenants with Fannie Mae that, at all times during the term of this Agreement: (a) COMPLIANCE WITH AGREEMENTS; NO AMENDMENTS. Owner shall comply with all the terms and conditions of each Transaction Document to which it is a party or by which it is bound, subject to applicable cure periods, if any, as set forth in such Transaction Documents, and shall use its commercially reasonable efforts to cause each Related Trustee at all times to comply with the terms of the Related Bond Documents to which each such Related Trustee is a party. (b) MAINTENANCE OF EXISTENCE. Owner shall maintain its existence and continue to be a general partnership organized under the laws of the state of its organization, duly qualified to do business in each jurisdiction in which such qualification is necessary to the conduct of its business and where the failure to be so qualified would materially and adversely affect the validity of, the enforceability of or ability to perform its obligations under this Agreement or any other Transaction Document to which it is a party or by which it is bound. (c) MAINTENANCE OF REIT STATUS. At all times during which Owner is bound by the terms of this Agreement: (i) EQR shall continue to qualify and be taxed as a real estate investment trust under Subchapter M of the Code; (ii) QRS Partner shall continue to (x) qualify as a "Qualified REIT Subsidiary" (as defined in Subchapter M of the Code) of EQR, and (y) be a general partner of Owner; and (iii) OP Partner shall continue to be a general partner of Owner. 43 (d) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. Owner shall keep and maintain at all times (i) complete and accurate books of accounts and records in sufficient detail to correctly reflect (x) all of Owner's financial transactions and assets and (y) the results of the operation of each Property and (ii) copies of all written contracts, Leases and other instruments which affect each Property (including all bills, invoices and contracts for electrical service, gas service, water and sewer service, waste management service, telephone service and management services). In addition, Owner shall furnish, or cause to be furnished, to Servicer, and upon Fannie Mae's request, to Fannie Mae: (i) Annual Financial Statements. As soon as available, and in any event within one hundred and twenty (120) days after the close of each of Owner's fiscal years during the term of this Agreement, its balance sheet as of the end of such fiscal year, its statement of operation for such fiscal year and its statement of cash flows for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year, prepared on an accrual accounting basis in accordance with GAAP consistently applied, and certified by the chief financial officer or chief accounting officer of EQR to the effect that such financial statements have been prepared in accordance with GAAP consistently applied, and that such financial statements fairly present the results of its operations and financial condition for the periods and dates indicated. Together with each delivery of Owner's annual financial statements required under the preceding sentence, Owner shall deliver or cause to be delivered, the audited financial statements of OP Partner and EQR (including their respective balance sheets, statements of operation and statements of cash flows) for such fiscal year, prepared in accordance with GAAP, consistently applied. (ii) Quarterly Financial Statements. As soon as available, and in any event within sixty (60) days after each of the first three fiscal quarters of each fiscal year during the term of this Agreement, its unaudited balance sheet as of the end of such fiscal quarter and its unaudited statement of income and retained earnings and its unaudited statement of cash flows for the portion of the fiscal year ended with the last day of such quarter, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, accompanied by a certificate of the chief financial officer or chief accounting officer of EQR to the effect that such financial statements have been prepared on an accrual accounting basis in accordance with GAAP consistently applied, and that such financial statements fairly present the results of its operations and financial condition for the periods and dates indicated subject to year end adjustments in accordance with GAAP. (iii) Monthly Property Statements. On a monthly basis within thirty (30) days of the last day of the prior month, a statement of income and expenses of each Property accompanied by a certificate of the chief financial officer or chief 44 accounting officer of EQR to the effect that each such statement of income and expenses fairly, accurately and completely presents the operations of each such Property for the period indicated on a modified cash accounting basis in accordance with customary real estate management accounting practices. (iv) Annual Property Statements. On an annual basis within thirty (30) days of the end of the fiscal year, an annual statement of income and expenses of each Property accompanied by a certificate of the chief financial officer or chief accounting officer of EQR to the effect that each such statement of income and expenses fairly, accurately and completely presents the operations of each such Property for the period indicated on a modified cash accounting basis in accordance with customary real estate management accounting practices. (v) Updated Rent Rolls. Upon Servicer's or Fannie Mae's request, a current Rent Roll for each Property, showing the name of each tenant, and for each tenant, the space occupied, the lease expiration date, the rent payable, the rent paid and any other information requested by Servicer or Fannie Mae and in the form required by Servicer or Fannie Mae and accompanied by a certificate of the chief financial officer or chief accounting officer of EQR to the effect that each such Rent Roll fairly, accurately and completely presents the information required therein. (vi) Security Deposit Information. Upon Servicer's or Fannie Mae's request, an accounting of all security deposits held in connection with any lease of any part of any Property, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Servicer or Fannie Mae to access information regarding such accounts. (vii) Security Law Reporting Information. So long as EQR or OP Partner or any Subsidiary of either of them is a reporting company under the Securities and Exchange Act of 1934, promptly upon their becoming available, copies of (a) all 10K's, 10Q's, 8K's, annual reports and proxy statements, and all replacement, substitute or similar filings or reports required to be filed after the date of this Agreement by the United States Securities and Exchange Commission or other Governmental Authority exercising similar functions, and (b) all press releases and other statements made available generally by EQR, OP Partner or any subsidiary of either of them to the public concerning material develop- ments in the business of EQR, OP Partner or any Subsidiary of either of them; (viii) Accountants' Reports. Promptly upon receipt thereof, copies of any reports or management letters submitted to any EQR Party by its independent certified public accountants in connection with the examination of its financial statements made by such accountants (except for reports otherwise provided pursuant 45 to clause (i) above); provided, however, that Owner shall only be required to deliver such reports and management letters to the extent that they relate to Owner, QRS Partner, any Nominee Corp. or any of the Properties. (ix) Other Reports. Promptly upon Fannie Mae's or Servicer's request therefor, all schedules, financial statements or other similar reports delivered by Owner pursuant to the Transaction Documents or otherwise reasonably requested by Servicer or Fannie Mae with respect to Owner's business affairs or condition (financial or otherwise) or any of the Properties. (e) CERTIFICATE OF COMPLIANCE. Owner shall deliver to Servicer concurrently with the delivery of the financial statements and/or reports required to be delivered pursuant to paragraphs (d)(i) and (d)(ii) above a certificate signed by the chief financial officer or chief accounting officer of EQR stating that, to the best of the knowledge of the chief financial officer or chief accounting officer of EQR executing such certificate following reasonable inquiry, no Event of Default or Potential Event of Default has occurred, or if an Event of Default or Potential Event of Default has occurred, specifying the nature thereof. (f) MAINTAIN LICENSES. Owner shall procure and maintain in full force and effect all licenses, Permits, charters and registrations which are material to the conduct of its business and shall abide by and satisfy all terms and conditions of all such licenses, Permits, charters and registrations except where Owner's failure to abide by and satisfy the requirements of the foregoing would not have a Material Adverse Impact. (g) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. To the extent permitted by law and in addition to the applicable requirements of the Mortgages, Owner shall permit Fannie Mae or Servicer: (i) to inspect, make copies and abstracts of, and have reviewed or audited, such of Owner's books and records as may relate to the Obligations or any Property; (ii) to discuss Owner's affairs, finances and accounts with any of Owner's officers, partners and employees; (iii) to discuss Owner's affairs, finances and accounts with its independent public accountants, provided that the controller of QRS Partner has been given the opportunity by Servicer or Fannie Mae to be a party to such discussions; and (iv) to receive any other information that Fannie Mae or Servicer deems necessary or relevant in connection with any Mortgage Loan, any Transaction Document or the Obligations. 46 Notwithstanding the foregoing, prior to an Event of Default or Potential Event of Default, all inspections shall be conducted at reasonable times during normal business hours. (h) INFORM FANNIE MAE AND SERVICER OF MATERIAL EVENTS. Owner shall promptly inform Fannie Mae and Servicer in writing of any of the following (and shall deliver to the Fannie Mae and Servicer copies of any related written communications, complaints, orders, judgments and other documents relating to the following) of which Owner has or obtains actual knowledge: (i) Defaults. The occurrence of any Event of Default or any Potential Event of Default under this Agreement or any other Transaction Document; (ii) Regulatory Proceedings. The commencement of any rulemaking or disciplinary proceeding or the promulgation of any proposed or final rule which (A) would have a Material Adverse Effect on Owner or any EQR Party, (B) would have a Material Adverse Impact, or (C) with respect to any specific Bond Property, adversely affects the tax- exempt status of the interest payable on any of the Related Bonds; (iii) Legal Proceedings. The commencement or written threat of, or amendment to, any proceedings by or against Owner, QRS Partner, OP Partner or EQR in any Federal, state or local court or before any Governmental Authority, or before any arbitrator, which, if adversely determined, would adversely affect the tax-exempt status of interest payable on any of the Related Bonds, or in which parties adverse to any EQR Party have a reasonable chance of prevailing and which if adversely determined would have, or at the time of determination may reasonably be expected to have, (A) a Material Adverse Effect on any EQR Party, or (B) a Material Adverse Impact; (iv) Bankruptcy Proceedings. The commencement of any proceedings by or against Owner, QRS Partner, OP Partner or EQR under any applicable bankruptcy, reorganization, liquidation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, trustee or other similar official is sought to be appointed for it; (v) Regulatory Supervision or Penalty. The receipt of notice from any Governmental Authority having jurisdiction over any EQR Party that (A) such EQR Party is being placed under regulatory supervision, (B) any license, Permit, charter, membership or registration material to the conduct of such EQR Party's respective business or the operation of the Properties is to be suspended or revoked or (C) such EQR Party is to cease and desist any practice, procedure or policy employed by such EQR Party, as the case may be, in the conduct of its business, and 47 such cessation would have a Material Adverse Effect on such EQR Party, would have a Material Adverse Impact or would adversely affect the tax-exempt status of interest payable on any of the Related Bonds; and (vi) Environmental Claim. The receipt of notice from any Governmental Authority or other Person relating to any Environmental Claim involving Owner or any Nominee Corp. or any of its assets, including the Properties and which represents, in Owner's reasonable judgment, a liability, contingent or otherwise, which exceeds $100,000 with respect to any Property. (i) SINGLE-PURPOSE ENTITIES. Owner and QRS Partner shall at all times maintain and conduct themselves as Single-Purpose entities. (j) INSPECTION. Owner shall permit any Person designated in writing by Fannie Mae (including Servicer): (i) to make entries upon and inspections of the Properties; and (ii) to otherwise verify, examine and inspect the amount, quantity, quality, value and/or condition of, or any other matter relating to, any Property; provided, however, that prior to an Event of Default or Potential Event of Default, all such entries, examinations and inspections shall be conducted at reasonable times during normal business hours. (k) COMPLIANCE WITH APPLICABLE LAWS. Owner shall comply in all material respects with all Applicable Laws now or hereafter affecting any Property or any part of any Property or requiring any alterations, repairs or improvements to any Property, except for such items of noncompliance that, singly or in the aggregate (i) would not have a Material Adverse Effect upon any of Owner, QRS Partner or any Nominee Corp. and (ii) would not have a Material Adverse Impact. Owner shall procure and continuously maintain in full force and effect, and shall abide by and satisfy all material terms and conditions of all Permits, except for such items of noncompliance that, singly or in the aggregate (i) would not have a Material Adverse Effect upon any of Owner, QRS Partner or any Nominee Corp. and (ii) would not have a Material Adverse Impact. (l) WARRANTY OF TITLE. Owner shall warrant and defend (a) the title to each Property and every part of each Property, subject only to Permitted Liens, and (b) the validity and priority of the lien of the applicable Mortgage Documents, subject only to Permitted Liens, in each case against the claims of all other Persons whatsoever. Owner shall reimburse Fannie Mae and Servicer for any actual out-of-pocket losses, costs, damages or expenses (including reasonable attorneys' fees and court costs) incurred by Fannie Mae or Servicer if an interest in any Property, other than with respect to a Permitted Lien, is claimed by others. (m) DEFENSE OF ACTIONS. Owner shall appear in and defend any action or proceeding purporting to affect the security for this Agreement or the rights or power of Fannie Mae or Servicer hereunder, and shall, as set forth in to section 4.2, pay 48 the reasonable out-of-pocket costs and expenses, including the cost of evidence of title and attorneys' fees, in any such action or proceeding in which Fannie Mae may appear. If Owner fails to perform any of the covenants or agreements contained in this Agreement, or if any action or proceeding is commenced that is not diligently defended by Owner which affects in any material respect Fannie Mae's or any Related Trustee's interest in any Property or any part thereof, including eminent domain, code enforcement or proceedings of any nature whatsoever under any Applicable Law, whether now existing or hereafter enacted or amended, then Fannie Mae may, but without obligation to do so and without notice to or demand upon Owner and without releasing Owner from any Obligation, make such appearances, disburse such sums and take such action reasonably determined by Fannie Mae or Servicer to be necessary or appropriate to protect Fannie Mae's or such Related Trustee's interest, including disbursement of reasonable attorney's fees, entry upon such Property to make repairs or take other action to protect the security of said Property, and payment, purchase, contest or compromise of any encumbrance, charge or lien which in the judgment of Fannie Mae appears to be prior or superior to the Transaction Documents. In the event (i) that any Mortgage is foreclosed in whole or in part or that any Transaction Document is put into the hands of an attorney for collection, suit, action or foreclosure, or (ii) of the foreclosure of any mortgage, deed to secure debt, deed of trust or other security instrument prior to or subsequent to any Mortgage or any Transaction Document in which proceeding Fannie Mae is made a party or (iii) of the bankruptcy of Owner, QRS Partner or OP Partner or an assignment by Owner, QRS Partner or OP Partner for the benefit of its creditors, Owner shall be chargeable with and agrees to pay all reasonable costs of collection and defense, including reasonable actual attorneys' fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use taxes. (n) PROPERTY MANAGEMENT; MAINTENANCE OF PROPERTIES. Owner shall continue to operate each Property as a Multifamily Residential Property, and shall manage or cause to be managed the operations of each Property in accordance with the applicable provisions of the Mortgage Documents and the other Transaction Documents. Owner (i) shall not commit waste or permit impairment or deterioration of any Property, (ii) shall not abandon any Property, (iii) shall restore or repair promptly and in a good and workmanlike manner all or any part of any Property to the equivalent of its condition existing immediately prior to such Casualty, or such other lesser condition as Fannie Mae may approve in writing, in the event of any Casualty thereto, whether or not Insurance Proceeds are available to cover in whole or in part the costs of such restoration or repair, (iv) shall keep each Property (except to the extent Insurance Proceeds would be available to pay for such restoration or repair but for Fannie Mae's application of such proceeds to repayment of the Related Mortgage Note), including improvements, fixtures, equipment, machinery and appliances thereon in good repair and shall replace fixtures, equipment, machinery and appliances on each Property when necessary to keep such items in good repair, (v) shall generally operate and maintain each Property in the same manner as of the date hereof (subject to reasonable wear and tear). Neither Owner nor any tenant or other person shall remove, demolish or alter any material improvement now existing or hereafter erected on 49 any Property or any fixture, equipment, machinery or appliance in or on any Property except when incident to the replacement of fixtures, equipment, machinery and appliances with items of like kind except for property owned by tenants. (o) ADDITIONS TO THE PROPERTIES. Except as otherwise provided in the Mortgage Documents, Owner shall have the right to undertake any alteration, improvement, demolition, removal, or construction (collectively, "Alterations") to any Property without the prior consent of Fannie Mae; provided, however, that in any case, no such Alterations shall be made to any Property without the prior written consent of Fannie Mae if (i) such Alterations would reasonably be expected to adversely affect the value of such Property or its operation as a multifamily housing facility in substantially the same manner in which it is being operated on the date of this Agreement, (ii) the construction of such Alterations could reasonably be expected to result in interference to the occupancy of tenants of such Property such that tenants in occupancy with respect to 5% or more of the Leases would be permitted to terminate their Leases or to abate the payment of all or any portion of their rent, or (iii) such Alterations will be completed in more than 12 months from the date of commencement or in the last year of the term of this Agreement. Notwithstanding the foregoing, Owner must obtain Fannie Mae's prior written consent (which shall not be unreasonably withheld or delayed) to construct Alterations with respect to the Property costing in excess of $250,000; provided, however, the preceding requirements shall not be applicable to Alterations made, conducted or undertaken by Owner as part of Owner's routine maintenance and repair of the Properties pursuant to Section 2.2(n) or as otherwise required by the Mortgage Documents. (p) ASSIGNMENT OF RIGHTS TO THE TRUSTEE. Owner acknowledges and agrees that (i) the Related Trustee is the assignee of the applicable Issuer's right, title and interest in and to the Bond Property Loan Documents with respect to each Bond Property and certain rights as and to the extent provided in the Assignment, (ii) Fannie Mae is the assignee of the Mortgage Rights with respect to each Bond Property as and to the extent provided in the Related Fannie Mae Collateral Agreement, and (iii) by virtue of such Related Fannie Mae Collateral Agreement referred to in clause (ii) above, Fannie Mae shall, as and to the extent provided in such Related Fannie Mae Collateral Agreement, be entitled to exercise certain rights and receive certain benefits which would otherwise be available to the Related Trustee under the Bond Property Loan Documents with respect to each Bond Property. Owner further acknowledges and agrees that Fannie Mae has delegated or may delegate certain matters and functions related to or arising under the Bond Property Loan Documents with respect to each Bond Property to Servicer, as an independent contractor, pursuant to the Servicing Agreement. Any terms and conditions contained in this Agreement that may also be contained in the other Transaction Documents shall not, to the extent reasonably practicable, be construed to be in conflict with each other but rather shall be construed as additional, cumulative provisions. To the extent that any ultimate conflict between the terms and conditions of this Agreement and those set forth in the other Transaction Documents is determined to exist, the terms and conditions of this Agreement shall control. 50 (q) INTEREST RESERVE REQUIREMENT; PRINCIPAL RESERVE FUND. Owner shall deposit with the Related Trustee with respect to each Bond Property, on or before the date the Related Mortgage is executed and delivered, for deposit into the Interest Account with respect to each Bond Property, the Interest Reserve Requirement for such Bond Property. If the Interest Account with respect to a Bond Property is not otherwise replenished to the Interest Reserve Requirement for such Bond Property from the receipt of the monthly payments under the Related Mortgage Note pursuant to the Related Indenture, Owner shall promptly deposit with the Related Trustee the amount necessary for amounts on deposit in such Interest Account to equal the Interest Reserve Requirement for such Bond Property. In addition, Owner agrees that as a condition to Fannie Mae's executing and delivering the Related Fannie Mae Collateral Agreement, Owner shall fund, and replenish, the applicable Principal Reserve Fund with respect to each Bond Property as and when required by the Related Mortgage Note and this Agreement. Owner shall also replenish each Principal Reserve Fund by delivery to the Related Trustee the amount equal to any loss from the investment of amounts on deposit in such Principal Reserve Fund, as and when such loss is incurred and Owner has knowledge of such loss, and irrespective of the reason for such loss. Owner acknowledges and agrees that amounts on deposit in the Principal Reserve Fund with respect to each Mortgage Loan shall be applied toward the mandatory redemption of the Related Bonds, and the corresponding reduction of amounts owed under the Related Mortgage Note, as and to the extent provided in the Related Indenture. Owner further acknowledges and agrees that, as provided in the Related Mortgage Note, the Mortgage Loan with respect to any Bond Property shall not be deemed to have been amortized by reason of deposits into the Principal Reserve Fund with respect to such Mortgage Loan until such deposits have been withdrawn from such Principal Reserve Fund and applied to the redemption of the Related Bonds as provided in the Related Indenture. (r) ERISA. Owner shall at all times remain in compliance in all material respects with all applicable provisions of ERISA and similar requirements of the PBGC. (s) PREPAYMENT. If Owner elects, or is required (other than a prepayment in connection with a mandatory application of Insurance Proceeds or Condemnation Proceeds), to prepay any Related Mortgage Note in whole or in part, subject to and in accordance with the terms and conditions of such Related Mortgage Note and section 2.3(j), Owner shall be obligated to pay any additional amounts due under the applicable Related Bonds in respect of the amount prepaid under such Related Mortgage Note, including accrued interest on the Related Bonds to the date of redemption (calculated at the Maximum Rate to the extent and for the period that such Related Bonds bear interest at the Weekly Variable Rate), and the premium, if any, payable to the applicable Bondholders by reason of such redemption, until such Related Bonds have been redeemed in accordance with the Related Bond Documents, together with and in addition to, any prepayment premium due pursuant to the Related Mortgage Note. (t) NO AMENDMENTS TO TRANSACTION DOCUMENTS. Unless Fannie Mae shall otherwise consent in writing Owner shall not agree to any amendment of, supplement to, 51 waiver of, or modification of, the terms of any Transaction Document; provided, however, if Fannie Mae is not a party to any such Transaction Document and Fannie Mae determines in its discretion that such amendment, supplement waiver or modification does not adversely affect Fannie Mae's interests, then Fannie Mae shall not unreasonably withhold its consent to such amendment, supplement waiver or modification. (u) TAXES. Subject to Owner's right to contest as set forth in the Mortgages, Owner shall pay all Impositions now or hereafter levied or levied or assessed upon or against any Property prior to the date upon which any fine, penalty, interest or cost may be added thereto or imposed for the nonpayment thereof. If any tax, assessment or Imposition (other than a franchise tax imposed on or measured by, the net income or capital (including branch profits tax) of any Related Trustee or Fannie Mae (or any transferee or assignee thereof, including a participation holder)) ("TAXES") is levied, assessed or charged by the United States or any political subdivision or taxing authority thereof or therein upon any of the Transaction Documents or the obligations secured thereby, the interest of Fannie Mae or any Related Trustee in the Properties, or Fannie Mae or any Related Trustee by reason of or as holder of the Transaction Documents, Owner shall pay all such Taxes to, for, or on account of Fannie Mae or the applicable Related Trustee (or provide funds to Fannie Mae or such Related Trustee for such payment, as the case may be) as they become due and payable and shall promptly furnish proof of such payment to Fannie Mae or such Related Trustee, as applicable. In the event of passage of any law or regulation permitting, authorizing or requiring such Taxes to be levied, assessed or charged, which law or regulation in the opinion of counsel to Fannie Mae or any Related Trustee may prohibit Owner from paying the Taxes to or for Fannie Mae or such Related Trustee, Owner shall enter into such further instruments as may be permitted by law to obligate Owner to pay such Taxes. In addition, Owner shall pay all documentary stamp, recording, transfer, mortgage, intangible or filing or other taxes or fees and any and all liabilities with respect thereto, or resulting therefrom which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of or filing of record, recordation, release or discharge of, this Agreement, the Mortgages, or any other Transaction Document. (v) FURTHER ASSURANCES. Provided they do not materially increase the obligations of Owner or any other EQR Party, Owner shall, at the request of Fannie Mae, execute and deliver and, if necessary, file or record such statements, documents, agreements, UCC financing and continuation statements and such other instruments and take such further action as Fannie Mae from time to time may request as reasonably necessary or appropriate to carry out the purposes of this Agreement or any of the other Transaction Documents to which Owner is a party or by which Owner is bound, or to subject the Collateral to the lien and security interests of the Mortgage Documents or to evidence, perfect or otherwise implement, to assure the lien and security interests intended by the terms of the Transaction Documents to which Owner is a party or by which Owner is bound, or in order to exercise or enforce its rights under the Transaction Documents to which 52 Owner is a party or by which Owner is bound. In addition, Owner shall reasonably cooperate with each of the Rating Agencies in connection with any review of the transactions described in the Transaction Documents which may be undertaken by either of the Rating Agencies after the date of this Agreement. (w) ADJUSTMENT OR CONVERSION OF INTEREST RATE ON THE BONDS. Owner acknowledges and agrees that the interest rate on any issue of Related Bonds may be adjusted to the Weekly Variable Rate or Reset Rate or converted to the Fixed Rate, in each case as provided in, and subject to the terms and conditions of, the Related Indenture and this Agreement. (x) MONITORING COMPLIANCE. Upon the request of Servicer, from time to time, and at any time certification of the matters set forth below is provided to the Issuer, the Related Trustee or any other Governmental Authority, Owner shall promptly provide to Servicer the following: (i) Owner's certification of each Bond Property's compliance with the Related Bond Documents and the requirements of the Regulatory Agreement with respect to such Bond Property; (ii) If any Property has received or receives a tax credit allocation, Owner's certification of such Property's compliance with the requirements of Section 42 of the Code and the regulations issued under Section 42 of the Code and if the tax credits have not yet been syndicated, Owner's report regarding progress in syndicating the tax credit allocation until the syndication is completed; and (iii) Such other documents, certificates and other information as Servicer or Fannie Mae may deem reasonably necessary to enable it to perform its functions under the Servicing Agreement. (y) REMOVAL OF REMARKETING AGENT. Owner agrees that (i) after the occurrence of any Event of Default or (ii) if, at any time, Fannie Mae reasonably determines that there is a basis in fact for the removal of the then existing Remarketing Agent with respect to an issue of Related Bonds and the designation of a new Remarketing Agent with respect to such Related Bonds, if Fannie Mae so directs, Owner immediately shall take such action as is required under the Related Remarketing Agreement to remove the existing Remarketing Agent with respect to such Related Bonds and replace such Remarketing Agent, without interruption of service, with a Remarketing Agent acceptable to Fannie Mae. Owner acknowledges and agrees that any Remarketing Agent's failure to perform any of its duties or obligations under or with respect to the Related Indenture or the Related Remarketing Agreement, including, a failure to give or deliver any notice or information required under the Related Indenture or the Related Remarketing Agreement, shall constitute sufficient basis in fact for such Remarketing Agent's removal. 53 (z) CHANGES IN REMARKETING AGENT OR REMARKETING AGREEMENT. Owner agrees that it will not change any Remarketing Agent, or appoint or engage any Person as a Remarketing Agent or materially change the fees payable to any Remarketing Agent, without Fannie Mae's prior written consent which consent shall not be unreasonably withheld or delayed. (aa) CONTINUING DISCLOSURE. Owner shall comply with all provisions applicable to Owner (pursuant to the Bond Documents or otherwise) relating to all federal securities laws relating to continuing disclosure that are applicable to the Bonds, including Rule 15c2-12, promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as such rule may be amended from time to time. (ab) LEASES. All leases now or hereafter entered into shall: (i) be legally valid, binding and enforceable obligations of the tenants thereto; (ii) comply with all applicable laws; and (iii) be in the form previously delivered to, and deemed acceptable to, Fannie Mae and Servicer with respect to each Property (the "PROPERTY FORM LEASE"), with no material modifications to such Property Form Lease, except as disclosed to and approved by Fannie Mae and Servicer, in writing. At any time and from time to time, Fannie Mae or Servicer may require that each Property Form Lease: (A) provide that tenants and subtenants with respect to such Property shall not cause, permit or exacerbate any Prohibited Activities or Conditions (as defined in the Mortgages); (B) satisfy the then applicable lease standards of the DUS Guide; and (C) specifically provide that such lease is subordinate to the Related Mortgage, that the tenant attorns to the holder of each such Related Mortgage, such attornment to be effective upon such holder's acquisition of title to the Property, that the tenant agrees to execute such further evidences of attornment as such holder may from time to time request, that the attornment of the tenant shall not be terminated by foreclosure, and that such holder may, at such holder's option, accept or reject such attornments; provided, however, that each Property Form Lease approved by Fannie Mae or Servicer shall be deemed to have satisfied the requirements in the preceding clauses (A) through (C) until such time as Owner receives written notice to the contrary from Fannie Mae or Servicer which notice shall specify the changes necessary to make such Property Form Lease comply with Fannie Mae's then current leasing requirements. Upon receipt of such notice, Owner shall have thirty (30) days (or such longer time as shall be approved by Fannie Mae in its reasonable discretion) to revise such Property Form Lease to comply with Fannie Mae's then current leasing requirements and all leases of such Property entered into on or after the expiration of such thirty (30) day period shall be in the form of such revised Property Form Lease with no material modifications except as disclosed to and approved by Fannie Mae and Servicer in writing; provided however that Owner not be required to amend any leases entered into prior to such date to conform to the revisions to the Property Form Lease. Without the prior written consent of Fannie Mae, Owner shall not enter into a lease for any unit in any Property that: (1) is for a term in excess of one year, including any renewal or extension period unless such renewal or extension period is subject to termination by Owner upon not more than 30 days' written notice; (2) provides for prepayment of more than one month's rent; (3) is entered into in 54 other than the ordinary course of Owner's business; or (4) contains any option or right to purchase, right of first refusal or any other similar provisions. (ac) INDEPENDENT DIRECTOR REQUIREMENTS. The Owner Partnership Agreement currently provides, and at all times during the term hereof shall provide, that no action to either (x) commence a voluntary case under the Federal bankruptcy laws (as now or hereafter in effect) of Owner or (y) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up or composition or adjustment of debts of Owner, shall be taken without the unanimous affirmative vote of each of OP Partner and QRS Partner. In addition, the QRS Organizational Documents currently provide, and at all time during the term hereof shall provide as follows: (i) that QRS Partner shall at all times have at least one Independent Director on its board of directors; (ii) that such Independent Director cannot be removed without the appointment of a successor Independent Director; (iii) that no action requiring unanimous approval of the board of directors of QRS Partner shall be taken in the absence of such Independent Director except for the action of removal and replacement of an Independent Director with another Independent Director; and (iv) that no action to either (x) commence a voluntary case under the Federal bankruptcy laws (as now or hereafter in effect) of either QRS Partner or Owner, or (y) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up or composition or adjustment of debts of either QRS Partner or Owner, shall be taken without the unanimous affirmative vote of the directors of QRS Partner, including the Independent Director. SECTION 2.3 NEGATIVE COVENANTS OF OWNER. Owner enters into the covenants and agreements with Fannie Mae set forth in this section 2.3. Each covenant and agreement shall apply continuously during the term of this Agreement: (a) OTHER ACTIVITIES. Neither Owner, any Nominee Corp. nor QRS Partner shall: (i) either directly or indirectly sell, transfer, exchange or otherwise dispose of any of its assets except as permitted hereunder, by the Mortgages or the Cash Management Agreement; (ii) take any action or omit to take any action that, if taken or omitted, would adversely affect the exclusion of interest on the Bonds from gross income for Federal income tax purposes pursuant to Section 103 of the Code; (iii) engage in any business or activity other than in connection with (x) with respect to Owner, the ownership, management and operation of the Properties, (y) with respect to any Nominee Corp., the ownership, management and operation of the applicable Nominee Property 55 and (z) with respect to QRS Partner, the ownership, management and operation of Owner; (iv) amend the Owner Partnership Agreement, the QRS Organizational Documents or the Nominee Corp. Organizational Documents, as the case may be, in any manner (including, the provisions of the Owner Partnership Agreement and the QRS Organizational Documents relating to the Independent Director or the taking of any action to commence a voluntary case under the Federal bankruptcy laws (as now or hereafter in effect) of either QRS Partner or Owner, or file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up or composition or adjustment of debts of either QRS Partner or Owner), without the prior written consent of Fannie Mae; provided that such consent shall not be unreasonably withheld or delayed if the proposed amendments are reasonable and not inconsistent with Owner's Obligations; (v) dissolve or liquidate in whole or in part; (vi) merge or consolidate with any Person; or (vii) use, or permit to be used, any Property for any uses or purposes other than as a Multifamily Residential Property. (b) NO AMENDMENTS TO TRANSACTION DOCUMENTS. Unless Fannie Mae shall otherwise consent in writing Owner shall not agree to any amendment of, supplement to, waiver of, or modification of, the terms of any Transaction Document; provided, however, if Fannie Mae is not a party to any such Transaction Document and Fannie Mae determines in its discretion that such amendment, supplement waiver or modification does not adversely affect Fannie Mae's interests, then Fannie Mae shall not unreasonably withhold its consent to such amendment, supplement waiver or modification. (c) COMPLIANCE WITH THE TRANSACTION DOCUMENTS. Owner shall not fail to comply with any provision of the Transaction Documents to which it is a party or by which it is bound. (d) VALUE OF SECURITY. Owner shall not take any action which would have a Material Adverse Effect on Owner or have a Material Adverse Impact. (e) ZONING. Owner shall not initiate or consent to any zoning reclassification of any Property or seek any variance under any zoning ordinance or use or permit the use of any Property in any manner that could result in the use becoming a nonconforming use under any zoning ordinance or any other applicable land use law, rule or regulation. 56 (f) LIENS. Owner shall not create, incur, assume or suffer to exist any Lien on any Property or any part of any Property, except the Permitted Liens; (g) SALE. Owner shall not sell, convey, transfer, assign or otherwise relinquish any Property or any part of any Property without the prior written consent of Fannie Mae (which consent may be granted or withheld in Fannie Mae's discretion), or any interest in any Property, other than (i) as may be permitted by the Mortgage Documents with respect to such Property, or (ii) in accordance with the provisions of section 5.2 or section 5.3, or (iii) to enter into Leases for units in a Property to any tenant in the ordinary course of business or (iv) to the extent such conveyance or transfer creates a Permitted Lien. (h) USE OF PROCEEDS. The proceeds from the issuance and sale of the Bonds shall not be used for any purpose other than the purposes set forth in the Related Bond Documents. (i) FIXED RATE; RESET RATE. So long as any Related Fannie Mae Collateral Agreement remains in effect and Fannie Mae has any obligations, direct or contingent, under any Related Fannie Mae Collateral Agreement, Owner shall not direct or cause the interest rate on any Related Bonds to be converted to the Fixed Rate (from the Weekly Variable Rate or the Reset Rate) or to the Reset Rate (from the Weekly Variable Rate or a prior Reset Rate) or to the Weekly Variable Rate (from the Reset Rate) unless Fannie Mae consents to such conversion. Fannie Mae will consent to such conversion if: (i) in the case of a conversion to the Fixed Rate, (A) no Event of Default or Potential Event of Default has occurred and is continuing, (B) Owner complies with the terms and conditions of sections 3.1 and 4.2, and (C) the Fixed Rate applicable to such Related Bonds is equal to or less than the Hedge Rate; (ii) in the case of a conversion to the Reset Rate, (A) no Event of Default or Potential Event of Default has occurred and is continuing, (B) Owner complies with the terms and conditions of sections 3.1 and 4.2, and (C) the Reset Rate on such Related Bonds is equal to or less than the Hedge Rate; and (iii) in the case of a conversion to the Weekly Variable Rate, (A) no Event of Default or Potential Event of Default has occurred and is continuing, and (B) Owner complies with the terms and conditions of sections 3.1 and 4.2. In addition, with respect to the Bond Property described on Exhibit A as Wellington Hill located in Manchester, Hillsborough County, New Hampshire, Fannie Mae's consent to any conversion described in clauses (i), (ii) or (iii) above shall be subject to the additional condition that in connection with such conversion, Fannie Mae shall have received an opinion of bond counsel acceptable to Fannie Mae confirming that such conversion is 57 authorized and permitted under the Related Indenture and the laws of the State of New Hampshire and will not adversely affect the exclusion from gross income for federal income tax purposes of the interest payable on the Related Bonds. (j) PREPAYMENT OF A MORTGAGE LOAN. Notwithstanding anything to the contrary contained in the Transaction Documents, Owner shall not make a voluntary prepayment of any Mortgage Loan that would result in a redemption of all or any part of any Related Bonds pursuant to section 214(a) of the Related Indenture or section 5.2(b) of the Financing Agreement with respect to such Related Indenture unless (i) Owner has deposited with the Related Trustee on or prior to the date on which such Related Trustee will call the applicable Related Bonds for redemption, all amounts required for such redemption, (ii) Owner has received the prior written consent of Fannie Mae; provided that Fannie Mae shall not withhold its consent unless Fannie Mae reasonably determines that all or any part of such prepayment by Owner is not permitted by the terms of any Related Mortgage or may be subject to avoidance or any other recovery or disgorgement pursuant to the Bankruptcy Code, as amended (including sections 544, 547, 549 or 550 thereof) or any other applicable bankruptcy or insolvency law, and (iii) with respect to the prepayment in part or in full of the Facility Amount prior to the seventh anniversary of the Facility, Fannie Mae has received a Prepayment Premium pursuant to the Related Mortgage Note. (k) INDEBTEDNESS. Owner and QRS Partner, collectively, shall not incur or be obligated at any time with respect to aggregate Indebtedness (other than the Mortgage Loans), in excess of $500,000; provided, however, that for purposes of this section 2.3(k), the calculation of Indebtedness shall exclude Indebtedness (A) relating to claims for work, labor, or materials affecting any Property and that (i) consists of current trade liabilities incurred for work commissioned in the ordinary course of Owner's business, (ii) is payable in accordance with customary practices, and (iii) is unsecured or secured by mechanic's or materialmen's liens against such Properties which are released of record or otherwise remedied to Fannie Mae's satisfaction, within thirty (30) days of the date of creation, and (B) unsecured debt the proceeds of which are used to pay for Alterations permitted under the Transaction Documents. (l) SINGLE-PURPOSE ENTITIES. Neither Owner nor QRS Partner shall cease at any time during the term hereof to be a Single-Purpose entity. (m) PRINCIPAL PLACE OF BUSINESS. Owner shall not change its principal place of business or the location of its books and records, each as set forth in section 2.1(a), without first giving thirty (30) days' prior written notice to Fannie Mae. SECTION 2.4 CERTAIN COVENANTS WITH RESPECT TO SLEEPY HOLLOW PROJECT. ------------------------------------------------------- The Owner agrees and covenants with Fannie Mae that, at all times during the term of this Agreement: 58 (a) COMPLIANCE WITH SLEEPY HOLLOW PUBLIC IMPROVEMENTS AGREEMENT AND DEED OF TRUST. Owner shall timely comply with all terms, conditions and requirements (including payment obligations) under and with respect to the Sleepy Hollow Public Improvements Agreement and the Sleepy Hollow Public Improvements Deed of Trust. (b) TERMINATION OF SLEEPY HOLLOW PUBLIC IMPROVEMENTS AGREEMENT AND DEED OF TRUST. Notwithstanding anything herein to the contrary, on or before May 1, 2002, Owner shall deliver to Fannie Mae written confirmation from the City of Kansas City, Missouri (or its successors or assigns with respect to the Sleepy Hollow Public Improvements Agreement and the Sleepy Hollow Public Improvements Deed of Trust) evidencing the termination or release of all of Owner's liability under the Sleepy Hollow Public Improvements Agreement and the Sleepy Hollow Public Improvements Deed of Trust and shall cause the Sleepy Hollow Public Improvements Deed of Trust to be fully satisfied and discharged of record by obtaining appropriate release documentation from City of Kansas City, Missouri (or its successors or assigns with respect to the Sleepy Hollow Public Improvements Agreement and the Sleepy Hollow Public Improvements Deed of Trust) and causing such release documentation to be recorded in the land records of Jackson County, Missouri. ARTICLE III. INTEREST RATE PROTECTION SECTION 3.1 INTEREST RATE PROTECTION. ------------------------ The terms, conditions and provisions of this section 3.1 shall apply to each issue of Related Bonds. (a) INTEREST RATE MODES. To protect against fluctuations in interest rates: (i) no Related Bonds shall initially bear interest at or be converted to the Fixed Rate unless the Fixed Rate applicable to such Related Bonds is equal to or less than the Hedge Rate; (ii) no Related Bonds shall initially bear interest at or be converted to the Reset Rate unless (A) the Reset Rate applicable to such Related Bonds is equal to or less than the Hedge Rate, and (B) the Reset Period with respect to such Related Bonds is at least equal to (x) seven (7) years, if the Related Bonds are issued bearing interest at the Reset Rate (the "INITIAL RESET PERIOD"), or (y) except as provided in section 3.1(c), the lesser of five (5) years or the then remaining term of the Related Bonds, if the Reset Period commences other than on issuance of such Related Bonds; and (iii) no Related Bonds shall initially bear interest at or be converted to the Weekly Variable Rate unless Owner shall obtain, and maintain at all times during which the Related Bonds bear interest at such Weekly Variable Rate, a Hedge in accordance with this section 3.1. (b) VARIABLE RATE HEDGE REQUIREMENTS. If an issue of Related Bonds is issued bearing interest at the Weekly Variable Rate, a Hedge must be in place on the Bond 59 Transaction Closing Date with respect to such issue for a period of not less than seven (7) years from the Bond Transaction Closing Date (the "INITIAL HEDGE PERIOD"). Effective not later than the last day of the Initial Hedge Period, or the last day of any other period that the Weekly Variable Rate and a Hedge are in effect, or the last day of any Reset Period where the Related Bonds will subsequently bear interest at the Weekly Variable Rate, Owner shall either (i) secure a new Hedge for an additional period (a "HEDGE PERIOD") ending not earlier than the earliest of (A) the date which is not earlier than the fifth (5th) anniversary of the effective date of the new Hedge, (B) the date on which the Related Fannie Mae Collateral Agreement terminates or (C) the maturity date of the Related Bonds, (ii) adjust the Related Bonds to a Reset Rate equal to or less than the Hedge Rate, or (iii) convert the Related Bonds to a Fixed Rate equal to or less than the Hedge Rate, in each case under clauses (ii) and (iii) above in accordance with the Related Bond Documents and the related Bond Property Loan Documents. (c) RESET RATE HEDGE REQUIREMENTS. Notwithstanding anything herein to the contrary, any Reset Period other than the Initial Reset Period may be for a period less than five (5) years if, prior to the commencement of such Reset Period, Owner shall obtain and fully pay for a "forward" Swap or Cap that: (i) has its first "calculation period" beginning on the date such Reset Period ends, and ending on a date that is at least five years from the first day of such Reset Period and (ii) otherwise complies with the requirements of this section 3.1. (d) GENERAL HEDGE TERMS AND CONDITIONS. Each Hedge shall be (i) obtained on terms and conditions approved by Fannie Mae in its discretion, (ii) evidenced and governed by Hedge Documents in form and substance acceptable to Fannie Mae in its discretion and (iii) with a counterparty acceptable to Fannie Mae in its discretion (a "COUNTERPARTY"). Except as provided in section 3.1(e), if any Hedge required under this Agreement constitutes a Swap, such Swap shall provide for a fixed rate of interest equal to or less than the Hedge Rate, and if any Hedge required under this Agreement constitutes a Cap, such Cap shall require the Counterparty to make interest payments equal to the amount by which the notional interest rate payable under the terms of the Hedge Documents with respect to such Cap exceeds the Hedge Rate. The notional amount of the Hedge shall be reduced by an amount equal to amounts deposited into the Principal Reserve Fund. (e) SPECIAL HEDGE TERMS AND CONDITIONS. If Owner is unable to obtain a Hedge with a fixed rate of interest (with respect to a Swap) or a notional interest rate (with respect to a Cap) that is equal to or less than the Hedge Rate, Owner may obtain a Hedge (a "SHORTFALL HEDGE") at an interest rate in excess of the Hedge Rate if Owner provides Fannie Mae with Hedge Shortfall Cash Collateral in an amount at least equal to the aggregate amount of all interest that would accrue on the initial notional principal amount of such Shortfall Hedge at an assumed interest rate equal to the difference between the interest rate with respect to such Shortfall Hedge and the Hedge Rate for the full term of such Shortfall Hedge. Such Hedge Shortfall Cash Collateral shall be released by Fannie 60 Mae upon Owner providing either (i) a Hedge that meets the requirements of this section 3.1, or (ii) an Additional Mortgaged Property ("ALTERNATIVE HEDGE SHORTFALL COLLATERAL") as collateral for the Fannie Mae Credit Facility in accordance with section 5.4, provided, that such Alternative Hedge Shortfall Collateral has annual Net Operating Income, as determined by Fannie Mae in its discretion, at least equal to 125% of the product of (A) the difference between the actual hedge rate (i.e. the actual fixed rate payable under a Swap or the notional interest rate for a Cap) of the Shortfall Hedge and the Hedge Rate, multiplied by (B) the outstanding amount of Related Bonds in the Facility with respect to which such Hedge is required. Such Hedge Shortfall Cash Collateral or Alternative Hedge Shortfall Collateral shall be released by Fannie Mae upon the expiration of the Hedge Period with respect to the Shortfall Hedge, provided, however, that if the Related Bonds will bear interest at the Weekly Variable Rate or in a Reset Period of less than five (5) years, prior to any release of such Hedge Shortfall Cash Collateral or Alternative Hedge Shortfall Collateral, Owner shall have obtained a new Hedge with respect to such Related Bonds satisfying the requirements of this section 3.1. (f) SWAP PAYMENT TERMS. Under each Swap arrangement, if any, the Counterparty shall pay a rate based on the PSA Municipal Swap Index (as defined below) and Owner shall pay a fixed rate to the Counterparty, in each case based on the notional amount of the Swap. If the PSA Municipal Swap Index is not published on any reset date under the Swap, the Counterparty must determine an appropriate index as a substitute for the PSA Municipal Swap Index on each such reset date. The index so determined shall equal the prevailing rate determined by the Counterparty for bonds that are rated in the highest short-term rating category by the Rating Agencies in respect of issuers of not less than five "high grade" component issuers selected by the Counterparty which shall include, without limitation, issuers of general obligation bonds, and that are subject to tender by holders thereof for purchase on not more than seven (7) days notice and the interest on which is (i) variable, determined on a weekly basis, (ii) excludable from gross income for federal income tax purposes, and (iii) not subject to a "minimum tax" or other similar tax. The PSA Municipal Swap index rate is the rate determined on the basis of an index based upon the weekly interest rate resets of tax- exempt variable rate issues included in a database maintained by Municipal Market Data which meet specific criteria established by the Public Securities Association. (g) SECURITY INTEREST IN HEDGE PAYMENTS. Fannie Mae shall be granted an enforceable, perfected, first priority lien on and security interest in each Hedge, net payments due under the Hedge (including scheduled and termination payments) and each Custodial Account (as defined below) in order to secure Owner's obligations to Fannie Mae under this Agreement pursuant to a Hedge Security Agreement to be delivered by Owner to Fannie Mae (i) no later than the Bond Transaction Closing Date with respect to each Hedge required to be obtained for the Initial Hedge Period, and (ii) no later than the commencement date of each Hedge Period with respect to each Hedge required to be obtained after such Bond Transaction Closing Date. Pursuant to the terms of the Hedge Security Agreement with respect to each Hedge, the Counterparty with respect to such 61 Hedge shall make all net payments under such Hedge (including any Termination Payments due from a Counterparty upon termination of such Hedge) directly to a custodial account (the "CUSTODIAL ACCOUNT") designated by Fannie Mae pursuant to such Hedge Security Agreement. As provided in the applicable Hedge Security Agreement, each Custodial Account with respect to a Swap shall be established in Fannie Mae's name and each Custodial Account with respect to a Cap shall be established in the name of the Related Trustee. Pursuant to the terms of the Cash Management Agreement, all payments into each Custodial Account with respect to a Swap shall be required to be deposited into the Central Account and treated as Cash Collateral. (h) CHANGE IN HEDGE. Owner may change the type of Hedge (i.e., from a Swap to a Cap or from a Cap to a Swap) which is in place at any time with respect to the applicable Related Bonds so long as the terms and conditions of the replacement Hedge, the Hedge Documents, the Hedge Security Agreement and the new counterparty comply with the terms and conditions of this Agreement, including any consent or approval rights of Fannie Mae. (i) TERMINATION. Owner shall not terminate any existing Hedge unless (i) either (x) Owner shall have obtained Fannie Mae's prior written consent to such termination, or (y) no Event of Default or Potential Event of Default then exists and after such termination Owner will be in compliance with all requirements under this Agreement relating to Hedges and Hedge counterparties, and (ii) Owner shall have paid all "breakage" and termination fees (collectively, "TERMINATION PAYMENTS") due under the applicable Hedge Documents. (j) PERFORMANCE UNDER HEDGE DOCUMENTS. Owner agrees to comply fully with, and to pay and otherwise perform when due, its obligations under all applicable Hedge Documents and all other agreements evidencing, governing and/or securing any Hedge arrangement contemplated under this section 3.1; provided, however, that Owner shall not exercise without Fannie Mae's prior written consent, and shall exercise at Fannie Mae's direction, any rights or remedies permitted in accordance with the terms of any Hedge Documents, including any right of termination. Notwithstanding anything herein to the contrary, Fannie Mae shall not have any liability, responsibility, obligation or accountability for the performance, payment or remittance of any of Owner's obligations or a Counterparty's obligations under any Hedge or Hedge Document; provided, however, that this provision shall not be interpreted to limit Fannie Mae's obligations under the Related Fannie Mae Collateral Agreements or any other Transaction Document to which Fannie Mae is a party. (k) FANNIE MAE RIGHT TO CONVERT TO RESET RATE, FIXED RATE. Owner shall with respect to each issue of Related Bonds, at least seventy (70) days prior to the expiration date of each Initial Hedge Period and each subsequent Hedge Period, as the case may be, give notice to Fannie Mae that it will either (i) secure a new Hedge with respect to such Related Bonds, or (ii) adjust such Related Bonds to a Reset Rate for a period not 62 shorter than the Hedge Period except as permitted by section 3.1(c), or (iii) convert such Related Bonds to the Fixed Rate, in each case in accordance with this section 3.1. If pursuant to Owner's election a Hedge will be required for any upcoming Hedge Period, then (A) at least thirty (30) days prior to the commencement of the upcoming Hedge Period, Owner shall notify Fannie Mae of the type of Hedge to be obtained, the Hedge counterparty, and the term of the Hedge, and (B) at least seven (7) Business Days prior to the commencement of the upcoming Hedge Period, Owner shall provide Fannie Mae with evidence satisfactory to Fannie Mae that the Hedge has been obtained. If Owner fails to provide the foregoing notice and/or satisfactory evidence, Fannie Mae is hereby granted the right to direct on behalf of Owner that the interest rate on such Related Bonds be (x) adjusted to a Reset Rate pursuant to the Related Indenture, (y) converted to a Fixed Rate pursuant to the Related Indenture, or (z) adjusted to, or remain at, the Weekly Variable Rate pursuant to the Related Indenture, without a Hedge being in place (without waiving any right to declare an Event of Default under this Agreement because of Owner's failure to comply with the requirements of this section 3.1). Fannie Mae shall have the right at any time to revoke any prior direction it may give in connection with any proposed adjustment or conversion of the interest rate on any issue of Related Bonds as contemplated above in this section 3.1, without waiving any of its rights under this Agreement. A copy of any such direction or revocation of a direction shall be given to Owner promptly after it is issued. Fannie Mae shall have the further right, in its discretion, to take no action upon Owner's failure to provide timely notice and/or evidence as required by this section or otherwise to comply with this section, without waiving any of its rights under this Agreement. Owner hereby appoints Fannie Mae, through any duly authorized officer of Fannie Mae, as Owner's attorney-in-fact, with full authority in the place and stead of Owner and in the name of Owner or otherwise, from time to time in Fannie Mae's discretion, to take any action and to execute any instrument which Fannie Mae may deem necessary or advisable to accomplish the purposes of this section 3.1. Owner agrees that the power of attorney established pursuant to this section 3.1 shall be deemed coupled with an interest and shall be irrevocable. ARTICLE IV. FANNIE MAE REIMBURSEMENT; FEES; INDEMNIFICATION SECTION 4.1 REIMBURSEMENT OBLIGATIONS UNDER RELATED FANNIE MAE -------------------------------------------------- COLLATERAL AGREEMENTS. - - --------------------- (a) REIMBURSEMENT OBLIGATIONS UNDER RELATED FANNIE MAE COLLATERAL AGREEMENTS. Owner unconditionally promises and agrees that: (i) Advances other than for Purchased Bonds. By 2:00 p.m. Washington, D.C. time on each date on which Fannie Mae shall have provided an Advance (other than an Advance with respect to Related Purchased Bonds), Owner 63 shall, without notice or demand, pay Servicer for remittance to Fannie Mae, an amount equal to the amount of such Advance; (ii) Withdrawals other than for Purchased Bonds. After first paying all amounts payable pursuant to subsection (i) above, by 2:00 p.m., Washington, D.C. time on each date on which the Related Trustee with respect to any Related Bonds shall have made a Withdrawal (other than a Withdrawal with respect to Related Purchased Bonds), Owner shall, without notice or demand, pay Servicer, for remittance to such Related Trustee for deposit into the Principal Reserve Fund with respect to such Related Bonds, an amount equal to the amount of such Withdrawal; (iii) Advances With Respect to Related Purchased Bonds. In reimbursement for an Advance with respect to Related Purchased Bonds, by 2:00 p.m. Washington, D.C. time on (A) the effective date of any Alternate Credit Facility or (B) the first to occur of the date (1) on which the Tendered Bonds purchased with such Advance are (x) remarketed by the Remarketing Agent with respect to such Related Bonds and the proceeds of the remarketing are delivered to the Related Trustee (but only to the extent of such remarketing proceeds), or (y) redeemed or otherwise paid in full and canceled or (2) on which the Related Fannie Mae Collateral Agreement either terminates in full or terminates as a liquidity facility for the Related Bonds or (3) which is the last day of the Remarketing Period with respect to such Related Purchased Bonds, Owner shall, without notice or demand, pay Servicer for remittance to Fannie Mae, an amount equal to the amount of such Advance then outstanding; (iv) Withdrawals With Respect to Related Purchased Bonds. In reimbursement for a Withdrawal with respect to Related Purchased Bonds, by 2:00 p.m. Washington, D.C. time on (A) the effective date of any Alternate Credit Facility or (B) the first to occur of the date (1) on which the Tendered Bonds purchased with such Withdrawal are (x) remarketed by the Remarketing Agent with respect to such Related Bonds and the proceeds of the remarketing are delivered to the Related Trustee (but only to the extent of such remarketing proceeds), or (y) redeemed or otherwise paid in full and canceled or (2) on which the Related Fannie Mae Collateral Agreement either terminates in full or terminates as a liquidity facility for the Related Bonds or (3) the last day of the Remarketing Period with respect to such Related Purchased Bonds, Owner shall, without notice or demand, pay Servicer, for remittance to the Related Trustee for deposit into the Principal Reserve Fund with respect to the Related Bonds, an amount equal to the amount of such Withdrawal then outstanding; and (v) Activity Fee. Owner shall, without notice or demand, pay Servicer for remittance to Fannie Mae the Activity Fee, pursuant to section 4.4(b) hereof, with respect to (A) the amount outstanding from time to time of all Advances and (B) the amount outstanding from time to time of all Withdrawals described in 64 section 4.1(a)(ii), in each case until such amounts have been fully and completely paid, provided, however, with respect to Advances made to purchase Related Purchased Bonds, the Activity Fee shall be due and payable while such Advance has not been reimbursed by Owner (or the Principal Reserve Fund has not been replenished, as the case may be) on the first Business Day of each month and on the date such Advance is reimbursed in full. (b) CREDITS RELATING TO REMARKETING PROCEEDS AND THE CANCELLATION OF PURCHASED BONDS. Owner's obligation to reimburse Fannie Mae and/or replenish the Principal Reserve Fund for amounts described in clauses (iii), (iv) and (v) of section 4.1(a) to the extent Advances or Withdrawals relate to Related Purchased Bonds shall be reduced as and to the extent that remarketing proceeds become available and are applied to such reimbursement and/or replenishment. In addition, the obligation to replenish a Withdrawal which was used to purchase Related Purchased Bonds shall be satisfied upon the date such Related Purchased Bonds are canceled; provided that so long as no Event of Default has occurred and is continuing, no such cancellation may occur during the Remarketing Period without Owner's consent. (c) FUNDS DEEMED ADVANCED UNDER RELATED FANNIE MAE COLLATERAL AGREEMENTS. Owner and Fannie Mae acknowledge and agree that any reference in this Agreement to payments made under any Related Fannie Mae Collateral Agreement or to the provision by Fannie Mae of funds under any Related Fannie Mae Collateral Agreement (or words of similar import) shall, for all purposes under this Agreement, including Owner's obligation to reimburse Fannie Mae and to pay the Activity Fee, be construed to refer, in addition, to any and all funds that, pursuant to any written agreement between the Servicer and Fannie Mae, are advanced by the Servicer or which otherwise would have been required to be advanced by Fannie Mae under any Related Fannie Mae Collateral Agreement but for the advance of the Servicer. No agreement between the Servicer and Fannie Mae pursuant to which the Servicer may advance funds on behalf of Fannie Mae shall be construed to create a guaranty or other surety obligation by the Servicer with respect to Owner's Obligations. SECTION 4.2 FEES AND EXPENSES. ----------------- In addition to Owner's obligations set forth in section 4.1 and in the other Transaction Documents, Owner hereby agrees absolutely and unconditionally to pay, or cause to be paid, to Fannie Mae or Servicer, as the case may be, the following: (a) any and all reasonable fees, costs, charges and expenses (including the reasonable fees and expenses of attorneys, accountants and other experts) which Fannie Mae or Servicer may pay or incur in connection with any payment under any Related Fannie Mae Collateral Agreement, including payments of any fees and charges in connection with any accounts established to facilitate payments under any Related Fannie Mae Collateral 65 Agreement, or the performance of Fannie Mae's obligations under any Related Fannie Mae Collateral Agreement; (b) any and all reasonable out-of-pocket fees, costs, charges and expenses (including the reasonable fees and expenses of attorneys, accountants and other experts) which Fannie Mae may pay or incur in connection with the approval and documentation of any Hedge arrangement; (c) the amount of any reasonable out-of-pocket fees, costs, charges or expenses (including fees and expenses of attorneys, accountants and other experts) incurred by Fannie Mae or Servicer in connection with the administration of this Agreement or any of the other Transaction Documents; (d) the amount of any out-of-pocket fees, costs, or charges or expenses (including the reasonable fees and expenses of attorneys, accountants and other experts) incurred by Fannie Mae or Servicer in connection with the preservation of rights or remedies under this Agreement or any of the other Transaction Documents; (e) the amount of any out-of-pocket fees, costs, or charges or expenses (including the reasonable fees and expenses of attorneys, accountants and other experts) incurred by Fannie Mae or Servicer, if an Event of Default has occurred and is continuing, in connection with the enforcement of this Agreement or any of the other Transaction Documents or in connection with the foreclosure upon, sale of or other disposition of any security granted pursuant to the Transaction Documents; (f) any and all reasonable fees, costs, charges and expenses (including the reasonable fees and expenses of attorneys, accountants and other experts) incurred by Fannie Mae or Servicer in connection with the disbursement or application of insurance or condemnation awards, proceeds, payments or damages to the costs of restoration and repair of any Property; (g) any payments or advances (other than Advances and Withdrawals) made by Fannie Mae or Servicer on behalf of Owner pursuant to any of the Transaction Documents; (h) all reasonable out-of-pocket expenses incurred in connection with or related to the execution and delivery of the Related Fannie Mae Collateral Agreements, the sale of the Bonds or the Obligations and the preparation and review of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, including fees payable to any agencies rating the Bonds or the Obligations from which ratings were requested and received, any tax or governmental charge imposed in connection with the execution and delivery of the Related Fannie Mae Collateral Agreements and the reasonable fees and disbursements of Fannie Mae's and Servicer's counsel and accountants, including reasonable out-of-pocket fees and expenses relating to 66 any (i) amendments, consents or waivers to this Agreement or any of the other Transaction Documents (whether or not any such amendments, consents or waivers are entered into), (ii) requests to evaluate any substitute or additional collateral, (iii) proposed Hedge arrangement, (iv) proposed or actual change in the mode of interest borne by the Bonds, or (v) proposed or actual release or substitution of a Property; and (i) all documentary stamp, recording, transfer, mortgage, intangible or filing or other taxes or fees and any and all liabilities with respect to, or resulting therefrom which are payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of or filing of record, recordation, release or discharge of, this Agreement, the Mortgages, or any other Transaction Document; and (j) interest on any and all amounts referred to in paragraphs (a) through (i) of this section 4.2 from the date when due under this Agreement until payment of all such amounts in full, payable at the Activity Rate, in immediately available funds. All amounts to be paid pursuant to clauses (a) through (j) of this section 4.2 shall be payable separate and apart from principal, interest and other amounts due under the Mortgage Loans. Prior to an Event of Default or a Potential Event of Default all such amounts shall be due and payable within thirty (30) days of Owner's receipt of written demand therefor and upon the occurrence of and during the continuance of an Event of Default or a Potential Event of Default all such amounts shall be due and payable on demand. So long as no Potential Event of Default or Event of Default shall exist and be continuing, Fannie Mae will use reasonable efforts to avoid unnecessary duplication of third party fees and expenses. Upon request by Owner, Fannie Mae will provide reasonable supporting back-up documentation for invoiced fees and expenses. SECTION 4.3 PAYMENT OF FEES AND EXPENSES. ---------------------------- (a) BOND FEES. In addition to the foregoing, Owner shall pay, or cause to be paid, when due, the ongoing fees and expenses of the Issuer, the Related Trustee, the Remarketing Agent, any tender agent and any rebate analyst (collectively, the "BOND FEES") with respect to each issue of Related Bonds. Such Bond Fees shall be paid by Owner in accordance with the terms of the Related Bond Property Loan Documents and the Related Bond Documents. The Bond Fees, as of the Restatement Closing Date with respect to each issue of Related Bonds, are set forth on Exhibit A. (b) FANNIE MAE ADVANCES. Fannie Mae shall have the right but not the obligation to pay any fee or expense due and owing by Owner pursuant to sections 4.2 and 4.3 or any Financing Agreement on behalf of Owner if Owner fails to pay such fee or expense when due, unless Owner is contesting such fee in good faith and otherwise in accordance with the terms of the Transaction Documents. If Fannie Mae pays any such fee 67 or expense, Owner shall pay such amount and the Activity Fee relating to such amount to Fannie Mae in the same manner as any Advance. (c) PREPAYMENT PREMIUM. Owner agrees to pay the Prepayment Premium pursuant to each Related Mortgage Note (i) whether prepayment of such Related Mortgage Note is voluntary or involuntary (in connection with acceleration of the unpaid principal balance of such Related Mortgage Note) or the Related Mortgage is satisfied or released by foreclosure (whether by power of sale or judicial proceeding) and in lieu of foreclosure or by any other means and (ii) in the event that an Alternate Credit Facility is provided to the Related Trustee in substitution for the Related Fannie Mae Collateral Agreement. SECTION 4.4 FACILITY AND ACTIVITY FEES. -------------------------- In addition to any other fees and amounts payable to Fannie Mae under this Agreement or the other Transaction Documents, the following fees shall be payable by Owner to Fannie Mae with respect to the Related Fannie Mae Collateral Agreements, the Mortgage Documents and the Bonds: (a) FACILITY FEE. Owner shall, in consideration of Fannie Mae's entering into the Related Fannie Mae Collateral Agreements and so long as any Related Fannie Mae Collateral Agreement shall remain in effect, be responsible for paying to Servicer, for remittance to Fannie Mae, a facility fee (the "FACILITY FEE"). The Facility Fee shall be calculated and is payable with respect to each series of Related Bonds as follows: (i) the product of the Credit Enhancement Component multiplied by the difference between (x) the outstanding principal balance of the Mortgage Loan with respect to such Related Bonds and (y) the sum of (A) the Allocated Release Price Cash Collateral, if any, with respect to such Related Bonds, plus (B) the principal amount (without regard to earnings) from time to time on deposit in the Principal Reserve Fund with respect to such Related Bonds; plus (ii) the product of the Reserve Component multiplied by the sum of (x) the Allocated Release Price Cash Collateral, if any, with respect to such Related Bonds, plus (y) the principal amount (without regard to earnings) from time to time on deposit in the Principal Reserve Fund with respect to such Related Bonds, if any; plus (iii) for any period during which either (x) the Weekly Variable Rate is in effect with respect to such Related Bonds, or (y) the Reset Rate is in effect for a Reset Period less than five (5) years with respect to such Related Bonds, the product of .125% per annum, or 12.5 basis points, multiplied by the outstanding principal balance of the Mortgage Loan with respect to such Related Bonds; plus 68 (iv) the product of the Servicing Fee Component multiplied by the outstanding principal amount of the Mortgage Loan with respect to such Related Bonds; plus The Facility Fee shall be calculated as of the first (1st) day of each month based on the amount then on deposit in the Principal Reserve Fund for each Mortgage Loan. The Facility Fee shall be payable monthly in arrears, on the first day of each month, as part of the Mortgage Note Rate (but without duplication) under each of the Related Mortgage Notes. The initial payment for the month in which the applicable Related Bonds are issued shall be a prorated amount if the applicable Related Bonds are issued on other than the first day of a month, such proration to be determined by multiplying the fee otherwise payable for the entire month by a fraction, the numerator of which is the number of days in such month from and including the date on which the applicable Related Bonds are issued to and including the last day of the month and the denominator of which is the number of days in such month. (b) ACTIVITY FEE. In addition to the Facility Fee, Owner shall, in consideration of Fannie Mae providing the Fannie Mae Collateral Agreements, pay to Servicer, for the account of and remittance to Fannie Mae, an activity fee (the "ACTIVITY FEE") with respect to each Advance and each Withdrawal (other than Withdrawals with respect to Related Purchased Bonds). The Activity Fee shall, with respect to each Advance and each Withdrawal (other than Withdrawals with respect to Related Purchased Bonds), be an amount equal to the amount of such Advance or Withdrawal, as the case may be, outstanding from time to time multiplied by the Activity Rate and further multiplied by a fraction, the numerator of which is the number of days that such Advance or Withdrawal is outstanding (i.e., until Fannie Mae is reimbursed for such Advance or until the Principal Reserve Fund is replenished for such Withdrawal, in either case in accordance with section 4.1) and the denominator of which is 365 days or 366 days, as applicable. The Activity Fee shall be payable so long as the Advance or Withdrawal (other than Withdrawals with respect to Related Purchased Bonds) remains unreimbursed, in whole or in part, to Fannie Mae. Fannie Mae shall be deemed to have been reimbursed if and when a payment is made to Servicer, or the Principal Reserve Fund is replenished, as the case may be, in accordance with the terms of this Agreement. The Activity Fee shall not be due to Fannie Mae if Fannie Mae is reimbursed for all funds provided under the Related Fannie Mae Collateral Agreement by 2:00 p.m., Washington, D.C. time, on the date on which Fannie Mae shall have provided such funds. Any reimbursement payment received after 2:00 p.m., Washington, D.C. time, shall be treated as if it were paid at 9:00 a.m., Washington, D.C. time, on the next Business Day. The Activity Fee shall be payable initially on the first (1st) day of each month following any Advance or Withdrawal and shall be payable on the first (1st) day of each successive month for so long as such Advance or Withdrawal shall remain outstanding. Notwithstanding anything herein to the contrary: (i) Owner shall not be required to pay the Activity Fee on Withdrawals with respect to Related Purchased Bonds; and 69 (ii) so long as no Event of Default exists, each installment of the Activity Fee payable in connection with an Advance with respect to Related Purchased Bonds shall be reduced by an amount equal to the Facility Fee Credit (as defined below). For purposes of this section 4.4(b), the "FACILITY FEE CREDIT" shall equal: (A) the Facility Fee paid by Owner with respect to the time period for which each such Activity Fee installment is due minus the portion of such Facility Fee attributable to the Servicing Fee Component; multiplied by (b) a fraction, the numerator of which is the amount of such Advance and the denominator of which is the outstanding principal balance of the Mortgage Loan with respect to such Related Purchased Bonds. The Activity Fee shall be otherwise due and payable as provided in this Agreement. Upon receipt by Servicer, the Activity Fee shall be remitted immediately to Fannie Mae. SECTION 4.5 INDEMNIFICATION. --------------- (a) INDEMNIFICATION. Owner hereby releases Fannie Mae, Servicer and their respective officers, directors, members, shareholders, officials, agents, independent contractors and employees and each of them and each Person, if any, who controls Fannie Mae or Servicer within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (each an "INDEMNIFIED PARTY"), from, and covenants and agrees to indemnify, hold harmless and defend each such indemnified party from and against, any and all claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs, charges or expenses (including reasonable fees and expenses of attorneys, consultants and auditors and costs of investigation) and obligations whatsoever to the extent the same are or result in actual loss, cost or expense (but excluding consequential damages) to the indemnified party (herein collectively referred to as "LIABILITIES") of any nature arising out of, relating to or in connection with: (i) the transactions provided for in this Agreement or the other Transaction Documents or otherwise in connection with any Property, the Bonds, the Mortgage Loans or the execution or amendment of any document relating thereto; (ii) the approval (A) by the Related Issuers of the refinancing of the Bond Properties or (B) of the making of the Mortgage Loans; (iii) any act or omission of Owner or any of its partners, agents, servants, employees or licensees, in connection with the Mortgage Loans, the Properties, this Agreement or the other Transaction Documents; (iv) the issuance and sale, resale or remarketing of any Bonds or any certifications or representations made by any person (other than any Issuer or the party seeking indemnification in connection therewith), related to (A) any untrue statement or alleged untrue statement of a material fact contained in any offering documents relating to any of the Bonds or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (other than with respect to information provided or omitted to be provided by Fannie Mae or Servicer for the respective sections of such offering documents relating to Fannie Mae or Servicer) or (B) the violation by Owner of any Federal, state or local securities or real estate laws, rules 70 or regulations in connection with the issuance, offer and sale of any of the Bonds; (v) the operations of any Property, or the conditions, occupancy, use, possession, conduct or management of work done in or about, or from the planning, design, acquisition, installation or construction of any Property, or any part of any Property; (vi) the exercise by Fannie Mae or Servicer of their respective powers or duties under this Agreement or any other Transaction Document; (vii) any Related Trustee's acceptance or administration of the trusts created by the Related Indenture and the exercise of its powers or duties thereunder, and under any Regulatory Agreement or any other agreements in connection therewith to which it is a party; (viii) errors, omissions, interruptions, losses or delays in transmission or delivery of any messages by mail, cable, telegraph, telex, telephone or otherwise; (ix) any other circumstances whatsoever in making or failing to make payment under any Related Fannie Mae Collateral Agreement; (x) the Sleepy Hollow Public Improvements Agreement or the Sleepy Hollow Public Improvements Deed of Trust or from any claim, action, proceeding, judgment, order or process arising from, based upon or growing out of the Sleepy Hollow Public Improvements Agreement or the Sleepy Hollow Public Improvements Deed of Trust; and (xi) all reasonable costs, counsel fees, expenses or liabilities incurred in connection with any such claim or proceeding referred to in clauses (i) through (x) above; provided, however, that the foregoing indemnification shall not be effective to the extent such Liabilities are caused by the gross negligence, willful misconduct or bad faith breach of an express contractual payment obligation of an indemnified party. Neither Fannie Mae nor Servicer shall have any liability to Owner or to any other person as a result of any reduction of the credit rating of any of the Bonds or any deterioration of Fannie Mae's financial condition, nor shall any such reduction or deterioration reduce or diminish in any respect Owner's obligations under this Agreement. In the event that any action or proceeding is brought against any indemnified party with respect to which indemnity may be sought hereunder, Owner, upon written notice from the indemnified party, shall assume the investigation and defense thereof, including the employment of counsel selected by Owner, but acceptable to the indemnified party, and shall assume the payment of all expenses related thereto, with full power to litigate, compromise or settle the same in its discretion, provided that if such settlement or compromise shall contain or infer an admission regarding, or relating in any way to, any indemnified party, such indemnified party shall have the right to review and approve or disapprove any such compromise or settlement. Each indemnified party shall have the right, if such indemnified party shall conclude in good faith that a conflict of interest exists, to employ separate counsel in any such action or proceeding and participate in the investigation and defense thereof, and Owner shall pay the reasonable fees and expenses of such separate counsel. If separate counsel are employed as described above, Owner and any such indemnified party agree to cooperate as may reasonably be required in order to ensure the proper and adequate defense of any such action, suit or proceeding, including making available to each other, and their counsel and accountants, all books and records relating to such action, suit or proceeding. If any such counsel determines that the rendering of such assistance will adversely affect the defense or interests of its client, such counsel shall not be required to comply with the terms of the immediately preceding sentence. 71 Notwithstanding the foregoing, upon any permitted transfer of any Property to another Person, or the release of any Property from the lien of any Mortgage, or the foreclosure of the lien of any Mortgage, Owner shall remain obligated to indemnify each indemnified party pursuant to this section 4.5 with respect to (but only with respect to) acts occurring prior to the date of permitted transfer of legal title to such Property or release of such Property from the lien of any Mortgage or foreclosure of the lien of any Mortgage, as applicable (irrespective of when a claim is actually made), subject to subsection 4.5(b). (b) SURVIVAL. The indemnity provisions of this section 4.5 shall survive the termination of this Agreement and foreclosure or release of the Mortgages or other disposition of the Properties until the sooner of the expiration of the applicable statute of limitations or six years following such termination, foreclosure or release, as applicable. SECTION 4.6 LIABILITY OF OWNER. ------------------ Subject to section 4.14, the obligations of Owner under this Agreement shall be absolute, unconditional and irrevocable and shall be paid and performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including the following circumstances: (a) any invalidity or unenforceability of this Agreement or any of the other Transaction Documents or any other agreement or instrument related to such Transaction Documents; (b) any amendment or waiver of, or any consent to or departure from, the terms of this Agreement, any Related Fannie Mae Collateral Agreement, any of the other Transaction Documents, or any other agreement or instrument related to the Transaction Documents, any extensions of time or other modifications of the terms and conditions for any act to be performed in connection with this Agreement, any Related Fannie Mae Collateral Agreement, or any of the other Transaction Documents, other than any amendment, waiver, consent, extension or modification entered into in strict accordance with the terms of this Agreement provided that any of the foregoing are made in accordance with the provisions of the relevant document; (c) the existence of any claim, set-off, defense or other right which Owner may have at any time against any Issuer, any Related Trustee, any tender agent, Fannie Mae, Servicer, Remarketing Agent or any other Person, whether in connection with this Agreement, any of the other Transaction Documents, any Property, or any unrelated transaction; (d) the surrender or impairment of any security for the performance or observance of any of the agreements or terms of this Agreement or the other Transaction Documents; (e) defect in title to any Property, any acts or circumstances that may constitute failure of consideration, destruction of, damage to or condemnation of any Property, commercial frustration of purpose, or any change in the tax or other laws of the United States of America or of the State or any political subdivision of either; (f) the breach by any Issuer, any Related Trustee, any tender agent, Servicer, Remarketing Agent, Fannie Mae or any other Person of its obligations under any Transaction Document or (g) any other circumstance, happening or omission whatsoever. 72 SECTION 4.7 FANNIE MAE AND SERVICER NOT LIABLE. ---------------------------------- Neither Fannie Mae, Servicer nor any of their officials, officers, directors, members, shareholders, agents, independent contractors or employees shall be responsible for or liable to Owner, its Affiliates or any of Owner's or its Affiliates' members, partners, Affiliates, independent contractors or employees for (i) any act or omission of Fannie Mae, Servicer or any other Person made in good faith with respect to the validity, sufficiency, accuracy or genuineness of documents, or of any endorsement(s) thereon (except for documents and endorsements provided by Fannie Mae or Servicer, as applicable), even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged, (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Related Fannie Mae Collateral Agreement or the rights or benefits under any Related Fannie Mae Collateral Agreement or proceeds under any Related Fannie Mae Collateral Agreement in whole or in part, that may prove to be invalid or ineffective for any reason, (iii) failure of any Related Trustee to comply fully with all conditions required in order to effect any Advance, (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, telecopier or otherwise; (v) for any loss or delay in the transmission or otherwise of any document or draft required in order to make any Advance, or (vi) any consequences arising from causes beyond the control of Fannie Mae. In furtherance and not in limitation of the foregoing, Fannie Mae (or Servicer) may accept documents that appear on their face to be valid and in order, without any responsibility for further investigation. None of the above shall affect, impair, or prevent the vesting of rights or powers of Fannie Mae or Servicer under this Agreement. In furtherance and extension and not in limitation of the specific provision set forth above, any action taken or omitted by Fannie Mae under or in connection with any Transaction Document or any related certificates or other documents shall be binding upon Owner, the Related Trustee, the Issuer, the Remarketing Agent and the tender agent and shall not under the Related Fannie Mae Collateral Agreement put Fannie Mae under any resulting liability to any of them except to the extent that such action or omission of Fannie Mae is attributable to Fannie Mae's gross negligence, willful misconduct or bad faith breach of an express contractual payment obligation. SECTION 4.8 WAIVERS AND CONSENTS. -------------------- OWNER AGREES TO BE BOUND BY THIS AGREEMENT AND TO THE EXTENT PERMITTED BY LAW, (A) WAIVES AND RENOUNCES ANY AND ALL REDEMPTION AND EXEMPTION RIGHTS AND THE BENEFIT OF ALL VALUATION AND APPRAISAL PRIVILEGES AGAINST THE INDEBTEDNESS AND OBLIGATIONS EVIDENCED BY THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS OR BY ANY EXTENSION OR RENEWAL OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS; (B) WAIVES PRESENTMENT AND DEMAND FOR PAYMENT, NOTICES OF NONPAYMENT AND OF DISHONOR, PROTEST OF DISHONOR AND NOTICE OF PROTEST; (C) WAIVES ALL NOTICES IN CONNECTION WITH THE DELIVERY AND 73 ACCEPTANCE OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND ALL OTHER NOTICES IN CONNECTION WITH THE PERFORMANCE, DEFAULT OR ENFORCEMENT OF THE PAYMENT OF ANY OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS EXCEPT AS REQUIRED BY THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS; (D) AGREES THAT ITS LIABILITIES UNDER THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS SHALL BE UNCONDITIONAL AND WITHOUT REGARD TO THE LIABILITY OF ANY OTHER PERSON; AND (E) AGREES THAT ANY CONSENT, WAIVER OR FORBEARANCE UNDER THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS WITH RESPECT TO AN EVENT SHALL OPERATE ONLY FOR SUCH EVENT AND NOT FOR ANY SUBSEQUENT EVENT. SECTION 4.9 SUBROGATION. ----------- Owner acknowledges that Fannie Mae is to be fully subrogated to the extent of any payment made by Fannie Mae pursuant to any Related Fannie Mae Collateral Agreement, any additional interest due on any late payment, to the rights of the Related Trustee and the respective Bondholders to any moneys paid or payable under the Related Bonds and all security therefor under the Related Indenture. Owner agrees to such subrogation and further agrees to execute such instruments and to take such actions as, in the judgment of Fannie Mae, are necessary to evidence such subrogation and to perfect the rights of Fannie Mae to the extent necessary to provide reimbursement hereunder. SECTION 4.10 APPLICATION OF PAYMENTS. ----------------------- Payments made by Owner in respect of the Obligations shall be applied in the manner provided in the Mortgage Documents. SECTION 4.11 PLEDGE OF RIGHTS TO CERTAIN FUNDS AND INVESTMENTS. ------------------------------------------------- To secure Owner's obligations under this Agreement, to the extent, if any, that Owner retains an interest in and to all funds and accounts and investments of funds and accounts now or hereafter held by: (a) the Related Trustees under the Related Indentures as security for the payment of the Bonds, including the Principal Reserve Funds, and any and all loan funds, escrow funds, revenue funds, debt service funds, reserve funds, redemption funds and other funds and securities and other instruments comprising investments of any of the foregoing and interest and other income derived from any of the foregoing held as security for the payment of the Bonds, Owner hereby pledges and assigns to Fannie Mae and grants to Fannie Mae a security interest in such funds, accounts, and investments which pledge, assignment and grant shall be subject only to the rights of each Related Trustee under the Related Indenture) and (b) by Servicer with respect to payments payable under any of the Transaction Documents including the Replacement Reserve Funds and any and all escrow funds, completion repair funds and other funds, and any securities 74 and other instruments comprising investments of any of the foregoing and interest income and other proceeds derived from any of the foregoing. Owner covenants and agrees that it will defend Fannie Mae's rights and security interests created by this section 4.11 against the claims and demands of all Persons except the Related Trustee. In addition to its other rights and remedies under this Agreement and the other Transaction Documents, Fannie Mae shall have all the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law with respect to the security interests created by this section 4.11, subject only to the rights of the Related Trustees under the Related Indentures. Fannie Mae's rights under this section 4.11 are in addition to, and not in lieu of, its rights and remedies described elsewhere in this Agreement. SECTION 4.12 PURCHASED BONDS. --------------- Owner acknowledges that any Purchased Bonds (as defined in the Related Indenture) will be purchased for and registered in the name of Owner, to the extent that Fannie Mae has provided the funds to purchase such Purchased Bonds or moneys in the applicable Principal Reserve Fund were used for such purposes and will be pledged to Fannie Mae pursuant to the Related Pledge Agreement. SECTION 4.13 CASH COLLATERAL. --------------- In addition to the pledge and security interest granted to Fannie Mae by Owner pursuant to section 4.11, as separate and additional security for Owner's obligations under this Agreement, Owner shall pledge and assign to Fannie Mae, and grant to Fannie Mae a first priority security interest in, all of Owner's right, title and interest in and to each Property Account, the Central Account and the Cash Collateral by executing and delivering to Fannie Mae the Cash Management Agreement on the Fannie Mae Facility Closing Date. Owner covenants and agrees that it will defend Fannie Mae's rights and security interest created by this section 4.13 and the Cash Management Agreement against the claims and demands of all Persons. The Property Accounts, the Central Account and the Cash Collateral shall be pledged, assigned, secured, maintained, invested and disposed of pursuant to the Cash Management Agreement. SECTION 4.14 NONRECOURSE OBLIGATIONS. ----------------------- (a) NON-RECOURSE LIABILITY. Subject to the provisions of sections 4.14(b) and 4.14(c) and notwithstanding any other provision in the Related Mortgage Notes, the Mortgages or any other Transaction Document, the personal liability of Owner, QRS Partner, OP Partner and any other person or entity to pay and perform the Obligations shall be limited to (i) the real and personal property described as "Property" in the Mortgages, (ii) the personal property described in and pledged under any other Mortgage Document, (iii) the rents, profits, issues, products and income of the Properties received or collected by or on behalf of Owner (the "RENTS AND PROFITS") while an Event of Default exists to the extent not used to pay Operating Expenses then due and payable as of the time of receipt 75 of such Rents and Profits, or to pay principal and interest then due and payable under the Related Mortgage Notes, any other sums then due and payable under the Mortgages or any other Mortgage Document (including deposits or reserves due under any Mortgage Document) and any other Obligations then due and owing to Fannie Mae under this Agreement, except in each case to the extent that (x) Owner did not have the legal right, because of a bankruptcy, receivership or similar judicial proceeding, to direct the disbursement of such sums or (y) Fannie Mae was unwilling to disburse such Rents and Profits from the Central Account established pursuant to the Cash Management Agreement. Except as provided in sections 4.14(b) and 4.14(c), notwithstanding the terms and provisions of the Note or any other Transaction Document, Fannie Mae shall not seek or obtain (A) any judgment for a deficiency or money damages against Owner, QRS Partner or OP Partner, or Owner's, QRS Partner's or OP Partner's heirs, legal representatives, successors or assigns, in any action to enforce any right or remedy under the Related Mortgage Notes, the Mortgages, this Agreement or any of the other Transaction Documents, or (B) any judgment on any of the Related Mortgage Notes, the Mortgages, this Agreement, any of the other Transaction Documents or the Obligations except as may be necessary in any action brought under any of the Mortgages to enforce the lien against the Property encumbered thereby or to exercise any remedies under any other Mortgage Documents, so long as no judgment, order, decree or other relief in the nature of a personal or deficiency judgment is sought to be enforced against Owner, QRS Partner, OP Partner or any other Person. (b) EXCEPTIONS TO NON-RECOURSE LIABILITY. If, without obtaining Fannie Mae's prior written consent, (i) a "Transfer" shall occur which, pursuant to Uniform Covenant 19 of the any of the Mortgages, gives Fannie Mae the right, at its option, to declare all sums secured by any such Mortgage immediately due and payable, (ii) Owner shall encumber any Property with the lien of any "Subordinate Instrument" (as defined in the Related Mortgage with respect to such Property) in connection with any financing by Owner, or (iii) Owner shall cease to be a Single-Purpose entity, any of such events shall (after the expiration of any applicable notice and cure period) constitute an Event of Default hereunder and under the other Mortgage Documents, and if any such event shall continue for (thirty) 30 days after notice from Fannie Mae, then, from and after the date that is (thirty) 30 days after such notice, (x) section 4.14(a) shall not apply to, and (y) Owner, QRS Partner and OP Partner shall be personally liable on a joint and several basis for full recourse liability under this Agreement and the other Mortgage Documents for, Fannie Mae's actual loss, cost and expense (including reasonable attorney's fees and expenses but excluding consequential damages) suffered or incurred by Fannie Mae to the extent suffered or incurred by Fannie Mae as a result of any event or occurrence described in clauses (i) through (iii) of this section 4.14(b). (c) EXCEPTIONS TO EXCULPATION. Notwithstanding section 4.14(a), Owner, QRS Partner and OP Partner, shall be personally liable on a joint and several basis, in the amount of Fannie Mae's actual loss, damage or cost (including but not limited to attorneys' fees and expenses but excluding consequential damages) to the extent suffered or incurred by Fannie Mae as a result of (1) fraud or intentional misrepresentation by Owner, Owner's 76 employees, QRS Partner or OP Partner, in connection with obtaining the Mortgage Loans evidenced by the Related Mortgage Notes, obtaining the credit enhancement evidenced by the Related Fannie Mae Collateral Agreements, or in complying with any of Owner's Obligations, (2) Insurance Proceeds, Condemnation Proceeds, and security deposits from tenants received by or on behalf of Owner in its capacity as owner of the Properties and not being applied in accordance with the provisions of the Mortgages (except to the extent that Owner did not have the legal right, because of a bankruptcy, receivership or similar judicial proceeding, to direct disbursement of such sums or payments), (3) all Rents and Profits (except to the extent that (x) Owner did not have the legal right, because of a bankruptcy, receivership or similar judicial proceeding, to direct the disbursement of such sums, or (y) Fannie Mae was unwilling to disburse such Rents and Profits from the Central Account established pursuant to the Cash Management Agreement) received after an Event of Default (or within the one-hundred and eighty (180) day period immediately prior to the occurrence of an Event of Default) not being applied (a) to the payment of the Operating Expenses then due and payable, and (b) to the payment of principal and interest due under the Related Mortgage Notes, any other sums then due and payable under the Mortgages or any other Mortgage Document (including deposits or reserves due under any Mortgage Document) and any other Obligations then due and owing to Fannie Mae under this Agreement, except in each case to the extent that (i) Owner did not have the legal right, because of a bankruptcy, receivership or similar judicial proceeding, to direct the disbursement of such sums, or (ii) Fannie Mae was unwilling to disburse such Rents and Profits from the Central Account established pursuant to the Cash Management Agreement, (4) Owner's failure to deposit all Gross Cash Flow into the Property Accounts in accordance with the Cash Management Agreement (except to the extent that Owner did not have the legal right because of a bankruptcy, receivership or similar judicial proceeding to deposit such sums), (5) Owner's failure following an Event of Default to deliver to Fannie Mae on demand all books and records relating to the Properties, or (6) Owner's indemnification obligations set forth in section 4.5(a), excluding indemnification obligations set forth in (A) clauses (i), (ii)(B), (iii), (v) and (vi) of section 4.5(a), (B) clause (vii) of section 4.5(a) to the extent such indemnification obligation includes the payment or performance by Owner of its obligations with respect to the Mortgage Loans or this Agreement, (C) clause (ix) of section 4.5(a) to the extent such indemnification obligation does not relate to claims by third parties for failure to make payments under any Related Fannie Mae Collateral Agreement, and (D) clause (xi) of section 4.5(a) to the extent the costs, fees, expenses or liabilities referenced in such clause relate to an indemnification obligation referred to in clauses (A), (B) or (C) of this sentence. (d) NO IMPAIRMENT OF CERTAIN RIGHTS. No provision of this section 4.14 shall (i) affect any guaranty or similar agreement executed in connection with Mortgage Loans evidenced by the Related Mortgage Notes or otherwise in connection with the Obligations, (ii) release or reduce the Obligations or the debt evidenced by the Related Mortgage Notes, (iii) impair the right of Fannie Mae to enforce the provisions of Paragraph 6.B ("Environmental Hazards") of each Mortgage, (iv) impair the lien of any Mortgage or (v) impair the right of Fannie Mae to enforce the provisions of any Cash Management 77 Agreement, any Replacement Reserve Agreement, the Assignment of Management Agreement, any Hedge Security Agreement or any other agreement defined as an "Ancillary Collateral Agreement" in any Mortgage; provided that the personal liability of Owner, QRS Partner and OP Partner shall be limited as provided in sections 4.14(a), (b), and (c). Notwithstanding anything to the contrary in the Related Mortgage Notes or any Bond Property Loan Document, the provisions of this section 4.14 and not the provisions of Sections 10 or 11 of the Related Mortgage Notes shall control and govern the rights and obligations of Fannie Mae and Owner with respect to the personal liability of Owner regardless of whether Fannie Mae is exercising remedies (directly or indirectly) under the Reimbursement Mortgages and other documents evidencing or securing the Obligations or under all or any of the Related Mortgage Notes, the Related Bond Mortgages or the Bond Property Loan Documents with respect to any Bond Property. SECTION 4.15 APPLICATION FOR RELATED FANNIE MAE COLLATERAL --------------------------------------------- AGREEMENTS. - - ---------- Upon the terms and subject to the conditions set forth in this Agreement and subject to the condition that the Mortgage Loans be originated by an independent third-party lender or issuer and comply with the other requirements of the Fannie Mae Charter Act for multifamily loans, Owner hereby applies to Fannie Mae for and hereby requests Fannie Mae, and Fannie Mae agrees, to enter into the Related Fannie Mae Collateral Agreements in the Facility Amount with respect to the Related Bonds. While each Mortgage Loan and the Related Fannie Mae Collateral Agreement represents a separate and independent obligation of Owner and Fannie Mae, respectively, Owner acknowledges that, in requesting Fannie Mae to execute and deliver the Related Fannie Mae Collateral Agreements, it intends that the Mortgage Loans be treated as if they were a single, integrated Indebtedness of Owner. Accordingly, Owner agrees that if it fails to pay fully, when due, any amount payable under any Related Mortgage Note or its Related Mortgage, then Fannie Mae may elect to treat the amount owing with respect to such Related Mortgage Note or its Related Mortgage as being due and owing by Owner, on a pro rata basis, under each of the other Mortgages. Similarly, if Owner fails to pay fully, when due, to Fannie Mae any other amount which Owner is obligated to pay under this Agreement, the unpaid amount shall be deemed to be due and owing by Owner on a pro rata basis with respect to each of the Properties. It is a material part of the consideration for Fannie Mae's agreement to execute and deliver the Related Fannie Mae Collateral Agreements that Owner not be able to put one or more Mortgage Loans in default without putting all Mortgage Loans in default. Accordingly, Owner expressly agrees that irrespective of the actual payments made by it under the Mortgage Loans or this Agreement, if the amount actually paid is not sufficient to pay fully and timely all such obligations, then the failure to pay shall exist with respect to all the Mortgage Loans notwithstanding that the amount paid was sufficient to pay fully some but not all of the amounts due and owing with respect to the Mortgage Loans or other Obligations. 78 SECTION 4.16 BOND MATTERS. ------------ Fannie Mae shall provide its written consent to the exercise by Owner of the purchase in lieu of redemption provisions in a Related Indenture so long as: (a) Fannie Mae determines that its obligations, risks and liabilities will not be increased in any respect as a result of the proposed purchase in lieu of redemption; (b) Owner has provided to the Related Trustee Available Monies (as defined in the Related Indenture) to fund such purchase of the Related Bonds on behalf of Owner pursuant to the Related Indenture, and Fannie Mae reasonably determines that no part of such funds may be subject to avoidance or any other recovery or disgorgement pursuant to the Bankruptcy Code, as amended (including sections 544, 547, 549 or 550 thereof), or any other applicable bankruptcy or insolvency laws; (c) no Event of Default or Potential Event of Default exists; and (d) Owner has provided evidence satisfactory to Fannie Mae that upon such purchase in lieu of redemption Fannie Mae will no longer be obligated to make payments with respect to such Related Bonds pursuant to the Related Fannie Mae Collateral Agreement. Fannie Mae shall provide such written consent within ten (10) Business Days from the date that Fannie Mae receives each of (i) Owner's written request for such consent and (ii) all of the information required by Fannie Mae in the preceding clauses (a) through (d). ARTICLE V. SUBSTITUTION, RELEASE, AND ADDITION OF PROPERTIES; REUNDERWRITING; PRINCIPAL RESERVE FUNDS SECTION 5.1 ALLOCABLE FACILITY AMOUNT. ------------------------- Fannie Mae shall determine the Allocable Facility Amount for each Property on or before September 30th of each year (commencing September 30, 1997) during the term of this Agreement (the "DETERMINATION DATE"). Once determined by Fannie Mae as aforesaid, the Allocable Facility Amount for each Property shall be promptly disclosed to Owner by Fannie Mae and shall remain in effect until the next Determination Date, unless sooner modified in connection with the addition of a New Property pursuant to section 5.4. 79 SECTION 5.2 SUBSTITUTION OF ADDITIONAL MORTGAGED PROPERTIES. ----------------------------------------------- At Owner's request, an Additional Mortgaged Property shall be released from the lien of the Related Mortgage and the collateral derived from such Additional Mortgaged Property (such as the related Principal Reserve Fund) shall be released to Owner, and a New Additional Property substituted therefor, if each of the following conditions are met: (a) The New Additional Property has a Value equal to or greater than the product of 125% (the "SUBSTITUTION PERCENTAGE") multiplied by the Minimum Substitute Property Value of the Released Property; (b) The New Additional Property has Net Operating Income (as determined by Fannie Mae in its discretion) for the 12 month period ending within 60 days of the date this test is applied, equal to or greater than the Net Operating Income (as determined by Fannie Mae in its discretion) of the Additional Mortgaged Property being released from the lien for the corresponding 12 month period multiplied by the Substitution Percentage; (c) No Event of Default or Potential Event of Default shall have occurred and be continuing; (d) Owner shall cause the Released Property to be immediately conveyed by Owner to OP Partner, or such other purchaser as Owner may otherwise determine, provided that with the consent of Fannie Mae, which consent will not be unreasonably withheld, Owner or, if applicable, the related Nominee Corp., may continue to own the Released Property for up to one year following the date the lien of the Related Mortgage is released pursuant to this section; (e) The New Additional Property meets all of Fannie Mae's then applicable underwriting criteria; (f) All documentation relating to the foregoing is acceptable to Fannie Mae in its discretion in all respects, including legal opinions, title insurance, Security Instruments, Replacement Reserve Agreements, assignments and any amendments to this Agreement or the other Transaction Documents; and (g) With respect to each proposed New Additional Property, Owner shall pay Fannie Mae and Servicer a due diligence fee plus all reasonable costs and expenses (including legal fees and expenses) incurred by Fannie Mae or Servicer in connection with the foregoing. Such amounts shall be paid by Owner on or prior to the closing date of such substitution or, if such substitution fails to close within thirty (30) days of Owner's receipt of invoices therefor (and if requested by Owner, reasonable supporting back-up invoices evidencing such items), and shall be payable regardless of whether the property substitution does or does not (for any reason) ultimately occur. 80 SECTION 5.3 RELEASE OF PROPERTIES. --------------------- At Owner's request, a Property shall be released from the lien of the Related Mortgage and all collateral derived from such Property (such as the related Principal Reserve Fund and the related Property Account) shall be released to Owner, without another Multifamily Residential Property being substituted therefor, if each of the following conditions are met: (a) Owner shall, at Owner's option, either redeem (using funds from the Principal Reserve Fund or otherwise) or otherwise remove Bonds from the credit facility evidenced by this Agreement and/or post cash collateral in a manner acceptable to Fannie Mae in its discretion, in either case in an amount equal to 110% of the Allocable Facility Amount of the Released Property; the following shall be credited toward such amount: (i) if the Released Property is a Bond Property, the principal amount of Related Bonds outstanding with respect to such Bond Property immediately prior to such release (provided, that, the requirements of section 5.3(c) have been satisfied), plus (ii) the amount of any other Bonds redeemed by Owner to obtain such release, plus (iii) the amount of any cash collateral ("RELEASE PRICE CASH COLLATERAL") that has been deemed acceptable by Fannie Mae and posted by Owner to obtain such release; (b) No Event of Default or Potential Event of Default shall have occurred and be continuing; (c) If the Released Property is a Bond Property, then either (i) the Related Fannie Mae Collateral Agreement with respect to such Bond Property, if any, shall terminate on or before the Released Property is released from the lien of any Related Mortgage, or (ii) Fannie Mae, in its discretion, shall have consented to the transfer of the Bond Property and the assumption of the Related Mortgage Note, the Related Mortgage and the other related Transaction Documents, in accordance with section 5.6; (d) Owner shall cause the Released Property to be immediately conveyed by Owner to OP Partner, or such other purchaser as Owner may determine, provided that with the consent of Fannie Mae, which consent will not be unreasonably withheld, Owner or, if applicable, the related Nominee Corp., may continue to own the Released Property for up to one year following the date the lien of the Related Mortgage is released pursuant to this section; (e) All documentation relating to the foregoing is acceptable to Fannie Mae in all respects, including legal opinions, release documentation and any amendments to this Agreement or the other Transaction Documents; and (f) Owner shall pay, with respect to each Released Property, to Fannie Mae and Servicer, a due diligence fee plus all out-of-pocket costs and expenses (including reasonable legal fees and expenses) incurred by Fannie Mae or Servicer in connection with 81 the foregoing. Such amounts shall be paid by Owner on or prior to the closing date of such release, or if such release fails to close, within thirty (30) days of Owner's receipt of invoices therefor (and if requested by Owner, reasonable supporting back-up invoices evidencing such items), and shall be payable regardless whether the property is or is not (for any reason) ultimately released from the lien of a Mortgage. SECTION 5.4 ADDITION OF NEW PROPERTIES TO THE CREDIT FACILITY. ------------------------------------------------- (a) At the request of Owner and Servicer, Fannie Mae may, from time to time, consent to the addition of a New Bond Property or a New Additional Property (as distinct from the substitution of Additional Mortgaged Properties which is governed by section 5.2) to the Fannie Mae Credit Facility; provided, however, that (i) such consent may be granted or withheld by Fannie Mae in its discretion; (ii) the underwriting with respect to each such New Property shall be conducted by Servicer and reviewed by Fannie Mae and shall take into account all facts and circumstances deemed relevant by Servicer and Fannie Mae in their discretion; (iii) the terms and conditions relating to the addition of such New Property shall be determined by Servicer and Fannie Mae in their discretion; (iv) all documentation deemed necessary by Servicer or Fannie Mae for the making of a new loan, if applicable, and the addition of such New Property shall be fully executed and delivered by each party thereto and shall be in form and substance acceptable to Servicer and Fannie Mae in their discretion; (v) any loan made in conjunction with the addition of such New Property must be originated by Servicer, another multifamily seller/servicer approved under Fannie Mae's Delegated Underwriting and Servicing product line, the bond trustee or issuer and otherwise comply with applicable Fannie Mae Charter Act requirements; and (vi) Owner shall pay or cause to be paid all reasonable fees, charges and expenses (including fees and expenses of attorneys, accountants and other experts) incurred by or on behalf of Fannie Mae or Servicer in connection with the addition of such New Property in accordance with section 4.2. (b) The addition of any New Bond Property and any New Additional Property to the Facility shall become effective only upon satisfaction of all requirements in section 5.4(a) and Fannie Mae's execution and delivery to Owner of a Confirmation of Addition of New Property, substantially in the form of Exhibit G attached hereto (a "NEW 82 PROPERTY CONFIRMATION"), which New Property Confirmation shall be given as of the date the New Property is added to the Facility and shall specify whether such New Property is a New Bond Property or a New Additional Property. Upon the execution and delivery of the New Property Confirmation in accordance with this section 5.4, this Agreement shall be automatically deemed amended and supplemented to incorporate the terms and provisions of such New Property Confirmation including any provisions: (i) specifying the Credit Enhancement Component, the Reserve Component with respect to such New Bond Property; (ii) specifying the amendment and restatement of any of the Exhibits to this Agreement; and (iii) modifying the Allocable Facility Amount of all or any of the Properties. SECTION 5.5 PORTFOLIO REUNDERWRITING. ------------------------ (a) At Owner's request, made not more frequently than once in each twenty-four month period and not more than seven times in the aggregate during the term of the Fannie Mae Credit Facility, Servicer shall reunderwrite at the sole cost and expense of Owner (using then current standard Fannie Mae underwriting criteria) the Value of each Property and the Aggregate Debt Service Coverage Ratio (each such event, a "REUNDERWRITING"). Solely for purposes of this section 5.5, earnings upon all Release Price Cash Collateral and earnings upon amounts contained in the Principal Reserve Funds with respect to each Mortgage Loan shall be treated as a component of Owner's aggregate Net Operating Income. (b) Upon any such Reunderwriting, Owner shall have the right to obtain a release of either some or all of the Release Price Collateral and/or one or more of the Additional Mortgaged Properties (and, but only in Fannie Mae's discretion, the Principal Reserve Fund) and all other Collateral relating thereto, if each of the following conditions are met: (i) Fannie Mae determines that, after giving effect to each such release, the Aggregate Facility Amount will be equal to or less than the Reunderwriting LTV Testpoint multiplied by the aggregate amount of (x) the Value of each Property, plus (y) the amount of all Release Price Cash Collateral (excluding interest earnings), plus (z) the amounts contained in the Principal Reserve Fund with respect to each Mortgage Loan (excluding interest earnings); (ii) the Aggregate Debt Service Coverage Ratio exceeds the Reunderwriting DSC Testpoint; 83 (iii) no Event of Default or Potential Event of Default shall have occurred and be continuing; (iv) if in connection with such Reunderwriting Owner requests the release of an Additional Mortgaged Property, Owner shall cause such released Additional Mortgaged Property to be immediately conveyed by Owner to OP Partner, or such other purchaser as Owner may determine, provided that with the consent of Fannie Mae, which consent will not be unreasonably withheld, Owner or, if applicable, the related Nominee Corp., may continue to own the released Additional Mortgaged Property for up to one year following the date the lien of the Related Mortgage is released pursuant to this section; (v) all documentation relating to the release is acceptable to Fannie Mae in all respects, including legal opinions, release documentation and any amendments to this Agreement or the other Transaction Documents; and (vi) Owner shall pay to Fannie Mae and Servicer their then applicable charges relating to the Reunderwriting and all of their respective reasonable fees and expenses and costs (including legal fees and expenses) incurred by such parties in connection with the Reunderwriting and any release of Collateral resulting from such Reunderwriting. Such amounts shall be paid by Owner promptly upon receipt of invoices therefor (and if requested by Owner, reasonable supporting back-up invoices evidencing such items), and shall be payable regardless whether any Collateral is or is not (for any reason) ultimately released. SECTION 5.6 CERTAIN PERMITTED TRANSFERS. --------------------------- (a) CONDITIONS TO PERMITTED TRANSFERS. At the request of Owner, Fannie Mae shall, from time to time, consent to Owner's sale and transfer of a Bond Property subject to Fannie Mae credit enhancement (a "PROPOSED TRANSFER") to an independent third-party purchaser if Fannie Mae determines that each of the following conditions have been satisfied in full: (i) no Event of Default or Potential Event of Default shall have occurred and be continuing either immediately before or immediately after giving effect to the Proposed Transfer; (ii) at the time of such Proposed Transfer, Fannie Mae continues to provide credit enhancement, and if applicable, liquidity support, with respect to new bond transactions similar to the Related Bonds, pursuant to guaranteed mortgage pass-through certificates or collateral agreements, as the case may be, similar to the Related Fannie Mae Collateral Agreement and the provision of such credit enhancement and liquidity support continues to be permitted under the Fannie Mae Charter Act; 84 (iii) Owner shall either redeem or otherwise remove Bonds from the Fannie Mae Credit Facility and/or post cash collateral in a manner acceptable to Fannie Mae, in either case in an amount equal to 110% of the Allocable Facility Amount of the Bond Property that is proposed to be transferred, which redemption, removal or cash collateral requirement shall be satisfied by (1) the amount of the Related Bonds outstanding immediately prior to the Proposed Transfer, plus (2) the amount of any other Bonds redeemed by Owner to obtain approval of such transfer, plus (3) the amount of any Release Price Cash Collateral posted by Owner to obtain approval for the Proposed Transfer; (iv) the proposed transferee shall be a Single-Purpose entity, shall not be an Affiliate of Owner or any other EQR Party and meets the eligibility, credit, management and otherwise satisfies the then applicable underwriting standards customarily applied by Fannie Mae for approval of new borrowers (the "PROPOSED TRANSFEREE"); (v) Owner causes to be submitted to Fannie Mae all information required by Fannie Mae to evaluate the Proposed Transferee and the Bond Property proposed to be transferred as if a new loan were being made to the Proposed Transferee and secured by the Bond Property proposed to be transferred; (vi) at the time of such Proposed Transfer, the Bond Property proposed to be transferred shall be subject to re-underwriting in accordance with Fannie Mae's then applicable standards (including satisfaction of loan to value ratio requirements, debt service coverage ratio requirements, physical maintenance requirements, replacement reserve requirements and all other applicable conditions, requirements and limitations) customarily applied by Fannie Mae for approval of new loans secured by liens on new Multifamily Residential Properties and such re-underwriting shall be conducted by or on behalf of Servicer and Fannie Mae taking into account all facts and circumstances deemed relevant by Servicer and Fannie Mae; (vii) the Proposed Transferee shall: (1) assume all of the obligations of Owner under and with respect to the Related Bonds, the other Related Bond Documents, the Bond Property Loan Documents with respect to such Bond Property and the related Fannie Mae credit enhancement Facility pursuant to documentation in form and substance acceptable to Fannie Mae; (2) enter into a reimbursement agreement and such other documentation deemed necessary by Fannie Mae to evidence and secure its reimbursement and other obligations to Fannie Mae; (3) agree to credit enhancement pricing and, if applicable, liquidity pricing that shall be determined by Fannie Mae; and (4) amend, modify, supplement or amend and restate the Related Bond Documents and the Bond Property Loan Documents with respect to such Bond Property, all as deemed necessary by Fannie Mae; 85 (viii)Owner shall have obtained the consent of the Issuer with respect to the Related Bonds, the Related Trustee and each other party to the Related Bond Documents and the Bond Property Loan Documents that is required under the terms of such documents to consent to a transfer of the Bond Property; (ix) all documentation relating to the foregoing shall be acceptable to Fannie Mae in all respects, including legal opinions, release documentation and any amendments to this Agreement or the other Transaction Documents; and (x) Owner or the Permitted Transferee shall have paid to Fannie Mae it customary transfer and assumption fees consisting of a $3000 non-refundable application fee and, upon completion of the Proposed Transfer transaction, a transfer fee equal to one percent (1%) of the Allocable Facility Amount of the Bond Property that is proposed to be transferred. In addition, Owner shall have paid to Fannie Mae and Servicer, customary due diligence fees plus all reasonable costs and expenses (including legal fees and expenses) incurred by Fannie Mae or Servicer in connection with the foregoing, to the extent such expenses exceed $3000. Such additional amounts shall be paid by Owner on or prior to the closing date of the Proposed Transfer, or if such Proposed Transfer fails to close, within thirty (30) days of Owner's receipt of invoices therefor (and if requested by Owner, reasonable supporting back-up materials evidencing such items), and shall be payable regardless of whether the Bond Property is or is not (for any reason) ultimately transferred; and (xi) Owner or the Permitted Transferee shall have paid to the appropriate parties all other fees, costs and expenses (including legal fees and expenses) payable by Owner to each of the related Issuer, the Related Trustee, the related Remarketing Agent, Fannie Mae and Servicer under the terms of the Bond Property Loan Documents and the Bond Documents with respect to such Bond Property in connection with the Proposed Transfer. (b) PERMITTED TRANSFERS. Fannie Mae's consent to a Proposed Transfer shall become effective upon (i) Fannie Mae's determination, that each of the conditions set forth above have been satisfied in full, and (ii) Fannie Mae's execution and delivery to Owner of a written instrument releasing (in whole or in part, as applicable) Owner from its obligations to Fannie Mae (but solely to Fannie Mae), if any, under and with respect to the Related Bonds, the other Related Bond Documents, the Bond Property Loan Documents with respect to such Bond Property, and the related Facility and confirming that each of the conditions set forth in section 5.6(a) above have been satisfied in full and releasing Owner from its Obligations under this Agreement (except as such release is limited by section 4.5) solely to the extent such Obligations relate to the Bond Property to be released. Any transfer of a Bond Property consented to by Fannie Mae in accordance with the provisions set forth above (a "PERMITTED TRANSFER") shall be made together with and subject to (1) the Related Bonds, (2) the other Related Bond Documents (subject to any amendments and modifications required by Fannie Mae in accordance with subsection (a) above), (3) the 86 Bond Property Loan Documents with respect to such Bond Property (subject to any amendments and modifications required by Fannie Mae in accordance with subsection (a) above), and (4) Fannie Mae credit enhancement with respect to such Bond Property. Notwithstanding anything herein or in the Bond Property Loan Documents with respect to such Bond Property to the contrary, Owner shall not be required to pay the Prepayment Premium otherwise required under any the Related Mortgage Note in connection with a Permitted Transfer. SECTION 5.7 PRINCIPAL RESERVE FUND. ---------------------- (a) Owner shall establish the Principal Reserve Funds in accordance with the Related Indenture. So long as no Event of Default or no Potential Event of Default has occurred and is continuing, investment income derived from amounts on deposit in the Principal Reserve Funds shall be paid to Owner by the Related Trustees to the extent and in the manner provided in the Related Indenture. (b) Payments into any Principal Reserve Fund shall not for any purpose be deemed to reduce the outstanding principal amount of any Related Mortgage Note. (c) At the request of Owner, Fannie Mae shall direct the Related Trustee to apply funds in a particular Principal Reserve Fund to make an optional redemption of a corresponding principal amount of the Related Bonds, if each of the following conditions are met: (i) no Event of Default has occurred and is continuing; and (ii) either (x) Owner has the right under Section 214 of the Related Indenture to direct the optional redemption of the Related Bonds, or (y) Owner elects to prepay all (but not part) of the Related Bonds in connection with a condemnation or casualty of a Property. (d) Upon the occurrence and during the continuance of an Event of Default or a Potential Event of Default, Fannie Mae shall have the absolute right, in its discretion, to apply the funds in the Principal Reserve Funds in accordance with sections 7.2(a)(iv) and 7.2(b). 87 SECTION 5.8 CREDIT ENHANCEMENT OF THE SPRINGS COLONY REFUNDING BOND ------------------------------------------------------- ISSUE. - - ----- (a) AGREEMENT TO CREDIT ENHANCE. Subject to satisfaction in full of the conditions and limitations set forth in sections 5.8(b) and 5.8(c), at the request of Owner and Servicer, Fannie Mae will provide credit enhancement and liquidity support for the Springs Colony Refunding Bonds (the "SPRINGS COLONY CREDIT ENHANCEMENT") by issuing a collateral agreement substantially in the form and substance of the Related Fannie Mae Collateral Agreements. Fannie Mae's obligation to issue the Springs Colony Credit Enhancement shall not be subject to the conditions set forth in section 5.2 or 5.4. The Credit Enhancement Component and the Reserve Component with respect to such Springs Colony Refunding Transaction shall be equal to the Credit Enhancement Component and the Reserve Component with respect to the other issues of Related Bonds, subject to adjustment as set forth in section 5.8(d). (b) CERTAIN CONDITIONS TO SPRINGS COLONY CREDIT ENHANCEMENT. Fannie Mae's obligation to issue the Springs Colony Credit Enhancement shall be subject to Fannie Mae's determination in Fannie Mae's discretion that each of the following conditions have been satisfied in full: (i) The Springs Colony Refunding Transaction shall close on or before January 31, 1997, or such later date as may be requested by Owner and agreed to by Fannie Mae in its discretion (the "REFUNDING COMMITMENT TERMINATION DATE"); (ii) No Event of Default or Potential Event of Default shall have occurred and be continuing and prior to the addition of the Springs Colony Refunding Transaction to the Fannie Mae Credit Facility, the subject property shall not have suffered any fire, destruction or other casualty or any condemnation which, in Fannie Mae's reasonable determination, has a Material Adverse Impact on such property; (iii) The mortgage loan with respect to the Springs Colony Refunding Transaction (the "SPRINGS COLONY REFUNDING MORTGAGE LOAN") shall be originated by an independent third-party lender or issuer and comply with applicable Fannie Mae Charter Act requirements; (iv) All documentation (including any amendments to this Agreement and the other Transaction Documents) relating to the Springs Colony Refunding Transaction shall be the same in all material respects as the documentation relating to the existing Bonds, subject to such modifications as may be necessary and which, in any event, are agreed to by Owner and approved by Fannie Mae in its discretion. In addition, the terms and conditions of the Springs Colony Refunding Bonds, the related bond documents, mortgage loan documents and other documents delivered 88 in connection with the Springs Colony Refunding Transaction (the "SPRINGS COLONY REFUNDING DOCUMENTS"), shall be satisfactory to Fannie Mae, including the following: (A) such Springs Colony Refunding Transaction shall be incorporated into and be governed by the terms of this Agreement; (B) the principal amount of the Springs Colony Refunding Mortgage Loan shall be equal to or less than $9,350,000.00; (C) the terms and conditions governing the availability of and conversion between interest rate modes applicable to the Springs Colony Refunding Transaction and the Springs Colony Refunding Mortgage Loan shall conform to the interest rate mode provisions applicable to the existing Bonds and the existing Mortgage Loans; (D) the Maturity Date of the Springs Colony Refunding Mortgage Loan shall be September 1, 2026, and the principal amortization schedule of such Springs Colony Refunding Mortgage Loan shall be sufficient to cause such Springs Colony Refunding Mortgage Loan to fully amortize by September 1, 2026; (E) the Springs Colony Refunding Documents shall contain cross- default and cross-collateralization provisions that conform to the existing Transaction Documents; and (F) the Springs Colony Refunding Transaction shall be subject to the interest rate protection provisions of section 3.1; Notwithstanding the foregoing, the Prepayment Premium with respect to the Springs Colony Refunding Transaction shall continue for not less than seven (7) years from the Fannie Mae Facility Closing Date; (v) Owner shall execute and deliver to Fannie Mae (A) a certificate in form and substance approved by Fannie Mae confirming that all of the representations and warranties set forth in this Agreement are true, correct and complete in all material respects after giving effect to the Springs Colony Refunding Transaction and (B) a certificate confirming that no Event of Default or Potential Event of Default exists or will exist after giving effect to such Springs Colony Refunding Transaction; (vi) The Springs Colony Refunding Documents with respect to the Springs Colony Refunding Bonds shall provide that so long as Fannie Mae provides credit enhancement for such Springs Colony Refunding Bonds, only Fannie Mae shall provide liquidity support; 89 (vii) Each of Owner and OP Partner, to the extent applicable, shall have delivered to Fannie Mae appropriate evidence, satisfactory to Fannie Mae, of its authority to execute and deliver the Springs Colony Refunding Documents to which it is a party; (viii) Fannie Mae shall have received from Servicer such representations, warranties, undertakings and such other certificates as Fannie Mae shall customarily require relating to the Springs Colony Refunding Transaction; (ix) Fannie Mae shall have received satisfactory evidence that all conditions to the effectiveness and enforceability of the Springs Colony Refunding Documents have been fully satisfied, including: (A) opinions of counsel to Owner concerning such matters as Fannie Mae may reasonably require relating to the Springs Colony Refunding Transaction; (B) such opinions of bond counsel, trustee's counsel and issuer's counsel, and such other opinions and certificates as Fannie Mae shall reasonably require relating to the Springs Colony Refunding Transaction; (C) certified copies of all consents and authorizations (including Governmental Approvals, if any), necessary for the Springs Colony Issuer or Owner to execute, deliver and perform their respective obligations under the applicable Springs Colony Refunding Documents; (D) certified copies of (x) the issuer's charter or certificate of incorporation and by-laws, if any, (y) the resolution or resolutions of such issuer authorizing the execution, delivery and performance of its obligations under the Springs Colony Refunding Documents to which it is a party and (z) certified copies of all other documents evidencing any other official action of such issuer taken with respect thereto as each such item is then in full force and effect; All legal opinions relating to the Springs Colony Refunding Transaction shall be the same in all material respects as the opinions relating to the existing Transaction Documents and otherwise in form and substance satisfactory to Fannie Mae; (x) Fannie Mae shall have received copies of all documents relating to the closing of such Springs Colony Refunding Transaction, authenticated to Fannie Mae's reasonable satisfaction; 90 (xi) Fannie Mae shall have received true and correct copies of rating letters from the Rating Agency rating the Springs Colony Refunding Bonds confirming that such bonds have received the same rating afforded the other Related Bonds; (xii) Owner shall have executed and delivered to Fannie Mae such amendments and modifications to this Agreement or the other Transaction Documents and Fannie Mae shall have received such other documents, certificates, filings, legal opinions, approvals or instruments, as Fannie Mae shall deem necessary in order to effectuate the Springs Colony Refunding Transaction; (xiii) Fannie Mae shall have received payment in full of all fees and expenses (including reasonable fees and disbursements of Fannie Mae's and the Servicer's counsel and accountants), incurred in connection with or related to the Springs Colony Refunding Transaction and the preparation, review, execution and delivery of the Springs Colony Refunding Documents; and (xiv) Subject to the qualifications set forth above, all documentation relating to the foregoing shall be acceptable to Fannie Mae in its discretion in all respects, including all legal opinions, title insurance policies and endorsements, Security Instruments, replacement reserve agreements, indentures, collateral agreements, assignments and any amendments necessary to this Agreement or the other Transaction Documents. (c) CONFIRMATION OF CREDIT ENHANCEMENT OF SPRINGS COLONY REFUNDING TRANSACTION. Upon satisfaction in full of the conditions and limitations set forth in this section 5.8 with respect to the Springs Colony Refunding Bonds, the Springs Colony Project shall thereafter be deemed a New Bond Property and the Springs Colony Refunding Bonds shall be added to the Fannie Mae Credit Facility. The addition of the Spring Colony Refunding Bonds to the Fannie Mae Credit Facility shall become effective only upon Fannie Mae's execution and delivery to Owner of a New Property Confirmation. Upon the execution and delivery of any such New Property Confirmation in accordance with this section 5.8, this Agreement shall be automatically deemed amended and supplemented to incorporate the terms and provisions of such New Property Confirmation. (d) CERTAIN ADJUSTMENTS TO CREDIT ENHANCEMENT COMPONENT AND REUNDERWRITING TESTS. Fannie Mae and Owner acknowledge and agree that if the Spring Colony Refunding Bonds fails to be added to the Fannie Mae Credit Facility on or before the Refunding Commitment Termination Date then each of the Credit Enhancement Component, the Reunderwriting LTV Testpoint and the Reunderwriting DSC Testpoint shall be adjusted as follows: (A) the Credit Enhancement Component shall be adjusted to sixty (60) basis points; 91 (B) the Reunderwriting LTV Testpoint shall be adjusted to fifty- nine and ninety-three one-hundredths percent (59.93%); and (C) the Reunderwriting DSC Testpoint shall be adjusted to 1.71:1; Any such adjustment shall be deemed to be applicable from and after February 1, 1997. Any such adjustment shall occur automatically without the need for any further writing or agreement between Owner and Fannie Mae; provided, however, that Fannie Mae, upon the written request of Owner, shall deliver confirmation of such adjustments to Owner and Servicer. In no event shall any such adjustment be deemed to apply to any Facility Fee payments due from Owner for the period from the Fannie Mae Facility Closing Date through to and including the Refunding Commitment Termination Date. ARTICLE VI. SERVICING; REPLACEMENT OF CREDIT ENHANCEMENT SECTION 6.1 SERVICING. --------- Owner acknowledges that Fannie Mae has designated or may designate an independent contractor to service the Mortgage Loans, the Bond Property Loan Documents and the Reimbursement Loan Documents. Owner agrees that to the extent that any provision in this Agreement or any other Transaction Document requires, at stipulated dates or at the request of Fannie Mae, the delivery by Owner of certain notices, documents, certificates, opinions, and financial or other information to Fannie Mae or the Lender (as such term is used and defined in the Mortgage Documents), all such items shall instead be delivered to, or at the request of, Servicer, subject to the provisions of this section. Owner acknowledges and agrees that Fannie Mae has delegated or may delegate certain functions to Servicer with respect to the Transaction Documents, subject to and in accordance with the Servicing Agreement. Owner further acknowledges and agrees that in connection with any provision in this Agreement or in any other Transaction Document requiring that any notices, documents or other information shall be given to Servicer, or that Servicer shall have the right to request any documents or other information from Owner, Fannie Mae shall have the right to instruct Owner to instead (a) deliver such items directly to Fannie Mae or to such other Person as Fannie Mae may, from time to time, designate, and (b) act in accordance with the instructions of Fannie Mae with respect to any such items or any other rights Servicer may have under this Agreement or under any other Transaction Document. In addition, Owner agrees that any right of Fannie Mae to give or deliver to Owner any notice or other communications, or to receive from Owner any document or other information, may be given, delivered or received by Servicer, unless otherwise directed by Fannie Mae. Owner shall act in accordance with any instructions received from Fannie Mae pursuant to this section. Owner further acknowledges and agrees that Fannie Mae reserves the unconditional right to replace any Servicer with or without cause with a substitute Servicer chosen by Fannie Mae in its discretion; provided, however, that, 92 notwithstanding anything to the contrary set forth herein or in the other Transaction Documents, if Fannie Mae shall terminate and replace Servicer for any reason other than for cause, the Servicing Fee Component with respect to any such successor servicer shall not exceed .125% or 12.5 basis points. Provided that no Event of Default or Potential Event of Default then exists and the Servicer is not then in default, if Fannie Mae elects to replace Servicer, then Owner may recommend a replacement servicer from among three or more potential replacement servicers identified by Fannie Mae, provided that Owner notifies Fannie Mae of its recommendation within ten (10) Business Days of the date Owner is notified of the potential replacement servicers and provided further that the final selection of any potential replacement servicer shall be made by Fannie Mae. If an Event of Default or Potential Event of Default exists or Fannie Mae elects to replace the Servicer because the Servicer is in default of any of its obligations under the Servicing Agreement, then the provisions of the preceding sentence shall not be applicable and Fannie Mae shall have the right to immediately select and install a replacement servicer without prior consultation with or notice to Owner, provided that, if Fannie Mae replaces the Servicer in accordance with the foregoing clause because the Servicer is in default (such replacement servicer, an "INTERIM SERVICER"), then Owner may, within thirty (30) days from the appointment of such Interim Servicer, request that Fannie Mae provide a list of potential permanent replacement servicers as set forth above. Owner may recommend a permanent replacement servicer from such list within ten (10) Business Days of Owner's receipt of such list, provided further that the final selection of any replacement servicer shall be made by Fannie Mae in its discretion. Owner shall have the right to separately negotiate fees with such servicers, subject to Fannie Mae's determination that such fees are reasonable for the services to be performed. SECTION 6.2 REPLACEMENT OF FANNIE MAE CREDIT ENHANCEMENT. -------------------------------------------- Except as otherwise permitted upon a substitution, release or transfer of a Property pursuant to and in accordance with sections 5.2, 5.3 or 5.6, respectively, Owner will not cause any Related Trustee to terminate any Facility (except in connection with the repayment of all of the outstanding Related Bonds and the Related Mortgage Loans) or replace any Facility with alternate credit enhancement unless prior to or simultaneously with the effectiveness of such termination or replacement: (a) the Fannie Mae Credit Facility is replaced on or terminated with respect to all of the outstanding Bonds, and all the Related Fannie Mae Collateral Agreements are terminated; (b) the alternate credit enhancer's short term debt obligations are rated in the highest short term category and long term debt obligations are rated at least "A" by the Rating Agencies; 93 (c) Owner shall have paid to Fannie Mae the amount of all Advances, Activity Fees and any other outstanding obligations of Owner to Fannie Mae hereunder, whether or not such Advances, Activity Fees or other amounts are otherwise then due; (d) Fannie Mae reasonably determines that no part of any payments made by Owner prior to or concurrently with the credit enhancement termination or replacement will likely result in an avoidance or any other recovery or disgorgement pursuant to the Bankruptcy Code, as amended (including sections 544, 547, 549 or 550 thereof) or any other applicable bankruptcy or insolvency law which would result in Fannie Mae having any liability under any Related Fannie Mae Collateral Agreement, or Owner will provide Cash Collateral or make other arrangements acceptable to Fannie Mae in its discretion to ameliorate such risk of avoidance, recovery or disgorgement; and (e) Owner shall have paid the Prepayment Premium, if applicable, with respect to the Mortgage Loans in accordance with the requirements of the Related Mortgage Notes calculated based on the assumption that the Mortgage Loan is being prepaid in full on the day immediately preceding the effective date of the alternative credit enhancement or the termination of the Facility as applicable. ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES SECTION 7.1 EVENTS OF DEFAULT. ----------------- Each of the following events shall constitute an "Event of Default" under this Agreement, whatever the reason for such event and whether it shall be voluntary or involuntary, or within or without the control of Owner, or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority: (a) the occurrence of a default by Owner under any Transaction Document beyond any notice, grace or cure period set forth herein or therein, or the occurrence of any "Event of Default" as defined in any Transaction Document; or (b) the failure by Owner to pay when due any amount payable by Owner under any Related Mortgage Note, any Mortgage, this Agreement or any other Transaction Document, including any fees, costs or expenses; or (c) the failure by Owner to perform or observe any covenant set forth in subsections 2.2(a), (b), (c), (h), (p), (q), (s), (t), (u), (w), (z) or (ac), in subsections 2.3 (a)(i), (a)(ii) (other than with respect to omitting to take any action), (a)(iv) (but only with respect to an amendment relating to a matter described in the parenthetical of subsection (a)(iv)), 94 (a)(v)-(vii) inclusive, (b), (e), (f) (but only with respect to Liens granted or conveyed by Owner or an Affiliate of Owner), (g), (h), (i), (j), (k), (m) (but only with respect to changes of Owner's principal place of business that could reasonably be expected to materially and adversely affect the validity, priority, perfection or enforceability of any Transaction Document) or in Article III; or (d) the failure by Owner to perform or observe any covenant set forth in subsection 2.2(d), (e), (f), (g), (j), (k), (l), (m), (n), (o), (r), (v), (x), (y), (ab), or in subsections 2.3(a)(ii) (with respect to omitting to take any action), (a)(iii), (a)(iv) (with respect to any amendment not relating to a matter described in the parenthetical of subsection (a)(iv)), (c), (d), (f) (other than with respect to Liens granted or conveyed by Owner or any Affiliate of Owner), or (m) (other than with respect to changes of Owner's principal place of business that could reasonably be expected to materially and adversely affect the validity, priority, perfection or enforceability of any Transaction Document), within ten (10) days after receipt of notice from Servicer or Fannie Mae; or (e) the failure by Owner to perform or observe any covenant set forth in subsections 2.2(i) or 2.3(l), within twenty (20) days after receipt of notice from Servicer or Fannie Mae, or the failure by Owner to perform or observe any covenant set forth in subsections 2.2(aa) within thirty (30) days after receipt of notice from Servicer or Fannie Mae; or (f) any warranty, representation or other written statement made by or on behalf of Owner contained in this Agreement, any other Transaction Document or in any instrument furnished in compliance with or in reference to any of the foregoing, is false or misleading in any material respect on any date when made; or (g) any other Indebtedness in an aggregate amount in excess of $500,000 of or assumed by Owner (i) is not paid when due nor within any applicable grace period in any agreement or instrument relating to such Indebtedness or (ii) becomes due and payable before its normal maturity by reason of a default or event of default, however described, or any other event of default shall occur and continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or (h) (i) Owner, QRS Partner, OP Partner or any Nominee Corp. shall (A) commence a voluntary case under the Federal bankruptcy laws (as now or hereafter in effect), (B) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up or composition or adjustment of debts, (C) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other similar laws, (D) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of a substantial part of its property, domestic or foreign, (E) admit in writing its inability to pay, or generally not be paying, its 95 debts as they become due, (F) make a general assignment for the benefit of creditors, (G) assert that Owner, QRS Partner, OP Partner or any Nominee Corp. has no liability or obligations under this Agreement or any other Transaction Document to which it is a party; or (H) take any action for the purpose of effecting any of the foregoing; or (ii) a case or other proceeding shall be commenced against Owner, QRS Partner, OP Partner or any Nominee Corp. in any court of competent jurisdiction seeking (A) relief under the Federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding upon or composition or adjustment of debts, or (B) the appointment of a trustee, receiver, custodian, liquidator or the like of Owner, QRS Partner, OP Partner, any Nominee Corp., or of all or a substantial part of the property, domestic or foreign, of Owner, QRS Partner, OP Partner or any Nominee Corp. and any such case or proceeding shall continue undismissed or unstayed for a period of ninety (90) consecutive calendar days, or any order granting the relief requested in any such case or proceeding against Owner, QRS Partner, OP Partner or any Nominee Corp. (including an order for relief under such Federal bankruptcy laws) shall be entered and be unstayed; or (i) if any provision of this Agreement or any other Transaction Document or the lien and security interest purported to be created hereunder or under any Transaction Document shall at any time for any reason cease to be valid and binding in accordance with its terms on any Issuer, Owner or any Nominee Corp., as the case may be, or shall be declared to be null and void, or the validity or enforceability hereof or thereof or the validity or priority of the lien and security interest created hereunder or under any other Transaction Document shall be contested by Owner or any Nominee Corp. seeking to establish the invalidity or unenforceability hereof or thereof, or any Issuer, Owner or any Nominee Corp., as the case may be, shall deny that it has any further liability or obligation hereunder or thereunder; or (j) if a "Transfer" (as defined in any Related Mortgage) shall occur in violation of Uniform Covenant 19 of any Related Mortgage or if any Property or any part thereof is otherwise conveyed, assigned, mortgaged, pledged, leased or encumbered in any way other than as permitted under this Agreement or any Related Mortgage without the prior written consent of Fannie Mae; or (k) the execution by Owner of a chattel mortgage or other security agreement on any materials, fixtures or articles used in the construction or operation of the improvements located on any Property or on articles of personal property located therein, or (y) if any such materials, fixtures or articles are purchased pursuant to any conditional sales contract or other security agreement or otherwise so that the ownership thereof will not vest unconditionally in Owner free from encumbrances, or (z) if Owner does not furnish to Fannie Mae upon request the contracts, bills of sale, statements, receipted vouchers and agreements, or any of them, under which Owner claims title to such materials, fixtures, or articles; or 96 (l) failure, upon request, to furnish to Fannie Mae the results of official searches made by any Governmental Authority, or failure by Owner to comply with any requirement of any Governmental Authority (not being contested in good faith in accordance with the terms of the Transaction Documents) within thirty (30) days after written notice of such requirement shall have been given to Owner by such Governmental Authority; provided that, if action is commenced and diligently pursued by Owner within such 30 days, then Owner shall have an additional 30 days to comply with such requirement; or (m) a dissolution or liquidation for any reason (whether voluntary or involuntary) of Owner, QRS Partner, OP Partner or any Nominee Corp., provided that, in the case of the dissolution of OP Partner, it shall not be an Event of Default if OP Partner is reconstituted within ninety (90) days of such dissolution; or (n) if QRS Partner shall fail to qualify as a "qualified REIT subsidiary" or if EQR shall fail to qualify as a real estate investment trust under Subchapter M of the Code; or (o) any judgment against Owner or QRS Partner or any attachment or other levy against any portion of Owner's assets with respect to a claim in an amount in excess of $500,000.00 individually and/or $1,000,000.00 in the aggregate remains unpaid, unstayed on appeal undischarged, unbonded, not fully insured (after giving affect to applicable deductibles permitted under the DUS Guide) or undismissed for a period of sixty (60) days; or (p) if, following an optional or mandatory tender of Related Bonds in accordance with the Related Indenture, the Related Bonds have not been remarketed, but have been purchased by the Related Trustee on behalf of and as agent for Owner with funds provided by Fannie Mae under the Related Fannie Mae Collateral Agreement and such Related Bonds have not been remarketed or redeemed by Owner as of either (i) if no Event of Default or Potential Event of Default has occurred and is continuing as of the date of such optional or mandatory tender, the one-hundred and eightieth (180th) day following such purchase, or (ii) otherwise, the ninetieth (90th) day following such purchase (such applicable period, the "REMARKETING PERIOD"), then, at any time following the end of such Remarketing Period, and provided the Related Bonds have not then been remarketed, such failed remarketing shall, at Fannie Mae's option, constitute an Event of Default under this Agreement; provided, however, that such Remarketing Period may be extended by Fannie Mae in its discretion; or (q) the failure by Owner to maintain insurance with respect to each Property in accordance with the terms of the Related Mortgage with respect to each such Property; or 97 (r) the failure by Owner to perform or observe the covenants with respect to Hazardous Materials or Hazardous Materials Laws set forth in any Mortgages or in any other Transaction Document, including the covenants set forth in Paragraph 6.B ("ENVIRONMENTAL HAZARDS") of each Mortgage, within ten (10) days after receipt of notice from Servicer or Fannie Mae identifying such failure; provided, however, that if in Fannie Mae's judgment, (i) the cure of such failure requires a period in excess of ten (10) days, (ii) such failure will not result in a Material Adverse Effect on Owner or a Material Adverse Impact, and (iii) corrective action is instituted by Owner within such period and pursued diligently and in good faith, then such failure shall not constitute an Event of Default unless such failure is not cured by Owner within forty-five (45) days after receipt of notice from Servicer or Fannie Mae identifying such failure; or (s) the failure by Owner to cause the Gross Cash Flow with respect to any Property to be deposited into the applicable Property Account in accordance with the requirements of the Cash Management Agreement; or (t) if any Nominee Corp. shall claim in any formal legal proceeding that such Nominee Corp. owns or holds (except in accordance with the terms of the relevant Nominee Agreement), has conveyed or is entitled to convey any beneficial ownership interests in the relevant Nominee Property or that any Person other than Owner holds any beneficial ownership interest in any such Nominee Property or otherwise has any right, power or authority to direct the respective Nominee Corp. to sell, convey, mortgage, pledge, otherwise encumber, lease, grant easements or take any action with respect to such Nominee Property; (u) the failure by Owner to perform or observe any term, covenant, condition or agreement hereunder, other than as set forth in subsections (a) through (t) above, or in any other Transaction Document, within thirty (30) days after receipt of notice from Servicer or Fannie Mae identifying such failure; provided, however, that if in Fannie Mae's judgment, (i) the cure of such failure requires a period in excess of thirty (30) days, (ii) such failure will not result in a Material Adverse Effect on Owner or a Material Adverse Impact, and (iii) corrective action is instituted by Owner within such period and pursued diligently and in good faith, then such failure shall not constitute an Event of Default unless such failure is not cured by Owner within sixty (60) days after receipt of notice from Servicer or Fannie Mae identifying such failure; or (v) Owner, QRS Partner, OP Partner, any Nominee Corp. or any Issuer shall have asserted that it has no liability or obligations under this Agreement or under any Transaction Document to which it is a party or that the liens and the security interests purported to be created by the Mortgage Documents shall not be a valid and perfected first priority security interest subject to no Liens except Permitted Liens; or any Governmental Authority having jurisdiction over Owner, QRS Partner, OP Partner, any Nominee Corp. or any Issuer shall find or rule that any material provision of this Agreement or any Transaction Document to which it is a party is not valid and binding on such person or that 98 the lien and the security interest purported to be created by any Mortgage Document shall not be a valid and perfected first priority security interest subject to no Liens except Permitted Liens; or (w) a Reset Period expires and Owner has not either (i) received the prior written consent of Fannie Mae to a change in Mode or the maintenance of the existing Mode or (ii) delivered Alternate Credit Facilities in accordance with the terms of the Related Bond Documents and section 6.2. SECTION 7.2 REMEDIES. -------- (a) REMEDIES UPON AN EVENT OF DEFAULT. Upon the occurrence of an Event of Default, Fannie Mae may in its discretion, but shall not be obligated to, exercise any or all of the following remedies: (i) declare all amounts payable by Owner under this Agreement or the other Transaction Documents to be forthwith due and payable, and the same shall thereupon become due and payable without demand, presentment, protest or notice of any kind, all of which are hereby expressly waived; or (ii) exercise all or any of its rights and remedies as it may otherwise have under Applicable Law and under this Agreement or the other Transaction Documents or otherwise by such suits, actions, or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for specific performance of any covenant or agreement contained in this Agreement or any other Transaction Document, or in aid or execution of any power therein granted or for the enforcement of any proper legal or equitable remedy; or (iii) demand and Owner shall provide cash collateral or Government Obligations in the full amount of the outstanding obligations under all of the Bonds whether or not due and payable; or (iv) apply all or any portion of the Collateral to any Obligations or other obligation of Owner under this Agreement or any other Transaction Document, in such amounts, at such times and in such order as determined by Fannie Mae in its discretion. Owner acknowledges that this may include, among other things, applying funds or directing any Related Trustee or Servicer, as the case may be, to apply funds on deposit in a Principal Reserve Fund, any Property Account or the Central Account to prepay the applicable Related Bonds or to prepay any other Related Bonds or reimbursement or other payment obligations under this Agreement or any other Transaction Document. Such funds may be applied to prepay or reduce amounts outstanding under one or more Related Bonds regardless of whether such amounts are then due and owing; or 99 (v) deliver to the Related Trustees written notice that an Event of Default has occurred under this Agreement and directing the Related Trustees to take such action pursuant to the Transaction Documents as Fannie Mae may determine, including a request that the Related Trustees declare the principal of all or a portion of the Related Bonds then outstanding and the interest accrued thereon to be immediately due and payable in accordance with the terms and conditions of the Related Indentures. (b) REMEDIES UPON A POTENTIAL EVENT OF DEFAULT. Notwithstanding anything in this Agreement or in any other Transaction Document to the contrary, upon the occurrence of a Potential Event of Default, Fannie Mae may in its discretion, but shall not be obligated to, apply all or any funds in any of the Principal Reserve Funds or direct any Related Trustee or Servicer, as the case may be, to apply funds on deposit in any of the Principal Reserve Funds to prepay the applicable Related Bonds (regardless of whether such amounts are then due and owing), in such amounts, at such times and in such order as determined by Fannie Mae in its discretion. (c) ISSUER DEFAULTS. Notwithstanding anything in this Agreement, any Bond Document or any other Transaction Document to the contrary, Fannie Mae acknowledges and agrees that if Fannie Mae shall be entitled to declare an Event of Default under this Agreement, any Related Mortgage Note or any Mortgage solely as the result of an Issuer Default (as defined below) then: (i) Fannie Mae shall not declare such Event of Default so long as (A) no portion of the trust estate created, or any other collateral held, under the Related Indenture is subject to an automatic stay or otherwise adversely impacted as a result of such Issuer Default, (B) Fannie Mae determines in Fannie Mae's discretion, that neither (1) the validity, enforceability or priority of the liens and security interests held by Fannie Mae (in whole or in part) in any of the Collateral or (2) any of the Obligations of Owner to Fannie Mae, are being challenged by any party or otherwise adversely impacted in any way as a result of such Issuer Default, and (C) Fannie Mae determines in Fannie Mae's discretion, that Fannie Mae's failure to declare such Event of Default shall not result in Fannie Mae being in default of any of its obligations under the Related Fannie Mae Collateral Agreement; and (ii) in the event Fannie Mae elects to declare an Event of Default as the result of an Issuer Default, then Fannie Mae agrees that it shall first accelerate only the indebtedness evidenced by the Related Mortgage Note and that from and after the date of such acceleration Owner shall have ten (10) Business Days to repay such Related Mortgage Note in full (together with any additional amounts due under the applicable Related Bonds in respect of the amount repaid under such Related Mortgage Note, including accrued interest on the Related Bonds to the date of redemption, and the premium, if any, payable 100 to the applicable Bondholders by reason of such redemption, any prepayment premium due pursuant to the Related Mortgage Note and any other additional amounts due in accordance with section 2.2(s)); provided, however, that, notwithstanding any such payment in full, Owner shall not be entitled to a release of the related Bond Mortgage or the related Reimbursement Mortgage unless Owner satisfies all of the requirements of section 5.3. If such Related Mortgage Note is repaid in full on or before the tenth (10th) Business Day after the date of such acceleration, then Fannie Mae shall not accelerate any of the other Mortgage Loans or exercise any other remedies on account of such Issuer Default. If Owner fails to repay such Related Mortgage Note in full on or before such tenth (10th) Business Day, then Fannie Mae may in its discretion, but shall not be obligated to, exercise any or all of the other remedies set forth in this section 7.2 or any of the other Transaction Documents. For purposes of this section 7.2(c) an "ISSUER DEFAULT" shall mean any of the following events: (w) if an Act of Bankruptcy (as defined in a Related Indenture) shall have occurred; (x) if any provision of any Transaction Document applicable to any Issuer or the lien and security interest purported to be created by any Issuer under any Transaction Document shall at any time for any reason cease to be valid and binding in accordance with its terms on such Issuer or shall be declared to be null and void, or if any Issuer shall deny that it has any further liability or obligation thereunder; (y) if any Issuer shall have asserted that it has no liability or obligations under any Transaction Document to which it is a party or if any Governmental Authority having jurisdiction over any Issuer shall find or rule that any material provision of any Transaction Document to which such Issuer is a party is not valid and binding on such Issuer; or (z) if any Issuer shall otherwise fail to comply with the terms and conditions of any Transaction Document to which such Issuer is a party and such failure to comply results in Fannie Mae having the right to declare an Event of Default under this Agreement or any other Transaction Document. (d) NO WAIVER, REMEDIES CUMULATIVE. No failure or delay on the part of Fannie Mae to exercise any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy hereunder preclude any further exercise thereof or the exercise of any further right or remedy hereunder or under any other Transaction Document. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or under any Transaction Document. No exercise by Fannie Mae of any remedy under any Transaction Document shall operate as a limitation on any rights or remedies of Fannie Mae under this Agreement. In order to entitle Fannie Mae to exercise any remedy reserved to Fannie Mae in this Article, it shall not be necessary to give any notice, other than such notice as may be required under the applicable provisions of any of the Transaction Documents. The rights and remedies of Fannie Mae specified in this Agreement are for the sole and exclusive benefit, use and protection of Fannie Mae, and Fannie Mae is entitled, but shall have no duty or obligation to Owner, any Issuer, any Related Trustee, any Bondholder with respect to any of the Bonds, or otherwise, 101 (a) to exercise or to refrain from exercising any right or remedy reserved to Fannie Mae hereunder, or (b) to cause any Related Trustee or any other party to exercise or to refrain from exercising any right or remedy available to it under any of the Transaction Documents. ARTICLE VIII. MISCELLANEOUS SECTION 8.1 WAIVERS, AMENDMENTS. ------------------- This Agreement may be amended only by a written instrument duly executed by each of the parties hereto. Owner may take any action herein prohibited or omit to perform any act herein required to be performed or omit to perform any act herein required to be performed by it, only if Owner shall first obtain the written consent of Fannie Mae thereto. No course of dealing between Owner and Fannie Mae, nor any delay in exercising any rights hereunder, shall operate as a waiver of any rights of Fannie Mae hereunder. Unless otherwise specified in such waiver or consent, a waiver or consent given hereunder shall be effective only in the specific instance and for the specific purpose for which given. SECTION 8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. ------------------------------------------ All representations and warranties of Owner contained in any Transaction Document and all statements contained in any certificate, financial statement or other instrument delivered by any EQR Party or by any EQR Party pursuant to or in connection with this Agreement (including any such statement made in or in connection with any amendment hereto or thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement (a) shall be made and shall be true at and as of the date of this Agreement and the Restatement Closing Date, and (b) shall survive the execution and delivery of this Agreement, regardless of any investigation made by Fannie Mae or on its behalf. SECTION 8.3 NOTICES. ------- All notices, directions, certificates or other communications hereunder shall be given by certified or registered mail, return receipt requested, or by overnight courier addressed to the appropriate notice address set forth below. Any of the parties hereto may, by a notice to the other party specifically captioned "Notice of Change of Address pursuant to section 8.3 of the Amended and Restated Master Reimbursement Agreement", designate any further or different address to which subsequent notices, certificates or other communications shall be sent without any requirement of execution of any amendment to this Agreement. Any such notice, certificate or communication shall be deemed to have been given as of the date of actual delivery or the date of failure to deliver by reason of refusal to accept delivery or changed address of which no notice was given pursuant to this 102 section 8.3. All notices pursuant to this Agreement shall also be given to Servicer in accordance with this section 8.3. The notice addresses are as follows: (a) if to Owner: EQR-Bond Partnership c/o Equity Residential Properties Trust Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606 Attention: Chief Financial Officer with a copy to: EQR-Bond Partnership c/o Equity Residential Properties Trust Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606 Attention: General Counsel (b) if to Fannie Mae: if by mail or overnight courier: Fannie Mae 3900 Wisconsin Avenue, N.W. Washington, D.C. 20016 Attention: Senior Vice President - Multifamily Activities if by messenger: Fannie Mae 3939 Wisconsin Avenue, N.W. Washington, D.C. 20016 Attention: Senior Vice President - Multifamily Activities in each case, with copies to: Fannie Mae Midwest Regional Office One South Wacker Drive Suite 1300 Chicago, Illinois 60606-4667 Attention: Vice President - Multifamily Activities 103 and to: Fannie Mae 3900 Wisconsin Avenue, N.W. Washington, D.C. 20016 Attention: Multifamily Mortgage Operations - Manager Multifamily Deliveries (c) if to Servicer: Washington Capital DUS, Inc. 1616 North Fort Myer Drive, Suite 1210 Arlington, Virginia 22209 Attention: Bridget O. Schmitz Executive Vice President SECTION 8.4 PAYMENT PROCEDURE. ----------------- Owner agrees that, unless otherwise directed pursuant to section 6.1, all amounts due to Fannie Mae under Article 4 of this Agreement shall be paid to Servicer for remittance to Fannie Mae pursuant to the Servicing Agreement. All payments to be made to Servicer, for the account of Fannie Mae, pursuant to this Agreement shall be paid (in immediately available funds with respect to Advances and Withdrawals) to Servicer in accordance with the Related Mortgage Note or in accordance with instructions given to Owner by Servicer. All repayments of Advances and Withdrawals shall be in immediately available funds. Except as otherwise provided above in this section 8.4, all payments to be made to Fannie Mae pursuant to this Agreement shall be made before 2:00 p.m., Washington, D.C. time, on the date when due, in lawful currency of the United States of America and in immediately available funds by wire transfer to an account designated in writing by Fannie Mae unless Owner is otherwise instructed in writing by Fannie Mae. Notwithstanding the foregoing, in connection with Owner's obligation to reimburse Fannie Mae by 2:00 p.m., Washington, D.C. time for certain payments made by Fannie Mae as provided in Article 4 of this Agreement, such payment will be deemed to have been timely made if made to Servicer, for remittance to Fannie Mae, by wire transfer to an account designated in writing by Servicer, before 2:00 p.m., Washington, D.C. time. SECTION 8.5 CONTINUING OBLIGATION. --------------------- This Agreement is a continuing obligation of Owner and shall, until the later of the Termination Date under the last remaining Related Fannie Mae Collateral Agreement or the date upon which the Obligations shall have been paid in full, (a) be binding upon the parties hereto and their respective successors and assigns and (b) inure to the benefit of and be enforceable by Fannie Mae and its successors, transferees and assigns; provided, that Owner may not assign all or any part of this Agreement without the prior 104 written consent of Fannie Mae. This Agreement shall terminate upon the date on which the Obligations to Fannie Mae or its successors or assigns have been satisfied in full. SECTION 8.6 SATISFACTION REQUIREMENT. ------------------------ If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to, or subject to the satisfaction of, Fannie Mae, then, unless otherwise expressly specified herein, the determination of such satisfaction shall be made by Fannie Mae in its sole and exclusive judgment. SECTION 8.7 CONSENT OF FANNIE MAE. --------------------- If any provision of this Agreement provides for the approval, consent, election, determination, exercise of discretion, choice, designation, judgment or waiver of or by Fannie Mae and if a basis for Fannie Mae granting such approval, consent, determination, election, exercise of discretion, choice, designation, judgment or waiver is not otherwise stated (i.e., that such approval, consent, election, determination, exercise of discretion, choice, designation, judgment or waiver will be "reasonable"), then in each case such approval, consent, determination, election, exercise of discretion, choice, designation, judgment or waiver will be given by Fannie Mae in its sole and absolute discretion. SECTION 8.8 GOVERNING LAW. ------------- This Agreement shall be construed and enforced in accordance with, and the rights and remedies of the parties hereto shall be governed by, the laws of the District of Columbia without regard to conflicts of law principles, except to the extent that Federal laws may prevail; provided, however, that matters respecting the creation, perfection, priority and foreclosure of the Lien on each Property granted pursuant to or in connection with the Transaction Documents shall be governed by, and construed and enforced in accordance with, the internal law of the state or commonwealth in which such Property is situated without giving effect to the conflicts of law principles of such state or commonwealth. SECTION 8.9 JURISDICTION, CONSENT TO SERVICE. -------------------------------- (a) Owner hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any District of Columbia court or Federal court of the United States of America sitting in the District of Columbia, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, the Bond Documents, the Mortgage Documents and every other Transaction Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such District of Columbia court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a 105 final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall effect any right that Fannie Mae may otherwise have to bring any action or proceeding relating to this Agreement, the Bond Documents, the Mortgage Documents or the other Transaction Documents against Owner or its properties in the courts of any jurisdiction. (b) Owner hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, the Bond Documents, the Mortgage Documents or the other Transaction Documents in any District of Columbia or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in section 8.3. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 8.10 WAIVERS OF JURY TRIAL. --------------------- Owner and Fannie Mae (a) covenant and agree not to elect a trial by jury with respect to any issue arising under this Agreement or any of the other transaction documents otherwise triable by a jury and (b) waive any right to trial by jury to the extent that any such right shall now or hereafter exist. This waiver of right to trial by jury is separately given, knowingly and voluntarily with the benefit of competent legal counsel by Owner, and this waiver is intended to encompass individually each instance and each issue as to which the right to a jury trial would otherwise accrue. Further, Owner hereby certifies that no representative or agent of Fannie Mae (including, but not limited to, Fannie Mae's counsel) has represented, expressly or otherwise, to Owner that Fannie Mae will not seek to enforce the provisions of this Section 8.10 SECTION 8.11 COUNTERPARTS. ------------ To facilitate execution, this Agreement may be executed in any number of counterparts. It shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart, but it shall be sufficient that the signature of, or on behalf of, each party, appear on one or more counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. 106 SECTION 8.12 SEVERABILITY. ------------ Any provision of this Agreement that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction and the remaining portion of such provision and all other remaining provisions will be construed to render them enforceable to the fullest extent. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 8.13 BUSINESS DAYS. ------------- If any payment under this Agreement shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day and such extension of time shall in any case be included in computing interest, if any, in connection with such payment. SECTION 8.14 ENTIRE AGREEMENT. ---------------- This Agreement and the other Transaction Documents constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Transaction Documents. Nothing in this Agreement or the other Transaction Documents, expressed or implied, is intended to confer upon any party other than the respective parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Transaction Documents; provided, however, that as to Persons other than Fannie Mae and Owner that are parties to any of the Transaction Documents, such Persons shall not have any rights, remedies, obligations or liabilities under this Agreement or any of the Transaction Documents except under such Transaction Documents as to which such Persons are direct parties. SECTION 8.15 HEADINGS. -------- Section, subsection and paragraph headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purposes. SECTION 8.16 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. --------------------------------------------- To the extent permitted by law, the parties to this Agreement agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements to this Agreement and such further 107 instruments as Fannie Mae may request and as may be reasonably required in the opinion of Fannie Mae or its counsel to effectuate the intention of or facilitate the performance of this Agreement or any other Transaction Document provided that such supplements or instruments shall not impose any material additional obligations or recourse on any EQR Party. SECTION 8.17 ASSIGNMENT; TRANSFERS; THIRD-PARTY RIGHTS. ----------------------------------------- Owner shall not assign this Agreement, or delegate any of the Obligations hereunder, without the prior written consent of Fannie Mae. This Agreement may not be transferred in any respect without the prior written consent of Fannie Mae. Nothing in this Agreement shall confer any right upon any holder of any Bond or any other Person other than the parties hereto and their successors and permitted assigns; provided, however, that notwithstanding anything to the contrary herein, Servicer shall be a third party beneficiary with respect to Owner's covenants and obligations under section 4.5. SECTION 8.18 WAIVER OF CLAIMS. ---------------- IN ORDER TO INDUCE FANNIE MAE TO EXECUTE AND DELIVER THE AGREEMENTS, OWNER HEREBY REPRESENTS AND WARRANTS THAT IT HAS NO CLAIMS, SET- OFFS OR DEFENSES AS OF THE RESTATEMENT CLOSING DATE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR IN CONNECTION WITH ANY OF THE OTHER TRANSACTION DOCUMENTS. TO THE EXTENT ANY SUCH CLAIMS, SET-OFFS OR DEFENSES MAY EXIST, WHETHER KNOWN OR UNKNOWN, THEY ARE EACH HEREBY WAIVED AND RELINQUISHED IN THEIR ENTIRETY. SECTION 8.19 DISCLAIMER; ACKNOWLEDGEMENTS. ---------------------------- Approval by Fannie Mae of Owner, the Mortgage Loans, the Bonds or otherwise shall not constitute a warranty or representation by Fannie Mae as to any matter. Nothing set forth in this Agreement, in any of the Transaction Documents or in the subsequent conduct of the parties shall be deemed to constitute Fannie Mae as the partner or joint venturer of any person for any purpose whatsoever. SECTION 8.20 CONFLICTS BETWEEN AGREEMENTS. ---------------------------- Any terms and conditions contained in this Agreement that may also be contained in any of the Related Mortgage Notes, any of the Related Mortgages, any of the Reimbursement Loan Documents or any other Transaction Document shall not, to the extent reasonably practicable, be construed to be in conflict with each other but rather shall be construed as duplicative, confirming, additional, or cumulative provisions. To the extent that any ultimate conflict is determined to exist between the terms and conditions of this Agreement and those set forth in any of the Related Mortgage Notes, any of the Related 108 Mortgages, any of the Reimbursement Loan Documents or any of the other Transaction Document the terms and conditions of this Agreement shall control the rights, duties and obligations of Fannie Mae and Owner. SECTION 8.21 ACKNOWLEDGMENT AND AGREEMENT OF NOMINEE CORPS. TO ------------------------------------------------- JOINT AND SEVERAL LIABILITY. - - --------------------------- (a) JOINT AND SEVERAL LIABILITY. Owner and each Nominee Corp. acknowledge and agree that Fannie Mae has entered into the transactions evidenced by this Agreement based in part upon its understanding that each Nominee Property is beneficially owned by Owner, that the respective Nominee Corp. holds fee simple title to such Nominee Property solely on behalf of Owner, as Owner's nominee, and that such Nominee Corp. does not hold any beneficial ownership interests in its respective Nominee Property. In furtherance of this understanding and notwithstanding anything contained in this Agreement or any of the other Transaction Documents to the contrary (but subject, however, to the provisions of subsection 8.21(b)), each Nominee Corp. acknowledges and agrees that all Obligations of Owner under this Agreement, the Mortgage Documents and the other Transaction Documents shall be joint and several obligations of Owner and each Nominee Corp. (b) NOMINEE CORPS. Nothing in this Agreement or the other Transaction Documents shall impose or shall be construed to impose any personal liability on the shareholders, officers, directors or agents of the Nominee Corps. (c) CERTAIN REPRESENTATIONS AND WARRANTIES OF THE NOMINEE CORPS. To induce Fannie Mae to enter into this Agreement and to execute and deliver the Related Fannie Mae Collateral Agreements, each Nominee Corp. represents and warrants to Fannie Mae (in addition to and not in any way in limitation of the representations and warranties of Owner) as follows: (i) Manchester Nominee Corp. is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois pursuant the Manchester Corp. Articles of Incorporation. Copies of the Manchester Corp. Organizational Documents certified as true, correct and complete by a duly authorized officer of Manchester Corp. have been delivered to Fannie Mae. The Manchester Corp. Organizational Documents are in full force and effect and have not been otherwise supplemented, amended or modified. A copy of the Manchester Nominee Agreement certified as true, correct and complete by a duly authorized officer of QRS Partner, has been delivered to Fannie Mae on or before the date hereof. The Manchester Nominee Agreement (a) is in full force and effect and constitutes the entire agreement of the parties thereto with respect to the Nominee Property commonly known as Wellington Hill Apartments, (b) has not been supplemented, amended or modified and (c) constitutes the legal, valid and binding obligation of Manchester Nominee Corp. 109 (ii) Ravens Crest Nominee Corp. is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois pursuant to the Ravens Crest Articles of Incorporation. Copies of the Ravens Crest Organizational Documents certified as true, correct and complete by a duly authorized officer of Ravens Crest Nominee Corp. have been delivered to Fannie Mae. The Ravens Crest Organizational Documents are in full force and effect and have not been otherwise supplemented, amended or modified. A copy of the Ravens Crest Nominee Agreement certified as true, correct and complete by a duly authorized officer of QRS Partner, has been delivered to Fannie Mae on or before the date hereof. The Ravens Crest Nominee Agreement (a) is in full force and effect and constitutes the entire agreement of the parties thereto with respect to the Nominee Property commonly known as Ravens Crest Apartments, (b) has not been supplemented, amended or modified and (c) constitutes the legal, valid and binding obligation of Ravens Crest Nominee Corp. (iii) Donald Liebentritt is the sole shareholder of each Nominee Corp. and is the record and beneficial owner of, and has good title to, a one hundred percent (100%) ownership interest in each Nominee Corp., free and clear of all liens, security interests, options, rights of first refusal and adverse claims of title of any kind or character, and such percentage interest is not subject to any agreement providing for the sale or transfer thereof. (iv) Manchester Nominee Corp. is qualified to transact business and in good standing in the State of New Hampshire and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of Owner to perform the Obligations under this Agreement and the other Transaction Documents. (v) Ravens Crest Nominee Corp. is qualified to transact business and in good standing in the State of New Jersey and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of Owner to perform the Obligations under this Agreement and the other Transaction Documents. (vi) With respect to each Nominee Property, (a) the respective Nominee Corp. holds record title solely on behalf of Owner, subject to the respective Nominee Agreement, free and clear of all Liens whatsoever except the Permitted Liens, (b) Owner owns and holds all beneficial ownership interests and Owner has good, valid, marketable title, free and clear of all Liens whatsoever except the Permitted Liens, pursuant to the respective Nominee Agreement, (c) Owner has the sole undivided right, power and authority to direct the respective Nominee Corp. to sell, convey, mortgage, pledge, otherwise encumber, lease, grant easements and 110 otherwise take any action with respect to such Nominee Property and (d) the respective Nominee Corp. has no right, power or authority to sell, convey, mortgage, pledge, otherwise encumber, lease, grant easements or otherwise take any action with respect to such Nominee Property except at the direction of Owner. SECTION 8.22 NO NOVATION. ----------- Nothing herein in intended to nor shall constitute a novation of the Existing Reimbursement Agreement or the obligations evidenced thereby, which such obligations shall remain in full force and effect, but shall be repayable by and governed under the terms and conditions of this Agreement. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 111 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers or representatives as of the date hereof. EQR-BOND PARTNERSHIP, a Georgia general partnership By: QRS-BOND, INC., an Illinois corporation, a general partner By: ----------------------------- Name: Title: By: ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited partnership, a general partner By: EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real estate investment trust, its general partner By: ----------------------- Name: Title: FEDERAL NATIONAL MORTGAGE ASSOCIATION By: ---------------------------- S-1 ACKNOWLEDGMENT AND AGREEMENT OF JOINT AND SEVERAL LIABILITY PURSUANT TO SECTION 8.21 BY NOMINEE CORPS.: EQR-RAVENS CREST VISTAS, INC., an Illinois corporation By: ---------------------------- Name: Title: EQR-MANCHESTER HILL VISTAS, INC., an Illinois corporation By: ---------------------------- Name: Title: S-2 EXHIBIT A BOND PROPERTIES, ISSUERS AND RELATED INFORMATION EXHIBIT A, SECTION 1: - - --------------------
BOND/LOAN BOND PROJECT ISSUER AMOUNT TRUSTEE ISSUER - - ------- ------ --------- ------- ------ 1. Altamonte Bexar County $14,600,000 Texas Commerce --- (San Antonio, Bexar Housing Finance Bank National County, Texas) Corporation, Texas Association 2. Fountainhead Bexar County $23,275,000 Texas Commerce --- (San Antonio, Bexar Housing Finance Bank National County, Texas) Corporation, Texas Association 3. Four Lakes Phase V Village of Lisle, $39,680,000 Reliance Trust --- (Lisle, DuPage DuPage County, Company County, Illinois) Illinois 4. Frey Road Housing Authority $19,700,000 Reliance Trust .125%(2) (Kennesaw, Cobb of Cobb County Company County, Georgia) 5. Holcomb Bridge Housing Authority $9,545,000 First Union --- (Alpharetta, Fulton of Fulton County, National Bank of County, Georgia) Georgia Georgia, N.A.
ANNUAL FEES ------------------------------- REBATE REMARK. RATING PROJECT TRUSTEE MONITOR AGENT AGENCY BONDS - - ------- ------- ------- ------ ------ ----- 1. Altamonte $4,500 $350(1) 0.10% $3,500 Bexar County Housing Finance (San Antonio, Bexar Corporation Multifamily Housing County, Texas) Refunding Revenue Bonds (Altamonte Apartments Project) Series 1996 2. Fountainhead $4,500 $350 0.10% $3,500 Bexar County Housing Finance (San Antonio, Bexar Corporation Multifamily Housing County, Texas) Refunding Revenue Bonds (Fountainhead Apartments Project) Series 1996 3. Four Lakes Phase V $3,500 $350 0.10% $3,500 Village of Lisle, DuPage (Lisle, DuPage County, Illinois Multifamily County, Illinois) Housing Revenue Refunding Bonds (Four Lakes Phase V -Lisle Project), Series 1996 4. Frey Road $2,500 $350 0.10% $3,500 Housing Authority of Cobb (Kennesaw, Cobb County Multifamily Housing County, Georgia) Revenue Refunding Bonds (Greenhouse Frey Apartments Project), Series 1996 5. Holcomb Bridge $2,500 $350 0.10% $3,500 Housing Authority of Fulton (Alpharetta, Fulton County, Georgia - Multifamily County, Georgia) Housing Revenue Refunding Bonds (Greenhouse Holcomb Bridge Apartments Project), Series 1996
- - ---------------------------------- (1) The actual fee payable to the rebate monitor with respect to each bond transaction is $1,750 per calculation, with calculations being performed every 5 years. (2) The issuer's fee with respect to this transaction shall payable to The Housing Authority of Cobb County commencing September 1, 2001. Exh A - 1
BOND/LOAN BOND PROJECT ISSUER AMOUNT TRUSTEE ISSUER - - ------- ------ --------- ------- ------ 6. Roswell Housing Authority $8,100,000 Reliance Trust .125% (Roswell, Fulton of the City of Company County, Georgia) Roswell, Georgia 7. SilverWood City of Mission, $11,000,000 Mark Twain Bank --- (Mission, Johnson Kansas County, Kansas) 8. Sleepy Hollow The Industrial $12,500,000 Mark Twain Bank --- (Kansas City, Jackson Development County, Missouri) Authority of the City of Kansas City, Missouri
SUBTOTAL $138,400,000
ANNUAL FEES ------------------------------- REBATE REMARK. RATING PROJECT TRUSTEE MONITOR AGENT AGENCY BONDS - - ------- ------- ------- ------ ------ ----- 6. Roswell $2,500 $350 0.10% $3,500 Housing Authority of the City (Roswell, Fulton of Roswell, Georgia - County, Georgia) Multifamily Housing Revenue Refunding Bonds (Greenhouse Roswell Apartments Project), Series 1996 7. SilverWood $3,500 $350 0.10% $3,500 City of Mission, Kansas - (Mission, Johnson Multifamily Housing Refunding County, Kansas) Revenue Bonds (Silverwood Project), Series 1996 8. Sleepy Hollow $3,500 $350 0.10% $3,500 The Industrial Development (Kansas City, Jackson Authority of the City of Kansas County, Missouri) City, Missouri - Multifamily Housing Revenue Refunding Bonds (Sleepy Hollow Apartments Project), Series 1996
Exh A - 2 EXHIBIT A, SECTION 2: - - --------------------
BOND/LOAN BOND PROJECT ISSUER AMOUNT TRUSTEE ISSUER - - ------- ------ --------- ------- ------ 1. Wellington Hill New Hampshire $28,625,000 Bank of New 0.15% (Manchester, Housing Finance Hampshire per Hillsborough County, Authority annum New Hampshire)
SUBTOTAL $28,625,000 TOTAL $167,025,000 ============
ANNUAL FEES ------------------------------- REBATE REMARK. RATING PROJECT TRUSTEE MONITOR AGENT AGENCY BONDS - - ------- ------- ------- ------ ------ ----- 1. Wellington Hill 0.015% $350 0.10% $3,500 New Hampshire Housing Finance (Manchester, per annum Authority Multi-Family Hillsborough County, Housing Refunding Revenue New Hampshire) Bonds (EQR-Bond Partnership - Manchester Project), 1996 Issue
Exh A - 3 EXHIBIT B ADDITIONAL MORTGAGED PROPERTIES Project Name City, County State - - ------------------------------------------------------------------------------- 1. Oak Park North Agoura, Ventura County CA 2. Oak Park South Agoura, Ventura County CA 3. Ravens Crest Plainsboro, Middlesex NJ County 4. Del Coronado Mesa, Maricopa County AZ 5. Windridge Laguna Niguel, Orange CA County B-1 EXHIBIT C SCHEDULE OF TRANSACTION DOCUMENTS See attached closing transcripts as follows: 1. Altamonte Bond Closing Document Index. 2. Fountainhead Bond Closing Document Index. 3. Frey Road Bond Closing Document Index. 4. Holcomb Bridge Bond Closing Document Index. 5. Roswell Bond Closing Document Index. 6. Sleepy Hollow Bond Closing Document Index. 7. Silverwood Bond Closing Document Index. 8. Four Lakes Phase V Bond Closing Document Index. 9. Wellington Hill Bond Closing Document Index. 10. Fannie Mae Reimbursement/Credit Enhancement Transaction Closing Document Index (Initial Closing). 11. Fannie Mae Reimbursement/Credit Enhancement Transaction Closing Document Index (Amended and Restated Closing). C-1 EXHIBIT D PERMITTED LIENS
Property Title Pro Forma # Effective Date 1. Altamonte 9600995DE September 30, (San Antonio, Bexar County, TX) 1996 2. Fountainhead 9600994DE September 30, (San Antonio, Bexar County, TX) 1996 3. Four Lakes Phase V H455-0633 September 30, (Lisle, DuPage County, IL) 1996 4. Frey Road 96-73A September 30, (Kennesaw, Cobb County, GA) 1996 5. Holcomb Bridge 96-73B September 30, (Alpharetta, Fulton County, GA) 1996 6. Roswell 96-73C September 30, (Roswell, Fulton County, GA) 1996 7. SilverWood J161208 September 30, (Mission, Johnson County, KS) 1996 8. Sleepy Hollow J161209 September 30, (Kansas City, Jackson County, MO) 1996 9. Oak Park North 6600234-6 September 30, (Agoura, Ventura County, CA) 1996 10. Oak Park South 6600236-6 September 30, (Agoura, Ventura County, CA) 1996 11. Ravens Crest T960193 September 30, (Plainsboro, Middlesex County, NJ) 1996 12. Del Coronado 75011728 September 30, (Mesa, Maricopa County, AZ) 1996 13. Windridge 2602214-3 September 30, (Laguna Niguel, Orange County, CA) 1996 14. Wellington Hill Apartments, Proforma December 11, 1996 (Manchester, Hillsborough County, NH) File No. 0083-NH
D-1 EXHIBIT E [FORM OF INTEREST RATE HEDGE SECURITY AGREEMENT] INTEREST RATE HEDGE SECURITY AGREEMENT THIS INTEREST RATE HEDGE SECURITY AGREEMENT (this "PLEDGE AGREEMENT"), dated as of ______________, ____, is between EQR-BOND PARTNERSHIP (the "GRANTOR"), a Georgia general partnership, and FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FANNIE MAE"), a federally-chartered and stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act, 12 U.S.C. Section 1716, et seq. The meaning of capitalized terms can be determined by reference to section 1.2 of this Pledge Agreement. BASIS FOR THIS AGREEMENT ------------------------ 1 The Issuer intends to issue the Bonds under the Trust Indenture (the "Indenture"), dated as of _______________, 1996, between the Issuer and the Trustee. 2 [TRUSTEE] as trustee (the "TRUSTEE") and Fannie Mae have entered into the Collateral Agreement (the "COLLATERAL AGREEMENT") dated as of ______________, 1996 pursuant to which Fannie Mae, subject to the terms and conditions of the Collateral Agreement, will provide credit enhancement and liquidity for the Bonds by pledging and granting to the Trustee a security interest in certain mortgage loans owned by Fannie Mae and, if applicable, certain other securities, obligations and participation interests of or owned by Fannie Mae. 3 As a condition precedent to Fannie Mae's providing credit enhancement and liquidity for the Bonds, the Grantor has made arrangements to enter into one or more interest rate [hedges/swaps] (together, the "HEDGE") pursuant to certain documents attached as Exhibit A to this Pledge Agreement (the "HEDGE DOCUMENTS"). 4 Pursuant to the terms of the Amended and Restated Master Reimbursement Agreement (the "REIMBURSEMENT AGREEMENT") dated as of _________________, 1996 between the Grantor and Fannie Mae, the Grantor has agreed, among other things, to reimburse Fannie Mae for payments made or collateral delivered by Fannie Mae under the Collateral Agreement. 5 It is a condition precedent to Fannie Mae's obligation to enter into the Collateral Agreement that the Grantor shall have made the pledge and granted the security interest to Fannie Mae as contemplated and effected by this Pledge Agreement. E-1 NOW, THEREFORE, in consideration of the mutual covenants and undertakings set forth in this Pledge Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the Grantor and Fannie Mae, the Grantor and Fannie Mae agree as follows: 1. INCORPORATION OF RECITALS; DEFINITIONS; INTERPRETATION; REFERENCE ----------------------------------------------------------------- MATERIALS. - - --------- 1.1 INCORPORATION OF RECITALS. The recitals set forth in "Basis for this Pledge Agreement" are, by this reference, incorporated into and deemed a part of this Pledge Agreement. 1.2 DEFINITIONS. Capitalized terms used in this Pledge Agreement shall have the meanings given to those terms in this Pledge Agreement. Capitalized terms used in this Pledge Agreement and not defined in this Pledge Agreement, but defined in the Reimbursement Agreement, shall have the meaning given those terms in the Reimbursement Agreement. 1.3 INTERPRETATION. Words importing any gender include all genders. The singular form of any word used in this Pledge Agreement shall include the plural, and vice versa, unless the context otherwise requires. Words importing persons include natural persons, firms, associations, partnerships and corporations. The parties hereto acknowledge that each party and their respective counsel have participated in the drafting and revision of this Pledge Agreement. Accordingly, the parties agree that any rule of construction which disfavors the drafting party shall not apply in the interpretation of this Pledge Agreement or any statement or supplement or exhibit hereto. 1.4 REFERENCE MATERIALS. Sections mentioned by number only are the respective sections of this Pledge Agreement so numbered. Reference to "this section" or "this subsection" shall refer to the particular section or subsection in which such reference appears. Any captions, titles or headings preceding the text of any section and any table of contents or index attached to this Pledge Agreement are solely for convenience of reference and shall not constitute part of this Pledge Agreement or affect its meaning, construction or effect. 2. PLEDGE OF COLLATERAL. -------------------- 2.1 PLEDGE AND ASSIGNMENT. The Grantor pledges and assigns to Fannie Mae and grants to Fannie Mae a lien and security interest in, and right of setoff against, Grantor's right, title and interest in and to the following collateral (collectively, the "COLLATERAL"): (a) the Hedge Documents; E-2 (b) any and all moneys (collectively, "PAYMENTS") payable to the Grantor, from time to time, pursuant to the Hedge Documents by the Counterparty under the Hedge Documents; (c) all rights of the Grantor under any of the foregoing, including all rights of the Grantor to the Payments, contract rights and general intangibles now existing or hereafter arising with respect to any or all of the foregoing, including with respect to such rights; (d) all rights, liens and security interests or guarantees now existing or hereafter granted by the Counterparty or any other person to secure or guaranty payment of the Payments due pursuant to the Hedge Documents. (e) all documents, writings, books, files, records and other documents arising from or relating to any of the foregoing, whether now existing or hereafter arising; (f) all extensions, renewals and replacements of the foregoing; and (g) all cash and non-cash proceeds and products of any of the foregoing, including, without limitation, interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the other Collateral. 2.2 SECURITY FOR OBLIGATIONS. This Pledge Agreement secures the prompt payment and performance in full when due, whether at stated maturity, by acceleration or otherwise (including the payments of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a), or any successor provision thereto), of all Obligations (as defined in the Reimbursement Agreement) of the Grantor. 2.3 FINANCING STATEMENTS. At the request of Fannie Mae from time to time, the Grantor shall execute such financing statements as may be required in order to perfect the security interest granted in this Pledge Agreement in the Collateral pursuant to the Uniform Commercial Code as adopted in the District of Columbia and any other applicable jurisdiction (the "CODE"). 2.4 FURTHER ASSURANCES. At any time and from time to time, at the expense of the Grantor, the Grantor shall promptly execute and deliver to Fannie Mae all further instruments and documents, and take all further action, that may be necessary, or that Fannie Mae or Servicer may reasonably request, in order to perfect, continue and protect any security interest granted or purported to be granted by this Pledge Agreement or to enable Fannie Mae to exercise and enforce its rights and remedies under this Pledge Agreement. E-3 2.5 SECURITY INTEREST IN COLLATERAL. The Grantor shall, from time to time, at the request of Fannie Mae or Servicer, take or cause to be taken all actions necessary to provide Fannie Mae a first priority perfected security interest in the Collateral, including all actions, notifications, registrations, filings and acts of delivery or transfer required under Articles 8 and 9 of the Code. The Grantor further agrees that it shall not grant, pledge, assign or hypothecate, directly or indirectly, any interest in the Collateral, except as may be expressly permitted by this Pledge Agreement. 3. DELIVERY OF COLLATERAL; PAYMENTS. -------------------------------- 3.1 DELIVERY OF COLLATERAL. True, complete and correct copies of the Hedge Documents and all amendments thereto are attached as Exhibit A to this Pledge Agreement. The Grantor hereby represents and warrants to Fannie Mae that there is no additional security for the Counterparty's obligations or any other arrangements or agreements relating to the Hedge Documents. 3.2 DIRECTION AND APPLICATION OF PAYMENT. Any Payments due and payable to the Grantor under the Hedge Documents are to be delivered by the Counterparty directly into the account described in Exhibit B attached hereto for the benefit of Fannie Mae (the "ACCOUNT"). The Account has also been pledged to Fannie Mae as security for the Obligations pursuant to that certain Cash Management, Security Pledge and Assignment Agreement dated as of August 1, 1996 among the Grantor, Fannie Mae and the Servicer. Notwithstanding the foregoing, nothing contained herein shall relieve the Grantor of its primary obligation to pay all amounts due in respect of the Obligations. 4. REPRESENTATIONS AND WARRANTIES. ------------------------------ 4.1 REPRESENTATIONS AND WARRANTIES OF THE GRANTOR. The Grantor represents and warrants to Fannie Mae on the Closing Date that: (a) it is a partnership duly organized, validly existing and in good standing under the laws of the State of Georgia; (b) it has all requisite power and authority to enter into this Pledge Agreement and to carry out its obligations under this Pledge Agreement; this Pledge Agreement has been duly executed and delivered by it and is the valid and binding obligation of the Grantor, enforceable against it in accordance with its terms subject to the affect of applicable bankruptcy, insolvency, reorganization, moratorium, other similar laws affecting the rights of creditors generally and general principals of equity; the execution, delivery and performance of this Pledge Agreement and the consummation of the transactions contemplated by this Pledge Agreement have been duly authorized by all necessary partnership action and other action on the part of the Grantor; E-4 (c) neither the execution nor delivery of this Pledge Agreement nor the performance by the Grantor of its obligations under this Pledge Agreement, nor the consummation of the transactions contemplated by this Pledge Agreement, will (i) conflict with any provision of the partnership agreement of the Grantor; (ii) conflict with, result in a breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any contract, agreement, promissory note, lease, indenture, instrument or license to which the Grantor is a party or by which the Grantor's assets or properties may be bound or affected; (iii) violate or conflict with any federal, state or local law, statute, ordinance, rule, regulation, order, judgment, decree or arbitration award which is either applicable to, binding upon or enforceable against the Grantor; (iv) result in or require the creation or imposition of any liens, security interests, options or other charges or encumbrances ("LIENS") upon or with respect to the Collateral, other than Liens in favor of Fannie Mae; (v) violate any legally protected right of any individual or entity or give to any individual or entity a right or claim against the Grantor; or (vi) require the consent, approval, order or authorization of, or the registration, declaration or filing with, any federal, state or local government entity; (d) it is not presently under any cease or desist order or other orders of a similar nature, temporary or permanent, of any federal or state authority which would have the effect of preventing or hindering the performance of its obligations under this Pledge Agreement; nor, to its knowledge, are there any proceedings presently in progress or contemplated which would, if successful, lead to the issuance of any such order; (e) it is the sole legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign), the Collateral, free and clear of all Liens, except Liens granted pursuant to this Pledge Agreement and the Collateral is not subject to any offset, right of redemption (other than in accordance with the terms of the Hedge Documents on this Pledge Agreement), defense or counterclaim of a third party; (f) upon the filing of financing statements under the Code, Fannie Mae shall have a valid, enforceable and perfected first priority security interest in all of the Collateral securing the Obligations; and (g) its principal place of business and chief executive office is located in Cook County, Illinois with an address at Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606. E-5 5. EVENTS OF DEFAULT: RIGHTS AND REMEDIES. -------------------------------------- 5.1 EVENT OF DEFAULT. For purposes of this Pledge Agreement, "Event of Default" shall have the meaning given that term in the Reimbursement Agreement. 5.2 REMEDIES ON DEFAULT. If any Event of Default has occurred and is continuing and written notice of the Event of Default has been provided by either the General Counsel or the Controller of Fannie Mae (each, a "FANNIE MAE AUTHORIZED OFFICER") to the Grantor: (a) at the direction of a Fannie Mae Authorized Officer, the Grantor shall deliver all Collateral to Fannie Mae or its designee; (b) Fannie Mae may, without further notice, exercise all rights, privileges or options pertaining to the Collateral as if Fannie Mae were the absolute owner of such Collateral, including, but not limited to, the right to terminate the existing Hedge Documents (subject to the terms and conditions regarding termination set forth in the Hedge Documents), upon such terms and conditions as Fannie Mae may determine, all without liability except to account for property actually received by Fannie Mae, and Fannie Mae shall have no duty to exercise any of those rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing; and (c) Fannie Mae may exercise in respect of the Collateral, in addition to other rights and remedies provided for in this Pledge Agreement or otherwise available to it, all of the rights and remedies of a secured party under the Code and also may, without notice except as specified below, sell the Collateral at public or private sale, at any of the offices of Fannie Mae or elsewhere, for cash, on credit or for future delivery, and upon such other terms as may be commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by applicable law, at least ten (10) days' prior notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Fannie Mae shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Fannie Mae may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 5.3 APPLICATION OF PROCEEDS. Fannie Mae shall apply the cash proceeds actually received from any sale or other disposition of the Collateral as follows: (a) first, to reimburse Fannie Mae for any amounts due to it pursuant to section 8 of this Pledge Agreement including the reasonable expenses of preparing for sale, selling and the like and to reasonable attorneys' fees and legal expenses incurred by Fannie Mae in connection therewith, (b) second, to the repayment of all amounts then due and unpaid on the E-6 Obligations in such order of priority as Fannie Mae may determine and (c) then to pay the balance, if any, to Grantor or as otherwise required by law. 5.4 NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. If any agreement contained in this Pledge Agreement is breached by the Grantor and thereafter waived by Fannie Mae in writing, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach under this Pledge Agreement. 5.5 FANNIE MAE APPOINTED ATTORNEY-IN-FACT. The Grantor hereby appoints Fannie Mae, through any duly authorized officer of Fannie Mae or Servicer, as the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in Fannie Mae's discretion during the continuance of an Event of Default, to take any action and to execute any instrument which Fannie Mae may deem necessary or advisable to exercise the rights and remedies granted in this Pledge Agreement, including, to receive, indorse and collect all instruments made payable to the Grantor representing any interest payment, dividend, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. The Grantor agrees that the power of attorney established pursuant to this section 5.5 shall be deemed coupled with an interest and shall be irrevocable. 5.6 NATURE OF FANNIE MAE'S RIGHTS. The right of Fannie Mae to the Collateral held for its benefit under this Pledge Agreement shall not be subject to any right of redemption the Grantor might otherwise have and shall not be suspended, discontinued or reduced or terminated for any cause, including, without limiting the generality of the foregoing, any event constituting force majeure or any acts or circumstances that may constitute commercial frustration of purpose. 6. MISCELLANEOUS PROVISIONS. ------------------------ 6.1 COOPERATION. At any time and from time to time after the date of this Pledge Agreement, each party shall, at the request of another party, execute and deliver any instruments or documents, including financing and continuation statements under the Code in favor of Fannie Mae, and other documents reflecting Fannie Mae's security interest in the Collateral, and take all such further actions as such party may reasonably request in order to consummate and make effective the transactions contemplated by this Pledge Agreement, all at the sole cost and expense of the Grantor. 6.2 FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Grantor agrees to reimburse Fannie Mae, on demand, for all reasonable out-of-pocket costs and expenses incurred by Fannie Mae in connection with the administration and enforcement of this Pledge Agreement and agrees to indemnify and hold harmless Fannie Mae from and against any and all losses, costs, claims, damages, penalties, causes of action, suits, judgments, liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by Fannie Mae under this Pledge Agreement or in connection with this E-7 Pledge Agreement, unless such liability shall be due to willful misconduct or gross negligence on the part of Fannie Mae or its agents or employees. If the Grantor shall fail to do any act or thing which it has covenanted to do under this Pledge Agreement or any representation or warranty on the part of the Grantor contained in this Pledge Agreement or repeated and reaffirmed in this Pledge Agreement shall be breached, Fannie Mae may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose. Any and all amounts so expended by Fannie Mae shall be repayable to it by the Grantor upon Fannie Mae's demand therefor. The obligations of the Grantor under this section 6.2 shall survive the termination of this Pledge Agreement and the discharge of the other obligations of the Grantor under this Pledge Agreement. 6.3 TERMINATION. This Pledge Agreement and the assignments, pledges and security interests created or granted by this Pledge Agreement shall create a continuing security interest in the Collateral and shall terminate upon the later to occur of (a) expiration of the Term of the Reimbursement Agreement (as provided in the Reimbursement Agreement) or (b) the date which is ninety-one (91) days after the date on which all amounts due under the Hedge Documents have been paid in full, provided that during such ninety-one (91) day period no Act of Bankruptcy (as defined below) shall have occurred. "Act of Bankruptcy" means the filing of a petition in bankruptcy or other commencement of a bankruptcy or similar proceeding by or against the Grantor under any applicable bankruptcy, insolvency, reorganization or similar law now in effect or any such proceeding by or against the Grantor under any applicable bankruptcy, insolvency, reorganization or similar law in effect after the date of this Pledge Agreement. Notwithstanding the foregoing, the provisions of clause (b) above of this section 6.3 shall not apply in connection with the provision, in accordance with the Bond Documents, of an Alternate Credit Facility in substitution for, and replacement of, the Collateral Agreement. Upon termination of this Pledge Agreement, Fannie Mae shall deliver to the Grantor all Collateral and documents then in the custody or possession of Fannie Mae and, if requested by the Grantor, shall execute and deliver to the Grantor for recording or filing in each office in which any assignment or financing statement relative to the Collateral or the agreements relating thereto or any part thereof, shall have been filed or recorded, a termination statement or release under applicable law (including, if relevant, the Code) releasing Fannie Mae's interest therein and such other documents and instruments as the Grantor may reasonably request, all without recourse to or any warranty whatsoever by, Fannie Mae, and at the cost and expense of the Grantor. 6.4 ENTIRE AGREEMENT. This Pledge Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties to this Pledge Agreement with respect to the subject matter of this Pledge Agreement. This Pledge Agreement may not be amended, changed, waived or modified except by a writing executed by both parties. E-8 6.5 SUCCESSORS AND ASSIGNS. This Pledge Agreement shall inure to the benefit of, and be enforceable by, the Grantor and Fannie Mae and their respective successors and permitted assigns, and nothing herein expressed or implied shall be construed to give any other Person any legal or equitable rights under this Pledge Agreement. Neither this Pledge Agreement nor any of the rights, interests or obligations under this Pledge Agreement shall be assigned by either party to this Pledge Agreement without the prior consent of the other parties to this Pledge Agreement. 6.6 AMENDMENT. Fannie Mae and the Grantor agree that this Pledge Agreement shall be amended only by an instrument in writing executed by their duly authorized representatives. 6.7 NOTICES; CHANGE IN PRINCIPAL PLACE OF BUSINESS. All notices, directions, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when sent by certified or registered mail, return receipt requested, by overnight courier or by telecopy (to be confirmed with a copy thereof sent by regular mail within two Business Days), addressed to the appropriate notice address set forth below. Any of the parties hereto may, by such notice described above, designate any further or different address to which subsequent notices, certificates or other communication shall be sent without any requirement of execution of any amendment to this Pledge Agreement. Any such notice, certificate or communication shall be deemed to have been given as of the date of actual delivery or the date of failure to deliver by reason of refusal to accept delivery or changed address of which no notice was given pursuant to this section 6.7. The notice addresses are as follows: To the Grantor: EQR-Bond Partnership c/o Equity Residential Properties Trust Two North Riverside Plaza, Suite 450, Chicago, Illinois 60606 Attention: Chief Financial Officer To Fannie Mae: Fannie Mae 3900 Wisconsin Avenue, N.W. Washington, D.C. 20016 Attention: Senior Vice President-Multifamily With copies to: Fannie Mae 135 North Robles Avenue Suite 300 Pasadena, California 91101-1707 Attention: Vice President-Multi-family Activities E-9 Fannie Mae 3900 Wisconsin Avenue, N.W. Washington, D.C. 20016 Attention: Office of General Counsel Re: Multifamily Matters To Servicer: Washington Capital DUS, Inc. 1616 North Fort Myer Drive, Suite 1210 Arlington, Virginia 22208 Attention: Bridget O. Schmitz Executive Vice President All notices to be given by the Grantor under this Pledge Agreement shall be given to Fannie Mae and Servicer. The Grantor shall give Fannie Mae and Servicer at least thirty (30) days prior written notice of a change in its principal place of business and chief executive office. 6.8 RIGHTS OF SERVICER. The parties to this Pledge Agreement acknowledge and agree that, except as otherwise provided below, in connection with any provision of this Pledge Agreement under which Fannie Mae is granted the right to (a) request that the Grantor or another party (i) take or refrain from taking certain action, or (ii) deliver certain information, documents or instruments, (b) give any instructions or directions or (c) exercise remedies under section 5.2 of this Pledge Agreement, Servicer is hereby authorized to act on behalf of, and in the place and stead of, Fannie Mae, pursuant to the Servicing Agreement. Any rights of Servicer to act on behalf of Fannie Mae pursuant to the preceding sentence shall be terminated as and to the extent determined by Fannie Mae upon delivery by Fannie Mae to the parties to this Pledge Agreement of written notice of such termination. Servicer is neither affiliated with, nor acting as an agent for, the Grantor. 6.9 DISCRETION. If any provision of this Pledge Agreement provides for the approval, consent, determination, exercise of discretion, designation, judgment or waiver of or by Fannie Mae and if a standard for Fannie Mae granting such approval, consent, determination, exercise of discretion, choice, designation, judgment or waiver is not otherwise stated (e.g., , that such approval, consent, determination, exercise of discretion, choice, designation, judgment or waiver will be "reasonable"), then in each case such approval, consent, determination, exercise of discretion, choice, designation, judgment or waiver may be given by Fannie Mae in its sole and absolute discretion. 6.10 GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS AND REMEDIES OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE LAWS OF THE DISTRICT OF COLUMBIA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT FEDERAL LAWS MAY PREVAIL. UNLESS OTHERWISE DEFINED IN THIS PLEDGE AGREEMENT, TERMS USED IN E-10 THIS PLEDGE AGREEMENT THAT ARE DEFINED IN THE CODE SHALL HAVE THE MEANING GIVEN THOSE TERMS IN THE CODE. 6.11 SEVERABILITY. If any term or other provision of this Pledge Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Pledge Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. 6.12 MULTIPLE COUNTERPARTS. This Pledge Agreement may be simultaneously executed in multiple counterparts, all of which shall constitute one and the same instrument and each of which shall be, and shall be deemed to be, an original. IN WITNESS WHEREOF, the Grantor and Fannie Mae have caused this Pledge Agreement to be signed, on the date first written above, by their respective officers duly authorized. EQR-BOND PARTNERSHIP, a Georgia general partnership By: QRS-BOND, INC. an Illinois corporation, a general partner By: ------------------------------------ Name: Title: By: ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited partnership, a general partner By: EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real estate investment trust, its general partner By: ------------------------------ Name: Title: E-11 FEDERAL NATIONAL MORTGAGE ASSOCIATION By: ------------------------------- Name: Title: E-12 EXHIBIT A TO INTEREST RATE HEDGE SECURITY AGREEMENT HEDGE DOCUMENTS [To be attached] A-1 EXHIBIT B TO INTEREST RATE HEDGE SECURITY AGREEMENT ACCOUNT INFORMATION Account No. - - ----------- B-1 EXHIBIT F [FORM OF NEW PROPERTY CONFIRMATION] CONFIRMATION OF ADDITION OF NEW PROPERTY Reference is made to that certain Amended and Restated Master Reimbursement Agreement dated as of _______ __, 1996, (as the same has been amended, supplemented or otherwise modified prior to the date hereof, the "REIMBURSEMENT AGREEMENT"), between EQR-BOND PARTNERSHIP, a Georgia general partnership ("OWNER"), and the FEDERAL NATIONAL MORTGAGE ASSOCIATION, a corporation duly organized and existing under the Federal National Mortgage Association Charter Act, 12 U.S.C. Section 1716 et. seq. ("FANNIE MAE"). Capitalized terms used herein without definition shall have the same meaning herein as set forth in the Reimbursement Agreement. 1. Owner has acquired that certain Multifamily Residential Property located in [County, City, State] and known as [Name of Project] and more particularly described on Exhibit A hereto (the "PROJECT"). 2. Owner has requested that Fannie Mae consent to the addition of the Project to the credit facility evidenced by the Reimbursement Agreement (the "FANNIE MAE CREDIT FACILITY") as a New [Additional */* Bond] Property. 3. By execution and delivery of this instrument by Fannie Mae to Owner, Fannie Mae hereby consents to the addition of the Project to the Fannie Mae Credit Facility as a New [Additional */* Bond] Property effective as of __________ (the "EFFECTIVE DATE"). 4. In connection with the addition of the Project to the Fannie Mae Credit Facility as a New Bond Property, Owner and Fannie Mae acknowledge and agree as follows: (a) the Credit Enhancement Component with respect to such New Bond Property shall be _____________________. (b) the Reserve Component with respect to such New Bond Property shall be _____________________. 5. The Allocable Facility Amount with respect to each Property (including the Project) from and after the Effective Date until the next Determination Date shall be the amount set forth next to each such Property on Exhibit B attached hereto. 6. As of the Effective Date, the Reimbursement Agreement is hereby further amended, modified and supplemented as follows: F-1 [(a) The schedule of Bond Properties, Issuers and Related Information attached as Exhibit A to the Reimbursement Agreement is hereby amended and restated in its entirety as set forth in Annex I attached hereto.] [(b) The schedule of Additional Mortgaged Properties attached as Exhibit C to the Reimbursement Agreement is hereby amended and restated in its entirety as set forth in Annex II attached hereto.] (c) The schedule of Permitted Liens attached as Exhibit E to the Reimbursement Agreement is hereby amended and restated in its entirety as set forth in Annex III attached hereto. F-2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers or representatives as of the date hereof. FEDERAL NATIONAL MORTGAGE ASSOCIATION By: ----------------------------------- Name: Title: EQR-BOND PARTNERSHIP, a Georgia general partnership By: QRS-BOND, INC., an Illinois corporation, a general partner By: ----------------------------- Name: Title: By: ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited partnership, a general partner By: EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real estate investment trust, its general partner By: ----------------------- Name: Title: F-3 ACKNOWLEDGMENT, AGREEMENT AND CONSENT OF GUARANTOR AND NOMINEE CORPS.: ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited partnership By: EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real estate investment trust, its general partner By: --------------------------- Name: Title: EQR-RAVENS CREST VISTAS, INC., an Illinois corporation By: ---------------------------- Name: Title: EQR-MANCHESTER HILL VISTAS, INC., an Illinois corporation By: ---------------------------- Name: Title: F-4 EXHIBIT G FORM OF RENT ROLL [See Attached] Exh. G - 1 EXHIBIT H SCHEDULE OF MANAGEMENT AGREEMENTS 1. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Altamonte Apartments, San Antonio, Bexar County, Texas. 2. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Fountainhead Apartment, San Antonio, Bexar County, Texas. 3. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Four Lakes Phase V Apartments, Lisle, DuPage County, Illinois. 4. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Frey Road Apartments, Kennesaw, Cobb County, Georgia. 5. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Holcomb Bridge Apartments, Alpharetta, Fulton County, Georgia. 6. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Roswell Apartments, Roswell, Fulton County, Georgia. 7. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to SilverWood Apartments, Mission, Johnson County, Kansas. 8. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Sleepy Hollow Apartments, Kansas City, Jackson County, Missouri. Exh H - 1 9. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Oak Park North Apartments, Agoura, Venture County, California. 10. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Oak Park South Apartments, Agoura, Ventura County, California. 11. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Ravens Crest Vistas, Inc. and Equity Residential Properties Management Limited Partnership and relating to Ravens Crest Apartments, Plainsboro, Middlesex County, New Jersey. 12. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Del Coronado Apartments, Mesa, Maricopa County, Arizona. 13. That certain Property Management Agreement dated as of August 1, 1996 by and between EQR-Bond Partnership and Equity Residential Properties Management Limited Partnership and relating to Windridge Apartments, Laguna Niguel, Orange County, California. 14. That certain Property Management Agreement dated as of November 1, 1996 by and between EQR-Manchester Hill Vistas, Inc. and Equity Residential Properties Management Limited Partnership and relating to Wellington Hill Apartments, Manchester, Hillsborough County, New Hampshire. Exh. H - 2 SCHEDULE 2.1(f) SCHEDULE OF LITIGATION [NONE] Sch. 2.1(f)-1 SCHEDULE 2.1(o) SCHEDULE OF ENVIRONMENTAL REPORTS [See Attached] Sch. 2.1(o)-1 SCHEDULE 2.1(y) SCHEDULE OF CERTAIN DISCLOSURE REGARDING SECTION 2.1(y) NONE Sch. 2.1(y)-1 SCHEDULE 2.1(z) SCHEDULE OF STRUCTURAL AND MATERIAL DEFECTS Ravens Crest Apartments: - - ----------------------- To repair the deterioration of fire retardant lumber, roof repair is being done and is expected to be completed by the summer of 1997 at an estimated remaining cost of $200,000. Sch. 2.1(z)-1 SCHEDULE 2.1(aa) SCHEDULE OF CONTRACTUAL DEFAULTS 1. ERP Operating Limited Partnership ("ERP") alleges that Interactive Cable Systems, Inc. ("Interactive") and ICS Communications, Inc. ("ICS") have breached that certain Master Agreement dated as of May 24, 1995 by and among ERP, Interactive and ICS, which breach resulted in lost revenues at the following Properties in the following approximate amounts due to Interactive's and ICS' failure to install cable and telephone systems: Fountainhead Apartments $123,000 Sleepy Hollow Apartments 34,500 Frey Road Apartments 87,000 Silverwood Apartments 50,000 2. ERP Operating Limited Partnership, EQR-Bond Partnership, EQR-Manchester Hill Vistas, Inc. and/or certain Affiliates (collectively, "Equity") allege that in connection with Citibank, N.A.'s and/or certain Affiliates' ("Citibank") sale of the Wellington Hill Apartments Project to Equity, Citibank assigned all of its right, title and interest in and to all insurance proceeds payable on account of existing claims under Wellington Hill Apartments Project's insurance policies with Aetna Insurance Company. Equity further alleges that Citibank and/or Aetna Insurance Company have breached certain agreements made in connection with the sale (including, without limitation, the assignment of insurance proceeds) by subsequently entering into a potential settlement of certain insurance claims under such policies. The amount in dispute with respect to such breach is equal to or less than $400,000. Sch. 2.1(aa)-1 SCHEDULE 2.1(am) SCHEDULE OF CONTRACTS WITH AFFILIATES A. ARMS-LENGTH CONTRACTS WITH AFFILIATES: ------------------------------------- Management Agreements as to each of the Properties, as more fully described on Exhibit H. B. NON-ARMS-LENGTH CONTRACTS WITH AFFILIATES: ----------------------------------------- NONE Sch. 2.1(am)-1 EX-12 4 EARNINGS TO COMBINED FIXED CHARGES & PRF DIST. RATIO EQUITY RESIDENTIAL PROPERTIES TRUST Consolidated and Combined Historical, Including Predecessor Business Earnings to Combined Fixed Charges and Preferred Distributions Ratio
Historical -------------------------------------------------------------------- 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 ------------ ------------ ------------ ------------ ------------ (Amounts in thousands) REVENUES Rental income $ 454,412 $ 373,919 $ 220,727 $ 104,388 $ 86,597 Fee income - outside managed 6,749 7,030 4,739 4,651 4,215 Interest income - investment in mortgage notes 12,819 4,862 - - - Interest and other income 4,405 4,573 5,568 3,031 2,161 ------------ ------------ ------------ ------------ ------------ Total revenues 478,385 390,384 231,034 112,070 92,973 ------------ ------------ ------------ ------------ ------------ EXPENSES Property and maintenance 127,172 112,186 66,534 35,324 30,680 Real estate taxes and insurance 44,128 37,002 23,028 11,403 10,274 Property management 17,512 15,213 10,249 3,491 2,912 Property management - non-recurring - - 879 - - Fee and asset management 3,837 3,887 2,056 2,524 2,403 Depreciation 93,253 72,410 37,273 15,384 13,442 Interest: Expense incurred 81,351 78,375 37,044 26,042 31,926 Amortization of deferred financing costs 4,242 3,444 1,930 3,322 2,702 Refinancing costs - - - 3,284 - General and administrative 9,857 8,129 6,053 3,159 1,915 ------------ ------------ ------------ ------------ ------------ Total expenses 381,352 330,646 185,046 103,933 96,254 ------------ ------------ ------------ ------------ ------------ Income (loss) before extraordinary items 97,033 59,738 45,988 8,137 (3,281) ============ ============ ============ ============ ============ Combined Fixed Charges and Preferred Distributions: Interest and other financing costs 81,351 78,375 37,044 26,042 31,926 Refinancing costs - - - 3,284 - Amortization of deferred financing costs 4,242 3,444 1,930 3,322 2,702 Preferred distributions 29,015 10,109 - - - ------------ ------------ ------------ ------------ ------------ Total Combined Fixed Charges and Preferred Distributions 114,608 91,928 38,974 32,648 34,628 ============ ============ ============ ============ ============ Earnings before combined fixed charges and preferred distributions 182,626 141,557 84,962 40,785 31,347 ============ ============ ============ ============ ============ Funds from operations before combined fixed charges and preferred distributions 275,879 213,967 123,114 56,169 44,789 ============ ============ ============ ============ ============ Ratio of earnings before combined fixed charges and preferred distributions to combined fixed charges and preferred distributions 1.59 1.54 2.18 1.25 0.91 ============ ============ ============ ============ ============ Ratio of funds from operations before combined fixed charges and preferred distributions to combined fixed charges and preferred distributions 2.41 2.33 3.16 1.72 1.29 ============ ============ ============ ============ ============ Earnings deficiency to cover fixed charges N/A N/A N/A N/A (3,281) ============ ============ ============ ============ ============
EX-21.1 5 EQUITY RESIDENTIAL SUBSIDARIES EXHIBIT 21.1 EXHIBIT A --------- EQUITY RESIDENTIAL PROPERTIES TRUST SUBSIDIARIES ------------ 1. ERP Operating Limited Partnership 2. Equity Residential Properties Management Limited Partnership 3. Equity Residential Properties Management Limited Partnership II 4. Equity Residential Properties Management Corp. I (own preferred stock only, not common) 5. Equity Residential Properties Management Corp. II (own preferred stock only, not common) ILLINOIS -------- 1. EQR-BS Financing Limited Partnership 2. EQR-Chaparral Creek GP Limited Partnership 3. EQR-Lincoln Green I and II GP Limited Partnership 4. EQR-Lodge (OK) GP Limited Partnership 5. EQR-Stonebrook GP Limited Partnership 6. EQR-Sleepy Hollow Financing Limited Partnership 7. EQR-EOI Financing Limited Partnership 8. EQR-Continental Villas Financing Limited Partnership 9. EQR-Doral Financing Limited Partnership 10. EQR-Governor's Place Financing Limited Partnership 11. EQR-Plantation Financing Limited Partnership 12. EQR-Valley Park South Financing Limited Partnership 13. EQR-Yorktowne Financing Limited Partnership 14. EQR-SWN Line Financing Limited Partnership 15. EQR-Arbors Financing Limited Partnership 16. EQR-Breton Hammocks Financing Limited Partnership 17. EQR-Emerald Place Financing Limited Partnership 18. EQR-Essex Place Financing Limited Partnership 19. EQR-Met Financing Limited Partnership 20. EQR-Met CA Financing Limited Partnership 21. EQR-Wellington Hill Financing Limited Partnership - (New Hampshire) 22. EQR-Tanasbourne Terrace Financing Limited Partnership 23. EQR-Reserve Square Limited Partnership - (Ohio) 24. EQR-Fountainhead I Financing General Partnership 25. EQR-Fountainhead II Financing General Partnership 26. EQR-Fountainhead III Financing General Partnership 27. E-Chaparral Associates Limited Partnership 28. Equity-Chaparral Venture Limited Partnership 29. E-G-One Associates 30. Equity Green I Venture 31. E-G-Two Associates 32. Equity-Green II Venture 33. E-Stonebrook Associates 34. Equity-Stonebrook Venture Limited Partnership 35. E-Lodge Associates Limited Partnership 36. Equity-Lodge Venture Limited Partnership 37. Country Club Associates Limited Partnership 38. Second Country Club Associates Limited Partnership 39. Second Georgian Woods Limited Partnership 40. Greenwich Woods Associates Limited Partnership 41. Artery Northampton Limited Partnership 42. Third Towne Centre Limited Partnership 43. Fourth Towne Centre Limited Partnership 44. Georgian Woods Annex Associates 45. EQR-Keystone Financing General Partnership 46. EQR-Camellero Financing Limited Partnership 47. EQR-Arizona, L.L.C. - (Delaware) 48. EQR-Washington, L.L.C. - (Delaware) 49. EQR-Wellington, L.L.C. - (Delaware) 50. EQR-Oregon, L.L.C. - (Delaware) 51. EQR-Waterfall, L.L.C. - (Delaware) 52. EQR-Virginia, L.L.C. - (Delaware) 53. Multifamily Portfolio LP Limited Partnership 54. EQR-Plantation, L.L.C. - (Delaware) 55. EQR-California, L.L.C.; 56. EQR-ArtBHolder, L.L.C.; 57. EQR-ArtCapLoan, L.L.C.; 58. EQR-Keystone Financing G.P.; 59. Country Ridge General Partnership; 60. Rosehill Pointe General Partnership; 61. EQR-Canter Chase General Partnership; 62. Hunter's Glen General Partnership; 63. Sunny Oak Village General Partnership; 64. EQR-Pine Meadows Garden General Partnership; 65. EQR-Bond Partnership; 66. EQR-Park Place I General Partnership; 67. EQR-Park Place II General Partnership; 68. Songbird General Partnership; 69. Cedar Crest General Partnership; 70. EQR-Creekside Oaks General Partnership; 71. EQR-Village Oaks General Partnership; 72. EQR-Lakeville Resort General Partnership; 73. EQR-Trails at Dominion General Partnership; 74. EQR-Virginia, L.L.C. 75. EQR-Dartmouth Woods General Partnership EX-21.2 6 QRS CORPORATIONS EXHIBIT 21.2 EXHIBIT B --------- QRS CORPORATIONS 1. ERP-QRS BS, Inc. 2. ERP-QRS Chaparral Creek, Inc. 3. ERP-QRS Lincoln Green, Inc. 4. ERP-QRS Lodge (OK), Inc. 5. ERP-QRS Stonebrook, Inc. 6. ERP-QRS Sleepy Hollow, Inc. 7. ERP-QRS EOI, Inc. 8. ERP-QRS Continental Villas, Inc. 9. ERP-QRS Doral, Inc. 10. ERP-QRS Governor's Place, Inc. 11. ERP-QRS Plantation, Inc. 12. ERP-QRS Valley Park South, Inc. 13. ERP-QRS Yorktowne, Inc. 14. ERP-QRS SWN Line, Inc. 15. ERP-QRS Arbors, Inc. 16. ERP-QRS Breton Hammocks, Inc. 17. ERP-QRS Emerald Place, Inc. 18. ERP-QRS Essex Place, Inc. 19. ERP-QRS Met,Inc. 20. ERP-QRS Met CA, Inc. 21. ERP-QRS Wellington Hill, Inc. 22. ERP-QRS Tanasbourne Terrace, Inc. 23. WENT Corp. 24. ERP-QRS Reserve Square, Inc. 25. EQR-QRS Camellero, Inc. 26. QRS-LLC, Inc. 27. QRS-Waterfall, Inc.; 28. QRS-ArtBHolder, Inc.; 29. QRS-ArtCapLoan, Inc. 30. ERP-QRS Rosehill Pointe, Inc.; 31. ERP-QRS Country Ridge, Inc.; 32. ERP-QRS Lakeville Resort, Inc.; 33. ERP-QRS Park Place I, Inc.; 34. ERP-QRS Park Place II, Inc.; 35. ERP-QRS Sunny Oak Village, Inc.; 36. ERP-QRS Pine Meadows Garden, Inc.; 37. ERP-QRS Hunter's Glen, Inc.; 38. ERP-QRS Canter Chase, Inc; 39. QRS-Bond, Inc.; 40. ERP-QRS Songbird, Inc.; 41. ERP-QRS Cedar Crest, Inc.; 42. ERP-QRS Creekside Oaks, Inc.; 43. ERP-QRS Village Oaks, Inc.; 44. ERP-QRS Lakeville Resort, Inc.; 45. ERP-QRS Trails at Dominion, Inc. EX-23.2 7 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation of our reports on page F-3 and S-1 of this Form 10-K by reference in the prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 33-84974, 33-97680, 333-06873, 333-12211 and 333-12983) and Form S-8 (Nos. 333-06867 and 333-06869) of Equity Residential Properties Trust. /s/ Grant Thornton LLP GRANT THORNTON LLP Chicago, Illinois March 19, 1996 EX-23.1 8 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-12211 and Form S-8 No. 333-06867 and No. 333-06869) of Equity Residential Properties Trust and in the related Prospectuses of our report dated February 12, 1997, except for Note 19, as to which the date is March 20, 1997, with respect to the consolidated financial statements and schedule of Equity Residential Properties Trust included in this Annual Report (Form 10-K) for the year ended December 31, 1996. Ernst & Young LLP Chicago, Illinois March 20, 1997 EX-24 9 POWERS OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY ----------------- STATE OF ILLINOIS COUNTY OF COOK KNOW ALL MEN BY THESE PRESENTS that John W. Alexander, having an address at 229 N. Church St., Charlotte, NC 28202, has made, constituted and appointed and BY THESE PRESENTS, does make, constitute and appoint Douglas Crocker II and Michael J. McHugh, or either of them, having an address at Two North Riverside Plaza, Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and his name, place and stead to sign and execute in any and all capacities this Annual Report on Form 10-K and any or all amendments to this Annual Report granting unto each of such, Attorney-in-Fact, full power and authority to do and perform each and every act and thing, requisite and necessary to be done in an about the premises, as fully, to all intents and purposes as he might or could do if personally present at the doing thereof, with full power of substitution and revocation, hereby ratifying and confirming all that each of such Attorney- in-Fact or his substitutes shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall remain in full force and effect until terminated by the undersigned through the instrumentality of a signed writing. IN WITNESS WHEREOF, John W. Alexander, has hereunto set his hand this 24th day of February, 1997. /s/ John W. Alexander ---------------------------- John W. Alexander I, Patricia M. Nesti, a Notary Public in and for said County in the State of aforesaid, do hereby certify that John W. Alexander, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that he signed and delivered said instrument as his own free voluntary act for the uses and purposes therein set forth. Given under my hand and notarial seal this 24th day of February, 1997. /s/ Patricia M. Nesti ------------------------------ (Notary Public) My Commission Expires: 1/24/98 EXHIBIT 24.2 POWER OF ATTORNEY ----------------- STATE OF ILLINOIS COUNTY OF COOK KNOW ALL MEN BY THESE PRESENTS that James D. Harper, Jr., having an address at 3250 Mary St., Coconut Grove, FL 33133, has made, constituted and appointed and BY THESE PRESENTS, does make, constitute and appoint Douglas Crocker II and Michael J. McHugh, or either of them, having an address at Two North Riverside Plaza, Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and his name, place and stead to sign and execute in any and all capacities this Annual Report on Form 10-K and any or all amendments to this Annual Report granting unto each of such, Attorney-in-Fact, full power and authority to do and perform each and every act and thing, requisite and necessary to be done in an about the premises, as fully, to all intents and purposes as he might or could do if personally present at the doing thereof, with full power of substitution and revocation, hereby ratifying and confirming all that each of such Attorney- in-Fact or his substitutes shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall remain in full force and effect until terminated by the undersigned through the instrumentality of a signed writing. IN WITNESS WHEREOF, James D. Harper, Jr., has hereunto set his hand this 24th day of February, 1997. /s/ James D. Harper, Jr. ------------------------------ James D. Harper, Jr. I, Patricia M. Nesti, a Notary Public in and for said County in the State of aforesaid, do hereby certify that James D. Harper, Jr., personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that he signed and delivered said instrument as his own free voluntary act for the uses and purposes therein set forth. Given under my hand and notarial seal this 24th day of February, 1997. /s/ Patricia M. Nesti ------------------------------ (Notary Public) My Commission Expires: 1/24/98 EXHIBIT 24.3 POWER OF ATTORNEY ----------------- STATE OF ILLINOIS COUNTY OF COOK KNOW ALL MEN BY THESE PRESENTS that Errol R. Halperin, having an address at 203 N. LaSalle St., Chicago, IL 60601, has made, constituted and appointed and BY THESE PRESENTS, does make, constitute and appoint Douglas Crocker II and Michael J. McHugh, or either of them, having an address at Two North Riverside Plaza, Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and his name, place and stead to sign and execute in any and all capacities this Annual Report on Form 10-K and any or all amendments to this Annual Report granting unto each of such, Attorney-in-Fact, full power and authority to do and perform each and every act and thing, requisite and necessary to be done in an about the premises, as fully, to all intents and purposes as he might or could do if personally present at the doing thereof, with full power of substitution and revocation, hereby ratifying and confirming all that each of such Attorney- in-Fact or his substitutes shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall remain in full force and effect until terminated by the undersigned through the instrumentality of a signed writing. IN WITNESS WHEREOF, Errol R. Halperin, has hereunto set his hand this 24th day of February, 1997. /s/ Errol R. Halperin ------------------------------ Errol R. Halperin I, Patricia M. Nesti, a Notary Public in and for said County in the State of aforesaid, do hereby certify that Errol R. Halperin, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that he signed and delivered said instrument as his own free voluntary act for the uses and purposes therein set forth. Given under my hand and notarial seal this 24th day of February, 1997. /s/ Patricia M. Nesti ------------------------------ (Notary Public) My Commission Expires: 1/24/98 EXHIBIT 24.4 POWER OF ATTORNEY ----------------- STATE OF ILLINOIS COUNTY OF COOK KNOW ALL MEN BY THESE PRESENTS that B. Joseph White, having an address at 701 Tappan, Ann Arbor, MI 48109, has made, constituted and appointed and BY THESE PRESENTS, does make, constitute and appoint Douglas Crocker II and Michael J. McHugh, or either of them, having an address at Two North Riverside Plaza, Chicago, Illinois 60606, his true and lawful Attorney-in-Fact for him and his name, place and stead to sign and execute in any and all capacities this Annual Report on Form 10-K and any or all amendments to this Annual Report granting unto each of such, Attorney-in-Fact, full power and authority to do and perform each and every act and thing, requisite and necessary to be done in an about the premises, as fully, to all intents and purposes as he might or could do if personally present at the doing thereof, with full power of substitution and revocation, hereby ratifying and confirming all that each of such Attorney-in- Fact or his substitutes shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall remain in full force and effect until terminated by the undersigned through the instrumentality of a signed writing. IN WITNESS WHEREOF, B. Joseph White, has hereunto set his hand this 24th day of February, 1997. /s/ B. Joseph White ------------------------------ B. Joseph White I, Patricia M. Nesti, a Notary Public in and for said County in the State of aforesaid, do hereby certify that B. Joseph White, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that he signed and delivered said instrument as his own free voluntary act for the uses and purposes therein set forth. Given under my hand and notarial seal this 24th day of February, 1997. /s/ Patricia M. Nesti ------------------------------ (Notary Public) My Commission Expires: 1/24/98 EXHIBIT 24.5 POWER OF ATTORNEY ----------------- STATE OF ILLINOIS COUNTY OF COOK KNOW ALL MEN BY THESE PRESENTS that Barry S. Sternlicht, having an address at 3 Pickwick Plaza, #250, Greenwich, CT 06830, has made, constituted and appointed and BY THESE PRESENTS, does make, constitute and appoint Douglas Crocker II and Michael J. McHugh, or either of them, having an address at Two North Riverside Plaza, Chicago, Illinois 60606, his true and lawful Attorney-in- Fact for him and his name, place and stead to sign and execute in any and all capacities this Annual Report on Form 10-K and any or all amendments to this Annual Report granting unto each of such, Attorney-in-Fact, full power and authority to do and perform each and every act and thing, requisite and necessary to be done in an about the premises, as fully, to all intents and purposes as he might or could do if personally present at the doing thereof, with full power of substitution and revocation, hereby ratifying and confirming all that each of such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall remain in full force and effect until terminated by the undersigned through the instrumentality of a signed writing. IN WITNESS WHEREOF, Barry S. Sternlicht, has hereunto set his hand this 24th day of February, 1997. /s/ Barry S. Sternlicht ------------------------------ Barry S. Sternlicht I, Patricia M. Nesti, a Notary Public in and for said County in the State of aforesaid, do hereby certify that Barry S. Sternlicht, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that he signed and delivered said instrument as his own free voluntary act for the uses and purposes therein set forth. Given under my hand and notarial seal this 24th day of February, 1997. /s/ Patricia M. Nesti ------------------------------ (Notary Public) My Commission Expires: 1/24/98 EXHIBIT 24.6 POWER OF ATTORNEY ----------------- STATE OF ILLINOIS COUNTY OF COOK KNOW ALL MEN BY THESE PRESENTS that Henry H. Goldberg, having an address at 4733 Bethesda Ave., #400, Bethesda, MD 20814, has made, constituted and appointed and BY THESE PRESENTS, does make, constitute and appoint Douglas Crocker II and Michael J. McHugh, or either of them, having an address at Two North Riverside Plaza, Chicago, Illinois 60606, his true and lawful Attorney-in- Fact for him and his name, place and stead to sign and execute in any and all capacities this Annual Report on Form 10-K and any or all amendments to this Annual Report granting unto each of such, Attorney-in-Fact, full power and authority to do and perform each and every act and thing, requisite and necessary to be done in an about the premises, as fully, to all intents and purposes as he might or could do if personally present at the doing thereof, with full power of substitution and revocation, hereby ratifying and confirming all that each of such Attorney-in-Fact or his substitutes shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall remain in full force and effect until terminated by the undersigned through the instrumentality of a signed writing. IN WITNESS WHEREOF, Henry H. Goldberg, has hereunto set his hand this 24th day of February, 1997. /s/ Henry H. Goldberg ------------------------------ Henry H. Goldberg I, Patricia M. Nesti, a Notary Public in and for said County in the State of aforesaid, do hereby certify that Henry H. Goldberg, personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that he signed and delivered said instrument as his own free voluntary act for the uses and purposes therein set forth. Given under my hand and notarial seal this 24th day of February, 1997. /s/ Patricia M. Nesti ------------------------------ (Notary Public) My Commission Expires: 1/24/98 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 147,271 0 1,450 0 0 196,896 2,983,510 (301,512) 2,986,127 122,386 1,254,274 0 393,000 512 1,065,318 2,986,127 473,980 478,385 0 188,812 9,857 0 85,593 97,033 0 97,033 22,402 (3,512) 0 72,609 1.70 1.70
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